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As filed with the Securities and Exchange Commission on August 1, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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RENEX CORP.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
FLORIDA 8092 65-0422087
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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2100 PONCE DE LEON BOULEVARD, SUITE 950, CORAL GABLES, FLORIDA 33134 (305)
448-2044
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JAMES P. SHEA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RENEX CORP.
2100 PONCE DE LEON BOULEVARD, SUITE 950
CORAL GABLES, FLORIDA 33134 (305) 448-2044
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
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BRYAN W. BAUMAN, ESQ. RODD M. SCHREIBER, ESQ.
WALLACE, BAUMAN, FODIMAN & SHANNON, P.A. SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
2222 Ponce de Leon Boulevard, Sixth Floor 333 West Wacker Drive, Suite 2100
Coral Gables, Florida 33134 Chicago, Illinois 60606
(305) 444-9991 (312) 407-0700
ANDREW J. BECK, ESQ.
HAYTHE & CURLEY
237 Park Avenue
New York, New York 10017
(212) 880-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
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Common Stock, $.001 par value per share..... 3,450,000 $9.00 $31,050,000 $9,409
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(1) Includes 450,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 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 1, 1997
PROSPECTUS
3,000,000 SHARES
RENEX LOGO
COMMON STOCK
All of the 3,000,000 shares of Common Stock offered hereby are being sold
by Renex Corp. ("Renex" or the "Company"). Prior to the Offering, there has been
no public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price will be between $ and $ per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied to list
the Common Stock for quotation on the Nasdaq National Market under the symbol
"RENX."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 6.
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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UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share.............................. $ $ $
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Total(3)............................... $ $ $
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(1) Excludes the issuance of warrants to the Representatives of the Underwriters
(the "Representatives") to purchase 300,000 shares of Common Stock,
exercisable for a period of five years commencing on the date of this
Prospectus, at an exercise price of 107% of the public offering price set
forth above. Holders of such warrants have been granted certain registration
rights under the Securities Act of 1933, as amended, with respect to the
securities issuable upon exercise of such warrants. The Company has agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock on the same terms and conditions
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ ,
and $ , respectively. See "Underwriting."
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The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares will be made at the
offices of the agent of Vector Securities International, Inc., in New York, New
York, on or about , 1997.
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Vector Securities International, Inc. Needham & Company, Inc.
, 1997
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[Map depicting location of Company's facilities and other services, together
with pictures of inside and outside of a representative facility.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE
COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
"Renex(R)" is a tradename of Renex Corp.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus,
including information under "Risk Factors." This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in these
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
THE COMPANY
Renex Corp. is a high quality provider of dialysis and ancillary services
to patients suffering from chronic kidney failure, generally referred to as end
stage renal disease ("ESRD"). The Company has grown primarily through the
development of new facilities ("de novo" development) and more recently through
acquisitions, and seeks to distinguish itself on the basis of quality patient
care and responsiveness to the professional needs of its referring
nephrologists. The Company currently provides dialysis services to approximately
800 patients in seven states, through 12 outpatient dialysis facilities and two
staff assisted home dialysis programs. Additionally, the Company provides
inpatient dialysis services at four hospitals. The Company intends to accelerate
the penetration of its existing markets through a combination of acquisitions
and de novo development and to enter new markets, primarily through
acquisitions, in which the Company believes it can establish significant market
share over time. To date, the Company has achieved significant growth in net
revenues, from $2.7 million in 1994 to $18.6 million in 1996 and $6.0 million
for the three months ended March 31, 1997.
ESRD is the state of advanced chronic kidney disease characterized by the
irreversible loss of kidney function. A normal human kidney removes waste
products and excess water from the blood, preventing water overload, toxin
buildup and eventual poisoning of the body. Chronic kidney disease can be caused
by a number of conditions, including inherited diseases, diabetes, hypertension
and other illnesses. Patients suffering from ESRD require routine dialysis
treatments or kidney transplantation to sustain life. According to the Health
Care Financing Administration ("HCFA"), the number of patients requiring chronic
kidney dialysis services in the United States has increased from 66,000 patients
in 1982 to over 200,000 patients in 1995. According to the National Institutes
of Health, the number of ESRD patients is projected to reach 300,000 by the year
2000. According to HCFA, total spending for ESRD in the United States in 1995
was an estimated $13.1 billion. Of this amount, the Company estimates $6.0
billion was spent for dialysis treatment and ancillary services.
Patients with ESRD generally receive dialysis treatments through a dialysis
facility, which may be a free-standing or a hospital-based outpatient facility.
The primary function of dialysis facilities is to provide ESRD patients with
life sustaining kidney dialysis, including both hemodialysis and peritoneal
dialysis. HCFA estimates that as of December 31, 1995, approximately 84% of ESRD
patients in the United States were receiving hemodialysis treatments (83% in
outpatient facilities and 1% in the home) and that approximately 16% of all ESRD
patients were receiving peritoneal dialysis in the home, under the supervision
of an outpatient facility. ESRD patients are generally under the care of a
nephrologist, who serves as the primary gatekeeper of ESRD patients and, in
consultation with the patient, plays a significant role in determining which
dialysis facility and hospital will be used for such patient. The nephrologist
is typically supported by a team of dialysis professionals, including patient
care personnel, dieticians and social workers. Most dialysis facilities offer a
range of services to ESRD patients, including: dialysis treatments; provision of
supplies and equipment; patient, family and community training and education;
insurance counseling; billing services; dietary counseling; and social services
support.
As of July 31, 1997, the Company operated 12 outpatient dialysis
facilities, with a total of 187 certified dialysis stations. The Company has
four additional facilities under development with planned openings ranging from
the fourth quarter of 1997 through the first quarter of 1998. The Company's
dialysis facilities are designed specifically for outpatient hemodialysis and
for the training of peritoneal dialysis and home hemodialysis patients. Each
facility has between eight and 21 dialysis stations and many facilities are
designed to accommodate additional stations as patient census in-
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creases. All of the Company's facilities contain state-of-the-art equipment and
modern accommodations and are typically located near public transportation. The
facilities are designed to provide a pleasant and comfortable environment for
each patient and include such amenities as color television sets for each
patient station, VCRs for patient education and entertainment, and portable
telephones. In addition to the Company's outpatient dialysis facilities, the
Company provides staff-assisted home hemodialysis services in St. Louis,
Missouri and Tampa, Florida, and provides inpatient dialysis services to four
hospitals pursuant to contracts negotiated with the hospitals for per-treatment
rates paid directly by the hospitals. The Company also provides a full range of
ancillary services to ESRD patients.
The Company's goal is to continue expanding its geographic coverage and
market penetration while maintaining high quality patient care and physician
satisfaction with its services. The Company's growth strategy is focused on
establishing local clusters of dialysis facilities in order to create strong
regional networks. Renex has targeted seven markets, in which it has operations,
for the development of regional networks. The Company intends to continue to
grow these regional networks through a combination of strategic acquisitions and
de novo development. Additionally, Renex seeks to enter new markets in which it
believes that it can establish significant market share over time. The Company
also intends to continue to establish alliances with hospitals and managed care
organizations, and to capitalize on its relationships with nephrologists by
emphasizing high quality patient care and sensitivity to physicians'
professional concerns.
Renex Corp. was incorporated in Florida on July 7, 1993. The Company's
executive offices are located at 2100 Ponce de Leon Boulevard, Suite 950, Coral
Gables, Florida 33134, and its telephone number is (305) 448-2044.
THE OFFERING
Common Stock offered......................... 3,000,000 shares
Common Stock to be outstanding after the
Offering..................................... 6,974,247 shares(1)
Use of proceeds.............................. For repayment of indebtedness,
including redemption of a
warrant issued in connection
with a portion of such
indebtedness; capital
expenditures associated with
facilities under development;
acquisitions; de novo facility
development; and working
capital and other general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... RENX
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(1) Excludes: (i) 351,730 shares issuable upon exercise of options granted
pursuant to the Company's stock option plans, at a weighted average exercise
price of $ per share; (ii) an aggregate of $ shares reserved for
issuance for future grants of options under the Company's stock option
plans; (iii) 49,169 shares issuable upon exercise of options granted to two
of the Company's directors and three other individuals, at a weighted
average exercise price of $ per share; (iv) 441,621 shares reserved for
issuance upon exercise of outstanding warrants at a weighted average
exercise price of $6.88 per share; and (v) 300,000 shares issuable upon
exercise of warrants issued to the Representatives at an exercise price of
107% of the initial public offering price per share (the "Representatives'
Warrants"). See "Management," "Description of Securities" and
"Underwriting."
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Except as otherwise noted, all information in this Prospectus, including
financial information, share and per share data assumes: (i) an initial public
offering price of $ per share; (ii) no exercise of the Underwriters'
over-allotment option; and (iii) a 1-for-3 reverse stock split of the Common
Stock effected as of April 21, 1997. See "Description of Securities" and
"Underwriting."
4
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT SHARE AND OPERATING DATA)
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PERIOD FROM THREE MONTHS
INCEPTION ENDED
(JULY 7, 1993) TO YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------------- --------------------
1993 1994 1995 1996 1996 1997
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STATEMENTS OF OPERATIONS
DATA:
Net revenues............. $ -- $2,746 $ 8,794 $ 18,569 $ 3,876 $ 6,007
Operating expenses....... 357 3,649 9,495 20,241 4,052 5,979
Operating income
(loss)................. (357) (903) (701) (1,672) (176) 28
Net interest income
(expense).............. 35 61 (360) (915) (144) (260)
Net (loss)............... (322) (842) (1,187) (2,449) (375) (314)
Net (loss) per share(1) $ (.13) $ (.31) $ (.40) $ (.66) $ (.11) $ (.08)
Weighted average number
of shares outstanding.. 2,395,835 2,759,884 2,963,193 3,693,617 3,377,291 4,067,637
PRO FORMA DATA:
Pro forma net
(loss)(2).............. $ $
Pro forma net (loss) per
common share(2)........
Shares used in
computation of pro
forma net (loss) per
common share(3)........
OPERATING DATA:
Patients (at period
end)(4)................ -- 142 390 691 502 764
Treatments(5)............ -- 10,260 33,762 77,694 16,216 26,054
</TABLE>
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MARCH 31, 1997
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PRO FORMA
ACTUAL AS ADJUSTED(6)
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BALANCE SHEET DATA:
Working capital........................................... $ 2,710 $
Total assets.............................................. 16,087
Total debt................................................ 8,368
Total shareholders' equity................................ 4,015
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(1) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the computation of net (loss) per share.
(2) Pro forma statements of operations information is presented to give effect
to the sale of the 3,000,000 shares offered hereby and the receipt and
application of approximately $ million of the net proceeds therefrom
for repayment of certain indebtedness, including $ for redemption of
a warrant issued in connection with a portion of such indebtedness. The
redemption of this warrant, together with the non-cash write-off of deferred
financing costs related to repayment of certain of the indebtedness will
result in a one-time charge of $ . See "Use of Proceeds."
(3) Includes the 3,974,247 shares outstanding and shares of the
3,000,000 shares offered hereby, the proceeds of which will be used for
repayment of indebtedness.
(4) Number of ESRD patients under care, including patients receiving dialysis
treatments in the Company's outpatient facilities and in the patients'
homes.
(5) Treatments include all dialysis treatments provided in outpatient
facilities, patients' homes and hospitals. Peritoneal dialysis treatments
are stated in hemodialysis equivalents.
(6) Pro forma as adjusted to give effect to the receipt and application of the
estimated net proceeds from the sale of the 3,000,000 shares offered hereby.
See "Use of Proceeds."
5
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RISK FACTORS
PROSPECTIVE INVESTORS IN THE SHARES OF COMMON STOCK OFFERED HEREBY SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
HISTORY OF LOSSES. The Company has experienced significant losses since
its inception in July 1993 and had an accumulated deficit of $5.2 million
through March 31, 1997. Net losses for the years ended December 31, 1994, 1995
and 1996 were $842,000, $1.2 million and $2.4 million, respectively. Net losses
for the three months ended March 31, 1996 and 1997 were $375,000 and $314,000,
respectively. The Company expects its operating losses to continue at least
through 1997 as it continues to expend substantial resources to develop its
existing facilities, as well as to acquire and build new facilities. The
Company's ability to achieve profitability is largely dependent upon increased
utilization of its existing facilities, the acquisition and development of
additional dialysis facilities and the continued availability of adequate
third-party reimbursement for its services. There can be no assurance that the
Company will achieve or sustain profitability or positive cash flow from
operating activities, in which case it may not be able to meet its debt service
or working capital requirements. The Company's future performance will depend,
among other things, upon the Company's ability to develop and manage dialysis
facilities not yet in existence, and to acquire facilities and successfully
integrate such facilities into the Company's operations. The Company has no
history of earnings upon which to base an evaluation of its future operating
efficiency or financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business -- Business Strategy,"
"Business -- Sources of Reimbursement" and "Business -- Government Regulation."
RISKS INHERENT IN GROWTH STRATEGY. The successful implementation of the
Company's business strategy depends, in part, on the Company's ability to
acquire and develop additional dialysis facilities. Competition for acquisitions
and the recruitment of nephrologists to serve as medical directors for de novo
facilities in the dialysis industry has increased significantly in recent years,
and as a result, the cost of acquiring or developing dialysis facilities has
increased. No assurance can be given that the Company will make any additional
acquisitions or develop any additional facilities. The Company's strategy is
dependent on: (i) the continued availability of suitable acquisition candidates,
which subjects the Company to the risks inherent in assessing the value,
strengths and weaknesses of acquisition candidates; (ii) identifying suitable
locations and medical directors for de novo facilities; and (iii) successfully
integrating and managing the operations of any acquired companies and developed
facilities. In connection with its acquisition and development activities, the
Company is competing with companies which have significantly greater financial
and management resources. In addition, the Company has limited experience in
completing acquisitions and integrating their operations. The Company has
limited resources and financing available to it and there can be no assurance
that the Company will be able to obtain the necessary financing to implement its
growth strategy on acceptable terms, or at all, or that the Company would
otherwise be successful in acquiring or developing new facilities. A failure to
implement its growth strategy could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
acquisitions involve a number of special risks, including possible adverse
effects on the Company's operating results, diversion of management's attention,
failure to retain key personnel of the acquired companies, amortization of
acquired intangible assets and risks related to unanticipated events or
liabilities. See "Business -- Business Strategy."
DEPENDENCE UPON GOVERNMENT REIMBURSEMENT. The Company estimates that
approximately 65%, 59% and 67% of its net revenues for the years ended December
31, 1994, 1995 and 1996, respectively, and approximately 67% and 76% of its net
revenues for the three months ended March 31, 1996 and
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1997, respectively, were derived from reimbursement rates under the federal
Medicare and state Medicaid programs, which cover virtually all patients with
ESRD, regardless of age. The maximum allowable charge (referred to as the
composite rate) for dialysis treatment of Medicare patients is fixed by law.
Once a patient becomes eligible for Medicare reimbursement, Medicare reimburses
the Company at 80% of the composite rate. The Company is responsible for
collecting the balance of the composite rate from the patient, Medicaid or
non-governmental payors, if any. The initial composite rates for outpatient
dialysis treatments were established in 1972 and remained unchanged until 1983,
when rates were reduced from $138 per treatment to $127 per treatment, on
average. Rates were reduced again in 1986 to a low of $125 per treatment on
average. The composite rate per treatment was increased to $126 per treatment on
average effective January 1, 1991. There can be no assurance that this increase
will remain in effect or that rates will not decrease in the future. Recent cost
containment initiatives by Medicare have been aimed at reducing the cost of
delivering services at non-hospital sites. The Company is unable to predict what
changes, if any, may occur in the composite rate. Because of the Company's
dependence on Medicare revenue, any future rate reduction could have a material
adverse effect on the Company's business, financial condition and results of
operations. Furthermore, increases in operating costs that are subject to
inflation, such as labor and supply costs, without a compensatory increase in
prescribed rates, may adversely affect the Company's earnings in the future.
The Company is also unable to predict whether certain services, for which
the Company is separately reimbursed, may in the future be included in the
Medicare composite rate. Since June 1, 1989, the Medicare program has provided
separate reimbursement for the physician prescribed administration to dialysis
patients of bioengineered erythropoietin ("EPO"). Net revenues from the
administration of EPO (the substantial majority of which is reimbursed through
Medicare and Medicaid programs) were approximately $626,000, $1.9 million and
$3.7 million, or 22.8%, 21.7% and 19.9% of the Company's net revenues for each
of the years ended December 31, 1994, 1995 and 1996, respectively. For the three
months ended March 31, 1996 and 1997, net revenues were approximately $652,000
and $1.3 million or 16.8% and 20.9%, respectively. EPO reimbursements
significantly affect the Company's earnings. Effective January 1, 1994, Medicare
reimbursement was reduced from $11 to $10 per 1,000 units of EPO. Any further
reduction in these reimbursement rates could have a material adverse effect on
the Company's net revenues and earnings. The Company is unable to predict future
changes in the reimbursement rate for the administration of EPO, the future
reimbursement dosage limit per administration, or the cost of the drug. In
addition, EPO is produced by only one manufacturer. The interruption of supplies
of EPO would have a material adverse effect on the Company's business, financial
condition and results of operations.
All of the Company's facilities are located in states which provide
Medicaid or comparable benefits for dialysis patients. Such benefits supplement
Medicare benefits or in some cases are the primary source of reimbursement.
Approximately 3% to 6% of the Company's net revenues for the years ended
December 31, 1994, 1995 and 1996 and for the three months ended March 31, 1996
and 1997 were derived from Medicaid or comparable state programs. Each state
Medicaid program is subject to statutory or regulatory changes, administrative
rulings, interpretations of policy and governmental findings at the state level.
All of these factors could have the effect of decreasing Medicaid payments,
increasing costs or requiring the Company to modify its operations. See
"Business -- Sources of Reimbursement."
DEPENDENCE UPON OTHER SOURCES OF REIMBURSEMENT. Approximately 35%, 41% and
33% of the Company's net revenues for the years ended December 31, 1994, 1995
and 1996, respectively and 33% and 24% for the three months ended March 31, 1996
and 1997, respectively, were from sources other than Medicare and Medicaid.
These sources include payments from third-party non-governmental payors and
hospitals at rates that generally exceed Medicare and Medicaid rates. The
Company believes that if Medicare reimbursement for dialysis treatment is
reduced in the future, these private payors may be required to assume a greater
percentage of the costs of dialysis care and, as a result, may focus on reducing
dialysis payments as their overall costs increase. Notwithstanding any legisla-
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<PAGE> 9
tive action, the Company expects that non-governmental payors will reduce
payments for dialysis services. In addition, as managed care organizations
expand, they will aggressively seek to reduce amounts paid for dialysis
treatments. If third-party non-governmental payor rates are reduced or are no
longer subject to price increases or their payment obligation period is
shortened, the Company's business, financial condition and results of operations
would be materially and adversely affected. The Company is unable to predict the
degree of the risk, if any, of reductions in payments from these sources. In
addition, any restriction or reduction of the Company's ability to charge
non-governmental payors for its services at rates in excess of those paid by
Medicare would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Sources of
Reimbursement."
COMPETITION. The dialysis industry is fragmented and highly competitive.
The Company competes in the dialysis industry for the acquisition of existing
facilities, development of relationships with referring physicians and
development of relationships with nephrologists to serve as medical directors
for de novo facilities. Competition for medical directors is also intense. The
Company competes with national and regional health care providers, many of which
are larger and have significantly greater financial and marketing resources than
the Company. In addition, there are also many local independent facilities owned
by community physicians, hospitals and other persons or entities which compete
with the Company. The Company may also experience competition from former
medical directors or referring physicians who open their own dialysis
facilities. There can be no assurance that the Company will be able to compete
effectively with any such providers. Competition has increased the cost of
acquiring existing facilities and there can be no assurance that these costs
will not continue to increase as a result of future industry consolidation, or
that the Company will be able to compete effectively for such acquisitions.
Furthermore, the Company's dialysis facilities are generally in metropolitan
areas where there are many competing facilities in close proximity. See
"Business -- Competition."
OPERATIONS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION. The Company's
operations are subject to extensive and frequently changing regulation by
federal, state and local governments, regarding among other things, licensing,
certifications, financial relationships, fraud and abuse, referrals, direct
employment of health care providers by business corporations, reimbursement and
certain capital expenditures. Some of these laws may restrict or prohibit
business in certain states.
The Company is subject to the illegal remuneration provisions (the
"anti-kickback statute") of the Social Security Act ("SSA") and similar state
laws which prohibit individuals or entities from offering, paying, soliciting or
receiving remuneration, directly or indirectly, in return for referring an
individual for the furnishing of any item or treatment reimbursed, in whole or
in part, under Medicare, Medicaid or similar state health care programs.
Violations of the anti-kickback statute are punishable by criminal or civil
penalties, which may include, among other things, exclusion or suspension of a
provider from participation in Medicare and Medicaid programs, as well as
substantial fines. In July 1991 and in November 1992, the federal government
published regulations that provide safe harbors for certain business
transactions. Transactions that are structured within the safe harbor provisions
are deemed not to violate the anti-kickback statute. Transactions that do not
satisfy all elements of a relevant safe harbor do not necessarily violate the
statute, but may be subject to greater scrutiny by enforcement agencies. The
Company endeavors to structure its arrangements with its physicians and other
providers and suppliers to substantially comply with the anti-kickback statute
and similar state laws and believes that such arrangements substantially satisfy
any applicable safe harbors; however, there can be no assurance that the
relevant enforcement agencies would not take a contrary position. In addition,
certain of the Company's medical directors from whom the Company has acquired
dialysis facilities have received shares of the Company's Common Stock as
consideration for such acquisitions, and such security ownership does not fall
within any of the 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. In the event that any of the Com-
8
<PAGE> 10
pany's relationships with its medical directors or other referring nephrologists
are determined to violate any of these applicable laws or regulations or are
required to change its practices or relationships with such nephrologists, it
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Office of Inspector General (the "OIG") of the Department of Health and
Human Services ("HHS") has previously published warnings that the industry-wide
practices of obtaining discounts on certain laboratory charges and the payment
of remuneration for intradialytic parenteral nutrition ("IDPN") therapy at
dialysis centers may violate certain statutory provisions. Although the Company
believes it is in compliance with these statutory provisions, there can be no
assurance that the OIG will not take a contrary position.
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 the physician or an immediate family member has
a financial relationship. Stark II does not specifically include dialysis
services within the designated health services and the Company believes that the
language and legislative history of Stark II indicate that Congress did not
intend to include dialysis services and certain services and items provided
incident to dialysis services within the legislative prohibition. However,
certain services provided by the Company, including the provision of outpatient
prescription drugs such as EPO, could be construed as designated health services
within the meaning of Stark II. Violations of Stark II are punishable by
repayment of amounts received pursuant to a prohibited referral and civil
penalties, which may include exclusion or suspension of the provider from future
participation in Medicare and Medicaid programs, as well as substantial fines.
Due to the breadth of the statutory provisions and the absence of court
decisions interpreting the statute, it is possible that the Company's practices
could be challenged under these laws. If Stark II is broadly interpreted by HCFA
to apply to the Company and the Company cannot achieve compliance, it could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, there can be no assurance that federal or
state governments will not impose additional restrictions which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The health care industry in the United States is subject to changing
political, economic and regulatory influences that may impact the Company's
operations and profitability. The Clinton Administration's recent health care
proposal, and other proposals in general, do not presently deal with the
Medicare ESRD program, although the Clinton Administration has proposed to
extend the Medicare fraud and abuse laws discussed above to all payors.
Nonetheless, health care reform in general, and Medicare reform in particular,
could result in significant changes in the financing and regulation of the
dialysis industry. The Company is unable to predict the effect of any such
changes on its future operations. It is uncertain what legislation or health
care reform will ultimately be implemented or whether other changes in the
administration or interpretation of government health care programs will occur.
There can be no assurance that such changes will not have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Government Regulation."
DEPENDENCE UPON PHYSICIAN REFERRALS. The success of the Company's dialysis
facilities is dependent upon referrals of ESRD patients by nephrologists who
practice in the communities served by these dialysis facilities. It is customary
in the dialysis industry that one or a few physicians account for all or a
significant portion of a facility's 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 results of operations. Financial relationships with physicians
and other referral sources are highly regulated. The anti-kickback and
self-referral provisions of the SSA, as well as similar state laws, prohibit the
offering, paying and receiving of any remuneration for either making a referral
for a covered service or item, or ordering any such covered service or item, and
prohibit physicians, subject to certain exceptions, from making referrals for
certain health services to entities with which they have a financial
relationship. In the event that any of the
9
<PAGE> 11
Company's relationships with its referring nephrologists are determined to
violate any of these federal anti-kickback or self-referral provisions, it could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Business Strategy," "Business -- The
Dialysis Industry," "Business -- Medical Directors" and "Business -- Government
Regulation."
DEPENDENCE UPON PROCEEDS OF OFFERING; POSSIBLE NEED FOR ADDITIONAL
CAPITAL. The Company requires substantial working capital to fund its accounts
receivable. Like other health care providers, the Company relies on third-party
payors, primarily Medicare, for payment of a substantial portion of its
billings. The Company must finance its receivable balances between the time of
billing and collection. The Company's net accounts receivable balance as of
March 31, 1997 was $5.6 million. Since inception, the Company has not generated
positive cash flow due to, among other things, continued losses, increases in
its receivable balances and capital expenditures for expansion. In order to
implement its growth strategy, the Company intends to expend substantial funds
for acquisitions and de novo development of dialysis facilities following
completion of this Offering. The Company believes that the net proceeds of this
Offering, together with existing debt financing arrangements and internally
generated funds, will be sufficient to fund the Company's operations and to
finance the Company's proposed growth strategy through the next 18 months.
However, there can be no assurance that the Company will not require substantial
additional funds prior to such time. The Company's future liquidity and capital
requirements will be dependent on numerous factors, including results of the
Company's operations, the cost and timing of potential acquisitions and de novo
developments, the ability of the Company to integrate such new facilities,
developments related to government and other third party reimbursement matters,
and other factors. If additional financing is needed, the Company may seek
additional funds from public and private equity or debt financings or other
arrangements. The Company currently has no commitments with respect to any other
sources of financing and there can be no assurance such financing sources would
be available, if needed, on terms acceptable to the Company, or at all. The
failure of the Company to obtain adequate financing could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE UPON KEY PERSONNEL. The Company is dependent upon the services
and management skills of its executives and its medical directors. Although the
Company has entered into employment agreements with its key executives which
include confidentiality and non-competition provisions, there can be no
assurance such individuals will continue in their present capacities with the
Company for any particular period of time, or that the non-competition
provisions will be enforceable or free from limitations under the laws of the
appropriate jurisdictions. The success of the Company and its growth strategy,
will also be dependent on the Company's ability to attract and retain additional
key management, marketing and operating personnel, as well as medical directors
for its dialysis facilities. The Company's facilities are staffed by
professionals with significant experience in the treatment of ESRD. Such persons
are in high demand and are often subject to offers from competitors. There can
be no assurance that the Company will be able to attract and retain such
qualified personnel. The Company does not have, or intend to maintain, key-man
life insurance on any of its personnel. The loss by the Company of any of its
key executives, or the inability to attract and retain qualified management
personnel and medical directors, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Competition" and "Management."
DISCRETION IN USE OF PROCEEDS. Following the Offering and after repayment
of certain indebtedness, the Company will have approximately $ million
(approximately $ million if the Underwriters' over-allotment option is
exercised in full) of the net proceeds of the Offering available for
acquisitions, de novo facility development and other unspecified purposes. The
Company's management, subject to approval by the Board of Directors, will have
broad discretion with respect to the use of such proceeds. See "Use of
Proceeds."
10
<PAGE> 12
AVAILABILITY OF INSURANCE. The operation of dialysis facilities entails
certain liability risks. The Company maintains property and general liability
insurance, professional liability insurance on its professional staff and other
insurance which the Company believes to be appropriate for its operations. There
can be no assurance that the Company's current coverage is adequate or that the
Company will be able to maintain such insurance in the future. Any claim in
excess of such insurance coverage could have a material adverse effect on the
Company's business, financial condition and results of operations. Further,
professional liability insurance is expensive and becoming increasingly
difficult to obtain. See "Business -- Insurance."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS. Certain
provisions of the Company's Articles of Incorporation and By-laws may have the
effect of making more difficult or delaying attempts by others to obtain control
of the Company, even when these attempts may be in the best interests of the
shareholders. These provisions include advance notice provisions, provisions
that establish a classified Board of Directors, and provisions that enable the
Board of Directors to issue up to 5,000,000 shares of preferred stock in one or
more series, having terms fixed by the Board of Directors, without shareholder
vote. In addition, Florida has enacted legislation that may deter or inhibit
takeovers of the Company. The Florida Control Share Act generally provides that
in certain circumstances, shares acquired in excess of certain specified
thresholds, starting at 20%, will not possess any voting rights unless such
voting rights are approved by a majority vote of a corporation's disinterested
shareholders. The Florida Affiliated Transactions Act generally requires
super-majority approval by disinterested directors or shareholders of certain
specified transactions between a corporation and holders of more than 10% of the
outstanding shares of the corporation or their affiliates. See "Description of
Securities -- Anti-Takeover Provisions."
CONTROL BY EXISTING MANAGEMENT; CONCENTRATION OF OWNERSHIP. Following the
consummation of this Offering, the Company's directors, officers and their
respective affiliates will beneficially own % of the Company's voting
securities. Although these persons do not have any agreements or understandings
to act or vote in concert, any such agreement, understanding or acting in
concert would make it difficult for others to elect the entire Board of
Directors, or to control the disposition of any matter submitted to a vote of
shareholders. See "Principal Shareholders" and "Description of Securities."
NO PRIOR PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK; POTENTIAL VOLATILITY
OF STOCK PRICE. Prior to this Offering, there has been no public market for the
Company's Common Stock, and there can be no assurance that a liquid trading
market for the Common Stock will develop or, if one develops, that it will be
sustained after the Offering. The initial public offering price of the Common
Stock will be determined by negotiations among the Company and the
representatives of the Underwriters and may not be indicative of the prices that
will prevail in the public market. See "Underwriting." Future trading prices for
the Company's Common Stock will depend on many factors, including, among other
things, the Company's operating results and the market for similar securities.
The market prices for securities of health care services companies, including
companies in the dialysis services sector, have been highly volatile and the
market from time to time has experienced significant price and volume
fluctuations that are unrelated to the operating performance of such companies.
It is likely that the market price of the Company's Common Stock will be highly
volatile. Factors such as announcements of acquisitions or the de novo
development of new dialysis facilities, changes in the Medicare composite rate,
changes in reimbursement rates charged by the Company to third-party non-
governmental payors and hospitals, changes in the political, economic and
regulatory environment in which the Company operates, releases of reports by
security analysts, as well as period-to-period fluctuations in the Company's
operating results and general market conditions may have a significant impact on
the future price of the Company's Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS. Investors purchasing
shares of Common Stock in the Offering will experience immediate and substantial
dilution in the net tangible book value of their shares of approximately
$ per share. Additional dilution may occur upon the exercise of
outstanding options and warrants. In the event the Company issues additional
Common Stock in
11
<PAGE> 13
connection with future acquisitions or other financing needs, investors in the
Offering may experience further dilution. See "Dilution" and "Shares Eligible
For Future Sale."
ABSENCE OF DIVIDENDS. The Company currently anticipates that it will
retain all future earnings for use in the operation of the business and does not
anticipate paying any dividend on the Common Stock in the foreseeable future.
See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET
PRICE. Sales of substantial amounts of Common Stock (including shares issuable
upon exercise of outstanding options and warrants) in the public market after
this Offering could adversely affect the market price of the Common Stock. Such
sales could also make it more difficult for the Company to sell equity
securities or equity-related securities in the future at a time and price that
the Company deems appropriate. Upon completion of this Offering, the Company
will have outstanding an aggregate of 6,974,247 shares of Common Stock. In
addition, the Company has reserved for issuance 1,142,520 shares issuable upon
exercise of outstanding options and warrants, including the Representatives'
Warrants. The 3,000,000 shares of Common Stock offered hereby will be freely
transferable without restriction or further registration under the Securities
Act of 1933, as amended (the "Securities Act"), except for shares which may be
acquired by affiliates of the Company as that term is defined in Rule 144 under
the Securities Act. The remaining 3,974,247 shares of Common Stock held by
existing shareholders are "restricted securities" as that term is defined in
Rule 144. Restricted securities may be sold in the public market only if they
are registered or if they qualify for exemption from registration under Rules
144 or 701 under the Securities Act. Pursuant to certain "lock-up" agreements,
all of the Company's shareholders, together with the Company, have agreed, for a
period of 180 days following the date of this Prospectus, not to offer, pledge,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, any shares of Common Stock without the prior written
consent of Vector Securities International, Inc. Following the 180-day period,
approximately shares of Common Stock will be eligible for sale in the
public market without restriction under Rule 144(k) and an additional
shares will be eligible for sale subject to certain volume, manner of sale and
other restrictions of Rule 144. In addition, holders of stock options or
warrants, including the Representatives' Warrants, exercisable for an aggregate
of shares of Common Stock have entered into agreements prohibiting the
sales of the underlying Common Stock for 180 days following the date of this
Prospectus. See "Principal Shareholders," "Shares Eligible for Future Sale" and
"Underwriting."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby are estimated to be approximately $ million
($ million if the Underwriters' over-allotment option is exercised in
full) assuming an initial public offering price of $ per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company.
The Company intends to use approximately $ million of the net
proceeds of this Offering for the repayment of indebtedness, including: (i) $6.4
million for the repayment of certain indebtedness incurred under the Company's
Senior Subordinated Secured Loan (the "Subordinated Loan"), including a
prepayment penalty of approximately $90,000; (ii) $2.1 million of certain
indebtedness incurred under a lease line of credit with an equipment financing
company (the "Lease Line"); and (iii) approximately $ to redeem a
warrant issued in connection with the Subordinated Loan.
Borrowings under the Subordinated Loan bear interest at the rate of 13% per
annum, payable quarterly. Principal payments are amortized over a three-year
period, payable quarterly, commencing September 30, 1999 with payment in full by
June 30, 2002. The Lease Line is a credit facility with maximum availability of
$6.0 million and is used primarily to finance dialysis related equipment.
Interest accrues at the five-year U. S. Treasury bond yield rate plus 3.91%
(9.91% as of the date of this Prospectus). Principal and interest are amortized
over a five-year period and payable monthly. The Lease Line expires in August
2001.
The Company intends to use approximately $1.5 million of the net proceeds
of this Offering to fund capital expenditures and working capital for four
dialysis facilities presently under development. The balance of the net
proceeds, approximately $ million, will be used for acquisitions, de
novo facility development, working capital and general corporate purposes. See
"Risk Factors -- Discretion in Use of Proceeds." The Company continually reviews
and evaluates acquisition candidates as part of its growth strategy and is at
various stages of discussion or negotiation with a number of such candidates.
However, as of the date of this Prospectus, the Company has not entered into an
agreement or letter of intent as to any such potential acquisition.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds from the sale of the Common Stock offered hereby, based upon
the current state of its business operations, its current plans for expansion
and the current economic and industry conditions, and is subject to reallocation
among the categories stated above. The amount or timing of actual expenditures
will depend on numerous factors, including profitability of the Company, the
availability of alternative financing for acquisitions, the Company's business
development activities and competition. See "Risk Factors -- Dependence upon
Proceeds of Offering; Possible Need for Additional Capital."
Pending such uses set forth above, the Company will invest the net proceeds
of this Offering in short-term, interest bearing, investment-grade securities.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
since inception. The Company currently intends to retain any future earnings to
finance the growth and development of its business and, therefore, does not
anticipate that any cash dividends will be declared or paid on the Common Stock
in the foreseeable future. Any future determination to pay cash dividends will
be at the discretion of the Board of Directors and will be dependent upon the
Company's financial condition, results of operations, capital requirements,
restrictions under any existing indebtedness and such other factors as the Board
of Directors deems relevant.
The Company's loan agreement with respect to the Line of Credit contains
restrictions on the payment of cash dividends without the lender's prior written
consent.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997 and the Company's capitalization as adjusted to reflect the issuance of
3,000,000 shares of Common Stock offered hereby and the receipt and application
of the estimated net proceeds therefrom, assuming an initial public offering
price of $ per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company. This table should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto, included elsewhere in
this Prospectus. See "Use of Proceeds" and "Description of Securities."
<TABLE>
<CAPTION>
MARCH 31, 1997(1)
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(2)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Current portion of long-term debt and capital lease
obligations............................................ $ 437 $
Long-term debt, excluding current portion................. 6,189
Capital lease obligations, excluding current portion...... 1,742
------- -------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding, actual
and pro forma as adjusted.............................. --
Common Stock, $.001 par value; 30,000,000 shares
authorized; 3,974,247 shares issued and outstanding,
actual; 6,974,247 shares issued and outstanding, pro
forma as adjusted...................................... 3
Additional paid-in capital................................ 9,163
Accumulated deficit....................................... (5,151)
------- -------
Total shareholders' equity............................. 4,015
------- -------
Total capitalization.............................. $12,383 $
======= =======
</TABLE>
- ---------------
(1) Excludes: (i) 351,730 shares issuable upon exercise of options granted
pursuant to the Company's stock option plans, at a weighted average exercise
price of $ per share; (ii) an aggregate of shares reserved
for issuance for future grants of options under the Company's stock option
plans; (iii) 49,169 shares issuable upon exercise of options granted to two
of the Company's directors and three other individuals, at a weighted
average exercise price of $ per share; (iv) 441,621 shares reserved
for issuance upon exercise of warrants at a weighted average exercise price
of $6.88 per share; and (v) 300,000 shares issuable upon the exercise of the
Representatives' Warrants. See "Management," "Description of Securities" and
"Underwriting."
(2) Pro forma as adjusted to give effect to the receipt and application of the
estimated net proceeds from the sale of the 3,000,000 shares offered hereby.
See "Use of Proceeds."
14
<PAGE> 16
DILUTION
The net tangible book value of the Company as of March 31, 1997 was $2.7
million or $0.69 per share of Common Stock. Net tangible book value per share
represents the amount of the Company's total tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding. Without
taking into account any other changes in net tangible book value other than to
give effect to the sale by the Company of the 3,000,000 shares of Common Stock
offered hereby (assuming an initial public offering price of $ per share),
the pro forma net tangible book value of the Company as of March 31, 1997 would
have been $ million, or $ per share of Common Stock. This represents an
immediate increase in net tangible book value per share of $ to existing
shareholders and an immediate dilution in net tangible book value of $ per
share to investors in the Offering.
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share as of March 31, 1997.... $0.69
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after the
Offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing shareholders and by new investors, assuming an initial public offering
price of $ per share and before deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders..... 3,974,247 57.0% $ 9,166,000 % $ 2.31
New investors............. 3,000,000 43.0
--------- ----- ----------- -----
Total........... 6,974,247 100.0% $ 100.0%
========= ===== =========== =====
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
option or shares underlying outstanding options or warrants. As of the date of
this Prospectus, there were: (i) 351,730 shares issuable upon exercise of
options granted pursuant to the Company's stock option plans, at a weighted
average exercise price of $ per share; (ii) an aggregate of shares
reserved for issuance for future grants of options under the Company's stock
option plans; (iii) 49,169 shares issuable upon exercise of options granted to
two of the Company's directors and three other individuals, at a weighted
average exercise price of $ per share; (iv) 441,621 shares reserved for
issuance upon exercise of warrants at a weighted average exercise price of $6.88
per share; and (v) 300,000 shares issuable upon the exercise of the
Representatives' Warrants. See "Management," "Description of Securities" and
"Underwriting."
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial and operating data of the
Company are qualified in their entirety by, and 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 appearing elsewhere in this Prospectus. The statement of operations data
for the years ended December 31, 1994, 1995 and 1996 and the balance sheet data
as of December 31, 1995 and 1996 are derived from the audited Consolidated
Financial Statements included elsewhere in this Prospectus. The statement of
operations data for the period from inception to December 31, 1993 and the
balance sheet data as of December 31, 1993 and 1994 are derived from audited
consolidated financial statements not included in this Prospectus. The
consolidated statements of operations data for the three months ended March 31,
1996 and 1997 and the consolidated balance sheet data at March 31, 1997 have
been derived from unaudited interim financial statements and include all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial position and
results of operations at that date and for such periods. The operating results
for the three months ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year or for any future period.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JULY 7, 1993) THREE MONTHS ENDED
TO YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------------------- ------------------------
1993 1994 1995 1996 1996 1997
-------------- ---------- ---------- ----------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................... $ -- $ 2,746 $ 8,794 $ 18,569 $ 3,876 $ 6,007
Operating expenses:
Facilities................... -- 2,405 6,809 14,625 2,979 4,735
General and administrative... 355 1,025 1,682 2,681 590 637
Provision for doubtful
accounts................... -- 93 495 1,293 268 228
Depreciation and
amortization............... 2 126 509 1,642 215 379
---------- ---------- ---------- ----------- ---------- -----------
Operating income
(loss)................ (357) (903) (701) (1,672) (176) 28
---------- ---------- ---------- ----------- ---------- -----------
Other income (expenses):
Gain (loss) on sale of
assets..................... -- -- -- 364 -- (27)
Net interest income
(expense).................. 35 61 (360) (915) (144) (260)
Amortization of deferred
financing costs............ -- -- (126) (226) (55) (55)
---------- ---------- ---------- ----------- ---------- -----------
Net (loss)..................... $ (322) $ (842) $ (1,187) $ (2,449) $ (375) $ (314)
========== ========== ========== =========== ========== ===========
Net (loss) per common
share(1)..................... $ (.13) $ (.31) $ (.40) $ (.66) $ (.11) $ (.08)
========== ========== ========== =========== ========== ===========
Weighted average number of
shares outstanding........... 2,395,835 2,759,884 2,963,193 3,693,617 3,377,291 4,067,637
========== ========== ========== =========== ========== ===========
PRO FORMA DATA:
Pro forma net (loss)(2)........ $ $
=========== ===========
Pro forma net (loss) per common
share(2)..................... $ $
=========== ===========
Shares used in computation of
pro forma net (loss) per
common share(3)..............
=========== ===========
OPERATING DATA:
Patients (at period end)(4).... -- 142 390 691 502 764
Treatments(5).................. -- 10,260 33,762 77,694 16,216 26,054
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
MARCH 31, 1997
DECEMBER 31, ------------------------
----------------------------------- PRO FORMA
1993 1994 1995 1996 ACTUAL AS ADJUSTED(6)
------ ------ ------- ------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets............................. $3,543 $2,527 $ 5,234 $ 6,059 $ 6,851 $
Working capital............................ 3,503 2,136 3,051 2,389 2,710
Total assets............................... 3,642 4,020 11,815 15,161 16,087
Total debt................................. -- 220 6,375 7,743 8,368
Total shareholders' equity................. 3,603 3,482 4,164 4,317 4,015
</TABLE>
- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the computation of net (loss) per share.
(2) Pro forma statement of operations information is presented to give effect to
the sale of the 3,000,000 shares offered hereby and the receipt and
application of approximately $ million of the net proceeds therefrom
for repayment of certain indebtedness, including $ for redemption of a
warrant issued in connection with a portion of such indebtedness. The
redemption of this warrant, together with the non-cash write-off of deferred
financing costs related to repayment of certain of the indebtedness will
result in a one-time charge of $ . See "Use of Proceeds."
(3) Includes the 3,974,247 shares outstanding and shares of the 3,000,000
shares offered hereby, the proceeds of which will be used for repayment of
indebtedness.
(4) Number of ESRD patients under care, including patients receiving dialysis
treatments in the Company's outpatient facilities and in the patients'
homes.
(5) Treatments include all dialysis treatments performed in outpatient
facilities, patients' homes and hospitals. Peritoneal dialysis treatments
are stated in hemodialysis equivalents.
(6) Pro forma as adjusted to give effect to the receipt and application of the
estimated net proceeds from the sale of the 3,000,000 shares offered hereby.
See "Use of Proceeds."
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH "SELECTED
CONSOLIDATED FINANCIAL AND OPERATING DATA" AND THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN.
OVERVIEW
Renex, which was established in July 1993, is a high quality provider of
dialysis and ancillary services to patients with ESRD. Since inception, the
Company has implemented an aggressive growth strategy designed to build the
Company's presence in selected regional markets. A key element of the Company's
growth strategy has been to establish local clusters of dialysis facilities
within strong regional networks through de novo development. To date, Renex has
grown primarily through de novo development because the Company believes such a
strategy minimizes the initial capital outlay. Additionally, Renex has grown
through acquisitions and hospital alliances. In the future, the Company believes
that its growth will be through a combination of acquisitions and de novo
development, which will allow expansion of its regional market presence and
provide entry into new regional markets.
As of July 31, 1997, the Company operated 12 outpatient dialysis
facilities, of which eight were opened between 1994 and 1996 through de novo
development. In addition, the Company acquired three facilities in December
1995. In April 1996, the Company acquired the assets of two facilities under
development. The Company opened one of these facilities during the first quarter
of 1997 and the second facility is expected to open during the first quarter of
1998, subject to receipt of applicable state approvals. The Company sold an
additional de novo facility, not included in the above, in September 1996
because it did not satisfy the Company's strategic objectives.
SOURCES OF NET REVENUES
The Company's net revenue is derived primarily from five sources: (i)
outpatient hemodialysis services; (ii) the administration of EPO and, to a
lesser extent, other ancillary services; (iii) peritoneal dialysis services;
(iv) home hemodialysis services; and (v) inpatient hemodialysis services to
hospitalized patients. Services generally include the provision of equipment and
supplies. The Company's dialysis and ancillary services are reimbursed primarily
under the Medicare ESRD program in accordance with rates established by HCFA.
Medicare reimbursement is subject to rate and other legislative changes by
Congress and periodic changes in regulations, including changes that may reduce
payments under the ESRD program. Payments are also provided by Medicaid,
patients and non-governmental third-party payors for the first three to 21
months of treatment as mandated by law. Payments made by non-governmental
third-party payors are generally at rates higher than the Medicare composite
rate. Rates paid for services provided to hospitalized patients are negotiated
with individual hospitals. For the year ended December 31, 1996, approximately
67% of the Company's net revenues were derived from reimbursement by Medicare
and Medicaid. The Company will continue to be dependent upon revenue from
Medicare and Medicaid. Since dialysis is an ongoing, life sustaining therapy
used to treat a chronic condition, use of the Company's services is generally
predictable and not subject to seasonal or economic fluctuation. See "Risk
Factors -- Dependence upon Government Reimbursement."
18
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth certain income statement items expressed as
a percentage of net revenues for the years ended December 31, 1994, 1995 and
1996 and for the three months ended March 31, 1996 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------ ---------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------
Facilities expenses.................................. 87.6 77.4 78.8 76.9 78.8
General and administrative expenses.................. 37.3 19.1 14.4 13.8 10.6
Provision for doubtful accounts...................... 3.4 5.6 7.0 6.9 3.8
Depreciation and amortization expenses............... 4.6 5.8 8.8 5.5 6.3
Operating income (loss).............................. (32.9) (8.0) (9.0) (3.1) 0.5
Net interest income (expense)........................ 2.2 (4.1) (4.9) (5.1) (4.3)
Net (loss)........................................... (30.7) (13.5) (13.2) (9.7) (5.2)
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
NET REVENUES. Net revenues for the three months ended March 31, 1997 were
$6.0 million compared to $3.9 million for the same period in 1996, representing
an increase of 55.0%. The increase in net revenues was primarily attributable to
the continued growth at existing facilities and to a full three months' net
revenues in 1997 for the two facilities opened during the fourth quarter of
1996.
FACILITIES EXPENSES. Facilities expenses primarily consist of costs and
expenses specifically attributable to the operation of the dialysis facilities,
including operating and maintenance costs of such facilities and all labor,
supplies and service costs related to patient care. Facilities expenses for the
three months ended March 31, 1997 were $4.7 million compared to $3.0 million for
the same period in 1996. As a percentage of net revenues, facilities expenses
increased to 78.8% for the three months ended March 31, 1997 from 76.9% for the
same period in 1996. This increase was due to the lack of full patient
utilization at the Company's newer facilities and a change in the payor mix
related to peritoneal dialysis patients.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of headquarter expenses including marketing, finance, operations
management, legal, quality assurance, information systems, billing and
collections and centralized accounting support. General and administrative
expenses for the three months ended March 31, 1997 were $637,000 compared to
$536,000 for the same period in 1996. As a percentage of net revenues, general
and administrative expenses decreased to 10.6% for the three months ended March
31, 1997 from 13.8% for the same period in 1996. This decrease was due to an
increase in net revenues from increased utilization of existing facilities which
did not require a proportionate increase in corporate overhead.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts is a
function of patient payor mix, billing practices and other factors. It is the
Company's practice to reserve for doubtful accounts in the period in which
revenue is recognized based on management's estimate of the net collectibility
of accounts receivable. The provision for doubtful accounts for the three months
ended March 31, 1997 was $228,000 compared to $268,000 for the same period in
1996. As a percentage of net revenues, the provision for doubtful accounts
decreased to 3.8% for the three months ended March 31, 1997 from 6.9% for the
same period in 1996. This decrease was primarily due to an improved account
evaluation process and an increased emphasis upon collections of aged amounts.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses for the three months ended March 31, 1997 were $379,000 compared to
$215,000 for the same period in 1996. As a percentage of net revenues,
depreciation and amortization expenses increased to 6.3% for the three months
ended March 31, 1997 from 5.5% for the same period in 1996. This increase was
due to the opening of two new facilities in the fourth quarter of 1996.
19
<PAGE> 21
NET INTEREST INCOME (EXPENSE). Net interest expense for the three months
ended March 31, 1997 was $260,000 compared to $198,000 for the same period in
1996. The increase of $62,000 was primarily due to the increase in the Company's
borrowings for working capital purposes. In June 1995, the Company entered into
the Subordinated Loan, which permitted borrowings, under certain circumstances,
of up to $12.5 million, of which $6.2 million and $4.7 million were outstanding
as of March 31, 1997 and 1996, respectively.
NET (LOSS). The Company had a net loss of $314,000 for the three months
ended March 31, 1997 compared to a net loss of $375,000 for the same period in
1996, a decrease of $61,000.
YEARS ENDED DECEMBER 31, 1996 AND 1995
NET REVENUES. Net revenues for the year ended December 31, 1996 were $18.6
million compared to $8.8 million for the same period in 1995, representing an
increase of 111.2%. The increase in net revenues was primarily attributable to a
full year's net revenues in 1996 for three facilities opened in 1995, the
acquisition in December 1995 of three facilities and the continued growth at
existing facilities.
FACILITIES EXPENSES. Facilities expenses for the year ended December 31,
1996 were $14.6 million compared to $6.8 million for the same period in 1995. As
a percentage of net revenues, facilities expenses increased to 78.8% for the
year ended December 31, 1996 from 77.4% for the same period in 1995. This
increase was due to the lack of full patient utilization in 1996 at the
facilities opened in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended December 31, 1996 were $2.7 million compared to $1.7 million
for the same period in 1995. As a percentage of net revenues, general and
administrative expenses decreased to 14.4% for the year ended December 31, 1996
from 19.1% for the same period in 1995. This decrease was due to an increase in
net revenues from increased utilization of existing facilities which did not
require a proportionate increase in corporate overhead.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts for
the year ended December 31, 1996 was $1.3 million compared to $495,000 for the
same period in 1995. As a percentage of net revenues, the provision for doubtful
accounts increased to 7.0% for the year ended December 31, 1996 from 5.6% for
the same period in 1995. This increase was primarily due to a continuing
evaluation of the collectible amounts outstanding and an increase in Medicare
patients without secondary insurance resulting from the acquisition of three
facilities in December 1995.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses for the year ended December 31, 1996 were $1.6 million compared to
$509,000 for the same period in 1995. As a percentage of net revenues,
depreciation and amortization expenses increased to 8.8% for the year ended
December 31, 1996 from 5.8% for the same period in 1995. This increase was due
to the amortization and write-off of certain intangible assets associated with
the acquisition in 1996 of two facilities under development and the acquisition
and opening of new facilities in 1995.
NET INTEREST INCOME (EXPENSE). Net interest expense for the year ended
December 31, 1996 was $915,000 compared to $360,000 for the same period in 1995.
The increase of $555,000 was primarily due to the increase in the Company's
borrowings for working capital purposes. Pursuant to the Subordinated Loan, $6.2
million and $4.7 million were outstanding as of December 31, 1996 and 1995,
respectively.
NET (LOSS). The Company had a net loss of $2.4 million for the year ended
December 31, 1996 compared to a net loss of $1.2 million for the same period in
1995, an increase of $1.2 million.
YEARS ENDED DECEMBER 31, 1995 AND 1994
NET REVENUES. Net revenues for the year ended December 31, 1995 were $8.8
million compared to $2.7 million for the same period in 1994, an increase of
220.2%. The increase in net revenues was
20
<PAGE> 22
primarily attributable to facilities opened in 1995 and an increase in the
utilization of facilities opened in 1994.
FACILITIES EXPENSES. Facilities expenses for the year ended December 31,
1995 were $6.8 million compared to $2.4 million for the same period in 1994. As
a percentage of net revenues, facilities expenses decreased to 77.4% for the
year ended December 31, 1995 from 87.6% for the same period in 1994. This
decrease was primarily due to increased patient utilization at existing
facilities.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended December 31, 1995 were $1.7 million compared to $1.0 million
for the same period in 1994. As a percentage of net revenues, general and
administrative expenses decreased to 19.1% for the year ended December 31, 1995
from 37.3% for the same period in 1994. This decrease was primarily due to
increases in net revenues from increased patient utilization of existing
facilities which did not require a proportionate increase in corporate overhead.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts for
the year ended December 31, 1995 was $495,000 compared to $93,000 for the same
period in 1994. As a percentage of net revenues, the provision for doubtful
accounts increased to 5.6% for the year ended December 31, 1995 from 3.4% for
the same period in 1994. This increase was primarily due to the Company's
continuing evaluation of the collectible amounts outstanding.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses for the year ended December 31, 1995 were $509,000 compared to $126,000
for the same period in 1994. As a percentage of net revenues, depreciation and
amortization expenses increased to 5.8% for the year ended December 31, 1994
from 4.6% for the same period in 1994. This increase was due to increased
depreciation expenses resulting from the development and opening of four
facilities in 1995.
NET INTEREST INCOME (EXPENSE). Net interest expense for the year ended
December 31, 1995 was $360,000 compared to net interest income of $61,000 for
the same period in 1994. The increase of $421,000 was primarily due to the
increase in the Company's borrowings for working capital and expansion purposes.
The Company entered into the Subordinated Loan in June 1995. At December 31,
1995, the Company had borrowed $4.7 million on such loan.
NET (LOSS). The Company had a net loss of $1.2 million for the year ended
December 31, 1995 compared to a net loss of $842,000 for the same period in
1994, an increase of $345,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital for acquisitions, maintenance, refurbishing
and expansion of existing facilities, de novo development, the integration of
newly developed and acquired facilities and working capital and general
corporate purposes. As of March 31, 1997, the Company had working capital of
approximately $2.7 million, of which $519,000 consisted of cash and cash
equivalents, compared to working capital and cash and cash equivalents of $2.4
million and $952,000 at December 31, 1996, respectively. The Company intends to
finance its working capital requirements, as well as purchases of additional
equipment and leasehold improvements, from cash generated from operations,
borrowings, if available, and through the net proceeds of the Offering.
Net cash used in operating activities was $94,000 and $956,000 for the
three months ended March 31, 1997 and for the year ended December 31, 1996,
respectively. Net cash used in operating activities consists of the Company's
net loss, decreased by non-cash expenses such as depreciation, amortization and
the provision for doubtful accounts and adjusted by changes in components of
working capital, primarily accounts receivable. Once a de novo facility is
operational, the Company is unable to bill for services until it receives a
Medicare provider number and the Medicare intermediary installs its electronic
billing software at the facility. For these reasons, there is generally a 90-day
delay before the Company will receive payment on its initial services at such
facility. The dialysis industry is characterized by long collection cycles
because Medicaid and private insurance carriers require substantial
documentation to support reimbursement claims and often take a substantial
amount of time
21
<PAGE> 23
to process claims. As a result, the Company requires significant working capital
to cover expenses during the collection process.
Net cash used in investing activities was $184,000 and $1.6 million for the
three months ended March 31, 1997 and the year ended December 31, 1996,
respectively. The Company's principal uses of cash in investing activities have
been related to purchases of new equipment and leasehold improvements for the
Company's existing facilities and the cost of development of additional
facilities. Net cash used in financing activities for the three months ended
March 31, 1997 was $155,000. This consisted primarily of payments on capital
lease obligations. Net cash provided by financing activities for the year ended
December 31, 1996 was $2.3 million. The principal sources of cash from financing
activities were $1.5 million in proceeds from the Company's Subordinated Loan
and equity financings aggregating $1.8 million through the sale of Series B
Preferred Stock (net of redemptions) and Common Stock in the year ended December
31, 1996. The Subordinated Loan bears interest at 13.0% and permitted borrowings
of up to $12.5 million under certain circumstances during the first two years of
the term. As of June 5, 1997, the Company is no longer permitted additional
borrowings on the Subordinated Loan. The Subordinated Loan contains certain
financial covenants. See Note 8 of Notes to Consolidated Financial Statements.
As of March 31, 1997 and December 31, 1996, the Company had borrowed
approximately $6.2 million on the Subordinated Loan which will be repaid out of
the net proceeds of the Offering.
An aggregate of 775,000 shares of Series B Preferred Stock were converted
into Common Stock by November 27, 1996. The balance of the outstanding Series B
Preferred Stock were redeemed by the Company on November 27, 1996 for the
aggregate redemption price of $275,000, plus accrued dividends.
The Company has a $4.0 million secured Line of Credit. Borrowings under the
Line of Credit are limited to 80% of the net collectible value of eligible
accounts receivable. Approximately $2.8 million was available as of March 31,
1997. The Line of Credit bears interest on the outstanding balance at the prime
rate, plus 2.0% (10.5% as of the date of this Prospectus). The Line of Credit is
for the development of dialysis facilities and for working capital and general
corporate purposes and is secured by the Company's accounts receivable. The Line
of Credit contains financial covenants relating to the maintenance of a minimum
net worth and specified net worth to debt ratios. The Line of Credit also
requires the lender's approval for any acquisitions in excess of $5,000,000 in
the aggregate in any calendar year and for the payment of cash dividends. As of
March 31, 1997 and December 31, 1996, the Company had not borrowed on the Line
of Credit. As of June 15, 1997, the Company had borrowed $1.5 million on the
Line of Credit. The Company also has available a $6.0 million Lease Line with an
equipment financing company. The Lease Line is used primarily to finance
dialysis related equipment and furnishings at the Company's facilities and bears
interest at the five year U. S. Treasury bond yield rate plus 3.91% (9.91% as of
the date of this Prospectus). As of March 31, 1997 and December 31, 1996, the
Company had borrowed approximately $2.1 million and $1.5 million, respectively,
on the Lease Line. The outstanding balance on the Lease Line will be repaid out
of the net proceeds of the Offering.
The Company's long-term capital requirements will depend on numerous
factors, including the rate at which the Company develops or acquires new
facilities. In addition, the Company has various on-going needs for capital,
including: (i) working capital for operations (including financing receivables
as previously described); and (ii) routine capital expenditures for the
maintenance of facilities, and equipment and leasehold improvements. In order to
implement the Company's long-term growth strategy, the Company anticipates that
capital requirements will increase from historical levels.
The Company anticipates that the consideration paid for the acquisition of
new facilities will consist of cash, promissory notes, assumption of liabilities
and/or the issuance of Common Stock or securities convertible into Common Stock.
The Company believes that the net proceeds of the Offering, together with
existing debt financing arrangements and internally generated funds, will be
sufficient to fund the Company's operations and to finance the Company's growth
strategy through the next 18
22
<PAGE> 24
months. However, there can be no assurance that the Company will not require
substantial additional funds prior to such time. See "Risk Factors -- Dependence
upon Proceeds of Offering; Possible Need for Additional Capital."
INCOME TAX LOSS CARRYFORWARDS
As of March 31, 1997, the Company had approximately $6.6 million of net
operating loss carryforwards that may be available to offset future taxable
income for federal income tax purposes. These net operating loss carryforwards
begin to expire in 2008.
POTENTIAL IMPACT OF INFLATION
A majority of the Company's net revenue is subject to reimbursement rates
which are regulated by the federal government and do not automatically adjust
for inflation. These reimbursement rates are adjusted periodically based on
certain factors, including Congressional budget limitations, inflation, consumer
price indexes and costs incurred in rendering the services. Historically,
adjustments to reimbursement rates have had little relation to the actual cost
of doing business.
The Company is not able to increase the amounts it bills for services
provided by its operations that are subject to Medicare and Medicaid
reimbursement rates. Operating costs, such as labor and supply costs, are
subject to inflation without corresponding increases in reimbursement rates.
Such increases may be significant and have a material adverse effect on the
Company's results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. This
statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. This statement is effective for financial statements issued for
periods ending after December 15, 1997, and earlier application is not
permitted. This statement requires restatement of all prior-period EPS data
presented. The Company will adopt SFAS 128 in the fourth quarter of the year
ending December 31, 1997. The pro forma basic (loss) per share and diluted
(loss) per share calculated in accordance with SFAS 128 for the fiscal years
ended December 31, 1994, 1995 and 1996, and the period ended March 31, 1997, are
as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- MARCH 31,
1994 1995 1996 1997
------ ------ ------ --------------
<S> <C> <C> <C> <C>
Pro forma basic (loss) per share.............. $(.48) $(.61) $(.84) $(.08)
Pro forma diluted (loss) per share............ $(.48) $(.61) $(.84) $(.08)
</TABLE>
Other recently issued accounting standards may affect the Company's
Consolidated Financial Statements in the future. See Consolidated Financial
Statements and Notes thereto.
23
<PAGE> 25
BUSINESS
Renex Corp. ("Renex" or the "Company"), which was established in July 1993,
is a high quality provider of dialysis and ancillary services to patients
suffering from chronic kidney failure, generally referred to as end stage renal
disease ("ESRD"). The Company has grown primarily through de novo development
and more recently through acquisitions, and seeks to distinguish itself on the
basis of quality patient care and responsiveness to the professional needs of
its referring nephrologists. The Company currently provides dialysis services to
approximately 800 patients in seven states, through 12 outpatient dialysis
facilities and two staff-assisted home dialysis programs. Additionally, the
Company provides inpatient dialysis services at four hospitals. The Company
intends to accelerate the penetration of its existing markets through a
combination of acquisitions and de novo development and to enter new markets,
primarily through acquisitions, in which the Company believes it can establish
significant market share over time.
THE DIALYSIS INDUSTRY
END STAGE RENAL DISEASE
ESRD is the state of advanced chronic kidney disease that is characterized
by the irreversible loss of kidney function. A normal human kidney removes waste
products and excess water from the blood, preventing water overload, toxin
buildup and eventual poisoning of the body. Chronic kidney disease can be caused
by a number of conditions, including inherited diseases, diabetes, hypertension
and other illnesses. Patients suffering from ESRD require routine dialysis
treatments or kidney transplantation to sustain life. Transplantation is
severely limited due to scarcity of suitable organ donors, the incidence of
organ transplant rejection and the ineligibility of many ESRD patients for
transplantation due to health and age. As a result, the vast majority of ESRD
patients must rely on dialysis for the remainder of their lives.
According to the Health Care Financing Administration ("HCFA"), the number
of patients requiring chronic kidney dialysis services in the United States has
increased from 66,000 patients in 1982 to over 200,000 patients in 1995.
According to the National Institutes of Health, the number of ESRD patients is
projected to reach 300,000 by the year 2000. HCFA estimates that the national
incidence rate of new cases of ESRD in 1995 was approximately 253 patients per
million when considering all age groups, but was 1,097 patients per million in
individuals age 65 to 74, and 1,035 patients per million in individuals age 75
and over. The Company attributes the growth in the number of ESRD patients
principally to: (i) the aging of the U.S. population; (ii) better treatment and
longer survival of patients suffering from diabetes, hypertension, and other
illnesses that lead to ESRD; and (iii) improved dialysis technology which has
enabled dialysis to be provided to older patients and patients who previously
could not tolerate dialysis due to their physical condition.
According to HCFA, total spending for ESRD in the United States in 1995 was
an estimated $13.1 billion, of which Medicare paid an estimated $9.7 billion.
The Company estimates that approximately $6.0 billion of the $13.1 billion was
spent on dialysis and ancillary services. Since 1972, most ESRD patients in the
United States have been entitled to Medicare benefits, regardless of age or
financial circumstances. Currently, 93% of all ESRD patients in the United
States are receiving Medicare reimbursement for treatment.
NEPHROLOGISTS
Nephrology is a subspecialty within the specialty of internal medicine.
Nephrologists specialize in the management of all forms of kidney-related
ailments and the administration of related services. Nephrologists typically are
the primary care physicians for ESRD patients. As specialists, nephrologists
provide consultation services to other physicians' patients who suffer from
kidney-related ailments. They also examine and treat pre-ESRD patients.
Nephrologists serve as the primary gatekeepers of ESRD patients and, in
consultation with their patients, play a significant role in determining which
dialysis facilities and hospitals will be used by such patients. While managed
care directs a small minority of these patients (estimated by HCFA at 3% in
1995), nephrologists direct the vast majority of patients.
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<PAGE> 26
DIALYSIS FACILITIES; TREATMENTS AND STAFF
FACILITIES. Patients with ESRD generally receive dialysis treatment
through a dialysis facility, which may be a free-standing or a hospital-based
outpatient facility. Most dialysis facilities offer a range of services to ESRD
patients, including: dialysis treatments; provision of supplies and equipment;
patient, family and community training and education; insurance counseling;
billing services; dietary counseling and social services support. In 1995, there
were over 2,800 dialysis facilities in the United States, of which approximately
71% were free-standing and approximately 29% were hospital-based outpatient
facilities. The primary function of dialysis facilities is to provide ESRD
patients with life sustaining kidney dialysis, including both hemodialysis and
peritoneal dialysis. Patient care is provided by a team of dialysis
professionals.
HEMODIALYSIS. HCFA estimates that as of December 31, 1995, approximately
84% of ESRD patients in the United States were receiving hemodialysis treatments
(83% in outpatient facilities and 1% in the home). Hemodialysis uses an
artificial kidney, called a dialyzer, to remove certain toxins and fluid from
the patient's blood and a machine to control external blood flow and to monitor
certain vital signs of the patient. Hemodialysis patients are connected to a
dialysis machine via a vascular access device. The dialysis process occurs
across a semipermeable membrane that divides the dialyzer into two distinct
chambers. While the blood is circulated through one chamber, a premixed
dialysate solution is circulated through the other chamber. The toxins and
excess fluid from the blood cross the membrane into the dialysate solution. A
typical hemodialysis treatment lasts three to four hours and is administered
three times per week. During the dialysis procedure, patients generally remain
seated next to the hemodialysis machine, but are able to read, watch television
(if available) or converse with other patients or clinic staff. Most clinics
provide some flexibility in scheduling (such as evening and weekend hours) to
minimize disruption to the patients' lives. In certain cases, hemodialysis may
also be performed at home for patients who are medically suitable and have a
willing and capable assistant. Home hemodialysis requires training for both the
patient and the caregiver, and requires monitoring by a designated outpatient
facility.
PERITONEAL DIALYSIS. As of December 31, 1995, HCFA estimates that
approximately 16% of all ESRD patients were receiving peritoneal dialysis in the
home, under the supervision of an outpatient facility. There are several
variations of peritoneal dialysis. The most common forms are continuous
ambulatory peritoneal dialysis ("CAPD") and continuous cycling peritoneal
dialysis ("CCPD"). All forms of peritoneal dialysis use the patient's peritoneal
(abdominal) cavity to eliminate fluid and toxins from the patient's blood. CAPD
utilizes a sterile, pharmaceutical grade dialysate solution, which is introduced
into the patient's peritoneal cavity through a surgically implanted catheter.
Toxins in the blood continuously cross the peritoneal membrane into the
dialysate solution. After several hours, the patient must drain and replace the
fluid. CCPD is performed in a manner similar to CAPD but utilizes a mechanical
device to cycle the dialysate solution while the patient is sleeping. Peritoneal
dialysis patients are closely monitored by the designated dialysis facility,
either through periodic (at least monthly) visits to the facility or through
visits to the patient's home by a dialysis facility nurse.
PATIENT CARE PROFESSIONALS. ESRD patients are generally under the care of
a nephrologist, who is typically supported by a team of dialysis professionals,
including:
Patient Care Personnel. Patient care personnel include registered nurses
and patient care technicians who work under the supervision of registered
nurses. Patient care personnel administer the dialysis treatment in accordance
with the nephrologist's prescriptions. Nurses also assess the patient's
condition throughout treatment, administer all medication, provide psycho-social
assessments, and educate patients regarding their treatment.
Dieticians. Dialysis patients in general, and hemodialysis patients in
particular, must follow a restricted diet. The effectiveness and the efficiency
of each patient's dialysis treatment is influenced by the patient's compliance
with these dietary restrictions. In addition, many dialysis patients receive a
complex regimen of nutritional supplements to augment their diet. Dialysis
facilities generally employ dieticians who are responsible for designing a
patient's diet, educating and training the patient about
25
<PAGE> 27
the importance of the diet, and continually monitoring the patient's nutritional
status and compliance with dietary guidelines.
Social Workers. Federal regulations require that a social worker, having a
masters degree in social work and a background in clinical practice, provide
assessment and counseling to ESRD patients and their families. Social workers
are also required to assist ESRD patients in obtaining transportation to and
from the dialysis facility, financial support services from government and
private sources when needed, insurance and dialysis services when traveling away
from home.
BUSINESS STRATEGY
The Company's goal is to continue expanding its geographic coverage and
market penetration while maintaining high quality patient care and physician
satisfaction with its services. Renex intends to enter new markets primarily
through acquisitions and to penetrate existing markets primarily through de novo
development, same facility growth and the establishment of alliances with
hospitals and managed care organizations. The key elements of the Company's
strategy include the following:
CREATE AND EXPAND REGIONAL NETWORKS
The Company's growth strategy is focused on establishing local clusters of
dialysis facilities in order to create strong regional networks. Renex has
targeted seven markets, in which the Company currently has operations, for the
development of regional networks. The Company intends to continue to grow these
regional networks through a combination of strategic acquisitions and de novo
development. Additionally, Renex intends to enter new markets, primarily through
acquisitions, where it believes it can establish significant market share over
time.
ACQUISITIONS. While the dialysis industry is undergoing significant
patient and facility growth, it is also undergoing consolidation in the number
of providers. The Company believes that many physician-owners are selling their
facilities to gain relief from the administrative burdens associated with
changing government regulations and changing patterns of reimbursement, to focus
their efforts on patient care and to realize a more immediate return on their
investment. In addition, increasing pressures within the hospital industry,
which is also undergoing consolidation, are motivating hospitals to sell or
outsource the management of their dialysis facilities as they re-focus on their
core businesses. Renex seeks to capitalize on these trends by acquiring both
physician-owned and hospital-based outpatient dialysis facilities.
The Company evaluates potential acquisitions on the basis of historical and
projected patient volumes and profitability, the state of the local competitive
environment, the nephrologist's reputation for quality and the willingness of
the physician-owner to remain actively involved as medical director. The Company
intends to focus primarily on acquisitions of facilities with 70 or more
patients owned by mid-career nephrologists who intend to continue to build their
nephrology practices. The purchase price is based on projected earnings of the
acquired facility under the Company's management and the consideration will
generally be paid in a combination of cash and stock. Renex believes that this
combination meets the nephrologists' immediate cash needs and offers the
nephrologists a possible greater overall long-term return through the potential
appreciation in the value of the stock.
DE NOVO DEVELOPMENT. Since inception, the Company has grown primarily
through an aggressive de novo development strategy. This strategy has led to the
development of eight dialysis facilities in five markets. The Company intends to
continue using this strategy primarily in its existing markets, where its
reputation attracts additional referring nephrologists.
In establishing de novo facilities, the Company first seeks to attract one
or more nephrologists whose existing patient base and projected growth supports
the establishment of a new facility. The Company will not develop a facility
unless it has a written agreement with a local nephrologist to serve as medical
director for a minimum of five years. Because one or a few nephrologists account
for all or a significant portion of a facility's patients, the Company's
selection of a specific site is deter-
26
<PAGE> 28
mined, in part, by the location of the physician selected as the facility's
medical director. The Company also analyzes patient density and locations of
competing facilities by postal zip code to identify the best location to service
the medical director's patients and to attract additional patients who may be
traveling longer distances to receive treatment at competitors' facilities. Once
an appropriate site has been obtained, the Company employs its knowledge and
experience to design and build a new facility within a few months.
SAME-FACILITY GROWTH. The Company seeks to achieve same-facility growth in
excess of the growth rate of the ESRD patient population by marketing its
services to additional community and hospital-based nephrologists. Marketing
emphasis is placed on the quality of services provided, convenience of locations
and commitment to meeting the professional needs of nephrologists. In order to
facilitate the transfer to, and enrollment and care of, patients at its
facilities, the Company continually strives to simplify its processes for
admitting new patients, monitoring patient progress and updating patient
treatment orders. The Company also attracts patients through patient-to-patient
referrals, local print and other advertising and open house events. The
Company's attention to facility design, equipment selection and patient
amenities, such as individual television sets at each patient treatment station,
VCR equipment for patient education and entertainment and portable telephones,
are important factors in retaining patients and fostering patient-to-patient
referrals.
ESTABLISH ALLIANCES WITH HOSPITALS AND MANAGED CARE ORGANIZATIONS
Although the vast majority of ESRD patients receive dialysis on an
outpatient basis, hemodialysis is also performed by hospitals on an inpatient
basis, generally in an acute care setting. The Company's strategy is to leverage
its relationships with nephrologists to identify hospitals which are: (i)
seeking to outsource their existing dialysis programs; (ii) interested in
establishing inpatient dialysis programs; or (iii) dissatisfied with their
current dialysis contractors. The Company's facility administrators are
responsible for marketing to local hospitals on the basis of quality, service
and price. The Company has two hospital contracts in Mississippi and, in 1996,
established two new hospital inpatient programs, one each in Massachusetts and
Pennsylvania. The Company recently signed a contract to establish a new
inpatient dialysis program in a community hospital in New Jersey, subject to the
hospital's receipt of regulatory approval.
Renex believes that managed care programs will have an increasing influence
on the ESRD market. The Company is committed to establishing managed care
relationships through non-exclusive and semi-exclusive managed care contracts in
its markets. The Company believes that its strategy of clustering facilities,
and thus providing multiple sites to serve managed care patients, will enhance
the Company's ability to compete for managed care contracts. The Company's
facility administrators are responsible for identifying and negotiating managed
care contracts. The Company currently has non-exclusive managed care contracts
in most of its markets.
CAPITALIZE ON RELATIONSHIPS WITH NEPHROLOGISTS
Renex believes that its success is attributable to the Company's efforts to
identify and cultivate relationships with those nephrologists who have a rapidly
expanding patient base and who are seeking an association with a company known
for high quality patient care and sensitivity to physicians' professional
concerns. Since inception, Renex has managed its business based on a set of
guiding principles that recognize nephrologists as the Company's primary
customer and high quality patient care as the nephrologist's primary concern.
These principles include: (i) involving the nephrologist in all aspects of
designing, equipping, staffing and planning the clinical operating policies and
procedures of a Renex facility; (ii) avoiding corporate interference in the
nephrologist's medical decisions; (iii) treating the nephrologist's patients
with dignity and respect; (iv) assessing and responding to the nutritional,
psychological and social needs of patients; (v) creating an environment which
fosters patient wellness and safety; and (vi) developing long-term care plans
with an emphasis on returning the nephrologist's patients to the community at
the patient's highest level of independent living.
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<PAGE> 29
Renex believes that its guiding principles appeal to nephrologists and help
facilitate their recruitment as medical directors. The Company has developed
marketing materials based on these principles and actively markets to
nephrologists through journal advertising, direct mail and personal networking,
including third-party introductions by the Company's existing medical directors.
OPERATIONS
OUTPATIENT FACILITIES
As of July 31, 1997, the Company operated 12 outpatient dialysis
facilities, with a total of 187 certified dialysis stations. All of the
facilities are operated through wholly owned subsidiaries and are located in
leased premises. The following table sets forth selected information regarding
the Company's dialysis facilities:
<TABLE>
<CAPTION>
NUMBER OF TREATMENTS(1)
--------------------------------------------
THREE MONTHS
DATE OF CURRENT YEARS ENDED DECEMBER 31, ENDED
OPENING/ NUMBER OF -------------------------- MARCH
LOCATION OF FACILITY ACQUISITION STATIONS 1994 1995 1996 31, 1997
- -------------------------- ------------- --------- ------ ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C>
University City, MO March 1994 21 7,252 14,462 17,251 4,878
Pittsburgh, PA May 1994 20 1,357 4,673 6,941 2,261
Tampa, FL August 1994 14 1,481 6,515 8,730 2,183
Creve Coeur, MO November 1994 17 170 4,058 7,342 2,161
Amesbury, MA May 1995 16 -- 2,692 7,473 2,645
Philadelphia, PA August 1995 17 -- 741 6,217 1,966
Bridgeton, MO August 1995 13 -- 621 5,652 1,922
Jackson, MS(2) December 1995 18 -- -- 6,864 2,019
Delta, LA(2) December 1995 9 -- -- 7,783 1,750
Port Gibson, MS(2) December 1995 8 -- -- 2,719 790
Orange, NJ(2) November 1996 20 -- -- 593 2,384
Woodbury, NJ December 1996 14 -- -- 129 1,095
--- ------ ------ ------ ------
TOTAL 187 10,260 33,762 77,694 26,054
=== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Treatments listed opposite a facility include all outpatient hemodialysis
treatments, home hemodialysis treatments, acute care treatments provided at
hospitals located near such facilities and peritoneal dialysis treatments.
Peritoneal dialysis treatments are stated in hemodialysis equivalents.
Excludes treatments provided by a facility sold by the Company in September
1996.
(2) Facilities acquired by the Company. Only treatments rendered after
acquisition of the facility are included in the table.
The Company has four additional facilities under development with planned
openings ranging from the fourth quarter of 1997 through the first quarter of
1998. These facilities under development are located in New Jersey,
Massachusetts and Missouri.
OPERATION OF FACILITIES
The Company's dialysis facilities are designed specifically for outpatient
hemodialysis and for the training of peritoneal dialysis and home hemodialysis
patients. Each facility has between eight and 21 dialysis stations and many
facilities are designed to accommodate additional stations as patient census
increases. In addition, each facility generally contains a reception room, a
patient preparation area, a nurse's station, a patient examination room, a
patient training room, a water treatment room, a dialyzer reprocessing room,
staff work areas, offices, a kitchen, a supply room, and a lounge. All of the
Company's facilities contain state-of-the-art equipment and modern
accommodations and are typically located near public transportation. The
facilities are designed to provide a pleasant and comfortable environment for
each patient and include such amenities as color television sets for each
patient station, VCRs for patient education and entertainment, and portable
telephones.
Each facility is managed by a full time professional administrator with
experience in the dialysis industry. Each administrator is supported by a
director of nursing, nursing professionals, social workers, dieticians,
technicians and clerical support staff. In accordance with Medicare regulations,
each facility is supervised by a practicing physician, typically a nephrologist,
who serves as medical
28
<PAGE> 30
director. The medical director is responsible for implementing the Company's
policies and procedures to assure high quality patient care. The medical
director's responsibilities also include patient education, recommendation of
appropriate equipment, development of staff training programs and community
relations.
The Company also offers peritoneal dialysis, both CAPD and CCPD, at all of
its facilities. Such services consist of patient training, the provision of
equipment and supplies, patient monitoring and follow-up assistance to patients
who prefer and are able to receive this form of dialysis. Patients and their
families or other caregivers are trained over a two week period by a registered
nurse to perform peritoneal dialysis.
STAFF-ASSISTED HOME HEMODIALYSIS SERVICES
In addition to the Company's outpatient dialysis facilities, the Company
provides staff-assisted home hemodialysis services in St. Louis, Missouri and
Tampa, Florida. In these programs, the Company provides dialysis equipment,
supplies and a fully qualified nurse or technician who administers the
hemodialysis treatments in the patient's home three times per week on a schedule
convenient to the patient.
INPATIENT DIALYSIS SERVICES
The Company provides inpatient dialysis services to four hospitals pursuant
to contracts negotiated with the hospitals for per-treatment rates paid directly
by the hospitals. The Company also has one additional contract with a hospital
to provide acute dialysis services once the hospital receives state approval for
the program. In most instances, the Company provides the dialysis equipment and
supplies to the hospital and administers the dialysis treatment when requested.
Examples of cases in which inpatient services are required include patients with
acute kidney failure resulting from trauma or other causes, newly diagnosed but
clinically unstable ESRD patients and ESRD patients who require hospitalization.
ANCILLARY SERVICES
The Company provides a full range of ancillary services to ESRD patients,
the most prominent of which is the physician prescribed administration of
bioengineered erythropoietin ("EPO"). EPO is a substitute for the natural
protein, erythropoietin, which is secreted by the kidneys and stimulates the
production and development of red blood cells. Low levels of erythropoietin in a
patient's blood often result in anemia. EPO is useful in the treatment of anemia
associated with ESRD and reduces the need for blood transfusions. Substantially
all ESRD patients receive EPO in dosages varying with a patient's weight and
blood count. Other ancillary services that the Company provides to its ESRD
patients include electrocardiograms, bone densitometry studies, nerve conduction
studies, chest x-rays, blood transfusions and the administration of
pharmaceutical products specific to ESRD, such as iron dextran (an intravenous
iron supplement), calcitriol (an intravenous calcium supplement) and
intradialytic parenteral nutrition ("IDPN"). Effective July 1, 1997, routine
coverage by Medicare for electrocardiograms, bone densitometry studies, nerve
conduction studies and chest x-rays was eliminated. Medicare continues to pay
for these tests only when there is documentation of medical necessity. The
Company derived approximately one-third of its net revenues for the year ended
December 31, 1996 from the provision of ancillary services. The majority of such
net revenues were from the administration of EPO. See "Risk
Factors -- Dependence upon Government Reimbursement."
MEDICAL DIRECTORS
Medicare regulations mandate that, in order to receive reimbursement under
the Medicare ESRD program, the dialysis facility must be "under the general
supervision of a Director who is a physician." Generally, the medical director
must be certified or board eligible in internal medicine, with at least
29
<PAGE> 31
12 months of training or experience in the care of ESRD patients at dialysis
facilities. Some facilities may also have associate medical directors.
Medical directors and associate medical directors enter into written
agreements with the Company which specify their duties and establish their
compensation. Compensation is fixed for periods of one year or more, is
separately negotiated for each facility, and generally depends upon competitive
factors in the local market and the medical director's professional
qualifications and responsibilities. Agreements between the Company and its
medical directors have a minimum term of five years and may extend for as much
as ten years. Under these agreements, the Company pays its medical directors a
base monthly compensation. Medical director agreements, to the extent permitted
by law, restrict the medical director from acting as a medical director, owner
or equity holder in competing dialysis facilities within a specific geographic
area, but do not prohibit the physician from providing direct patient care
services at other locations and do not require, or otherwise compensate the
physician for referrals of patients to the facility.
In connection with acquisitions, the Company generally requires
non-competition agreements from the sellers, whether physicians or otherwise.
Such non-competition agreements prohibit such sellers from owning, operating,
maintaining or otherwise participating in competing facilities within specific
geographic areas, and extend for periods of two to ten years.
QUALITY ASSURANCE
Renex has established a system-wide quality assurance process, which
includes its Continuous Quality Improvement ("CQI") program, to ensure that a
high standard of care is provided to all of the Company's patients. The CQI
program is modeled after the Joint Commission on Accreditation of Healthcare
Organization's ten step process. The CQI program is implemented at the facility
level by the medical director, clinic administrator and director of nursing.
This process involves the continuous collection and analysis of patient care
data to identify areas for improvement and to monitor progress of previously
implemented measures. Each facility regularly audits its quality of care and
equipment to ensure that all aspects of patient care meet the standards set by
the Company's corporate office. The Company manages the CQI program at the
corporate level through the compilation and analysis of all facilities'
statistical data. These data are used to compare the Company's overall
performance and each facility's specific performance to the national core
indicators established for the dialysis industry by HCFA and the regional ESRD
networks. Results of these comparisons are used to effect Company-wide
improvements.
Additional quality assurance support is provided by the Company's corporate
office through a quality assurance department. The department develops, monitors
and audits the quality standards of each dialysis facility on an ongoing basis
through reporting mechanisms and site inspections to ensure the facilities meet
the regulations of HCFA and the Occupational Safety and Health Administration.
30
<PAGE> 32
SOURCES OF REIMBURSEMENT
The following table provides information regarding the percentage of net
revenues received by the Company by source:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Medicare/Medicaid.................................... 65.0% 58.5% 67.2% 66.9% 75.9%
Private/Managed Care Payors.......................... 35.0 41.5 30.9 32.5 21.1
Hospital Inpatient Dialysis Services................. -- -- 1.9 0.6 3.0
----- ----- ----- ----- -----
Total....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
The Company obtains a substantial portion of its reimbursement under a
prospective Medicare reimbursement system for dialysis services provided to ESRD
patients. The Social Security Act ("SSA") provides Medicare coverage for
individuals who are medically determined to have ESRD. ESRD is currently defined
in federal regulations as that stage of kidney impairment that appears
irreversible and permanent and requires a regular course of dialysis or kidney
transplantation to maintain life. Once an individual is medically determined to
have ESRD, the SSA specifies that one of two conditions must be met before
entitlement begins: (i) a regular course of dialysis must begin; or (ii) a
kidney transplant must be performed. The SSA provides that entitlement begins 90
days after the month in which a regular course of dialysis is initiated.
Under the Medicare ESRD program, reimbursement rates per treatment are
fixed in advance and have been adjusted from time to time by the U.S. Congress.
Payment for dialysis services is based on a prospective system which was
implemented by HCFA in 1972. Providers are paid a base reimbursement rate per
dialysis treatment, also referred to as the "composite rate." The composite rate
constitutes payment for all routinely provided supplies, drugs, tests and
services incident to dialysis. Other dialysis related ancillary services,
including certain drugs (such as EPO), blood transfusions and certain tests
ordered by physicians, are separately reimbursed in accordance with Medicare's
reimbursement policies. Although this form of reimbursement limits the allowable
charge per treatment, it provides the Company with predictable and recurring per
treatment net revenue. Medicare, through its carriers, pays 80% of the amounts
set by the Medicare prospective reimbursement system. The remaining 20% is paid
by Medicaid, secondary private insurance coverage, if any, and/or the patient.
From time to time, the U.S. Congress adjusts the applicable composite rate
and fees based upon a review of several factors, including provider cost data
from prior years. Prior to 1983, the average composite rate was established at
$138 per treatment. In 1983, the average composite rate was reduced to $127 per
treatment for free-standing outpatient dialysis facilities. In 1986, the average
composite rate was further reduced to $125 per treatment. In January 1991, the
average composite rate was increased to $126, the current level. The composite
rate varies from region to region based on regional wage variations.
The Medicare composite rate has been the subject of a number of reports and
studies. In April 1991, the Institute of Medicine, an organization chartered by
the National Academy of Sciences and an advisor to the federal government,
released a report recommending that the composite rate be adjusted for the
effects of inflation. In March 1996, after conducting a study on dialysis costs
and reimbursement at the request of the U.S. Congress, the Prospective Payment
Assessment Commission recommended a 2% increase be made in the ESRD composite
reimbursement rate. The U.S. Congress is not required to implement either of
these recommendations and can either raise or lower the reimbursement rate. The
Company is unable to predict what, if any, future changes may occur in the
Medicare composite reimbursement rate. Any reductions in the Medicare composite
rate could have a material adverse effect on the Company's business, financial
condition and results of operations.
One ancillary item that provides the Company with significant net revenues
is the provision of EPO. In June 1989, Medicare started reimbursement for EPO
treatments at the rate of $40 per treatment
31
<PAGE> 33
up to 10,000 units and $70 for treatments in excess of 10,000 units. In January
1991, Medicare reimbursement rates were changed to $11 per 1,000 units with no
maximum and later reduced to $10 per 1,000 units in 1993. Currently, the
administration of EPO is reimbursed only for patients whose average hematocrit
levels over a 90 day period are 36% or less, which include the vast majority of
dialysis patients. Hematocrit is the measurement of the concentration of
oxygen-carrying red blood cells in a patient's bloodstream. The EPO Medicare
reimbursement rate may be adjusted annually to reflect cost of living changes.
In March 1996, HCFA published a request for proposals ("RFP"), requesting
bids from managed care companies to participate in a three year test program for
the comprehensive treatment of ESRD patients, including dialysis, kidney
transplantation, physician and hospital services. Currently, managed care
companies are only permitted to arrange for the treatment of existing members of
their programs who develop ESRD subsequent to their enrollment in the managed
care plan. HCFA selected four managed care companies that will be allowed to
recruit ESRD patients beginning in mid-1997 in a test program. One managed care
company subsequently withdrew from the test program and will not be replaced.
The results of the test program will determine whether HCFA will open up the
market to additional managed care companies. The RFP includes a proposed
capitation payment scale for ESRD patients. HCFA will also require that the
managed care companies offer certain extra services including rehabilitation
counseling, free transportation to physicians' offices and discounted
prescription drugs to all ESRD patients. The Company is unable to predict
whether the HCFA test program will be successful and result in large numbers of
ESRD patients enrolling in managed care programs, or the impact, if any, of such
enrollment on the Company's operations. The widespread introduction of managed
care to the dialysis industry could result in a change of the reimbursement
rates for the Company's services, which could have a material effect on the
Company's business, financial condition and results of operations.
MEDICARE ELIGIBILITY. Medicare laws provide that any individual,
regardless of age, who has no primary insurance coverage from a private
insurance company and is diagnosed as having ESRD is automatically covered under
Medicare if he or she is Medicare eligible and applies for coverage. Coverage
varies depending upon the age of the patient and the status of other insurance
coverage. For ESRD patients over age 65, who are not covered by an employer
group health insurance plan, Medicare coverage commences immediately. For ESRD
patients over age 65 who are covered by an employer group health plan, Medicare
coverage begins after an 18 month coordination of benefits period.
For ESRD patients under age 65 who are not covered by an employer group
health insurance plan, Medicare coverage begins 90 days following the month in
which the patient begins dialysis. During the first 90 days, Medicaid (if the
patient is eligible), private insurance, or the patient is responsible for
payment for dialysis services. If an ESRD patient who is not covered by an
employer group health plan begins home dialysis training during the first 90
days of dialysis, Medicare immediately becomes the primary payor.
ESRD patients under age 65 who are covered by an employer group health
insurance plan must wait 21 months (consisting of the three months' entitlement
waiting period described above and an additional 18 months coordination of
benefits period) before Medicare becomes the primary payor. During the 21 month
period, the employer group health plan is responsible for paying primary
benefits at its negotiated rate or, in the absence of such a rate, at the
Company's usual and customary charges. Medicare generally pays the difference
between what is paid by the employer group health plan and the gross amount
payable by Medicare. Following such 21 month period, Medicare becomes the
primary coverage and the group insurance becomes secondary. If an ESRD patient
who is covered by an employer group health plan elects home dialysis training
during the first 90 days of dialysis, Medicare becomes the primary payor after
18 months.
MEDICAID REIMBURSEMENT. Medicaid programs are state administered programs
partially funded by the federal government. These programs are intended to
provide coverage for patients whose income and assets fall below state defined
levels and who are otherwise uninsured. In certain states,
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<PAGE> 34
Medicaid serves as the primary payor for patients who are not eligible for
Medicare benefits. The programs also serve as supplemental insurance programs
for the Medicare co-insurance portion and provide coverage for certain services
that are not covered by Medicare. State regulations generally follow Medicare
reimbursement levels and coverages without any co-insurance amounts. Certain
states, however, require beneficiaries to pay a monthly share of the cost based
upon levels of income or assets. The Company is a licensed ESRD Medicaid
provider in all states in which it does business.
PRIVATE PAYOR REIMBURSEMENT/ACUTE CARE CONTRACTS. The Company receives
reimbursement from private payors for ESRD treatments and ancillary services
prior to Medicare becoming the primary payor, at rates which can be
significantly higher than the per treatment rate set by Medicare. After Medicare
becomes a patient's primary payor, private payors become secondary payors and
generally reimburse the Company for the 20% of the Medicare allowable rate not
paid by Medicare. The Company has also negotiated non-exclusive managed care
contracts in certain markets with certain payors at rates which range from the
Medicare composite rate to significantly higher amounts. The Company also
receives payments for the provision of dialysis services from several hospitals
under acute care contracts at rates significantly higher than the Medicare
composite rate.
GOVERNMENT REGULATION
GENERAL
The Company's operations are subject to extensive government regulation at
the federal, state and local levels. These government regulations require, among
other things, that the Company meet various standards governing the construction
and management of facilities, personnel, maintenance of proper records,
equipment and quality assurance programs. In order to receive Medicare
reimbursement, dialysis facilities must be certified by HCFA and are subject to
periodic inspection to assure compliance with applicable regulations. HCFA's
approval is also required for the addition of dialysis stations at existing
facilities. All of the Company's facilities are certified by HCFA.
All states have specific regulations governing dialysis services. These
regulations vary from state to state and many include approval of owners and
construction plans, licensure of facilities, inspections or certificates of need
("CON"). Except for its facilities located in Mississippi and Missouri, the
Company does not presently operate in any state which has an applicable CON law.
However, the Company may in the future acquire or develop facilities in such
states. In such event, the Company would apply for approval through the
applicable CON process and comply with all applicable licensing requirements.
Any loss by the Company of its federal certifications, its authorization to
participate in the Medicare or Medicaid programs or its licenses under the laws
of any state or other governmental authority from which a substantial portion of
its net revenues is derived or a change resulting from health care reform
reducing dialysis reimbursement or reducing or eliminating coverage for dialysis
services would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company believes that the
health care services industry will continue to be subject to intense regulation
at the federal, state and local levels, the scope and effect of which cannot be
predicted. No assurance can be given that the activities of the Company will not
be reviewed and challenged by government regulators or that health care reform
will not result in a material adverse change to the Company.
FRAUD AND ABUSE
ANTI-KICKBACK STATUTE. The Company's operations are subject to the illegal
remuneration provisions of the federal SSA governing federally funded health
care programs, including Medicare and Medicaid, and similar state laws that
impose criminal penalties and civil sanctions on persons who knowingly and
willfully solicit, offer, receive or pay any remuneration, whether directly or
indirectly, in return for, or to induce, the referral of a patient for
treatment, or, among other things, the ordering, purchasing, or leasing of items
or services that may be paid for in whole or in part by Medicare,
33
<PAGE> 35
Medicaid or similar state programs. Violations of the federal anti-kickback
statute are punishable by criminal penalties, including imprisonment, fines,
freezing of assets, asset forfeiture and exclusion of the provider from future
participation in the Medicare or Medicaid programs. Civil penalties for
violations of the federal anti-kickback statute include assessments of $10,000
per improper claim for payment, plus three times the amount of such claim and
suspension from future participation in the Medicare or Medicaid programs. Civil
suspension from participation in Medicare or Medicaid for anti-kickback
violations also can be imposed through an administrative process, without the
imposition of civil monetary penalties. Some state statutes also include
criminal penalties.
To provide guidance regarding the federal anti-kickback statute, the Office
of the Inspector General (the "OIG") for the federal Department of Health and
Human Services ("HHS") has published regulations that create exceptions or "safe
harbors" for certain business transactions. The safe harbors are narrowly
drafted and many lawful transactions fall outside their scope. Transactions that
satisfy the criteria under applicable safe harbors will be deemed not to violate
the federal anti-kickback statute. Transactions that do not satisfy all elements
of a relevant safe harbor do not necessarily violate the statute, although such
transactions may be subject to scrutiny by enforcement agencies.
Since the federal anti-kickback statute has been broadly interpreted by the
government and through court decisions, it could limit the manner in which the
Company conducts its business. The Company seeks to structure its various
business arrangements, including its relationship with physicians, to comply
with the federal provisions. The Company believes that its arrangements with
physicians and other business arrangements comply in all material respects with
the federal anti-kickback statute and all other applicable related laws and
regulations. However, because of the broad provisions of the federal
anti-kickback statute the OIG or other governmental agency may take a contrary
position which could require the Company to change its practices or experience a
material adverse effect on its business, financial condition and results of
operations.
LEASES WITH PHYSICIANS. Certain of the Company's dialysis facilities are
leased from entities in which physicians who refer patients to the Company hold
interests. Because of the referral of patients by these physicians, the federal
anti-kickback statute may apply. HHS has promulgated a safe harbor relevant to
such arrangements relating to space rental. The Company believes that its leases
satisfy the space rental safe harbor.
MEDICAL DIRECTOR RELATIONSHIPS. Because the Company's medical directors
refer patients to the Company's facilities, the federal anti-kickback statute
could apply to such referrals. However, the Company believes it has a reasonable
basis for concluding that its contractual arrangements with its medical
directors are in material compliance with the federal anti-kickback statute. The
Company seeks to comply with the requirements of the federal anti-kickback
statute, or if applicable, the personal services or employment safe harbor
provisions, when entering into agreements or contracts with its medical
directors and other physicians.
ACUTE DIALYSIS SERVICES. Under the Company's acute inpatient dialysis
service arrangements, the Company agrees to provide a hospital with supervised
emergency or acute dialysis services, including qualified nursing, technical
personnel and services, and, in most cases, equipment. Because physicians under
contract with the Company may refer patients to hospitals with which the Company
has an acute dialysis service arrangement, the federal anti-kickback statute
could apply. The Company believes that it has a reasonable basis for concluding
that its contractual arrangements with hospitals for acute inpatient dialysis
services are in material compliance with the federal anti-kickback statute.
CERTAIN RELATIONSHIPS WITH LABORATORIES AND IDPN SUPPLIERS. The Company
enters into arrangements with laboratories for purposes of obtaining laboratory
services. Such services include testing currently reimbursed under the Medicare
composite rate, as well as testing reimbursed separately from the Medicare
composite rate. In October 1994, the OIG published a Special Fraud Alert which
stated that the federal anti-kickback statute could be violated when a dialysis
facility obtains discounts from a laboratory for testing encompassed within the
Medicare composite rate in return for referring all or most of the dialysis
facility's non-composite rate testing to the laboratory. In addition,
34
<PAGE> 36
the Company has arrangements with suppliers of IDPN. In May 1993, the OIG issued
a report indicating its belief that many ESRD patients receive IDPN although
they do not meet Medicare coverage guidelines for the treatment. Furthermore, in
July 1993, the OIG issued a Management Advisory Report indicating that
"administration fees" paid by IDPN suppliers to dialysis facilities for
administering IDPN to patients during dialysis could violate the federal
anti-kickback statute when the payments made to the dialysis facilities are
unreasonably high.
The Company believes that its current arrangements with laboratories, IDPN
suppliers, and other persons or entities who either refer patients to the
Company or from whom the Company purchases items or services are in material
compliance with the federal anti-kickback statute. However, there can be no
assurance that the Company's future arrangements will not be challenged,
required to be changed, or result in sanctions. Furthermore, there can be no
assurance that the Company will not be challenged or subject to sanctions for
any of its past arrangements. Any such challenge or change, including any
related sanctions which might be assessed, could have a material adverse effect
on the Company's business, financial condition and results of operations.
STARK LAW. Stark II restricts physician referrals for certain "designated
health services" to entities with which a physician or an immediate family
member has a "financial relationship." The entity is prohibited from claiming
payment under the Medicare or Medicaid programs for services rendered pursuant
to a prohibited referral and is liable for the refund of amounts received
pursuant to prohibited claims. The entity also can incur civil penalties of up
to $15,000 per improper claim and can be excluded from participation in the
Medicare or Medicaid programs. Stark II provisions became effective on January
1, 1995. Comparable provisions applicable to clinical laboratory services
("Stark I") became effective in 1992.
A "financial relationship" under the Stark provisions is defined as an
ownership or investment interest in, or a compensation arrangement between, the
physician (or an immediate family member) and the entity. The Company has
entered into compensation agreements with its medical directors or their
respective professional associations, and in one case a medical director is a
general partner of a partnership which leases real property to the Company.
Certain medical directors also own shares of the Company's Common Stock, and/or
options to purchase shares of Common Stock. Accordingly, such medical directors
have a "financial relationship" with the Company which may be applicable to the
Stark provisions.
For purposes of Stark II, "designated health services" include, among other
things: clinical laboratory services; parenteral and enteral nutrients,
equipment and supplies, including IDPN; prosthetics, orthotics and prosthetic
devices and supplies; physical and occupational therapy services; outpatient
prescription drugs; durable medical equipment, and inpatient and outpatient
hospital services. Kidney dialysis is not a designated health service under
Stark II. However, the Stark definition of "designated health services" includes
items and services that are components of dialysis or that may be provided to a
patient in connection with dialysis, if such items and services were considered
separately rather than collectively as dialysis. The Stark I regulations provide
an exception for certain clinical laboratory services reimbursed under the
Medicare composite rate for dialysis. Because HHS has not yet issued regulations
under Stark II, it is unclear whether ancillary services administered in
conjunction with dialysis treatments, but which are not included in the
composite rate, such as EPO, non-routine parenteral items and non-routine
laboratory services, constitute separate services or are considered part of the
dialysis treatment. If such services are considered separate services, Stark II
would apply.
Stark II contains exceptions for ownership or compensation arrangements
that meet certain specific criteria set forth in the statute or in forthcoming
regulations. With respect to ownership, certain qualifying in-office physician
or ancillary services provided by or under the supervision of physicians in a
single group practice are exempt from both ownership and compensation
arrangement restrictions. With respect to compensation arrangements, exceptions
are available for certain qualifying arrangements in the following areas: (i)
bona fide employment relationships; (ii) personal services contracts; (iii)
space and equipment leasing arrangements; (iv) certain group practice
arrangements
35
<PAGE> 37
with a hospital that were in existence prior to December 1989; and (v) purchases
by physicians of laboratory services, or of other items and services at fair
market value. In order to be exempt from the Stark II self-referral prohibition,
it is necessary to meet all of the criteria of a particular exception for each
financial relationship existing between an entity and a referring physician.
Although the Company does not believe Stark II applies to its operations, the
Company believes that several of its financial relationships with referring
physicians meet the criteria for an exception. For example, the Company
believes, based on the language of Stark II, that its agreements with its
medical directors or their professional associations satisfy the exceptions for
compensation pursuant to employment relationships, personal services contracts
or space leasing arrangements.
With respect to physician ownership/investments in the Company, Stark II
includes an exception for a physician's ownership or investment interest in
securities listed on an exchange or quoted on the Nasdaq Stock Market which, in
either case, meet certain criteria. Such criteria include a requirement that the
issuer of such securities have at least $75 million in stockholder equity at the
end of the issuer's most recent fiscal year or on average during the previous
three fiscal years. The Company is not currently eligible to rely on this
exception and will not be eligible following this Offering. Therefore, if the
regulations interpreting Stark II are issued, and in the event that ancillary
services provided by the Company in conjunction with dialysis treatments are
determined to be designated health services, then either the physicians who have
an ownership interest in the Company will have to divest such ownership, the
Company will have to meet the above described ownership exception or the
physicians will have to cease referrals to the Company. The Company believes,
but there can be no assurance, that if Stark II is interpreted to apply to the
Company's operations, the Company will be able to bring its financial
relationships with referring physicians into compliance with the provisions of
Stark II, including relevant exceptions. If the Company cannot achieve such
compliance and Stark II is broadly interpreted by HCFA to apply to the Company,
such application of Stark II could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
there can be no assurance that the Company will not be challenged or subjected
to sanctions for any of its past arrangements, including repayment of amounts
made pursuant to a prohibited referral. Any such challenge, including any
related sanctions which might be assessed, may cause a change in the Company's
operations and could have a material adverse effect on the Company's business,
financial condition and results of operations.
Because physicians under contract with the Company may refer patients to
hospitals with which the Company has an acute inpatient dialysis service
arrangement, Stark II may be interpreted by the federal government to apply to
the Company's acute dialysis arrangements with hospitals. However, Stark II
contains exceptions for certain equipment rental and personal services
arrangements. The Company believes it has a reasonable basis for concluding that
its contractual arrangements with hospitals for acute inpatient dialysis
services are in compliance with the requirements of such exceptions to Stark II.
STATE REFERRAL REGULATIONS. Several states have enacted statutes
prohibiting physicians from holding financial interests in various types of
medical facilities to which they refer patients. The Company believes, based on
its understanding of such state laws, that its arrangements with physicians are
in material compliance with such laws. However, given the recent enactment of
such state laws, there is an absence of definitive interpretative guidance in
many areas and there can be no assurance that one or more of the practices of
the Company might not be subject to challenge under such state laws. If one or
more of such state laws are interpreted to apply to the Company and the Company
is determined to be liable for violations of such state laws, the application of
such state laws could have a material adverse effect on the Company's business,
financial condition and results of operations.
THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996. In August
1996, President Clinton signed the Health Insurance Portability and
Accountability Act ("HIPAA") which requires, among other things, that the
Secretary of HHS issue advisory opinions regarding what constitutes a violation
under the federal anti-kickback statute and whether an arrangement satisfies a
statutory
36
<PAGE> 38
exception or regulatory safe harbor to the federal anti-kickback statute. Prior
to HIPAA's enactment, advisory opinions regarding the federal anti-kickback
statute could not be obtained from the OIG. Although the OIG recently issued
regulations regarding obtaining advisory opinions, the Clinton Administration
has proposed legislation which would repeal this provision of HIPAA.
Accordingly, the Company cannot predict whether the advisory opinion process
will remain available and has not sought any advisory opinions from the OIG to
date.
FALSE CLAIMS. The Company is also subject to federal and state laws
prohibiting an individual or entity from knowingly and willfully presenting
claims for payment by Medicare, Medicaid or other third party payors that
contain false or fraudulent information. These laws provide for both criminal
and civil penalties. Furthermore, providers found to have submitted claims which
they knew or should have known were false, fraudulent, or for items or services
that were not provided as claimed, may be excluded from Medicare and Medicaid
participation, required to repay previously collected amounts, and/or subject to
substantial civil monetary penalties. In addition, the OIG has taken the
position that violations of the anti-kickback statute and the Stark law
constitute false claims. Although dialysis facilities are generally reimbursed
by Medicare based upon prospectively determined composite rates, the submission
of Medicare cost reports and other requests for payment by dialysis facilities
are covered by these laws. The Company believes that it has procedures to ensure
the accurate completion of cost reports and other requests for payment. However,
there can be no assurance that cost reports or other requests for payment filed
by the Company's dialysis facilities will be materially accurate or will not be
subject to challenge under these laws. Such challenge, if successful, could have
a material adverse effect on the Company's business, financial condition and
results of operations.
HEALTH CARE LEGISLATION. Because the Medicare program represents a
substantial portion of the federal budget, Congress takes action in almost every
legislative session to modify the Medicare program for the purpose of reducing
the amounts otherwise payable by the program to health care providers in order
to achieve deficit reduction targets, among other reasons. The Clinton
Administration has recently proposed extending the Medicare fraud and abuse laws
to all payors. Further, legislation or regulations may be enacted in the future
that may significantly modify the Medicare ESRD program or substantially reduce
the amount paid for the Company's services. In addition, the conference report
to the reconciliation bill proposed by Congress in 1996 calls for HHS to report
to Congress not later than December 31, 1999 with recommendations on expanding
the definition of individuals eligible to enroll in certain Medicare managed
care plans to include ESRD patients. Furthermore, statutes or regulations may be
enacted which impose additional requirements on the Company to maintain
eligibility to participate in the federal and state payment programs. Such new
legislation or regulations may have a material adverse effect on the Company's
business, financial condition and results of operations.
OTHER REGULATIONS. The Company's operations are subject to various state
medical waste disposal laws. Recently promulgated regulations under the
Occupational Safety and Health Act ("OSHA") attempt to limit occupational
exposure to blood and other potentially infectious materials. These regulations
apply to all industries in which employees could reasonably be expected to come
in contact with blood pathogens, including dialysis facilities. The regulations
require employers to provide Hepatitis B vaccinations and personal protective
equipment. Employers must establish policies and procedures for infection
control, hazardous waste disposal techniques and other matters to minimize risk
of contamination. Employers also have specific record maintenance requirements.
The Company believes it is in compliance with the OSHA regulations.
The Company believes it is in material compliance with all applicable laws
and regulations. No assurance can be made that in the future the Company's
business arrangements, past or present, will not be the subject of an
investigation or prosecution by a federal or state governmental authority. The
Company believes that in the near future the health care services industry will
continue to be subject to substantial regulation at the federal and state
levels, the scope and effect of which cannot be predicted by the Company. Any
loss by the Company of its various federal certifications, its authorization to
participate in the Medicare and Medicaid programs or its licenses under the laws
of any state or other
37
<PAGE> 39
governmental authority from which a substantial portion of its net revenues is
derived would have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION
The dialysis industry is fragmented and highly competitive, particularly
with respect to the acquisition of existing dialysis facilities. Competition for
qualified nephrologists to act as medical directors is also intense. According
to HCFA, as of December 31, 1995, there were in excess of 2,800 dialysis
facilities in the United States. According to industry estimates, as of May 31,
1997, 52% of all ESRD patients were treated by the six largest outpatient
dialysis providers. The largest multi-facility provider is Fresenius Medical
Care AG. Other large publicly owned dialysis companies include Gambro Health
Care Patient Services, Inc. (a subsidiary of Incentive AB), Renal Treatment
Centers, Inc., Total Renal Care, Inc. and Renal Care Group, Inc. An additional
multi-facility provider, Dialysis Clinics, Inc., is a not-for-profit entity.
Many of the Company's competitors have substantially greater financial resources
than the Company and may compete with the Company for acquisitions, development
and/or management of dialysis facilities. The Company may also experience
competition from facilities established by former medical directors or other
referring physicians. In addition, there are also a number of health care
providers that have substantially greater financial resources than the Company
who may decide to enter the dialysis industry. The Company believes that
competition for acquisitions increases the cost of acquiring dialysis facilities
and there can be no assurance that the Company will be able to compete
effectively with such competitors either for acquisitions or generally.
The Company believes that other important competitive factors in the
dialysis industry are the development of relationships with physicians, quality
of patient care and service and location and convenience of facilities.
INSURANCE
The Company maintains property and general liability insurance,
professional liability insurance on its professional staff and other insurance
appropriate for its operations. The Company believes that its current levels of
such insurance are adequate in amounts and coverage. However, there can be no
assurance that any future claims will not exceed applicable insurance coverage.
Furthermore, no assurance can be given that malpractice and other liability
insurance will be available in the future at a reasonable cost, or that the
Company will be able to maintain adequate levels of malpractice insurance
coverage in the future. Each medical director and each other physician with
staff privileges at the Company's facilities is required to maintain his or her
own malpractice insurance for patient care activities at the facilities.
EMPLOYEES
As of June 30, 1997, the Company had 225 full-time and 33 part-time
employees in its dialysis operations and an additional 29 full-time and 2
part-time employees in its corporate office. The Company's employees are not
represented by a labor union or covered by a collective bargaining agreement.
The Company considers its employee relations to be good.
PROPERTIES
The Company maintains its principal executive offices in Coral Gables,
Florida. The Company's facilities generally occupy between 4,000 and 10,000
square feet of leased space, with lease terms of five to ten years, typically
renewable for at least five years. The Company considers its properties to be in
good operating condition and suitable for the purposes for which they are being
used.
Expansion or relocation of the Company's dialysis facilities would be
subject to compliance with conditions relating to participation in the Medicare
ESRD program and certain states' health department requirements. In states that
require a CON, approval of an application submitted by the Company would be
necessary for expansion or development of a new dialysis facility.
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<PAGE> 40
LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of
business, including those arising from patient treatments, which the Company
believes are covered by insurance. The Company is not involved in any material
litigation and is not aware of any potential claims which would give rise to
material liability.
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<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company as of June 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Milton J. Wallace(1).............. 61 Chairman of the Board
Arthur G. Shapiro, M.D.(1)........ 58 Vice Chairman of Board, Director of Medical Affairs
James P. Shea(1).................. 56 President, Chief Executive Officer, Director
Orestes L. Lugo................... 38 Vice President -- Finance, Chief Financial Officer
Patsy L. Anders................... 53 Vice President -- Business Development
Mignon B. Early................... 34 Vice President -- Operations
Jeffery C. Finch.................. 36 Vice President
Eugene P. Conese, Sr.(2).......... 67 Director
C. David Finch, M.D............... 38 Director
John E. Hunt, Sr.(2).............. 79 Director
Charles J. Simons(2)(3)........... 79 Director
Mark D. Wallace................... 29 Director, Secretary
Jeffrey H. Watson(3).............. 39 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Compensation and Stock Option Committee.
(3) Member of the Audit Committee.
MILTON J. WALLACE is a co-founder of the Company and has been Chairman of
the Board of the Company since its inception in July 1993. Mr. Wallace has been
a practicing attorney in Miami for over 30 years, and is currently a shareholder
in the law firm of Wallace, Bauman, Fodiman & Shannon, P.A. He was a co-founder
and a member of the Board of Directors of Home Intensive Care, Inc., a provider
of home infusion and dialysis services, serving as Chairman of its Executive
Committee from 1985 through July 1993 and Chairman of the Board from December
1989 until July 1993. Home Intensive Care, Inc. was acquired by W.R. Grace & Co.
in July 1993. Mr. Wallace is Chairman of the Board of Med/Waste, Inc., a
provider of medical waste management services. He is a director of several
private companies and is Chairman of the Dade County Florida, Housing Finance
Authority. Mr. Wallace is the father of Mark D. Wallace, a Director of the
Company.
ARTHUR G. SHAPIRO, M.D. is a co-founder of the Company and has been Vice
Chairman of the Company's Board and Director of Medical Affairs since the
Company's inception in July 1993. Dr. Shapiro has held an appointment to the
University of Miami School of Medicine as a professor of clinical obstetrics and
gynecology since January 1995. From 1985 until 1995, he was engaged in the
private practice of medicine. He is board certified in obstetrics and
gynecology, reproductive endocrinology and laser surgery. He is a Fellow in the
American College of Obstetrics and Gynecology and the American College of
Endocrinology. Dr. Shapiro was a co-founder of Home Intensive Care, Inc. and
served on its Board of Directors from 1985 until July 1993. Dr. Shapiro also
served as Home Intensive Care, Inc.'s Medical Director from 1990 until July
1993. He serves as Chairman of the Board of Bankers Savings Bank, Coral Gables,
Florida and as a Director of Med/Waste, Inc.
JAMES P. SHEA has been President and Chief Executive Officer of the Company
since August 1993 and a Director since December 1993. From July 1992 until June
1993, he served as Director General for Home Intensive Care, Inc.'s
international division. From 1986 to 1990, he was Senior Vice President of
Protocare, Inc., an infusion therapy and respiratory care provider, which he
helped establish. From 1985 to 1986, he was General Manager of the health care
products division of The Norton Company, a manufacturer of engineered materials.
From 1983 to 1985, he was President of the infusion division of
40
<PAGE> 42
National Medical Care, Inc., a kidney dialysis and infusion therapy provider,
which is now owned by Fresenius Medical Care AG.
ORESTES L. LUGO has served as the Company's Vice President -- Finance and
Chief Financial Officer since August 1995. From March 1994 until August 1995, he
was Chief Financial Officer of PacifiCare of Florida, a health maintenance
organization and subsidiary of PacifiCare Health Systems, Inc. From September
1993 until March 1994, he was Chief Financial Officer of Supreme International,
Inc., a clothing manufacturer. From July 1989 until September 1993, Mr. Lugo
served as Vice President of Finance for Home Intensive Care, Inc. From 1980 to
1989, Mr. Lugo was employed by the public accounting firm of Touche Ross, last
as a senior manager. Mr. Lugo is a Certified Public Accountant.
PATSY L. ANDERS has served as the Company's Vice President -- Business
Development since January 1996. From the Company's inception in July 1993
through January 1996, she served as the Company's Director of Business
Development. From 1990 until July 1993, Ms. Anders was the Physician Liaison for
Quality Care Dialysis Centers, Inc., the wholly-owned dialysis facility
subsidiary of Home Intensive Care, Inc. From 1986 through 1990, Ms. Anders was
Director of Physician Relations for Home Intensive Care, Inc. In 1989, Ms.
Anders founded Anders and Associates, a physician placement firm specializing in
the placement of nephrologists, and has served as its President since its
inception.
MIGNON B. EARLY, RN, BSN has been the Company's Vice
President -- Operations since January 1997. From July 1995 until January 1997,
she was the Company's Director of Training and Development. From January 1994
until July 1995, she served as a clinic administrator for the Company in the St.
Louis, Missouri region. From December 1990 until January 1994, Ms. Early was a
clinic administrator for Quality Care Dialysis Centers, Inc. Ms. Early is a
registered nurse.
JEFFERY C. FINCH has been a Vice President of the Company since December
1995. From June 1990 until December 1995, Mr. Finch served as Chief Executive
Officer of Dialysis Facilities, Inc., a dialysis company which owned three
dialysis facilities purchased by the Company in December 1995, which Mr. Finch
co-founded in 1990. He is a principal of JCD Partnership, a real estate and
property management firm. Mr. Finch is the brother of C. David Finch, M.D., a
Director of the Company.
EUGENE P. CONESE, SR. has been a Director of the Company since November
1996. Since 1987, he has been Chairman of the Board of Directors and Chief
Executive Officer of Greenwich Air Services, Inc., a provider of repair and
overhaul services for gas turbine aircraft engines. Mr. Conese is a Director of
Trans World Airlines, Inc. and is a member of the Board of Trustees of Iona
College.
C. DAVID FINCH, M.D. has been a Director of the Company since December
1995, when the Company acquired Dialysis Facilities, Inc., a dialysis company he
co-founded in 1990. He is a board certified nephrologist and maintains a private
practice of medicine in nephrology and hypertension in Jackson, Mississippi. Dr.
Finch serves as the Medical Director of the Company's dialysis facilities in the
Jackson, Mississippi area. He also serves as Director of Dialysis at Vicksburg
Medical Center and Parkview Regional Medical Center. He is a principal in JCD
Partnership, a real estate and property management firm, and the brother of
Jeffery C. Finch, a Vice President of the Company.
JOHN E. HUNT, SR. has been a Director of the Company since its inception in
July 1993. Since August 1983, Mr. Hunt has been Chairman of the Board of Hunt
Insurance Group, Inc., an insurance agency holding company. For the previous 40
years, Mr. Hunt was President of John E. Hunt & Associates, a Tallahassee and
Miami, Florida insurance agency. For the past 13 years, he has also been
President of Insurance Consultants and Analysis, Inc., an insurance consulting
firm. Mr. Hunt serves as Chairman of the Board of Trustees of the Florida Police
Chiefs' Education and Research Foundation, Inc., and as a trustee of Florida
Southern College. Mr. Hunt was a Director of Home Intensive Care, Inc. from 1985
until July 1993.
CHARLES J. SIMONS has been a Director of the Company since its inception in
July 1993. Mr. Simons is the Chairman of the Board of G.W. Plastics, Inc., a
plastics manufacturer, and is an independent management and financial
consultant. From 1940 to 1981, he was employed by Eastern Airlines, last serving
as Vice Chairman, Executive Vice President and as a Director. Mr. Simons is a
Director of
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<PAGE> 43
Arrow Air, Inc., a cargo air carrier; Bessemer Trust of Florida, an investment
management firm; Greenwich Air Services, Inc.; Calspan Corporation, an aerospace
company; and a number of private companies. He was also a Director of Home
Intensive Care, Inc. from 1988 until July 1993. Mr. Simons is the Chairman of
the Board of the Matthew Thornton Health Plan. From 1985 until 1992, he was a
Director of General Development Corp., now known as Atlantic Gulf Development
Corp., a real estate development company, and became Chairman of the Board and
Chief Executive Officer just prior to that company's Chapter 11 bankruptcy
filing in April 1990. Mr. Simons resigned all positions prior to that company's
emergence from bankruptcy in 1992.
MARK D. WALLACE has been Secretary and a Director of the Company since the
Company's inception in July 1993. Since July 1992, Mark Wallace has been a
practicing attorney and is currently a partner at the law firm of Stack,
Fernandez and Anderson, P.A. Mr. Wallace is the son of Milton J. Wallace,
Chairman of the Board of the Company.
JEFFREY H. WATSON has been a Director of the Company since July 1994. Since
December 1995, he has been Chairman of the Board and President of J. Watson &
Co., a government relations and business consulting firm. From June 1994 until
December 1995, he was Vice President for Government Relations of the Jefferson
Group, an independent public affairs firm. From January 1993 until June 1994,
Mr. Watson served as Deputy Assistant for Inter-Governmental Affairs for the
Clinton Administration. From December 1991 through November 1992, Mr. Watson was
employed by the election campaign for President Clinton. From 1989 until
November 1991, Mr. Watson served as Finance Administrator for the City of Miami,
Florida's Department of Development and Housing Conservation. From 1986 until
January 1989, he served as an Administrative Assistant for the Mayor of Miami,
Florida. From September 1985 through March 1986, he was a Managing Partner and
Chief Financial Manager of J. Howard Industries, a company involved in
low-income housing redevelopment and construction.
BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes. The members
of each class serve for staggered three year terms, including three Class I
directors (Charles J. Simons, Jeffrey H. Watson and Eugene P. Conese, Sr.),
three Class II directors (Mark D. Wallace, John E. Hunt, Sr. and James P. Shea)
and three Class III directors (Milton J. Wallace, Arthur G. Shapiro and C. David
Finch). Class I, II and III director terms expire upon the election of directors
at the annual meeting of shareholders to be held in 1997, 1998 and 1999,
respectively. Directors hold office until the expiration of their respective
terms and until their successors are elected, or until death, resignation or
removal. Each officer serves at the discretion of the Board of Directors,
subject to certain contractual rights described below.
Following the consummation of the Offering, the Company intends to increase
the size of the Board of Directors by adding two additional non-employee
directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established standing Executive, Audit and
Compensation and Stock Option Committees. The Executive Committee consists of
Milton J. Wallace, Arthur G. Shapiro and James P. Shea. When the Board of
Directors is not in session, the Executive Committee possesses all of the powers
of the Board. Although the Executive Committee has broad powers, in practice it
meets infrequently to take formal action on a specific matter when it would be
impractical to call a meeting of the full Board.
The Audit Committee consists of Charles J. Simons and Jeffrey H. Watson.
The functions of the Audit Committee are to recommend to the Board the
appointment of independent public accountants for the annual audit of the
Company's financial statements; review the scope of the annual audit and other
services the auditors are asked to perform; review the report on the Company's
financial statements following the audit; review the accounting and financial
policies of the Company; and review management's procedures and policies with
respect to the Company's internal accounting controls.
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<PAGE> 44
The Compensation and Stock Option Committee consists of Eugene P. Conese,
Sr., John E. Hunt, Sr. and Charles J. Simons. The functions of the Compensation
and Stock Option Committee are to review and approve salaries, benefits and
bonuses for all executive officers of the Company; to review and recommend to
the Board matters relating to employee compensation and benefit plans; and to
administer the Company's 1994 Employee Stock Option Plan.
DIRECTOR COMPENSATION
Directors who are officers or employees of the Company receive no
additional compensation for their services as members of the Board of Directors.
Prior to the Offering, non-employee directors did not receive any cash
compensation for service on the Board of Directors, but received reimbursement
of expenses. Following the Offering, non-employee directors of the Company will
receive such compensation for their services as the Board of Directors may from
time to time determine. Non-employee directors receive annual grants of options
under the Directors Stock Option Plan ("Directors Plan") described below. In
addition, Milton J. Wallace and Dr. Shapiro, as compensation for services
rendered to the Company, each received options to purchase 16,667 shares of
Common Stock in April 1995. Such options have an exercise price of $6.00 per
share and are exercisable through April 2000.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION. The following table summarizes the
compensation earned by, and paid to, the Company's President and Chief Executive
Officer and each other executive officer for the year ended December 31, 1996
who received compensation in excess of $100,000 for such period (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARD
----------------------------------------- ---------------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION UNDERLYING OPTIONS(#)
- --------------------------------------------- ------------ -------- --------------- ---------------------
<S> <C> <C> <C> <C>
James P. Shea................................ $110,000 -- $5,160 13,334
President and Chief Executive Officer
Orestes L. Lugo.............................. 102,500 $4,000 $5,160 11,667
Vice President -- Finance and Chief
Financial Officer
</TABLE>
- ---------------
(1) The Company provides its officers with certain non-cash group life and
health benefits generally available to all salaried employees. Such benefits
are not included in the above table pursuant to applicable Securities and
Exchange Commission rules. No Named Executive Officer received aggregate
personal benefits or perquisites that exceed the lesser of $50,000 or 10% of
his total annual salary and bonus for such year. Following the Offering, the
Named Executive Officers' salaries will be increased. See "Employment
Agreements" below.
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<PAGE> 45
STOCK OPTION GRANTS. The following table sets forth information concerning
grants of stock options to each of the Named Executive Officers during the year
ended December 31, 1996:
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES
---------------------------------------------------------------------- OF STOCK PRICE
NUMBER OF % OF TOTAL OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION TERM($)(3)
UNDERLYING OPTIONS EMPLOYEES IN FISCAL PRICE PER -----------------
NAME GRANTED(#)(1) YEAR(2) SHARE EXPIRATION DATE 5% 10%
- ---------------------- ------------------ ------------------- --------- --------------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
James P. Shea......... 13,334 17.2% $6.00 4/27/01 $-0- $-0-
Orestes L. Lugo....... 11,667 15.1% $6.00 4/27/01 -0- -0-
</TABLE>
- ---------------
(1) All such options were granted pursuant to the 1994 Employee Stock Option
Plan. Options granted during fiscal year 1996 vest over three years, with
25% of such options vesting six months following the date of grant, 25% on
the first anniversary from the date of grant and 25% at the end of each
succeeding year from the grant date.
(2) Based on an aggregate of 77,510 options granted to employees in 1996,
including the Named Executive Officers.
(3) The exercise price on the date of grant was greater than the fair market
value of the underlying Common Stock by 153%. The potential realizable value
is calculated by assuming that the stock option price on the date of grant
appreciates at the indicated annual rate compounded annually for the entire
term of the options (5 years) and the option is exercised and the underlying
Common Stock sold on the last day of its term for the appreciated stock
price. The 5% and 10% assumed rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future Common Stock price.
YEAR-END OPTION HOLDINGS. The following table sets forth certain
aggregated option information for the Named Executive Officers for the year
ended December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS(#) OPTIONS(2)
--------------------------- ---------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James P. Shea........................................ 15,419 17,916 $ $
Orestes L. Lugo...................................... 7,085 12,916 $ $
</TABLE>
- ---------------
(1) No options were exercised by the above Named Executive Officers during the
fiscal year ended December 31, 1996.
(2) The value of unexercised options represents the difference between the
exercise price of the options and an assumed initial public offering price
of $ per share herein.
EMPLOYMENT AGREEMENTS
In April 1997, the Company entered into two year employment agreements with
James P. Shea, the Company's President and Chief Executive Officer, and Orestes
L. Lugo, Vice President -- Finance and Chief Financial Officer. The employment
agreements provide for base salaries of $110,000 and $102,500 for Mr. Shea and
Mr. Lugo, respectively, with automatic increases to $190,000 and $155,000,
respectively, upon the earlier of the date of this Prospectus or a "change of
control" as defined below. Base salary for each officer is increased on January
1 of each year during the term by a minimum of 6%. Each officer receives an
automobile allowance and certain other non-cash benefits, including life, health
and disability insurance. Each employment agreement is automatically renewed for
two years at the end of the initial term and each extended term, unless either
party provides notice of termination at least 90 days prior to the expiration of
such term. If either officer is terminated without cause during the term of
their respective agreements, such officer will be entitled to severance equal to
the greater of the remaining base salary due under the agreement or one year's
base salary.
Both Mr. Shea and Mr. Lugo are entitled to receive bonuses in each fiscal
year during the term of their agreements. Such agreements require the Board of
Directors to establish incentive bonus plans for
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<PAGE> 46
each fiscal year which would provide a means for each officer to earn a bonus up
to 100% of their respective base salaries upon the achievement of established
goals and criteria.
The respective employment agreements grant to each of Mr. Shea and Mr. Lugo
the right to terminate his employment agreement within 90 days following a
"change of control," and to receive an amount equal to the greater of: (i) base
salary due for the remainder of the term of the agreement had it not been
terminated; or (ii) two years base salary. Such change of control severance is
payable 50% in cash on the effective date of such termination, with the balance
payable over a six month period. For the purposes of the employment agreements,
"change of control" is defined as: (i) the acquisition, other than from the
Company directly, by any person, entity or group, within the meaning of
sec. 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
of beneficial ownership of 25% or more of the outstanding Common Stock; (ii) if
the individuals who serve on the Board as of the date of the employment
agreement, no longer constitute a majority of the members of the Board;
provided, however, any person who becomes a director subsequent to such date,
who was elected to fill a vacancy by a majority of the individuals then serving
on the Board, shall be considered as if a member prior to such date; (iii)
approval by a majority of the voting stock of the Company of a merger,
reorganization or consolidation whereby the shareholders of the Company
immediately prior to such approval do not, immediately after consummation of
such reorganization, merger or consolidation own more than 50% of the voting
stock of the surviving entity; or (iv) a liquidation or dissolution of the
Company, or the sale of all or substantially all of the Company's assets.
STOCK OPTION PLANS
EMPLOYEE PLAN
In April 1994, the Company's shareholders approved a 1994 Employee Stock
Option Plan ("Employee Plan"). The Employee Plan is designed as an incentive
program to cause employees to increase their interest in the Company's
performance and to attract and retain qualified personnel. Subject to certain
anti-dilution provisions, the Employee Plan consists of 666,667 shares of Common
Stock reserved for issuance upon the exercise of options which may be granted,
including 321,714 shares subject to outstanding options.
The Employee Plan is administered by the Compensation and Stock Option
Committee. The Compensation and Stock Option Committee has the discretion, among
other things, as to whom to grant options, the amount of options, the terms of
options and the exercise prices. All employees of the Company are eligible to
receive options under the Employee Plan. Such employees are eligible to receive
either "incentive" or "nonqualified" stock options, subject to the limitations
of the Internal Revenue Code of 1986, as amended (the "Code"). The exercise
price of an incentive stock option may not be less than 100% of the market price
of the underlying Common Stock as of the date of grant. No option may be granted
which has a term longer than 10 years. Stock options may have vesting
requirements as established by the Compensation and Stock Option Committee, but,
except in the case of an employee's death or permanent disability, in no event
may the options be exercisable until six months after grant. All vested options
under the Employee Plan become immediately vested in full upon a change of
control of the Company, as such term is defined in the Employee Plan.
Upon termination of an optionee's employment with the Company for any
reason, all options granted to such employee under the Employee Plan would
terminate immediately, except that the Compensation and Stock Option Committee
has the discretion to permit such holder to exercise vested options for a period
of 90 days after termination. Options granted under the Employee Plan may not be
transferred and are not exercisable except by the employee.
The Employee Plan provides for the automatic grant of "reload" options to
an employee, who pays all, or a portion of, an exercise price by delivery of
shares of Common Stock then owned by such employee. Reload options are granted
for each share of Common Stock so tendered. The exercise price of such reload
option is the then fair market value of the Common Stock. All other terms of the
reload options would be identical to the original options; provided, however,
that if the expiration date is less
45
<PAGE> 47
than one year, the expiration date is extended to one year from the date of
issuance of the reload options.
As of June 30, 1997, options to purchase a total of 321,714 shares of
Common Stock, with a weighted average exercise price of $ , have been
granted to executive officers and other employees of the Company. Each option
granted has a term of five years. Options are not exercisable until six months
after the date of grant and vest 25% at the end of six months and 25% on each
anniversary of such grant until 100% are vested.
DIRECTORS PLAN
In April 1994, the Company's shareholders adopted the Directors Plan.
Subject to certain anti-dilution provisions in the Plan, there are 166,667
shares of Common Stock reserved for issuance upon the exercise of options which
may be granted pursuant to the Directors Plan, including 30,016 shares subject
to outstanding options. All non-employee directors are eligible to receive
grants of options ("Eligible Directors"). Each Eligible Director receives
automatic, non-discretionary grants of options based upon specific criteria set
forth in the Directors Plan. On April 27 of each year, each Eligible Director
receives non-qualified options to purchase 834 shares of Common Stock for
service on the Board of Directors and additional options to purchase 334 shares
for service on each committee of the Board, other than the Executive Committee,
for which members would receive options to purchase 834 shares. Also, additional
options to purchase 334 shares are granted to Eligible Directors who serve as a
chairman of each standing committee of the Board, other than the chairman of the
Executive Committee, who would receive options to purchase 834 shares.
The exercise price of each option granted under the Directors Plan is equal
to the fair market value of the Common Stock on the date of grant as determined
in accordance with the provisions of the Directors Plan. All options granted
have a term of five years, but, except in the case of an Eligible Director's
death or permanent disability, are not exercisable until six months after the
date of grant. No option is transferable by the Eligible Director, except by the
laws of descent and distribution. If the Eligible Director's membership on the
Board terminates, including by reason of death, such options are exercisable for
the lesser of the remaining term of such option, or one year.
The Directors Plan provides for the automatic grant of "reload" options to
an Eligible Director, who pays all, or a portion of, an exercise price by
delivery of shares of Common Stock then owned by such Eligible Director. Reload
options are granted for each share of Common Stock so tendered. The exercise
price of such reload option is the then fair market value of the Common Stock.
All other terms of the reload options, including the expiration date, would be
identical to the original options, provided, however, that if the expiration
date is less than one year, the expiration date is extended to one year from the
date of issuance of the reload options.
As of June 30, 1997, options to purchase 30,016 shares of Common Stock,
with a weighted average exercise price of $ per share, have been
automatically granted to Eligible Directors as a group.
401(K) PLAN
As of January 1997, the Company adopted a tax-qualified employee savings
and retirement plan (the "401(k) Plan") covering the Company's employees.
Pursuant to the 401(k) Plan, eligible employees may elect to contribute to the
401(k) Plan up to the lesser of 15% of their annual compensation or the
statutorily prescribed annual limit ($9,500 in 1996). The Company matches 25% of
the contributions of employees up to 4% of each employee's salary. All employees
who were employed at December 31, 1996 and new hires who thereafter attain at
least one year's service are eligible to participate in the 401(k) Plan.
The Trustees of the 401(k) Plan, at the direction of each participant,
invest the assets of the 401(k) Plan in designated investment options. The
401(k) Plan is intended to qualify under Section 401 of the Code, so that
contributions to the 401(k) Plan, and income earned on the 401(k) Plan
contributions are not taxable until withdrawn. Matching contributions by the
Company are deductible when made.
46
<PAGE> 48
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of June 30, 1997,
with respect to the beneficial ownership of the Company's Common Stock by: (i)
each person who is known by the Company to own more than 5% of such shares of
Common Stock; (ii) each Named Executive Officer; (iii) each of the Company's
directors; and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
-------------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OFFERING(3) OFFERING(4)
- --------------------------------------- --------------------- ----------- -----------
<S> <C> <C> <C>
Arthur G. Shapiro, M.D.(5)........................... 767,259 19.14% 10.95%
Milton J. Wallace(6)................................. 741,891 18.47 10.57
James P. Shea(7)..................................... 208,356 5.15 2.96
C. David Finch, M.D.(8).............................. 195,947 4.93 2.81
John E. Hunt, Sr.(9)................................. 79,820 2.00 1.14
Orestes L. Lugo(10).................................. 53,736 1.35 *
Charles J. Simons(11)................................ 32,353 * *
Eugene P. Conese, Sr.(12)............................ 20,834 * *
Mark D. Wallace(13).................................. 14,502 * *
Jeffrey H. Watson(14)................................ 5,835 * *
All executive officers and directors as group
(13 persons)(15)................................... 2,247,998 56.56% %
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise indicated, the address for each beneficial owner is c/o
the Company at 2100 Ponce de Leon Boulevard, Suite 950, Coral Gables,
Florida 33134.
(2) Except as set forth herein, all securities are directly owned and the sole
investment and voting power are held by the person named. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days of June 30, 1997 upon the exercise of options or
warrants.
(3) Based upon 3,974,247 shares of Common Stock issued and outstanding. Each
beneficial owner's percentage is determined by assuming that all such
exercisable options or warrants that are held by such person (but not those
held by any other person) have been exercised.
(4) Based upon 6,974,247 shares of Common Stock issued and outstanding
following the Offering.
(5) Except as set forth herein, all shares of Common Stock are owned jointly by
Dr. Shapiro and his wife. Includes: (i) 17,234 shares of Common Stock owned
by Dr. Shapiro's Individual Retirement Account; (ii) 19,169 shares of
Common Stock issuable upon exercise of stock options; (iii) 106,122 shares
of Common Stock (including 8,655 shares of Common Stock issuable upon
exercise of warrants and Series B Warrants) owned by a corporation, of
which Dr. Shapiro is an officer and director; and (iv) 3,750 shares of
Common Stock issuable upon exercise of Series B Warrants owned by Dr.
Shapiro's Individual Retirement Account.
(6) Mr. Wallace's address is 2222 Ponce de Leon Boulevard, Coral Gables,
Florida 33134. Except as set forth herein, all shares of Common Stock are
owned jointly by Mr. Wallace and his wife. Includes: (i) 12,000 shares of
Common Stock owned by Milton J. Wallace and his wife as custodian for a
minor child; (ii) 35,600 shares of Common Stock owned by Mr. Wallace's
Individual Retirement Account; (iii) 106,122 shares of Common Stock
(including 8,655 of Common Stock issuable upon exercise of warrants and
Series B Warrants) owned by a corporation, of which Mr. Wallace is an
officer, director and controlling stockholder; (iv) 19,169 shares of Common
Stock issuable upon exercise of stock options; and (v) 15,000 shares of
Common Stock issuable upon exercise of Series B Warrants owned by his
Individual Retirement Account.
(7) Except as set forth herein all shares are owned jointly by Mr. Shea and his
wife. Includes: (i) 23,755 shares of Common Stock issuable upon exercise of
stock options; (ii) 33,334 shares of Common Stock issuable upon exercise of
warrants; and (iii) 15,000 shares of Common Stock issuable upon exercise of
Series B Warrants.
(8) Includes 3,750 shares of Common Stock issuable upon exercise of stock
options.
(9) Includes: (i) 2,502 shares of Common Stock issuable upon exercise of stock
options; (ii) 6,667 shares of Common Stock issuable upon exercise of
warrants; (iii) 11,667 shares of Common Stock owned by Mr. Hunt's spouse;
(iv) 1,667 shares of Common Stock issuable upon exercise of warrants owned
by his spouse; and (v) 3,750 shares of Common Stock issuable upon exercise
of Series B Warrants. Mr. Hunt disclaims beneficial ownership of the shares
owned by his spouse.
(10) Includes: (i) 12,085 shares of Common Stock issuable upon exercise of stock
options; (ii) 3,334 shares of Common Stock issuable upon exercise of
warrants; and (iii) 3,750 shares of Common Stock issuable upon exercise of
Series B Warrants.
(11) Includes: (i) 3,168 shares of Common Stock issuable upon exercise of stock
options; (ii) 1,667 shares of Common Stock issuable upon exercise of
warrants; and (iii) 7,500 shares of Common Stock issuable upon exercise of
Series B Warrants.
(12) Includes: (i) 834 shares of Common Stock issuable upon exercise of stock
options; and (ii) 5,000 shares of Common Stock issuable upon exercise of
warrants.
(13) Includes 2,502 shares of Common Stock issuable upon exercise of stock
options.
(14) Includes 2,835 shares of Common Stock issuable upon exercise of stock
options.
(15) Includes: (i) 109,353 shares of Common Stock issuable upon exercise of
options; (ii) 58,336 shares of Common Stock issuable upon exercise of
warrants; and (iii) 54,488 shares of Common Stock issuable upon exercise of
Series B Warrants.
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<PAGE> 49
CERTAIN TRANSACTIONS
In connection with the Company's formation in 1993, the Company issued an
aggregate of 1,000,000 shares of Series A Preferred Stock at $1.00 per share.
The following current directors and officers beneficially purchased Series A
Preferred Stock: Milton J. Wallace, 432,000 shares; Arthur G. Shapiro, 400,000
shares; James P. Shea, 20,000 shares; John E. Hunt, Sr., 8,000 shares; Charles
J. Simons, 8,000 shares; Mark D. Wallace, 8,000 shares and Patsy L. Anders,
8,000 shares. In August 1996, the Company authorized the redemption of all
1,000,000 shares of Series A Preferred Stock. All officers and directors set
forth above converted their shares of Series A Preferred Stock prior to the time
for redemption and received an aggregate of 294,667 shares of Common Stock.
In April 1995, the Company issued options to purchase 16,667 shares of
Common Stock to each of Mr. Wallace and Dr. Shapiro, the Chairman and Vice
Chairman of the Company, respectively, as special compensation for services
rendered to the Company. The options are exercisable until April 2000 at $6.00
per share.
In December 1995, the Company purchased 100% of the capital stock of
Dialysis Facilities, Inc. ("DFI"), which was owned by C. David Finch, M.D.,
Charles D. Finch, Sr., and Jeffery Finch. In connection with the acquisition
which was accounted for under the purchase method of accounting, the Company
issued 192,197, 90,446 and 94,214 shares of Common Stock to C. David Finch,
M.D., Charles D. Finch, Sr. and Jeffery Finch, respectively. C. David Finch and
Jeffery Finch became a director and vice president of the Company, respectively,
effective upon consummation of the acquisition of DFI. C. David Finch, M.D. also
serves as the medical director of the Company's three facilities acquired in the
DFI transaction pursuant to a ten year medical director employment agreement.
JCD Partnership, a real estate holding and property management firm, of
which C. David Finch, M.D., Jeffery Finch and Charles D. Finch, Sr. are the
principals, owns the real property and improvements at the Company's dialysis
facilities at Jackson, Mississippi and Delta, Louisiana. JCD Partnership leases
the properties to the Company pursuant to ten year leases, in which the Company
pays annual rent of $92,400 and $82,500, respectively. In connection with the
lease agreements, JCD Partnership, at its own expense, was required to construct
new buildings for the relocation of the dialysis facilities. The Company was
obligated to pay for the cost of leasehold improvements to be installed by JCD
Partnership. The Jackson, Mississippi and Delta, Louisiana buildings and
leasehold improvements were completed in November 1996 and May 1997,
respectively. The Company paid $282,000 and $313,000 to JCD Partnership in
connection with such improvements at each facility.
DFI owned a small parcel of property adjacent to the Delta, Louisiana
facility, which the Company sold to JCD Partnership in July 1996 for the book
value of $30,000.
C. David Finch, M.D. owed DFI approximately $85,000 at the time of DFI's
acquisition by the Company evidenced by a note. C. David Finch, M.D. is
obligated to repay the Company over a three-year period with interest. Such
repayments are expected to come from any bonuses C. David Finch, M.D. may earn
in connection with his employment as a medical director with the Company. The
balance of the note, if not then paid, will be payable upon demand by the
Company at the end of three years.
On July 31, 1996, the Company completed a bridge financing incident to a
shareholders' rights offering commenced in August 1996, and issued an aggregate
of 1,050,000 shares of Series B Preferred Stock and Series B Warrants to
purchase 78,751 shares of Common Stock. The Company received gross proceeds of
$1,050,000 in connection with the Series B Preferred financing. The following
directors and officers beneficially purchased Series B Preferred Stock and
Series B Warrants: Milton J. Wallace, 226,500 shares and 16,988 Series B
Warrants; Dr. Arthur Shapiro, 126,500 shares and 9,488 Series B Warrants; James
P. Shea, 200,000 shares and 15,000 Series B Warrants; John E. Hunt, Sr., 50,000
shares and 3,750 Series B Warrants; Charles J. Simons, 100,000 shares and 7,500
Series B Warrants; and Orestes L. Lugo, 50,000 shares and 3,750 Series B
Warrants. The Series B Preferred Stock was called for redemption in November
1996. In connection with such redemption, the holders thereof converted an
48
<PAGE> 50
aggregate of 775,000 shares of Series B Preferred Stock into 268,250 shares of
Common Stock including accrued dividends and the Company redeemed 275,000 shares
of Series B Preferred Stock for $275,000, plus accrued dividends. The shares of
Common Stock received upon conversion of the Series B Preferred Stock were at
the same price as the Common Stock sold in the shareholders' rights offering.
Milton J. Wallace, Chairman of the Board of Directors of the Company, is a
shareholder of the law firm of Wallace, Bauman, Fodiman & Shannon, P.A. The law
firm serves as general counsel to the Company for which the firm received
$133,000 during 1996.
John E. Hunt, Sr., a Director of the Company, is Chairman of the Board of
Directors of Hunt Insurance Group, Inc., an insurance agency. Hunt Insurance
Group, Inc. arranges for various types of insurance policies for the Company and
receives commissions as a result of such policies.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, $.001 par value, and 5,000,000 shares of preferred stock, $.01
par value. As of the date of this Prospectus, there were 3,974,247 shares of
Common Stock presently issued and outstanding, held of record by 239
shareholders. Upon completion of this Offering, there will be 6,974,247 shares
of Common Stock issued and outstanding. No shares of preferred stock are
outstanding.
COMMON STOCK
Each outstanding share of Common Stock is entitled to one vote, either in
person or by proxy, in all matters that can be voted upon by the owners thereof
at meetings of shareholders. The holders of Common Stock: (i) have equal ratable
rights to dividends from funds legally available therefore when, as and if
declared by the board of directors of the Company; (ii) are entitled to share
ratably in all of the assets of the Company available for distribution to
holders of Common Stock upon liquidation, dissolution or winding up of the
affairs of the Company; (iii) do not have preemptive, subscription or conversion
rights, or redemption or sinking fund provisions applicable thereto; and (iv)
are entitled to one non-cumulative vote per share in all matters on which
shareholders may vote at all meetings of shareholders.
PREFERRED STOCK
The Board of Directors is authorized by the Company's Articles of
Incorporation, without any action of the shareholders, to issue one or more
class or series of preferred stock and to determine the dividend rights,
dividend rates, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking fund provisions and designations of such class
or series. The Company has no present intention to issue any shares of preferred
stock.
The Company's Board of Directors could issue a series of preferred stock,
the terms of which, subject to certain limitations imposed by securities laws,
may 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 interest of the Company and its
shareholders at the time of issuance. The Company's Board of Directors, in so
acting, could issue preferred stock having terms which could discourage an
acquisition attempt or other transaction that some, or a majority, of the
shareholders might believe to be in their best interests or in which
shareholders might receive a premium for their stock over the then market price
of such stock.
WARRANTS
Upon completion of the Offering, the Company will have four different
classes of warrants: (i) warrants to purchase 246,201 shares of Common Stock
exercisable until December 9, 1998 at an exercise price of $9.00 per share (the
"Warrants"); (ii) warrants to purchase 78,751 shares of Common Stock exercisable
until July 31, 1999 at an exercise price of $6.00 per share (the "Series B
Warrants");
49
<PAGE> 51
(iii) warrants to purchase 116,669 shares of Common Stock exercisable until
November 15, 1999 at an exercise price of $3.00 per share (the "Advisor
Warrants"); and (iv) the Representatives' Warrants. A warrant to purchase
211,023 shares of Common Stock issued in connection with certain indebtedness
will be redeemed upon consummation of this Offering. See "Use of Proceeds."
The Company is not required to issue fractional shares upon exercise of any
warrants, but may make cash payments thereof, based on the then market price of
the Common Stock. No holder of any warrants will be entitled to vote, receive
dividends, or be deemed the holder of the Common Stock until such time as the
warrants shall have been duly exercised and payment of the purchase price shall
have been made. Shares of Common Stock issued upon the exercise of the warrants
and on payment of the purchase price will be legally issued, fully paid and
non-assessable.
WARRANTS
The Warrants were issued in December 1994. No adjustments as to dividends,
except stock dividends, will be made upon the exercise of the Warrants. The
Warrants are subject to equitable adjustment upon certain events, which include:
(i) the issuance of Common Stock as a dividend on the outstanding Common Stock;
(ii) subdivisions, combinations, and reclassifications of Common Stock; and
(iii) mergers, consolidations and similar events. The Warrants are redeemable at
the option of the Company in whole at any time or in part from time to time upon
30 days written notice to the holders of the Warrants at the redemption price of
$.30 per Warrant.
SERIES B WARRANTS
The Series B Warrants were issued in connection with the Company's sale of
1,050,000 shares of Series B Preferred Stock completed as of July 31, 1996. See
"Certain Transactions." No adjustments as to dividends, except stock dividends,
will be made upon the exercise of the Series B Warrants. The Series B Warrants
are subject to equitable adjustment upon certain events, which include: (i) the
issuance of Common Stock as a dividend on the outstanding Common Stock; (ii)
subdivisions, combinations, and reclassifications of Common Stock; and (iii)
mergers, consolidations and similar events. The holders of the Series B Warrants
have certain piggy-back registration rights, which have been waived in
connection with this Offering.
ADVISOR WARRANTS
The Advisor Warrants were issued to a financial advisor of the Company in
November 1996 in connection with services to be performed under a six month
advisory agreement. No adjustment as to dividends, except stock dividends, will
be made upon exercise of the Advisor Warrants. The Advisor Warrants are subject
to equitable adjustment upon certain events, including: (i) the issuance of
Common Stock for a price less than the exercise price of $3.00 per share; (ii)
subdivisions, combinations and reclassifications of the Common Stock; and (iii)
mergers, consolidations and similar events. The holder of the Advisor Warrants
has certain demand registration rights commencing six months following the
completion of the Offering and certain piggy-back registration rights, which
have been waived by the holders in connection with this Offering.
REPRESENTATIVES' WARRANTS
The Company has agreed to issue to the Representatives warrants to purchase
an aggregate of 300,000 shares of Common Stock at an exercise price equal to
107% of the initial public offering price set forth on the cover page of this
Prospectus. The Representatives' Warrants are exercisable for a period of five
years, beginning on the date of this Prospectus. The Company has granted the
holders of the Representatives' Warrants certain registration rights with
respect to the shares of Common Stock issuable upon the exercise of such
warrants. See "Description of Securities -- Registration Rights" and
"Underwriting."
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<PAGE> 52
ANTI-TAKEOVER PROVISIONS
Certain portions of the Company's Articles of Incorporation and By-laws may
make more difficult the acquisition of control of the Company by various means,
such as a tender offer, a proxy contest or otherwise. These provisions encourage
persons seeking to acquire control of the Company to consult first with the
Company's Board of Directors to negotiate the terms of any proposed business
combination or offer. The provisions are designed to reduce the vulnerability of
the Company to an unsolicited proposal for a takeover that does not contemplate
the acquisition of all outstanding shares of capital stock or which is otherwise
unfair to shareholders of the Company.
CLASSIFIED BOARD OF DIRECTORS
The Company's Articles of Incorporation provide for the Company's Board of
Directors to be divided into three classes, as nearly equal in number as is
reasonably possible, serving three year staggered terms, so that directors'
terms expire either at the 1997, 1998 or 1999 annual meeting of the Company's
shareholders. See "Management."
ADVANCE NOTICE
The Company's By-laws contain provisions relating to notice of shareholder
meetings, which would prohibit a shareholder from nominating a person to the
Board of Directors or proposing certain actions relating to the Company's
business without advance written notice to the Company. Such written notice must
be received a minimum of 90 days prior to a shareholders' meeting and must
contain specific information about the nominee and the shareholder who makes
such nomination or proposal.
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
The Company is subject to the anti-takeover provisions of Section 607.0901
of the Florida Business Corporation Act (the "Affiliated Transaction Statute").
In general, the Affiliated Transaction Statute requires the approval of the
holders of two-thirds of the voting shares of a corporation, other than shares
owned by an "interested shareholder," in order to effect an "affiliated
transaction," such as a merger, sale of assets, or sale of shares, between a
corporation and an interested shareholder. An "interested shareholder" is
defined as a beneficial owner of 10% or more of the outstanding voting
securities of the corporation. Such approval is not required where: (i) the
affiliated transaction is approved by a majority of the disinterested directors;
(ii) the interested shareholder owns 90% or more of the corporation's
outstanding voting stock, or has owned 80% or more for five years; or (iii) the
consideration paid in connection with the affiliated transaction satisfies the
statutory "fair price" formula and the transaction meets certain other
requirements. A corporation may elect, by the vote of a majority of the
outstanding voting securities of the corporation (not including shares held by
an interested shareholder), or by amendment to the articles or by-laws of the
corporation, not to be subject to the provisions of the Affiliated Transaction
Statute. The election will not be effective until 18 months after it is made,
and will not apply to any affiliated transaction between the corporation and
someone who was an interested shareholder prior to the effective date of the
election.
The Company may also be subject to the provisions of Section 607.0902 of
the Florida Business Corporation Act (the "Control Share Acquisition Statute").
Under such statute, "control shares" of certain corporations acquired in a
"control share acquisition," with certain exceptions, have no voting rights
unless such rights are granted pursuant to a vote of the holders of a majority
of the corporation's voting securities (excluding all "interested shares").
"Control shares" are shares that, when added to all other shares which a person
owns or has the power to vote, would give that person any of the following
grants of voting power: (i) one-fifth or more but less than one-third of the
voting power; (ii) one-third or more but less than a majority of the voting
power; and (iii) more than a majority of the voting power. A "control share
acquisition" is the acquisition of ownership of, or the power to vote,
outstanding control shares. Shares acquired within 90 days, or as part of a plan
to effect a control share
51
<PAGE> 53
acquisition, are deemed to have been acquired in the same transaction.
"Interested shares" include shares held by the person attempting to effect the
control share acquisition, and shares held by employee-directors or officers of
the corporation. A corporation may elect not to be subject to the Control Share
Acquisition Statute by amendment to its articles or by-laws.
REGISTRATION RIGHTS
The holders of 333,334 shares of Common Stock (the "Holders") are entitled
to certain rights with respect to the registration of such shares under the
Securities Act of 1933, as amended (the "Securities Act"). Under the terms of an
agreement between the Company and such Holders, such Holders, commencing two
years following receipt of Medicare certification of a proposed dialysis
facility in New Jersey (which the Company expects to receive by the end of the
first quarter of 1998), may require the Company to file a registration statement
covering such shares under the Securities Act, at the Company's expense.
However, such registration rights will not be exercisable if the provisions of
Rule 144 would allow the sale of such shares. In addition, following the
Offering, if the Company thereafter proposes to register any of its Common
Stock, subject to certain exceptions, the Holders are entitled to include their
shares of Common Stock in such registration, at the Company's expense.
Holders of the Series B Warrants have certain rights with respect to the
registration of 78,751 shares of Common Stock underlying the Series B Warrants.
If the Company proposes to register any of its Common Stock, the holders of the
Series B Warrants are entitled to include, subject to such limitations imposed
by the managing underwriters of such offering, their shares of Common Stock in
such registration, at the Company's expense. All of the holders of the Series B
Warrants have waived their right to be included in the Offering.
Holders of the Advisor Warrants also have certain rights with respect to
the registration of the 116,669 shares of Common Stock underlying the Advisor
Warrants. If the Company proposes to register any of its Common Stock, the
holders of the Advisor Warrants are entitled to include, subject to such
limitations imposed by the managing underwriters of such offering, their shares
of Common Stock in such registration, at the Company's expense. All of the
holders of the Advisor Warrants have waived their right to be included in the
Offering. In addition, the holders of the Advisor Warrants have demand
registration rights commencing six months following the completion of this
Offering.
The Company has also granted certain registration rights to the
Representatives with respect to the Common Stock issuable upon exercise of the
Representatives' Warrants. See "Underwriting."
TRANSFER AGENT
The Transfer Agent for the Common Stock of the Company is Continental Stock
Transfer and Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of shares of Common Stock by the Company's current
shareholders could adversely affect the market price of the Common Stock. Upon
completion of the Offering, the Company will have outstanding an aggregate of
6,974,247 shares of Common Stock. In addition, the Company has reserved for
issuance 1,142,520 shares issuable upon exercise of outstanding options and
warrants, including the Representatives' Warrants. The 3,000,000 shares of
Common Stock offered hereby will be freely transferable without restriction or
further registration under the Securities Act, except for such shares acquired
by affiliates of the Company. Shares purchased by affiliates of the Company
would be subject to certain volume and other restrictions upon resale as
described below.
The remaining 3,947,247 shares of Common Stock held by existing
shareholders are "restricted securities" as that term is defined by Rule 144
under the Securities Act. Pursuant to certain "lock-up" agreements, all
shareholders of the Company, together with the Company, have agreed that they
will not offer, pledge, sell, contract to sell, grant any option for the sale
of, or otherwise dispose of, directly
52
<PAGE> 54
or indirectly, any shares of Common Stock without the prior written consent of
Vector Securities International, Inc. for a period of 180 days following the
date of this Prospectus. Following the 180-day period, approximately
shares of Common Stock will be eligible for sale in the public market without
restriction pursuant to Rule 144(k), and an additional shares will be
eligible for sale under Rule 144, subject to certain volume, manner of sale and
other restrictions of Rule 144. In addition, holders of stock options or
warrants, including the Representatives' Warrants, exercisable for an aggregate
of 1,142,520 shares of Common Stock have entered into agreements prohibiting the
sales of the underlying Common Stock for 180 days following the date of this
Prospectus. See "Principal Shareholders" and "Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, any person who has beneficially owned restricted
securities for at least one year will be entitled to sell in any three-month
period a number of shares that does not exceed the greater of: (i) one percent
of the then outstanding shares of the Company's Common Stock (approximately
69,000 shares immediately after the Offering); or (ii) the average weekly
trading volume of the Company's Common Stock in the Nasdaq National Market
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission. Sales pursuant to
Rule 144 are subject to certain requirements relating to manner of sale, notice
and availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days immediately preceding the sale and
who has beneficially owned the shares proposed to be sold for at least two years
is entitled to sell such shares under Rule 144(k) without regard to the
limitations described above.
The Company intends to file a registration statement under the Securities
Act covering shares of Common Stock reserved for issuance under the Employee
Plan. Based on the options outstanding and shares reserved for issuance as of
the date of this Prospectus, such registration statement would cover
approximately 321,714 shares. Such registration statement is expected to be
filed and to become effective as soon as practicable after the date of this
Prospectus. Shares registered in such registration will, subject to Rule 144
volume limitations applicable to affiliates, be available for sale in the open
market upon expiration of the contractual restrictions discussed above. As of
the date of this Prospectus, options to purchase 321,714 shares of Common Stock
were issued and outstanding under the Employee Plan. Holders of warrants to
purchase an aggregate of shares of Common Stock have been granted
certain registration rights. See "Management" and "Description of Securities --
Registration Rights."
53
<PAGE> 55
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Vector Securities
International, Inc. and Needham & Company, Inc. are acting as representatives
(the "Representatives"), have severally agreed to purchase, subject to the terms
and conditions of the Underwriting Agreement, and the Company has agreed to sell
to the Underwriters, the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Vector Securities International, Inc. ......................
Needham & Company, Inc. ....................................
---------
Total............................................. 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby, if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if any
Underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the Underwriters so defaulting do not exceed 10% of the shares
offered hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain other dealers.
After the public offering of the shares of Common Stock, the offering price and
other selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable at any
time during the 30-day period no later than 30 days after the date of this
Prospectus, to purchase up to 450,000 additional shares of Common Stock at the
public offering price set forth on the cover page of this Prospectus, less
underwriting discounts and commissions. The Underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, in connection
with the Offering. To the extent such option is exercised, each Underwriter will
be obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares of Common Stock set
forth next to such Underwriter's name in the preceding table bears to the total
number of shares listed in the table. The Company will be obligated, pursuant to
the option, to sell such shares to the Underwriters to the extent the option is
exercised.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
the Offering, if the syndicate repurchases previously distributed Common Stock
in syndicate covering transactions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the Common
Stock above independent
54
<PAGE> 56
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Company has agreed to issue to the Representatives warrants to purchase
up to an aggregate of 300,000 shares of Common Stock, exercisable for a period
of five years commencing on the date of this Prospectus, at a price equal to
107% of the initial public offering price set forth on the cover page of this
Prospectus. The Representatives' Warrants contain provisions providing for
adjustment of the exercise price and the number and type of securities issuable
upon the exercise thereof upon the occurrence of certain events, including the
issuance of any shares of Common Stock or other securities convertible into or
exercisable for shares of Common Stock at a price per share less than the
exercise price, or the market price of the Common Stock, or in the event of any
stock dividend, stock split, stock combination or similar transaction. Holders
of the Representatives' Warrants have been granted certain registration rights
under the Securities Act with respect to the securities issuable upon exercise
of the Representatives' Warrants. See "Description of Securities -- Registration
Rights."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The officers, directors and the other shareholders of the Company have
agreed, that they will not, without the prior written consent of Vector
Securities International, Inc., offer, sell or otherwise dispose of any shares
of Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned by
them for a period of 180 days after the date of this Prospectus. The Company has
agreed that it will not, without the prior written consent of Vector Securities
International, Inc., offer, sell or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock for a period of 180
days after the date of this Prospectus.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the shares of Common
Stock included in the Offering will be determined by negotiations between the
Company and the Representatives. Among the factors to be considered in
determining such price will be: the history of, and the prospects for, the
Company's business and the industry in which it competes; an assessment of the
Company's management and the present state of the Company's development; the
past and present revenues and earnings of the Company; the prospects for growth
of the Company's revenues and earnings; the current state of the economy in the
United States; and the current level of economic activity in the industry in
which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies that are comparable to the
Company.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
and certain other legal matters will be passed upon for the Company by Wallace,
Bauman, Fodiman & Shannon, P.A., Coral Gables, Florida and Haythe & Curley, New
York, New York. Milton J. Wallace, Chairman of the Board of the Company, is a
shareholder of Wallace, Bauman, Fodiman & Shannon, P.A. and beneficially owns
741,891 shares of Common Stock. Other shareholders of such firm beneficially own
an aggregate of 22,197 shares of Common Stock. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois. Haythe &
Curley and Skadden, Arps, Slate, Meagher & Flom (Illinois) will rely on the
opinion of Wallace, Bauman, Fodiman & Shannon, P.A., as to matters of Florida
law.
55
<PAGE> 57
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996, and for the years ended December 31, 1995 and 1996, included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of the Company for the year ended
December 31, 1994 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent certified public accountants, as
set forth in their report therein appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The statements of law in this Prospectus under the captions "Risk
Factors -- Dependence upon Government Reimbursement," "Risk Factors -- Operation
Subject to Extensive Government Regulation," "Business -- Sources of
Reimbursement" and "Business -- Government Regulation" have been reviewed and
approved by Lashly & Baer, health care counsel for the Company, as experts on
such matters, and are included herein in reliance upon that review and approval.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered by the Company has been filed with the
Securities and Exchange Commission, Washington, D.C. 20549 ("Commission"). This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or any other document referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules thereto. A copy of the Registration Statement may be
inspected by anyone without charge at the public reference facilities maintained
by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048, and copies of all or
any part thereof may be obtained from such offices, upon payment of certain fees
prescribed by the Commission. The Commission maintains a World Wide Website that
contains reports, proxy and information statements and other information filed
electronically with the Commission. The address of the Commission's World Wide
Website is http://www.sec.gov.
Following the effective date of the Registration Statement, the Company
will be subject to the information requirements of the Securities Exchange Act
of 1934, and in accordance therewith will file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission in Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 or through the Commission's World Wide Website.
56
<PAGE> 58
RENEX CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Report of Independent Certified Public Accountants.......... F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996
and March 31, 1997 (unaudited)............................ F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996 and the Three Months
Ended March 31, 1996 and 1997 (unaudited)................. F-5
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1994, 1995 and 1996 and the Three
Months Ended March 31, 1996 and 1997 (unaudited).......... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 and the Three Months
Ended March 31, 1996 and 1997 (unaudited)................. F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 59
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Renex Corp. and Subsidiaries
Miami, Florida:
We have audited the accompanying consolidated balance sheets of Renex Corp.
and Subsidiaries (the "Company") as of December 31, 1995 and 1996 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the two years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such 1995 and 1996 consolidated financial statements
present fairly, in all material respects, the financial position of the Company
as of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the two years then ended in conformity with generally accepted
accounting principles.
DELOITTE AND TOUCHE LLP
Miami, Florida
April 18, 1997, except for Note 18
for which the date is April 22, 1997
F-2
<PAGE> 60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Renex Corp. and Subsidiaries
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Renex Corp. and Subsidiaries (the
"Company") for the year ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated result of operations and cash flows
of the Company for the year ended December 31, 1994 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Miami, Florida
March 8, 1995
F-3
<PAGE> 61
RENEX CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,234,000 $ 952,000 $ 519,000
Accounts receivable (net of allowance for doubtful
accounts of $393,000 in 1995, $1,261,000 in 1996 and
$1,280,000 as of March 31, 1997)........................ 3,693,000 4,535,000 5,631,000
Inventories............................................... 272,000 347,000 339,000
Prepaids and other........................................ 35,000 225,000 362,000
----------- ----------- -----------
Total current assets............................... 5,234,000 6,059,000 6,851,000
Fixed assets, net........................................... 3,774,000 6,042,000 6,238,000
Intangible assets, net...................................... 1,058,000 1,309,000 1,268,000
Notes receivable from affiliates (interest rate at 9%
(1995), 8% (1996)
and 8% (March 31, 1997)).................................. 112,000 85,000 85,000
Other assets, including $1,384,000 in 1995, $1,168,000 in
1996 and $1,113,000 as of March 31, 1997 of deferred
financing costs........................................... 1,637,000 1,666,000 1,645,000
----------- ----------- -----------
TOTAL ASSETS....................................... $11,815,000 $15,161,000 $16,087,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 756,000 $ 708,000 $ 1,428,000
Accrued expenses and other................................ 520,000 2,393,000 2,276,000
Note payable to bank...................................... 337,000 -- --
Notes payable to affiliates............................... 94,000 -- --
Current portion of long-term debt......................... 113,000 46,000 34,000
Current portion of capital lease obligations.............. 363,000 523,000 403,000
----------- ----------- -----------
Total current liabilities.......................... 2,183,000 3,670,000 4,141,000
----------- ----------- -----------
Long-term debt, less current portion........................ 4,810,000 6,184,000 6,189,000
----------- ----------- -----------
Capital lease obligations, less current portion............. 658,000 990,000 1,742,000
----------- ----------- -----------
Shareholders' equity:
Series A redeemable preferred stock, $.01 par value,
5,000,000 shares authorized, 1,000,000 shares issued and
outstanding (1995)...................................... 10,000 -- --
Common stock, $.001 par value, 30,000,000 shares
authorized, 2,358,857 shares (1995), 3,970,114 shares
(1996) and 3,974,247 shares (March 31, 1997) issued and
outstanding............................................. 2,000 3,000 3,000
Additional paid-in capital.................................. 6,503,000 9,151,000 9,163,000
Accumulated deficit......................................... (2,351,000) (4,837,000) (5,151,000)
----------- ----------- -----------
Total shareholders' equity......................... 4,164,000 4,317,000 4,015,000
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $11,815,000 $15,161,000 $16,087,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 62
RENEX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues................................. $2,746,000 $ 8,794,000 $18,569,000 $3,876,000 $6,007,000
Operating expenses:
Facilities................................. 2,405,000 6,809,000 14,625,000 2,979,000 4,735,000
General and administrative................. 1,025,000 1,682,000 2,681,000 536,000 637,000
Provision for doubtful accounts............ 93,000 495,000 1,293,000 268,000 228,000
Depreciation and amortization.............. 126,000 509,000 1,642,000 215,000 379,000
---------- ----------- ----------- ---------- ----------
Operating income (loss).................. (903,000) (701,000) (1,672,000) (122,000) 28,000
Other income (expenses):
Gain (loss) on sale of assets.............. -- -- 364,000 -- (27,000)
Net interest income (expense).............. 61,000 (360,000) (915,000) (198,000) (260,000)
Amortization of deferred financing......... -- (126,000) (226,000) (55,000) (55,000)
---------- ----------- ----------- ---------- ----------
Net (loss)................................... $ (842,000) $(1,187,000) $(2,449,000) $ (375,000) $ (314,000)
========== =========== =========== ========== ==========
Net (loss) per share......................... $ (.31) $ (.40) $ (.66) $ (.11) $ (.08)
========== =========== =========== ========== ==========
Weighted average number of common shares and
equivalents outstanding.................... 2,759,884 2,963,193 3,693,617 3,377,291 4,067,637
========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 63
RENEX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
REDEEMABLE REDEEMABLE ------------------- COMMON
PREFERRED STOCK PREFERRED STOCK NUMBER OF ADDITIONAL STOCK
SERIES A SERIES B SHARES AMOUNT PAID-IN CAPITAL SUBSCRIBED
--------------- --------------- --------- ------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994............ $ 10,000 1,733,333 $2,000 $3,913,000
Sale of common stock through
exercise of warrants (net of
expenses of $15,000).............. 111,667 655,000 $ 290,000
Repurchase of warrants.............. (72,000)
Sale of common stock................ 23,000 139,000
Net loss............................
-------- ------- --------- ------ ---------- ---------
Balance at December 31, 1994.......... 10,000 1,868,000 2,000 4,635,000 290,000
Sale of common stock through
exercise of warrants (net of
expenses of $9,000)............... 45,000 261,000 (290,000)
Sale of common stock................ 64,333 386,000
Stock warrants issued with debt..... 150,000
Issuance of common stock............ 4,667 20,000
Issuance of common stock for
acquisition....................... 376,857 1,051,000
Net loss............................
-------- ------- --------- ------ ---------- ---------
Balance at December 31, 1995.......... 10,000 2,358,857 2,000 6,503,000
Issuance of common stock for
acquisition....................... 333,333 790,000
Sale of common stock (net of
expenses of $21,000).............. 351,007 1,058,000
Issuance of preferred stock......... $11,000 1,039,000
Conversion of preferred stock....... (10,000) (8,000) 926,917 1,000 47,000
Redemption of preferred stock....... (3,000) (286,000)
Net loss............................
-------- ------- --------- ------ ---------- ---------
Balance at December 31, 1996.......... 3,970,114 3,000 9,151,000
Sale of common stock (unaudited).... 4,133 12,000
Net loss (unaudited)................
-------- ------- --------- ------ ---------- ---------
Balance at March 31, 1997
(unaudited)......................... $ $ 3,974,247 $3,000 $9,163,000 $
======== ======= ========= ====== ========== =========
<CAPTION>
SUBSCRIPTIONS
RECEIVABLE FROM
EXERCISE OF ACCUMULATED
WARRANTS DEFICIT TOTAL
--------------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1, 1994............ $ (322,000) $ 3,603,000
Sale of common stock through
exercise of warrants (net of
expenses of $15,000).............. $(290,000) 655,000
Repurchase of warrants.............. (72,000)
Sale of common stock................ 139,000
Net loss............................ (842,000) (842,000)
--------- ----------- -----------
Balance at December 31, 1994.......... (290,000) (1,164,000) 3,483,000
Sale of common stock through
exercise of warrants (net of
expenses of $9,000)............... 290,000 261,000
Sale of common stock................ 386,000
Stock warrants issued with debt..... 150,000
Issuance of common stock............ 20,000
Issuance of common stock for
acquisition....................... 1,051,000
Net loss............................ (1,187,000) (1,187,000)
--------- ----------- -----------
Balance at December 31, 1995.......... (2,351,000) 4,164,000
Issuance of common stock for
acquisition....................... 790,000
Sale of common stock (net of
expenses of $21,000).............. 1,058,000
Issuance of preferred stock......... 1,050,000
Conversion of preferred stock....... (30,000)
Redemption of preferred stock....... (7,000) (296,000)
Net loss............................ (2,449,000) (2,449,000)
--------- ----------- -----------
Balance at December 31, 1996.......... (4,837,000) 4,317,000
Sale of common stock (unaudited).... 12,000
Net loss (unaudited)................ (314,000) (314,000)
--------- ----------- -----------
Balance at March 31, 1997
(unaudited)......................... $ $(5,151,000) $ 4,015,000
========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 64
RENEX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................................... $ (842,000) $(1,187,000) $(2,449,000) $ (375,000) $ (314,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provisions for doubtful accounts..................... 93,000 495,000 1,293,000 268,000 228,000
Depreciation and amortization........................ 126,000 509,000 1,642,000 215,000 379,000
Amortization of deferred financing costs............. -- 126,000 226,000 55,000 55,000
Loss on sale of property and equipment............... -- -- 100,000 -- 27,000
Gain from sale of facility........................... -- -- (364,000) -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable......... (1,438,000) (2,171,000) (2,135,000) (514,000) (1,324,000)
(Increase) decrease in inventories................. (63,000) (110,000) (75,000) (12,000) 8,000
(Increase) decrease in prepaids and other current
assets........................................... (98,000) 78,000 (190,000) (68,000) (137,000)
(Increase) decrease in other assets................ (96,000) (302,000) (245,000) 4,000 (41,000)
Increase (decrease) in accounts payable and accrued
expenses......................................... 231,000 316,000 1,241,000 (214,000) 1,025,000
----------- ----------- ----------- ---------- -----------
Net cash used in operating activities............ (2,087,000) (2,246,000) (956,000) (641,000) (94,000)
----------- ----------- ----------- ---------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment.................... (1,201,000) (1,505,000) (2,396,000) (10,000) (220,000)
Cash acquired in acquisitions.......................... -- 130,000 -- -- --
Proceeds from the sale of property and equipment....... -- -- 776,000 -- 36,000
----------- ----------- ----------- ---------- -----------
Net cash used in investing activities............ (1,201,000) (1,375,000) (1,620,000) (10,000) (184,000)
----------- ----------- ----------- ---------- -----------
Cash Flows from Financing Activities:
Net change in notes receivable from affiliates......... -- -- 27,000 -- --
Repayment of note payable to bank...................... -- -- (337,000) -- --
Payments on capital lease obligations.................. (3,000) (225,000) (353,000) (123,000) (164,000)
Proceeds from long-term debt........................... -- 5,600,000 1,500,000 90,000 --
Proceeds from stock warrants........................... -- 150,000 -- -- --
Net change in notes payable to affiliates.............. -- -- (94,000) -- --
Repayments of long-term debt........................... -- (800,000) (261,000) -- (3,000)
Proceeds from sale of stock through exercise of
warrants............................................. 654,000 261,000 -- -- --
Proceeds from sale of stock............................ 139,000 386,000 2,108,000 -- 12,000
Repurchase of warrants................................. (25,000) (26,000) -- -- --
Payment of deferred financing costs.................... -- (1,510,000) -- -- --
Redemption of preferred stock.......................... -- -- (296,000) -- --
----------- ----------- ----------- ---------- -----------
Net cash provided (used) by financing
activities..................................... 765,000 3,836,000 2,294,000 (33,000) (155,000)
----------- ----------- ----------- ---------- -----------
Increase (Decrease) in Cash and Cash Equivalents......... (2,523,000) 215,000 (282,000) (684,000) (433,000)
Cash, Beginning of Year.................................. 3,542,000 1,019,000 1,234,000 1,234,000 952,000
----------- ----------- ----------- ---------- -----------
Cash, End of Year........................................ $ 1,019,000 $ 1,234,000 $ 952,000 $ 550,000 $ 519,000
=========== =========== =========== ========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest................................. $ 1,000 $ 446,000 $ 971,000 $ 207,000 $ 263,000
=========== =========== =========== ========== ===========
Non-Cash Investing and Financing Activities:
Equipment acquired through capital lease obligations... $ 223,000 $ 970,000 $ 1,267,000 $ 132,000 $ 374,000
Lease equipment liability.............................. -- 422,000 -- --
Conversion of preferred stock.......................... -- -- 48,000 -- --
Stock issued for acquisition........................... -- 1,051,000 790,000 -- --
Issuance of Common Stock............................... -- 20,000 -- -- --
Stock subscriptions receivable for Common Stock
subscribed........................................... 290,000 -- -- -- --
Warrant redemption payable for repurchase of
warrants............................................. 47,000 -- -- -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 65
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
(UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. Renex Corp., a Florida corporation, was incorporated on July
7, 1993. Renex Corp. and its subsidiaries (the "Company") are engaged in the
provision of kidney dialysis services to patients suffering from end-stage renal
disease. The Company currently operates, through wholly-owned subsidiaries,
twelve dialysis facilities and two home dialysis programs in seven states.
Additionally, the Company has entered into patient dialysis service agreements
with several hospitals to provide dialysis treatments on an inpatient basis.
The Company has a limited operating history and had an accumulated deficit
of $4,837,000 through December 31, 1996 and is subject to all the risks inherent
in the establishment of a new business enterprise. The Company's ability to
achieve profitability is dependent upon increased utilization of its existing
facilities, controlling operating costs and its ability to develop or acquire
and manage additional dialysis facilities. The Company has availability in its
lines of credit and will continue to rely on external financing to meet its cash
needs.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly-owned.
All intercompany accounts and transactions have been eliminated in
consolidation.
INTERIM FINANCIAL INFORMATION (UNAUDITED). The unaudited interim financial
statements as of March 31, 1997 and for the three months ended March 31, 1996
and 1997 have been prepared on the same basis as the audited financial
statements included herein. In the opinion of management, such unaudited interim
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the results for such periods.
The operating results for the three months ended March 31, 1997 are not
necessarily indicative of the operating results to be expected for the full
fiscal year or for any future period.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NET REVENUES. The Company has agreements with third-party payors that
provide for payments to the Company at amounts different from its established
rates. These third-party payors include Medicare, Medicaid, commercial insurance
carriers, health maintenance organizations and preferred provider organizations.
The basis for payment to the Company under these agreements primarily includes
prospectively determined rates and discounts from established charges. The
Company's net revenues are recorded at the estimated realizable amounts from
third-party payors. The Company provides an allowance for doubtful accounts
based on historical experience of amounts that result to be uncollectible.
Amounts written off are charged against the allowance.
During the years ended December 31, 1994, 1995 and 1996, the Company
received approximately 65%, 59% and 67%, respectively, of its dialysis revenues
from Medicare and Medicaid programs. The remaining balance of dialysis revenues
was from insurance companies and private and other third-party payors.
Revenues associated with the administration of erythropoietin ("EPO") are a
significant source of revenue for the Company. The Company is unable to predict
future changes in the reimbursement rate for EPO treatments, the typical dosage
per administration, or the cost of the medication. In addition,
F-8
<PAGE> 66
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EPO is produced by only one manufacturer. The interruption of supplies of EPO to
the Company would have a material adverse effect on the Company's business,
financial condition and results of operations.
CASH EQUIVALENTS. The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
INVENTORIES. Inventories are stated at the lower of cost (first-in,
first-out) or market.
FIXED ASSETS. Fixed assets are carried at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
ranging from five to ten years for medical and other equipment, and furniture
and fixtures, and twenty years for buildings. Leasehold improvements are
amortized over the lease term or the useful life of the assets, whichever is
lower.
ASSETS HELD UNDER CAPITAL LEASES. Equipment held under capital lease
obligations has been capitalized at the present value of the minimum lease
payments. Depreciation of assets capitalized under lease obligations is computed
under the straight-line method over the lives of the assets or leases, whichever
is appropriate, and is included in depreciation expense.
INTANGIBLE ASSETS.
NON-COMPETE AGREEMENTS. Non-compete agreements are being amortized
over the terms of the agreements, typically from 2 to 10 years, using the
straight-line method.
PATIENT LISTS. Patient lists are amortized over 5 years, using the
straight-line method.
GOODWILL. Goodwill, the excess of the aggregate purchase price over
the fair value of net assets acquired, is amortized over 20 years using the
straight-line method.
Management evaluates intangible assets for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. This evaluation is based on certain financial
indicators, such as estimated future undiscounted cash flows.
INCOME TAXES. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE. Net income per common
and common equivalent share amounts are based on the average number of common
shares outstanding for each period, after giving effect to the reverse stock
split. In accordance with Securities and Exchange Commission requirements,
common stock equivalent shares issued during the twelve month period prior to
the proposed initial public offering have been included in the calculation as if
they were outstanding for all periods, using the treasury stock method.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments
include receivables, payables, debt and credit lines. The fair values of such
financial instruments have been determined based on market interest rates as of
December 31, 1996. The fair values were not materially different than their
carrying values.
STOCK BASED COMPENSATION. Statement of Financial Accounting Standards No.
123, Accounting for Stock Based Compensation ("SFAS 123") encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to
F-9
<PAGE> 67
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
continue to account for stock-based compensation to employees using the
intrinsic value method as prescribed by Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation cost for stock options issued to
employees is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of grant over the amount an employee must pay for
the stock. Compensation cost related to stock options of non-employees is
recorded at fair value.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform to current year presentation.
NEW ACCOUNTING PRONOUNCEMENTS. In March 1997 the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
Earnings per Share ("SFAS 128"). This statement establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities with
publicly held common stock or potential common stock. This statement is
effective for financial statements issued for periods ending after December 15,
1997 and earlier application is not permitted. This statement requires
restatement of all prior period EPS data presented. The Company will adopt SFAS
128 in the fourth quarter of the fiscal year ending December 31, 1997. The pro
forma basic (loss) per share and diluted (loss) per share calculated in
accordance with SFAS 128 for the fiscal years ended December 31, 1994, 1995 and
1996, are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Pro forma basic (loss) per share............................ $(.48) $(.61) $(.84)
Pro forma diluted (loss) per share.......................... $(.48) $(.61) $(.84)
</TABLE>
During February 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 129, Disclosure of Information about
Capital Structure ("SFAS 129"). SFAS 129 requires entities to explain, in
summary form within their financial statements, the pertinent rights and
privileges of the various securities outstanding. Information that shall be
disclosed should include dividend and liquidation preferences, participation
rights, call prices and dates, conversion or exercise prices or rates and
pertinent dates, sinking fund requirements, unusual voting rights, and
significant terms of contracts to issue additional shares. SFAS 129 is effective
for periods ending after December 15, 1997. The adoption of this accounting
standard is not expected to have a material impact on the financial statements.
2. BUSINESS COMBINATIONS
In April 1996, the Company, through two wholly owned subsidiaries, acquired
two limited liability companies, Central Dialysis Center, L.L.C. and
Metropolitan Dialysis Center, L.L.C., each with an interest in two facilities
under development. The acquisitions have been accounted for under the purchase
method.
Central Dialysis Center, L.L.C. was acquired for 166,667 shares valued at
$395,000 and assumed liabilities of $121,000. The Company entered into
non-compete agreements with a group of nephrologists for a period of two and
one-half years and completed the build-out of the facility, which began
operations in October 1996. The purchase price of $516,000 was allocated to the
non-compete agreements.
Metropolitan Dialysis Center, L.L.C. was also acquired for 166,667 shares
valued at $395,000 and assumed liabilities of $42,000. The Company also entered
into non-compete agreements with a similar group of nephrologists. However, this
facility was not completed due to the zoning variance request being denied. The
Company is in the process of finding a suitable location to build the new
facility.
F-10
<PAGE> 68
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based on the Company's inability to generate revenue without a facility and the
uncertainty that a location will be found, the Company has determined the assets
to be impaired and, accordingly, has written off the intangible assets of
$437,000.
In December 1995, Dialysis Facilities, Inc. ("DFI"), which operates three
dialysis facilities and two acute dialysis programs in Mississippi and
Louisiana, was acquired by the Company through a wholly owned subsidiary. The
Company issued 376,857 shares of the Company's common stock with an estimated
value of $1,051,000 to DFI shareholders in exchange for all of the outstanding
common stock of DFI. The transaction was accounted for using the purchase method
of accounting. Accordingly, a portion of the purchase price was allocated to the
net assets acquired based on their estimated fair values. The balance of the
purchase price, $846,000, was recorded as goodwill.
The following table reflects pro forma combined results of operations of
Renex and DFI on the basis that the acquisition had taken place and was recorded
at the beginning of the fiscal years ended December 31, 1994 and 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
---------- -----------
<S> <C> <C>
Net revenues:
Renex..................................................... $2,746,000 $ 8,794,000
DFI....................................................... 2,116,000 3,111,000
---------- -----------
$4,862,000 $11,905,000
========== ===========
Net income (loss):
Renex..................................................... $ (842,000) $(1,187,000)
DFI....................................................... 33,000 (11,000)
---------- -----------
$ (809,000) $(1,198,000)
========== ===========
</TABLE>
3. FIXED ASSETS
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- -----------
<S> <C> <C>
Land........................................................ $ 24,000 $ --
Building and leasehold improvements......................... 2,234,000 4,008,000
Medical equipment........................................... 859,000 872,000
Equipment, furniture and fixtures........................... 581,000 656,000
Equipment, under capital lease obligations.................. 944,000 2,170,000
---------- -----------
Total.............................................. 4,642,000 7,706,000
Less accumulated depreciation and amortization.............. (868,000) (1,664,000)
---------- -----------
Fixed assets -- net......................................... $3,774,000 $ 6,042,000
========== ===========
</TABLE>
F-11
<PAGE> 69
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Changes in the Company's allowance for doubtful accounts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
------- -------- ----------
<S> <C> <C> <C>
Beginning balance........................................... $ -- $ 93,000 $ 393,000
Provision for doubtful accounts............................. 93,000 495,000 1,293,000
Write-offs.................................................. -- (195,000) (425,000)
------- -------- ----------
Ending balance.............................................. $93,000 $393,000 $1,261,000
======= ======== ==========
</TABLE>
The Company grants credit without collateral to its patients, most of whom
are insured under third party payor agreements, including Medicare and Medicaid,
which represent the significant portion of the balance of receivables for the
years ended December 31, 1994, 1995 and 1996 and the three months ended March
31, 1997. The remaining receivables are primarily due from third party payors,
including managed care companies, commercial and insurance. The Company also has
receivables due from patients who are self-payors or owe co-payments.
5. MEDICAL MALPRACTICE INSURANCE
The Company maintains general liability and professional malpractice
liability insurance on its staff and other insurance appropriate for its
operations. The general liability policy provides coverage of $2,000,000 per
occurrence and $2,000,000 in the aggregate. The professional liability policy
provides coverage for professional (medical) activities of the Company's
employees. This policy provides coverage of $1,000,000 per occurrence and
$3,000,000 in the aggregate.
6. NOTE PAYABLE TO BANK
Consisted of borrowings under a line of credit the Company had with a bank,
with interest at prime plus 1%, and that were collateralized by certain accounts
receivable. The line of credit was paid in full in September 1996.
7. NOTES PAYABLE TO AFFILIATES
Consisted of two unsecured 9% demand notes in 1995. These notes were paid
in full in 1996.
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
<S> <C> <C>
Senior subordinated debt (a), net of warrants............... $4,650,000 $6,184,000
Note payable to bank, collateralized by certain fixed assets
and inventory accruing interest at 9.75%, due in monthly
installments, maturing November 1998...................... 170,000 11,000
Various notes payable to banks, collateralized by certain
medical and other equipment, accruing interest at rates
ranging from 7.5% to 10%, due in monthly installments,
with maturities ranging from February 1997 to April
1998...................................................... 103,000 35,000
---------- ----------
$4,923,000 $6,230,000
========== ==========
</TABLE>
F-12
<PAGE> 70
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The maturity schedule of long-term debt as of December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
YEAR ENDING TOTAL
- ----------- ----------
<S> <C>
1997........................................................ $ 46,000
1998........................................................ -0-
1999........................................................ 1,008,000
2000........................................................ 2,016,000
2001........................................................ 2,142,000
Thereafter.................................................. 1,134,000
----------
$6,346,000
Amount representing warrants................................ (116,000)
----------
Total....................................................... $6,230,000
==========
</TABLE>
(a) On June 5, 1995, the Company entered into a senior subordinated secured
loan agreement for $12,500,000 with a lender. This loan bears interest at 13%
and is collateralized by the capital stock of the subsidiaries of the Company.
The Company took an initial advance of $4,800,000 and must make quarterly
interest only payments through June 30, 1999 and principal and interest payments
beginning September 30, 1999 through June 30, 2002, the maturity date. In
connection with this debt, the Company issued 211,023 warrants to the lender.
Management has allocated $150,000 as the value of these warrants to additional
paid in capital and as a reduction of long-term debt. In connection with the
loan agreement, the Company recorded approximately $1,510,000 of deferred
financing costs. Such costs are amortized over the seven year term of the
related debt.
The loan contains certain restrictive covenants, including financial
covenants as to minimum net worth, leverage, and cash flows. The Company was in
default of the minimum net worth and cash flows covenants as of December 31,
1995 and has obtained a waiver of these defaults through April 30, 1996.
Effective May 1, 1996, the loan agreement was revised as to the minimum net
worth and cash flows covenants. The Company was in default of the cash flows
covenant as of December 31, 1996 and has obtained a waiver of this default
through December 31, 1996. Effective January 1, 1997, the loan agreement was
revised as to the minimum net worth and cash flows covenants.
9. BANK LINE OF CREDIT
The Company has available a $4,000,000 revolving line of credit ("Line of
Credit") maturing on August 24, 1998 with interest payable monthly at 2% over
the bank's prime lending rate (10.25% at December 31, 1996). The initial drawing
amount is limited to 80% of the net collectible value of eligible receivables
less than 180 days, aged from the date of service (approximately $2,800,000 at
December 31, 1996). As of December 31, 1996, the Company had not borrowed under
this agreement. The Line of Credit contains financial covenants relating to the
maintenance of a minimum net worth and specified net worth to debt ratios. The
Line of Credit also requires the lender's approval for any acquisitions in
excess of $5,000,000 in the aggregate in any calendar year and for the payment
of cash dividends.
F-13
<PAGE> 71
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CAPITAL LEASE OBLIGATIONS
The Company has various capital lease obligations related to purchase of
equipment for its various facilities under a $6,000,000 lease line of credit.
Maturities of capital lease obligations for each of the five years ending
December 31 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING TOTAL
- ----------- ----------
<S> <C>
1997........................................................ $ 646,000
1998........................................................ 445,000
1999........................................................ 345,000
2000........................................................ 249,000
2001........................................................ 124,000
----------
1,809,000
Less amount representing interest .......................... (296,000)
----------
Total....................................................... $1,513,000
==========
</TABLE>
11. PREFERRED STOCK
SERIES A:
On August 2, 1996, the Company notified all shareholders of the redemption
of all the issued and outstanding shares of the Series A on September 1, 1996
(the "Redemption Date"). Each share of Series A was convertible to common stock
at $1.50 per common share. At the Redemption Date, any non-converted shares of
Series A were redeemed by the Company at a redemption price of $1.00 per share
plus accrued and unpaid cumulative dividends of $.0462 per share.
As a result of the redemption, 988,000 shares of Series A were converted to
658,667 shares of common stock, $.001 par value. The remaining 12,000 shares
were redeemed by the Company, resulting in the payment of $544 in dividends.
SERIES B:
In July, 1996 the Company authorized the issuance and sale of 1,050,000
shares of Series B preferred stock, $.10 redeemable convertible series ("Series
B"), $.01 par value at $1.00 per share.
The Series B provided for conversion to common stock on November 15, 1996
if not otherwise redeemed by such date. On November 15, 1996, the Company
notified all shareholders of the redemption of all issued and outstanding shares
of Series B on November 27, 1996. Each share of Series B was convertible to
common stock at the conversion price of $3.00 per share, plus accrued and unpaid
cumulative dividends through the Series B redemption date of $.034 per share.
As a result of the redemption, 775,000 shares of Series B were converted to
268,250 shares of common stock, $.001 par value. The remaining 275,000 shares
were redeemed by the Company, resulting in the payment of $36,000 in dividends.
12. WARRANTS TO PURCHASE COMMON STOCK
During 1993, the Company completed its initial private placement of 120
units, each consisting of 7,500 shares of its common stock and 3,333 Common
Stock Purchase Warrants (the "Warrants") at the offering price of $22,500 per
unit. The proceeds received by the Company amounted to $2,675,000 (net of
expenses of $25,000). Each Warrant entitled the holder thereof to purchase one
share of common stock at an exercise price of $6.00 per share for three years
after issuance.
F-14
<PAGE> 72
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 1, 1994, the Company's Board of Directors approved the
redemption of all outstanding Warrants at the redemption price of $.30 per
Warrant with a redemption date set at December 9, 1994. The following table
summarizes the activity for the original $6.00 warrants issued in connection
with the private placement:
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
WARRANTS CAPITAL
--------- ----------
<S> <C> <C>
Original warrants issued 1993............................... 400,000 $ --
Warrants exercised and paid 1994 (net of expenses of
$15,000).................................................. (111,667) 654,000
Warrants redeemed by the Company 1994....................... (240,000) (72,000)
-------- --------
Warrants exercised and receivable at December 31, 1994...... 48,333 582,000
Warrants exercised and paid 1995 (net of expenses of
$9,000)................................................... (45,000) 261,000
Lapsed warrants (pending redemption)........................ (3,333) --
-------- --------
Original warrants outstanding at December 31, 1995.......... -0- --
========
Net proceeds on exercise of original warrants............... $843,000
========
</TABLE>
For warrants that were not exercised, the Company authorized the sale of
additional shares of common stock to existing shareholders and others.
In connection with the December 9, 1994 Warrant redemption, the Company
authorized the issuance of new Common Stock Purchase Warrants (the "New
Warrants"). All warrants exercised at December 9, 1994, as well as additional
shares purchased to the extent that Warrants were not exercised, entitled the
shareholder to one New Warrant for each share purchased. Each New Warrant
entitles the holder thereof to purchase one share of common stock at an exercise
price of $9.00 per share for four years after issuance. The New Warrants are
redeemable by the Company after December 9, 1996 at a redemption price of $.30
per New Warrant. A total of 246,201 shares of the Company's common stock have
been reserved for the exercise of the New Warrants. At December 31, 1995 and
1996, none of the New Warrants had been exercised and were outstanding.
In June 1995, the Company issued 211,023 warrants to a lender as an
additional cost of financing. Each warrant entitles the holder to purchase one
share of common stock at an exercise price of $6.00 per share for fifteen years
after issuance. Such warrants are callable by the Company, but in no event
earlier than June 30, 2002 or full payment of the senior subordinated secured
loan (See Note 8). The call price would be the "fair value" of the underlying
common stock at the time of the call. The call price is also protected for a
twelve month period in the event the Company enters into an agreement for sale
or merger for a consideration in excess of the call price. At December 31, 1995
and 1996, none of these warrants had been exercised and were outstanding.
In July 1996, the Company issued 78,751 warrants in connection with the
sale of 1,050,000 shares of Series B preferred stock. Each warrant entitles the
holder to purchase one share of common stock at an exercise price of $6.00 per
share for three years from the date of issuance. At December 31, 1996, none of
these warrants have been exercised and were outstanding.
In November 1996, the Company issued 116,669 warrants to a financial
advisor in connection with a six month advisory agreement. Each warrant entitles
the holder to purchase one share of common stock at an exercise price of $3.00
per share for three years from the date of issuance. Compensation expense of
$26,600 has been recorded to reflect the fair value of the warrants. At December
31, 1996, none of these warrants have been exercised and were outstanding.
F-15
<PAGE> 73
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCK OPTIONS
The Company has employee and director stock option plans. The employee plan
permits the grant of options to purchase up to 250,000 shares of common stock.
The director plan permits the grant of options to purchase up to 166,667 shares
of common stock. Subsequent to year end, the number of options permitted to be
granted under the employee plan was increased to 666,667, subject to shareholder
approval.
Under the director plan, each non-employee director receives automatic
non-discretionary grants of options each year (the "Annual Grant"). The Annual
Grant date is the annual anniversary date of shareholders' approval of the
director plan. The initial grant date was April 27, 1994. On each grant date
commencing April 27, 1994, each non-employee director received options to
purchase 834 shares of common stock for service on the board, additional options
to purchase 334 shares of common stock for service on each committee of the
board, other than the executive committee, and additional options to purchase
334 shares for service as chairman of a committee other than the executive
committee. Non-employee directors receive options to purchase 834 shares for
service on the executive committee and an additional 834 as chairman of the
executive committee. The term of the options granted under the director plan is
five years and the options vest 100% immediately but are not exercisable for six
months from date of grant.
All officers and employees are eligible for grants of options under the
employee plan (the "Plan") which includes incentive stock options granted for
employees' current services to the Company and non-statutory stock options
granted for special services which employees provide the Company, as determined
by the Plan. The Plan is administered by a stock option committee which has the
discretion to determine to whom, the amount, exercise prices, exercise terms and
all other matters relating to the grant of options under the employee plan. The
Plan prohibits the grant of incentive stock options under the Plan or any other
plan of the Company to any individual in any calendar year for common stock
having an aggregate fair market value determined at the time the option is
granted in excess of $100,000. All options granted under the employee plan to
date vest 25% six months after the date of grant and 25% on each anniversary of
the date of grant thereafter so long as the individual remains employed by the
Company. All options granted have a five-year term, but are not exercisable for
six months from the date of grant.
Both the director and employee plans provide for the automatic grant of
reload options to an optionee who would pay all, or part of, the option exercise
price by delivery of shares of common stock already owned by such optionee.
The following table summarizes stock options activity:
<TABLE>
<CAPTION>
1994 1995 1996
----------------------- ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
DIRECTORS PLAN SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- -------------- ------ -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 1,............................ -- 5,838 $ 6.00 11,676 $ 6.00
Granted......................................... 5,838 $ 6.00 5,838 6.00 7,671 6.00
----- ------ ------ ------ ------- ------
Outstanding December 31,.......................... 5,838 $ 6.00 11,676 $ 6.00 19,357 $ 6.00
----- ------ ------ ------ ------- ------
Options exercisable at December 31,............... 5,004 11,676 18,513
----- ------ -------
</TABLE>
F-16
<PAGE> 74
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1994 1995 1996
----------------------- ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EMPLOYEE PLAN SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ------------- ------ -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 1,............................ 50,334 $ 6.00 94,501 $ 6.00
Granted......................................... 50,334 $ 6.00 54,167 6.00 77,510 6.00
Cancelled....................................... -- -- (10,000) (6.00) (6,667) --
------ ------ ------- ------ ------- ------
Outstanding December 31,.......................... 50,334 $ 6.00 94,501 $ 6.00 165,344 $ 6.00
------ ------ ------- ------ ------- ------
Options exercisable at December 31,............... 3,751 23,716 78,184
------ ------- -------
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
----------------------- ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OTHER SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ----- ------ -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding January 1,............................ 3,334 $ 6.00 36,669 $ 6.00
Granted......................................... 3,334 $ 6.00 33,335 6.00 -- 6.00
----- ------ ------ ------ ------- ------
Outstanding December 31,.......................... 3,334 $ 6.00 36,669 $ 6.00 36,669 $ 6.00
----- ------ ------ ------ ------- ------
Options exercisable at December 31,............... 3,334 36,669 36,669
----- ------ -------
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting
for its stock option plans as described in Note 1. Accordingly, no compensation
cost has been recognized in 1995 or 1996 related to these plans. The fair value
of each option granted is determined on the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions: no
dividend yield, expected volatility of .001, risk-free interest rate of 6.13%
and expected option life of three years. The fair value of the options was
determined to be zero.
14. INCOME TAXES
At December 31, 1996, the Company has tax net operating loss carryforwards
of $6,691,000 that expire beginning in 2008 and ending in 2010.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at December 31,
1995 and 1996 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- -----------
<S> <C> <C>
Deferred tax assets
Net operating loss carry forwards......................... $1,791,000 $ 2,542,000
Other..................................................... 116,000 72,000
---------- -----------
Total deferred tax assets.......................... 1,907,000 2,614,000
Deferred tax liability
Use of cash method of accounting for income tax
purposes................................................ 977,000 908,000
---------- -----------
Net deferred tax asset (before valuation allowance)......... 930,000 1,706,000
Less valuation allowance.................................... (930,000) (1,706,000)
---------- -----------
Net deferred tax asset...................................... $ -0- $ -0-
========== ===========
</TABLE>
15. EMPLOYEE BENEFIT PLANS
As of January 1, 1997, the Company adopted a tax qualified employee savings
and retirement plan (the "401(k) Plan") covering the Company's employees.
Pursuant to the 401(k) Plan, eligible employees may elect to contribute to the
401(k) Plan up to the lesser of 15% of their annual compensation or the
statutorily prescribed annual limit ($9,500 in 1996). The Company matches 25% of
the contributions of employees, up to 4% of each employee's salary. All
employees who were employed at December 31,
F-17
<PAGE> 75
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996, and new hires who thereafter attain at least one year's service, are
eligible to participate in the 401(k) Plan.
The Trustees of the 401(k) Plan, at the direction of each participant,
invest the assets of the 401(k) Plan in designated investment options. The
401(k) Plan is intended to qualify under Section 401 of the Code, so that
contributions to the 401(k) Plan, and income earned on the 401(k) Plan
contributions, are not taxable until withdrawn. Matching contributions by the
Company are deductible when made.
16. RELATED PARTY TRANSACTIONS
The Company is a party to the following transactions with related parties
by virtue of common ownership:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Legal fees.................................................. $59,000 $82,000 $133,000
Insurance expense........................................... 30,000 50,000 6,000
Rent expense................................................ 36,000 46,000 59,000
</TABLE>
17. COMMITMENTS AND CONTINGENCIES
COMMITMENTS. The Company leases facility space and equipment under
noncancelable operating leases. Minimum annual lease payments under these leases
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
- ----------- ----------
<S> <C>
1997........................................................ $1,160,000
1998........................................................ 959,000
1999........................................................ 768,000
2000........................................................ 563,000
2001........................................................ 479,000
Thereafter.................................................. 1,753,000
----------
Total....................................................... $5,682,000
==========
</TABLE>
Rental expense under these operating leases was $362,000, $753,000 and
$1,046,000 (of which $146,000, $245,000 and $257,000, respectively, relate to
equipment leases for patient care and are included in facilities expenses) for
the years ended December 31, 1994, 1995 and 1996, respectively.
A partnership owned by three shareholders is in the process of completing
construction of two facilities and the related leasehold improvements for the
Company. The Company is committed for leasehold improvements for approximately
$400,000. The Company will lease these buildings from the partnership for ten
years at amounts deemed to be fair value.
LITIGATION. The Company is subject to claims and suits in the ordinary
course of business, including those arising from patient treatments, which the
Company believes are covered by insurance. The Company is not involved in any
material litigation and is not aware of any potential claims which would give
rise to material liability.
18. SUBSEQUENT EVENTS
The Company's Board of Directors authorized and effected a one-for-three
reverse common stock split to shareholders of record on April 21, 1997.
Shareholders' equity has been changed to give retroactive recognition to the
stock split in prior periods. All references in the consolidated financial
F-18
<PAGE> 76
RENEX CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements to number of shares, per share amounts, stock options and warrant
data of the Company's common stock have been changed to reflect the reverse
stock split.
On April 22, 1997, the Company entered into two year employment agreements
with James P. Shea, the Company's President and Chief Executive Officer, and
Orestes L. Lugo, Vice President -- Finance and Chief Financial Officer. Such
agreements became effective immediately, except that the base salaries will
become effective upon completion of the contemplated public offering. The
employment agreements provide for base salaries of $190,000 and $155,000 for Mr.
Shea and Mr. Lugo, respectively. The base salary for each officer is increased
on January 1, of each year during the term by a minimum of 6%. Each officer
receives an automobile allowance and certain other non-cash benefits, including
life, health and disability insurance. Each employment agreement is
automatically renewed for two years at the end of the initial term and each
extended term, unless either party provides notice of termination at least 90
days prior to the expiration of such term. If any officer is terminated without
cause or there is a change of control during the term of their respective
agreements, such officer will be entitled to severance equal to the greater of
the remaining base salary due under the agreement or one and two year's base
salary, respectively.
During the first quarter of 1997, the Company entered into three operating
lease agreements for three facilities which will be constructed. These lease
agreements have terms ranging from five to twenty years and the minimum annual
lease payments under these agreements range from $181,000 to $319,000.
As of June 1997, the Company had borrowed $1.0 million on its Line of
Credit.
F-19
<PAGE> 77
=========================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON IS AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 6
Use of Proceeds............................... 13
Dividend Policy............................... 13
Capitalization................................ 14
Dilution...................................... 15
Selected Consolidated Financial and Operating
Data........................................ 16
Management's Discussion and Analysis of
Financial Condition and Results
of Operations............................... 18
Business...................................... 24
Management.................................... 40
Principal Shareholders........................ 47
Certain Transactions.......................... 48
Description of Securities..................... 49
Shares Eligible for Future Sale............... 52
Underwriting.................................. 54
Legal Matters................................. 55
Experts....................................... 56
Additional Information........................ 56
Consolidated Financial Statements............. F-1
</TABLE>
---------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
=========================================================
=========================================================
3,000,000 SHARES
RENEX LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
Vector Securities International, Inc.
Needham & Company, Inc.
, 1997
=========================================================
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the
issuance and distribution of the Common Stock being registered. All amounts
shown are estimates, except for the SEC Registration Fee and the NASD Filing
Fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 9,409.00
NASD filing fee............................................. 3,605.00
NASDAQ National Market listing fee.......................... 37,934.00
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. *
Transfer agent and registrar fees and expenses.............. *
Travel expenses............................................. *
Miscellaneous............................................... *
----------
Total.............................................. *
==========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Florida Business Corporation Act. Section 607.0850(1) of the Florida
Business Corporation Act (the "FBCA") provides that a Florida corporation, such
as the Company, shall have the power to indemnify any person who was or is a
party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against liability
incurred in connection with such proceeding, including any appeal thereof, 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 and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Section 607.0850(2) of the FBCA provides that a Florida corporation shall
have the power to indemnify any person, who was or is a party to any proceeding
by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person 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 shall be made under this subsection in respect of
any claim, issue, or matter as to which such person shall have been adjudged to
be liable unless, and only to the extent that, the court in which such
proceeding was brought, or any other court of competent jurisdiction, shall
determine upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
II-1
<PAGE> 79
Section 607.850 of the FBCA further provides that: (i) to the extent that a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any claim, issue, or matter therein, he
shall be indemnified against expense actually and reasonably incurred by him in
connection therewith; (ii) indemnification provided pursuant to Section 607.0850
is not exclusive; and (iii) the corporation may purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 607.0850.
Notwithstanding the foregoing, Section 607.0850 of the FBCA provides that
indemnification or advancement of expenses shall not be made to or on behalf of
any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless: (i) the director breached
or failed to perform his duties as a director; and (ii) the director's breach
of, or failure to perform, those duties constitutes: (A) a violation of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful; (B) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (C) a circumstance under which the liability provisions
regarding unlawful distributions are applicable; (D) in a proceeding by or in
the right of the corporation to procure a judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best interest of the
corporation, or willful misconduct; or (E) in a proceeding by or in the right of
someone other than the corporation or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property.
ARTICLES AND BYLAWS. The Company's Articles of Incorporation and the
Company's Bylaws provide that the Company shall, to the fullest extent permitted
by law, indemnify all directors of the Company, as well as any officers or
employees of the Company to whom the Company has agreed to grant
indemnification.
UNDERWRITING AGREEMENT. Reference is made to the Underwriting Agreement,
the proposed form of which is to be filed as Exhibit 1.1 hereto, which provides
for indemnification by the Underwriters of directors, officers and controlling
persons of the Registrant against certain liabilities, including liabilities
under the Securities Act, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
All share totals set forth herein have been adjusted based upon an assumed
one for three reverse stock split to be effected prior to the effective date of
the offering.
In November 1994, the Registrant called for redemption an aggregate of
400,000 warrants which were issued in a private placement completed in 1993. The
redemption price of each warrant was $.30 per warrant. Each warrant entitled the
holder to purchase one share of Common Stock for $6.00 per share. In connection
with the redemption, an aggregate of 156,667 warrants were exercised prior to
the
II-2
<PAGE> 80
redemption date for aggregate consideration of $940,002. The Registrant issued
156,667 shares of Common Stock in connection with such exercises. In addition,
the Company sold 89,534 additional shares of Common Stock underlying warrants
that were redeemed by the Company. In order to encourage exercise, the Company
offered to such warrant holders and other stockholders who purchased additional
common stock a new warrant for each old warrant exercised. Accordingly, 246,201
new warrants were so issued. Each new warrant entitles the holder thereof to
purchase one share of Common Stock at $9.00 per share until December 9, 1998.
The Registrant sold such securities in reliance on sec. 4(2) of the Securities
Act of 1933 as not involving a public offering of its securities.
In June 1995, in connection with the receipt of a $12,500,000 subordinated
loan, the Registrant issued to such lender warrants to purchase 211,023 shares
of Common Stock. Such warrants are exercisable at $6.00 per share until June 30,
2010. The Registrant issued such securities in reliance on sec. 4(2) of the
Securities Act of 1933 as not involving a public offering of its securities.
In December 1995, the Registrant issued an aggregate of 376,857 shares of
Common Stock to three shareholders of Dialysis Facilities, Inc. ("DFI") in
exchange for 100% of the capital stock of DFI pursuant to a merger between DFI
and a wholly-owned subsidiary of the Registrant. DFI become a wholly-owned
subsidiary of the Registrant as of December 29, 1995. The Registrant issued such
shares in reliance upon sec. 4(2) of the Securities Act of 1933 as not involving
a public offering of its securities. The Company paid a finders fee of 4,000
shares of Common Stock to an individual in connection with the acquisition.
In April 1996, the Registrant issued an aggregate of 166,667 shares of
Common Stock to 11 members of Central Dialysis Center, L.L.C. ("Central") in
exchange for 100% of the membership interests of Central. In connection
therewith, Central merged with and into a wholly-owned subsidiary of the
Registrant. The Registrant issued such shares in reliance upon sec. 4(2) of the
Securities Act of 1933, as not involving a public offering of its securities.
In April 1996, the Registrant issued an aggregate of 166,667 shares of
Common Stock to 10 members of Metropolitan Dialysis Center, L.L.C.
("Metropolitan") in exchange for 100% of the membership interests of
Metropolitan. In connection therewith, Metropolitan merged with and into a
wholly-owned subsidiary of the Registrant. The Registrant issued such shares in
reliance upon sec. 4(2) of the Securities Act of 1933, as not involving a public
offering of its securities.
In July 1996, the Registrant issued an aggregate of 1,050,000 shares of
Series B Preferred Stock and 78,751 Series B Warrants to 14 accredited
investors, who were either directors or officers of the Registrant or who had
prior personal or business relationships with such directors and/or officers.
The Registrant received gross proceeds of $1,050,000. Each Series B Warrant
entitles the holder thereof to purchase one share of Common Stock at an exercise
price of $6.00 per share until July 31, 1999. The Registrant issued such
securities in reliance upon sec. 4(2) of the Securities Act of 1933, as not
involving a public offering of its securities.
In August 1996, the Registrant commenced a rights offering to its common
shareholders, completed in December 1996, whereby each common shareholder had
the right to purchase one share of common stock for each five shares then held.
The Registrant issued 328,840 shares of Common Stock for aggregate proceeds of
$1,046,000. The Registrant issued such shares in reliance on sec. 4(2) of the
Securities Act of 1933, as not involving a public offering.
In August 1996, the Registrant approved the redemption of 1,000,000 shares
of Series A Preferred Stock then outstanding. Such shares of Series A Preferred
Stock were issued in July 1993. In connection with such redemption, the holders
of the Series A Preferred Stock converted such Series A Preferred Stock into an
aggregate of 658,667 shares of Common Stock. The Registrant issued such shares
in reliance on sec. 4(2) of the Securities Act of 1933, as not involving a
public offering.
In September 1996, the Registrant sold an aggregate of 8,000 shares of
Common Stock to two of its executive officers. The shares purchased represented
the underlying shares of Common Stock of the Series A Preferred Stock which were
actually redeemed by the Registrant in August 1996. The purchase
II-3
<PAGE> 81
price for such Common Stock was the aggregate redemption price for such shares
of Series A Preferred Stock. The Registrant issued such shares in reliance on
sec. 4(2) of the Securities Act of 1933, as not involving a public offering.
In November 1996, the Registrant approved the redemption of 1,050,000
shares of Series B Preferred Stock then outstanding. Such shares of Series B
Preferred Stock were issued in July 1996. In connection with such redemption,
the holders of the Series B Preferred Stock converted such Series B Preferred
Stock into an aggregate of 268,250 shares of Common Stock including accrued
dividends. The Registrant issued such shares in reliance on sec. 4(2) of the
Securities Act of 1933, as not involving a public offering.
In November 1996, the Registrant issued warrants to purchase 116,667 shares
of Common Stock at $3.00 per share exercisable through November 15, 1999 to a
financial advisor. The Registrant issued such securities in reliance on
sec. 4(2) of the Securities Act, as not involving a public offering.
In February 1997, the Registrant issued an aggregate of 4,134 shares of
Common Stock for aggregate proceeds of $12,400. Such shares remained
unsubscribed in the Company's rights offering to its shareholders concluded in
November 1996. The Registrant issued such shares in reliance on sec. 4(2) of the
Securities Act of 1933, as not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement*
1.2 -- Agreement Among Underwriters*
1.3 -- Selected Dealers Agreement*
1.4 -- Form of Representatives' Warrant*
2. -- Agreement and Plan of Merger by and between Renex Corp.,
Renex Acquisition Corp., Dialysis Facilities, Inc., C. David
Finch, Jr., Charles D. Finch, Sr., and Jeffery C. Finch
dated December 29, 1995
3.1 -- Articles of Incorporation of the Company
3.2 -- By-Laws of the Company
4.1 -- Specimen Certificate of Common Stock*
5.1 -- Form of Opinion of Wallace, Bauman, Fodiman & Shannon, P.A.,
Counsel to the Issuer
10.1 -- Employment Agreement dated April 22, 1997 by and between
Renex Corp. and James P. Shea
10.2 -- Employment Agreement dated April 22, 1997 by and between
Renex Corp. and Orestes L. Lugo
10.3 -- Loan and Security Agreement by and between DVI Business
Credit Corporation, Renex Corp. and its Subsidiaries dated
as of August 23, 1996
10.4 -- Directors Stock Option Plan
10.5 -- 1994 Employee Stock Option Plan
10.6 -- Master Lease Agreement by and between Renex Corp. and
Morcroft Leasing Corp. as of January 1, 1994*
10.7 -- Lease Agreement by and between JCD Partnership and Renex
Dialysis Facilities, Inc. dated December 29, 1995 for
certain property located in Jackson, Mississippi
10.8 -- Lease Contract and Agreement by and between JCD Partnership
and Renex Dialysis Facilities, Inc. dated December 29, 1995
for certain property located in Jackson, Mississippi
10.9 -- Lease Contract and Agreement by and between JCD Partnership
and Renex Dialysis Facilities, Inc. dated December 29, 1995
for certain property located in Delta, Louisiana
11.1 -- Computation of per share earnings*
</TABLE>
II-4
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
.1 -- Subsidiaries of the Company*
21
23.1 -- Consent of Deloitte & Touche, LLP.
23.2 -- Consent of Ernst & Young, LLP.
23.3 -- Consent of Lashly & Baer
23.4 -- Form of Consent of Wallace, Bauman, Fodiman & Shannon, P.A.
(included in their opinion filed as Exhibit 5.1)
24.1 -- Powers of Attorney (included on the signature page of this
Registration Statement)
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by an amendment.
ITEM 17. UNDERTAKINGS
(a) EQUITY OFFERINGS OF NON-REPORTING REGISTRANTS: The undersigned
registrant hereby undertakes to provide to the representatives of the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
such representatives of the underwriters to permit prompt delivery to each
purchaser.
(b) REQUEST FOR ACCELERATION OF EFFECTIVE DATE. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(c) RULE 430A UNDERTAKING. The undersigned registrant hereby undertakes
that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a 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.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus 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.
II-5
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Coral Gables, State of
Florida, on the 31st day of July, 1997.
RENEX CORP.
By: /s/ JAMES P. SHEA
------------------------------------
James P. Shea
President/Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below on this Registration Statement hereby constitutes and appoints JAMES P.
SHEA with full power to act as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities (including his capacity as a director
and/or officer of RENEX CORP. (until revoked in writing) to sign any and all
amendments (including post-effective amendments and amendments thereto) to this
Registration Statement on Form S-1 of the Company and to sign a Registration
Statement pursuant to Section 462(b) of 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 agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully for
all intents and purposes, as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or his substitute may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and Power of Attorney have been signed by the following
persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MILTON J. WALLACE Chairman of the Board of July 31, 1997
- ----------------------------------------------------- Directors
Milton J. Wallace
/s/ ARTHUR G. SHAPIRO, M.D. Vice Chairman of the Board, July 31, 1997
- ----------------------------------------------------- Director of Medical Affairs
Arthur G. Shapiro, M.D.
/s/ JAMES P. SHEA President/CEO, Director July 31, 1997
- -----------------------------------------------------
James P. Shea
/s/ MARK D. WALLACE Director July 31, 1997
- -----------------------------------------------------
Mark D. Wallace
/s/ EUGENE P. CONESE, SR. Director July 31, 1997
- -----------------------------------------------------
Eugene P. Conese, Sr.
/s/ C. DAVID FINCH, M.D. Director July 31, 1997
- -----------------------------------------------------
C. David Finch, M.D.
/s/ JOHN E. HUNT, SR. Director July 31, 1997
- -----------------------------------------------------
John E. Hunt, Sr.
/s/ JEFFREY H. WATSON Director July 31, 1997
- -----------------------------------------------------
Jeffrey H. Watson
</TABLE>
II-6
<PAGE> 84
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director July 31, 1997
/s/ CHARLES J. SIMONS
- -----------------------------------------------------
Charles J. Simons
/s/ ORESTES L. LUGO Vice President/Chief July 31, 1997
- ----------------------------------------------------- Financial and Principal
Orestes L. Lugo Accounting Officer
</TABLE>
II-7
<PAGE> 1
Exhibit 2
AGREEMENT AND PLAN OF MERGER
By and Between
RENEX CORP.
a Florida corporation,
RENEX ACQUISITION CORP.
a Mississippi corporation,
DIALYSIS FACILITIES, INC.
a Mississippi corporation,
C. DAVID FINCH, JR., M.D.
CHARLES D. FINCH, SR.
and
JEFFERY C. FINCH
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS...................................................................... 1
ARTICLE II. MERGER........................................................................... 3
2.1 The Merger.............................................................. 3
2.2 Effective Time of Merger................................................ 3
ARTICLE III. THE SURVIVING CORPORATION...................................................... 3
3.1 Certificate of Incorporation............................................ 3
3.2 Bylaws.................................................................. 3
3.3 Directors and Officers of Surviving Corporation......................... 3
ARTICLE IV. CONVERSION OF SHARES; CLOSING................................................... 4
4.1 Exchange Ratio.......................................................... 4
4.2 Exchange of Shares...................................................... 4
4.3 Investment Restrictions................................................. 4
4.4 Closing................................................................. 4
4.5 Shareholder and Company Performance at Closing.......................... 4
4.6 Parent and Sub Performance at Closing................................... 7
4.7 Right of Set-Off........................................................ 7
4.8 Termination in Absence of Closing....................................... 7
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
SHAREHOLDERS.................................................................... 8
5.1 Organization............................................................ 8
5.2 Capitalization.......................................................... 8
5.3 Corporate Documents..................................................... 8
5.4 Subsidiaries............................................................ 9
5.5 Authority............................................................... 9
5.6 Consents and Approvals.................................................. 9
5.7 Financial Statements.................................................... 9
5.8 Title to Assets......................................................... 9
5.9 Liabilities............................................................. 9
5.10 Obligations to Affiliates............................................... 10
5.11 Real Property........................................................... 10
5.12 Employee Benefits....................................................... 10
5.13 Labor and Employment Matters............................................ 11
5.14 Personal Property....................................................... 12
5.15 Insurance............................................................... 12
5.16 Contracts and Commitments............................................... 12
5.17 Contracts with Physicians, Hospitals, HMO's and Third Party Payors...... 13
5.18 Inspection of Records................................................... 13
5.19 Inventories............................................................. 13
5.20 Equipment and Other Tangible Property................................... 14
5.21 Permits................................................................. 14
5.22 Intangible Rights....................................................... 14
5.23 Litigation.............................................................. 14
5.24 Compliance with Laws.................................................... 14
5.25 Absence of Material Changes............................................. 14
5.26 Banking Information..................................................... 15
5.27 Tax Returns............................................................. 15
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
5.28 Accounts Receivable..................................................... 16
5.29 Medicare Matters........................................................ 16
5.30 Compliance with Instruments............................................. 17
5.31 Brokers' Commissions.................................................... 17
5.32 Books and Records....................................................... 17
5.33 Accuracy of Information................................................. 17
5.34 Environmental Regulations............................................... 17
5.35 Accounting Matters...................................................... 17
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB................................ 17
6.1 Parent Organization..................................................... 17
6.2 Sub Organization........................................................ 18
6.3 Parent Capitalization................................................... 18
6.4 Sub Capitalization...................................................... 18
6.5 Authority............................................................... 18
6.7 Medicare Matters........................................................ 18
6.8 Brokers' Commissions.................................................... 19
ARTICLE VII. OBLIGATIONS PRIOR TO CLOSING................................................... 19
7.1 Operation of Business................................................... 19
7.2 Access to Books and Records............................................. 19
7.3 Negative Covenants...................................................... 19
7.4 Affirmative Covenants................................................... 21
7.5 Company Acquisition Proposals........................................... 21
7.6 Accounting Matters...................................................... 21
7.7 Audit................................................................... 21
7.8 Current Information..................................................... 21
7.9 Public Announcements.................................................... 22
7.10 Leases for Facilities................................................... 22
ARTICLE VIII. CONDITIONS PRECEDENT TO THE CLOSING........................................... 23
8.1 Conditions to Obligations of Parent and Sub............................. 23
8.2 Conditions to Obligations of the Company and Shareholder................ 24
ARTICLE IX. POST-CLOSING OBLIGATIONS........................................................ 24
9.1 Survival of the Closing................................................. 24
9.2 Further Assurances...................................................... 24
9.3 Indemnification by Shareholders......................................... 24
9.4 Non-Competition Agreement............................................... 25
9.5 Publicity............................................................... 26
9.6 Employment Arrangement.................................................. 26
9.7 Audit................................................................... 26
9.8 Board of Directors...................................................... 27
9.9 Right of First Refusal.................................................. 27
ARTICLE X. MISCELLANEOUS.................................................................... 27
10.1 Costs and Expenses...................................................... 27
10.2 Remedies................................................................ 27
10.3 Exhibits and Schedules.................................................. 27
10.4 Attorneys' Fees......................................................... 27
10.5 Risk of Loss............................................................ 27
10.6 Assignment and Amendment of Agreement................................... 27
10.7 Notices................................................................. 28
10.8 Entire Agreement........................................................ 28
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
10.9 Waiver.................................................................. 28
10.10 Governing Law........................................................... 28
10.11 Counterparts............................................................ 28
10.12 Captions................................................................ 29
10.13 Successors and Assigns.................................................. 29
10.14 Interpretation.......................................................... 29
10.15 Severability............................................................ 29
</TABLE>
- iii -
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") entered into as of
the _____ day of December, 1995 by and between RENEX CORP., a Florida
corporation ("Parent"), RENEX ACQUISITION CORP., a Mississippi corporation
("Sub"), DIALYSIS FACILITIES, INC., a Mississippi corporation (the "Company"),
C. DAVID FINCH, JR., M.D., CHARLES D. FINCH, SR. and JEFFERY C. FINCH (C. DAVID
FINCH, JR., M.D., CHARLES D. FINCH, SR. and JEFFERY C. FINCH are collectively
referred to as the "Shareholders").
R E C I T A L S:
A. The Company owns and operates three (3) kidney dialysis facilities
located in Mississippi and Louisiana, through which it provides various forms of
kidney dialysis treatments.
B. Parent, Sub and the Company desire to effect a transaction in which
the Company would be acquired by Parent through a merger of Sub with and into
the Company, or alternately through a merger of the Company with and into Sub)
upon the terms and subject to the conditions set forth herein (the "Merger").
C. The respective Boards of Directors of Parent, Sub and the Company
deem it advisable and in the best interest of their respective shareholders that
Parent acquire the Company in the Merger and such Boards of Directors have
approved the Merger, in each case, upon the terms and subject to the conditions
set forth herein.
D. The Shareholders own 100% of the outstanding capital stock of the
Company and have agreed to the terms and conditions set forth herein.
E. Parent, Sub, the Company and the Shareholders desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger.
F. For federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
G. For accounting purposes, it is intended that the Merger be accounted
for as a "pooling of interest" between Parent and the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
benefits to be derived therefrom and of the respective mutual covenants and
agreements hereinafter set forth and such other good and valuable consideration,
the adequacy and receipt of which is hereby acknowledged, the parties hereto do
hereby agree as follows:
ARTICLE I. DEFINITIONS
All capitalized terms used in this Agreement are used as defined in
this Article I or elsewhere in this Agreement.
1.1 Business. The provision of kidney dialysis treatments and related
services, through three (3) dialysis clinics located in Jackson, Mississippi,
Port Gibson, Mississippi and Delta, Louisiana, respectively.
<PAGE> 6
1.2 Parent. RENEX CORP., a Florida corporation.
1.3 Closing Date. December 29, 1995, or such other date as may be
agreed upon in writing by all parties hereto.
1.4 Collateral Agreements. Any and all agreements, instruments,
certificates or documents required or expressly provided for in this Agreement
to be executed and delivered in connection with the transaction contemplated by
this Agreement, including all exhibits attached hereto or to the Disclosure
Schedule.
1.5 Company. DIALYSIS FACILITIES, INC., a Mississippi corporation.
1.6 Contracts. Any and all contracts, agreements (including management
agreements, provider agreements, partnership agreements and joint venture
agreements), franchises, understandings, arrangements, leases, licenses,
registrations, authorizations, easements, servitudes, rights of way, mortgages,
bonds, notes, guaranties, liens, indebtedness, approvals, or other instruments
or undertaking to which such person is a party or to which or by which such
person or the property of such person is subject or bound, excluding any
Permits.
1.7 Damages. Any and all damages, liabilities, obligations, penalties,
fines, judgments, claims, deficiencies, losses, costs, expenses and assessments,
including all attorneys' fees and costs and interest accruing (at the highest
annual rate permitted by law) on such Damages.
1.8 Disclosure Schedule. The Disclosure Schedule entered into between
the parties hereto containing the disclosures, exhibits and schedules required
pursuant to the terms of this Agreement.
1.9 Financial Statements. The Company's unaudited financial statements
consisting of a balance sheet as of November 30, 1995 and statements of income,
cash flow and stockholders' equity for the eleven (11) months ended November 30,
1995 and the notes to the financial statements thereto, all as attached to the
Disclosure Schedule as Exhibit "A" thereto.
1.10 Governmental Authority. Any nation, country (including, but not
limited to the United States of America) commonwealth, state, territory or
possession thereof and any political subdivision of any of the foregoing,
including, but not limited to courts, departments, commissions, boards, bureaus,
agencies, ministries or other instrumentalities.
1.11 Hazardous Materials. Any and all elements or compounds which are
contained in a list of hazardous substances by the United States Environmental
Protection Agency ("EPA") and the list of toxic pollutants designated by the
United States Congress or the EPA or defined by any other Federal, state or
local statute, law, ordinance, code rule, regulation order or degree regulating,
relating to or imposing liability or standards of conduct concerning any
hazardous, medical, toxic or dangerous waste, substance or material as now or at
any time in effect.
1.12 Intangible Rights. Any and all information, trade secrets,
patents, copyrights, trademarks, tradenames and other intangible properties that
are necessary or customarily used by the Company in the operation of its
Business.
1.13 Permits. Any and all permits, certificates of need, licenses,
agencies, orders or contracts granted by any Governmental Authority necessary or
used in the operation of the Business as presently conducted.
- 2 -
<PAGE> 7
1.14 Shareholders. C. DAVID FINCH, JR., M.D., CHARLES D. FINCH, SR.,
and JEFFERY C. FINCH.
1.15 Sub. RENEX ACQUISITION CORP., a Mississippi corporation
ARTICLE II. MERGER
2.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 2.2 herein) Sub shall be merged
with and into the Company, with the Company to continue as the surviving
corporation on the Merger on the terms set forth herein (the "Surviving
Corporation"), and the separate existence of Sub shall thereupon cease.
Alternatively, the Company shall be merged with and into Sub, with the separate
existence of the Company ceasing at the Effective Time, if Parent, in it sole
judgment and discretion, deems such structure desirable and appropriate. In such
event, all corresponding changes shall be deemed to have been made to this
Agreement to reflect such structure. From and after the Effective Time, the
Surviving Corporation shall be a wholly-owned subsidiary of Parent. The Merger
shall have the effects set forth in Section 79-4-11.06 of the Mississippi
Business Corporation Act.
2.2 Effective Time of Merger. The Merger shall become effective when a
properly executed Articles of Merger is duly filed with the Secretary of State
of the State of Mississippi (or such later date as is specified in the Articles
of Merger) in accordance with Section 79-4-11.05 of the Mississippi Business
Corporation Act, which filing shall be made as soon as practicable after the
Closing Date. When used in this Agreement, the term "Effective Time" shall mean
the date and time at which such Articles of Merger is so filed or such later
date and/or time as is agreed upon by the parties and specified in the Articles
of Merger.
ARTICLE III. THE SURVIVING CORPORATION
3.1 Certificate of Incorporation. The Articles of Incorporation of the
Company as in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation; provided however, that
the Articles of Incorporation shall be amended at or after the Effective Time
such that the name of the Surviving Corporation shall be "Renex Dialysis
Facilities, Inc."
3.2 Bylaws. The By-Laws of Sub as in effect immediately prior to the
Effective Time shall be the By-Laws of the Surviving Corporation.
3.3 Directors and Officers of Surviving Corporation.
(a) The Directors of Sub immediately prior to the Effective
Time, James P. Shea and Jerry McNeill, shall be the initial directors of the
Surviving Corporation and shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualify in the manner
provided in the Articles of Incorporation and By-Laws of the Surviving
Corporation, or as otherwise provided by law.
(b) The officers of Sub immediately prior to the Effective
Time, James P. Shea, President, Orestes Lugo, Vice President-Finance and Jerry
McNeill, Vice President-Operations/Secretary, together with Jeffery C. Finch as
Vice President, shall be the initial officers of the Surviving Corporation,
shall hold office at the discretion of the Board of Directors of the Surviving
Corporation and may be removed or replaced in accordance with and in the manner
as provided in the By-Laws of the Surviving Corporation.
- 3 -
<PAGE> 8
ARTICLE IV. CONVERSION OF SHARES; CLOSING
4.1 Exchange Ratio. At the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof:
(a) Each share of the two thousand (2,000) shares of common
stock, no par value per share of the Company (the "Company Shares") issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive 565.2845 shares of common stock, par value $.001 per share of
Parent ("Renex Shares") ("Exchange Ratio") payable upon the surrender of the
certificates formerly representing such Company Shares at the Closing.
Certificates representing Company Shares shall be exchanged for certificates
representing Renex Shares issued in consideration therefore in accordance with
the provisions herein. If prior to the Effective Time, Parent should split or
combine the Renex Shares, or pay a stock dividend or other stock distribution of
Renex Shares, then the Exchange Ratio will be appropriately adjusted to reflect
such split, combination, distribution or dividend.
(b) Each Company Share held in the treasury of the Company
immediately prior to the Effective Time shall be cancelled, retired and shall
cease to exist, and no Renex Shares shall be issued in exchange therefore.
(c) Each share of common stock, par value $1.00 per share of
Sub issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into and exchangeable for one Company Share of the Surviving
Corporation.
4.2 Exchange of Shares. At the Closing, Parent shall make available,
and each holder of Company Shares will be entitled to receive upon surrender to
the Parent of the certificates representing Company Shares, certificates
representing Renex Shares in accordance with the conditions set forth in this
Article IV based on the Exchange Ratio.
4.3 Investment Restrictions. The Renex Shares to be issued to the
Shareholders, shall be "Restricted Securities" as that term is defined pursuant
to the Securities Act of 1933, as amended, (the "1933 Act") and the rules and
regulations promulgated thereunder. Shareholders represent to Parent and Sub
that upon receipt of Renex Shares, that the Renex Shares are being acquired for
investment purposes only and not with a view to the distribution thereof, except
as may be permitted by the 1933 Act. The certificates representing Renex Shares
shall contain a restrictive legend to the effect that the Renex Shares have not
been registered pursuant to the 1933 Act or any state having jurisdiction
thereof, and may not be sold, transferred or otherwise disposed of, except in
compliance with the 1933 Act or unless Parent receives an opinion of counsel
satisfactory to it that an exemption is available. A stop transfer order shall
be placed on the Renex Shares with Parent's transfer agent.
4.4 Closing. Subject to the terms and conditions of this Agreement, the
Closing shall take place at 9:30 a.m. on the Closing Date, or such other date
and time as is mutually agreed between the parties. The Closing shall take place
at the offices of Wallace, Bauman, Fodiman & Shannon, P.A., 2222 Ponce de Leon
Boulevard, Sixth Floor, Coral Gables, Florida 33134. The Closing shall be deemed
to have been completed as of 11:59 p.m. on the date immediately prior to Closing
Date.
- 4 -
<PAGE> 9
4.5 Shareholder and Company Performance at Closing. At or prior to the
Closing, the Shareholders and the Company shall deliver to Parent and Sub:
(a) duly executed certificates from the Shareholders, with
duly executed stock powers endorsed in blank, representing 100% of the
outstanding Company Shares;
(b) a certificate duly executed by the Shareholders and the
president of the Company to the effect that to the best of their knowledge:
(i) all of the representations and warranties made by
the Shareholders and the Company in this Agreement are true and correct in all
material respects as of the Closing Date;
(ii) none of the covenants made by the Shareholders
or the Company in this Agreement have been breached in any material respect as
of the Closing Date;
(iii) there have been no material adverse changes in
the condition of the Company since the date of the Financial Statements, whether
financial or otherwise, through the Closing Date;
(c) a schedule of liabilities of the Company as of the Closing
certified by the Shareholders and the Company as true and correct;
(d) all approvals and consents of all appropriate state
regulatory agencies, if any, including all consents to the transfer of ownership
of the Company as it impacts the Company's health care licenses, including its
certificates of need and Medicare and Medicaid licenses and certifications;
(e) Executed Articles of Merger as required on Section 2.1
herein;
(f) A Medical Director's Employment Agreement executed by C.
DAVID FINCH, JR., M.D. substantially in the form attached to the Disclosure
Schedule as Exhibit "B", whereby C. DAVID FINCH, JR., M.D. shall agree to be
employed by the Surviving Corporation, following the Closing, as its Medical
Director;
(g) An Escrow Agreement executed by the Shareholders as
required pursuant to Section 4.6(a) herein, together with duly executed stock
powers in blank, covering the Renex Shares placed in escrow.
(h) Non-Competition Agreements executed by the Shareholders as
required by Section 9.4 herein.
(i) Execution of a waiver by the Company and each Shareholder
of the right of first refusal contained in the Company's By-laws.
(j) an opinion of counsel in form and substance satisfactory
to Parent and Sub and its counsel that to their knowledge and based upon
representations of management of the Company:
(i) The Company has been duly incorporated and is
validly existing and in good standing under the laws of the State of Mississippi
and is authorized and qualified to do business as a foreign corporation in
Louisiana and is in good standing in each jurisdiction
- 5 -
<PAGE> 10
where the character of its, business, properties or the nature of its activities
makes such qualifications necessary;
(ii) The Company and the Shareholders have the full
power to conduct their business as presently conducted and to execute and
deliver this Agreement and to perform its obligations hereunder;
(iii) The Company and the shareholders have
authorized the execution, delivery and performance of the Agreement by all
necessary corporate and shareholder action;
(iv) The execution and delivery of the Agreement,
performance by the Company of its obligations under the Agreement and the
exercise by the Company of the rights created by the Agreement do not (a)
violate the Company's Articles of Incorporation or By-laws; (b) constitute a
breach of or a default under any agreement or instrument to which the Company or
any Shareholders are a party or by which they or their assets are bound, or
result in the creation of a mortgage, security interest or other encumbrance
upon the assets of the Company (except as set forth in the Agreement); (c)
violate any judgment, decree or order of any court or administrative tribunal,
which judgment, decree or order is binding on the Company or its assets; or (d)
violate any Federal or state law, rule or regulation;
(v) Except as may be disclosed in the Disclosure
Schedule, no notice, report or other filing or registration with, and no
consent, approval or authorization of, any Federal, state or local governmental
authority is required to be submitted, made or obtained by the Company in
connection with the execution, delivery and performance of the Agreement, which,
if not obtained, could have a materially adverse impact on the transaction
contemplated by the Agreement;
(vi) The Agreement and each Collateral Agreement
executed in connection herewith, is a valid and binding obligation of the
Company and each Shareholder enforceable against the Company and each
Shareholder under the laws of the State of Mississippi and the Federal law of
the United States;
(vii) Except as set forth in the Disclosure Schedule,
counsel has no knowledge of any pending or threatened actions, claims,
investigations or other proceedings against the Company which would have a
materially adverse effect on the Company's business;
(viii) Except as described in the Disclosure Schedule
and Financial Statements, on the Closing Date, the Company has good and
marketable title to all of its assets free and clear of all liens, mortgages,
pledges, conditional sales agreements, security interests, restrictions,
judgments, options, charges, claims or encumbrances of any kind;
(ix) The instruments of conveyance and assignment
delivered by Shareholders to Parent and Sub in accordance with their terms have
vested in Parent all right, title, and interest to 100% of the capital stock of
the Company;
(x) All Leases (as hereinafter defined) and Contracts
described in the Disclosure Schedule are valid and subsisting and no default
exists thereunder;
(xi) There are no pending or threatened legal
proceedings against Shareholders or the Company which would have a material
adverse impact on their assets or the Business or otherwise prevent consummation
of the transaction contemplated herein;
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(xii) there are no liens, mortgages, encumbrances,
charges, or other rights of third parties with respect to the Company's assets
except as otherwise disclosed in the Disclosure Schedule hereto;
(k) Satisfactory evidence that Parent's designees shall be the
only authorized signatories with respect to each of the Company's bank accounts
and credit facilities listed in the Disclosure Schedule, or otherwise.
(l) Written resignations of all of the directors and officers
of the Company; and
(m) Such other documents, certifications, instruments or
Collateral Agreements as may be reasonably required by counsel to Parent and
Sub.
4.6 Parent and Sub Performance at Closing. At or prior to the Closing,
Parent and Sub shall deliver or cause to be delivered to Shareholders the
following:
(a) Certificates of Renex Shares duly issued in the names of
each Shareholder in accordance with the Exchange Ratio, except that an aggregate
of 113,000 Renex Shares, divided proportionately among the Shareholders, shall
be issued in the name of such Shareholders, but delivered to Wallace, Bauman,
Fodiman & Shannon, P.A. (the "Escrow Agent") to be held in escrow pursuant to
that certain Escrow Agreement attached to the Disclosure Schedule as Exhibit "C"
(the "Escrow Agreement");
(b) a certificate executed by an officer of Parent and Sub to
the effect that all of the representations and warranties made by Parent and Sub
in this Agreement are true and correct as of the Closing Date;
(c) written evidence that Parent's and Sub's boards of
directors approved consummation of the transaction; and
(d) an opinion of counsel in form and substance satisfactory
to the Company and the Shareholders that:
(i) the representations and warranties of Parent and
Sub contained in Article VI are correct as of the Closing Date; and
(ii) this Agreement and each Collateral Agreement
executed in connection therewith, is valid and enforceable against Parent and
Sub in accordance with its terms;
4.7 Right of Set-Off. The Renex Shares held in escrow by the Escrow
Agent will be subject to a right of set-off in the event the Shareholders are
required to provide indemnifica tion pursuant to Section 9.3 of this Agreement.
The terms and conditions of the escrow and the right of set-off, are more
particularly described in the Escrow Agreement.
4.8 Termination in Absence of Closing.
(a) If by the close of business on the Closing Date, the
Closing has not occurred, then any party may thereafter terminate this Agreement
by written notice to the other parties hereto, without liability of or to any
other party to this Agreement, unless the reason for closing having not occurred
is (i) such party's breach of any of its obligations, representations,
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warranties or covenants or other provisions of this Agreement; or (ii) the
failure of such party to perform its obligations hereunder.
(b) This Agreement and the transaction contemplated herein may
be terminated and abandoned at any time on or prior to the Closing Date by
either party if:
(i) any representation or warranty made herein for
the benefit of such party or any certificate, schedule or document furnished to
such party pursuant to this Agreement is untrue; or
(ii) the other party shall have defaulted in any
respect in the performance of any obligation under this Agreement; or
(iii) a material adverse change has occurred to the
other party's financial or business condition.
(c) if this Agreement is terminated other than for any reason
evidenced in Section 4.8(b) herein, Parent agrees to pay one-half (1/2) of the
cost of the audit required pursuant to Section 7.7 herein.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND SHAREHOLDERS
The Shareholders and the Company represent and warrant to Parent and
Sub that, except as set forth in the Disclosure Schedule (which Disclosure
Schedule is dated the date hereof and delivered by the Shareholders and the
Company to Parent and Sub and deemed a part hereof by this reference), to the
best of their knowledge that the representations and warranties contained in
Article V are true and correct as of the date hereof and as of the Closing Date:
5.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Mississippi. The
Company has the corporate power to carry on its business as it is now being
conducted or presently proposed to be conducted and has the power to own,
manage, lease and hold its assets where such assets are located. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in each jurisdiction in which the character and location of the properties owned
by it or the nature of the business transacted by it makes such qualification
necessary. The Company is qualified to do business in each of the states as set
forth in the Disclosure Schedule.
5.2 Capitalization. The Company is authorized to issue ten thousand
(10,000) Company Shares, no par value, of which two thousand (2,000) Company
Shares are issued and outstanding in the names of Shareholders as provided in
the Disclosure Schedule. There is no other capital stock authorized by the
Company. All Company Shares outstanding are validly issued, fully paid and
non-assessable. There are no stockholder agreements, voting trust agreement or
any other agreements restricting the transfer of the Company Shares. The Company
has not authorized, and there is not outstanding at the date hereof, any
preferred stock, options, warrants, calls, puts, convertible securities or other
agreements or commitments obligating the Company to issue, or sell shares of its
capital stock or other rights to purchase capital stock of the Company. All of
the Shareholders' Company Shares are owned free and clear of any and all
encumbrances, liens, claims, security agreements, pledges or other restrictions.
None of the Company Shares were issued in violation of, or subject to, (i) any
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preemptive rights of any person to acquire securities of the Company or (ii) any
Federal or state securities laws.
5.3 Corporate Documents. The Articles of Incorporation and Bylaws of
the Company attached as Exhibits "D" and "E" to the Disclosure Schedule are true
and correct as of the Closing Date. The stock and minute books of the Company
that have been made available to Parent for review contain a complete and
accurate record of all shareholders of the Company and all actions of the
shareholders and directors (and any committees thereof) of the Company.
5.4 Subsidiaries. The Company does not have any subsidiaries or any
interest or investment, direct or indirect, and has no commitment to purchase
any interest or make any investment in, any other corporation, partnership,
joint venture or other business enterprise or entity. The Company's Business has
not been conducted through any direct or indirect subsidiary or affiliate of the
Company or the Shareholders.
5.5 Authority. The Company and each Shareholder have full power and
authority to enter into this Agreement, to consummate the transaction
contemplated hereby and to carry out their obligations hereunder. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated herein have been duly authorized by the
Company's Board of Directors and its Shareholders and no other corporate
proceeding on the part of the Company and its Shareholders are necessary to
approve this Agreement or the transactions contemplated hereby. This Agreement,
and any Collateral Agreement executed in connection with the Closing,
constitutes, or upon execution and delivery will constitute, the legal, valid
and binding obligations of such parties enforceable in accordance with their
respective terms.
5.6 Consents and Approvals. Except for the filing and recordation of
the Articles of Merger, the transfer of the Certificates of Need with the State
of Mississippi, and as otherwise set forth on the Disclosure Schedule, no filing
with and no Permit, authorization, consent or approval of, any public or
Governmental Authority is necessary for the consummation by the Company of the
transactions contemplated by this Agreement.
5.7 Financial Statements. The Financial Statements attached to the
Disclosure Schedule are correct and complete and present fairly the financial
condition of the Company as of the date of such balance sheet and the results of
its operations for the periods of such statements of operations and have been
prepared on a consistent basis with all prior periods and in accordance with
generally accepted accounting principles ("GAAP") except for the omission of
substantially all disclosures and the statements of cash flows for such period.
Since the date of the Financial Statements, there has been no material adverse
change in the assets, liabilities, business, operations or condition, financial
or otherwise of the Company from that shown on the Financial Statements. The
Company and Shareholders represent that the Financial Statements and books and
records can be audited in accordance with GAAP, without extended auditing
procedures.
5.8 Title to Assets. Except as provided in the Disclosure Schedule, the
Company has good, marketable and insurable title to its assets, including all
assets listed on the Financial Statements, free and clear of any and all liens,
mortgages, pledges, conditional sales assignments, security interests,
judgments, options, adverse claims, encumbrances or other restrictions or
limitations whatsoever. The Company's present assets represent all of the assets
necessary to operate the Business in the same manner as operated prior to the
date hereof, and for the balance of their estimated useful lives, will be
suitable and sufficient for the conduct of the Business in the same manner as
presently conducted.
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5.9 Liabilities. As of the date hereof, the Company had no liabilities,
fixed or contingent, which are not fully shown or provided for in the Financial
Statements or as listed in the Disclosure Schedule. The Company shall provide a
list of all liabilities of the Company as of the Closing Date which shall be
certified as true and correct by the Company and each Shareholder and shall be
incorporated herein. All of such liabilities were incurred in the ordinary
course of business.
5.10 Obligations to Affiliates. Except as described in the Disclosure
Schedule, the Company does not owe any amount to, have any contract with, or
commitment to, any of its Shareholders, directors, officers, employees,
consultants or affiliates, or any of the foregoing, and none of such persons owe
any amounts to the Company.
5.11 Real Property. The Company does not own any real property other
than as identified on the Disclosure Schedule (the "Real Property"). The
Disclosure Schedule identifies each lease (the "Leases") devising to the Company
all leasehold interests in all Real Property entered into by the Company (the
"Leased Property"). Each Lease so listed is valid, subsisting and fully
enforceable in accordance with its terms, and there exists no default thereunder
by either the lessee or lessor thereof. The Company has not received any notice,
and has no knowledge, of any defaults by the Company under any lease. The Real
and Leased Properties are free and clear of any and all liens, mortgages and
restrictions as a condition to transfer or assignment. No person other than the
Company is in actual possession of any of such Leased Property. The Real and
Leased Properties are not subject to any pending or threatened special
assessments or threatened condemnation or eminent domain proceedings.
5.12 Employee Benefits Plans.
(a) Attached to the Disclosure Schedule is a description of
all employee benefit plans sponsored, maintained, or contributed to, by the
Company for the benefit of the Company's employees or has been sponsored,
maintained or contributed to anytime during the Company's existence, including
the following plans:
(i) each employee benefit plan as such term is
defined in Section 3(3) of the Employment Retirement Income Security Act of 1974
("ERISA"), including but not limited to employee benefit plans which are not
subject to the provisions of ERISA (collectively referred to as "Plans");
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay policy or agreement, deferred
compensation agreement or arrangement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding which is not
described in Section 5.12(a) above ("Benefit Programs")
(b) True, correct and complete copies of each of the Plans,
related trusts and Benefit Programs, including all amendments thereto, have been
furnished to Parent.
(c) there has been furnished to Parent and Sub, with respect
to all Plans or Benefit Programs required to comply with ERISA, all reports and
summary plan descriptions. Except as otherwise set forth in the Disclosure
Schedule:
(i) the Company does not contribute to or have any
obligation to contribute to, and has not at any time contributed to or had an
obligation to contribute to, a multi-employer plan within the meaning of Section
3(37) of ERISA ("Multi-Employer Plan") or a multiple
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<PAGE> 15
employer plan within the meaning of Section 413(b) and (c) of the Internal
Revenue Code of 1986, as amended (the "Code");
(ii) the Company has performed all obligations
whether arising by operation of law or by contract required to be performed by
it in connection with the Plans and Benefit Programs and there have been no
defaults or violations by any other party to the Plans or Benefit Programs.
(iii) all reports and disclosures relating to the
Plans required to be filed with or furnished to governmental agencies, Plan
participants or Plan beneficiaries have been filed or furnished in accordance
with applicable law in a timely manner and each Plan and each Benefit Program
has been administered in compliance with its governing documents;
(iv) each of the Plans intended to be qualified under
Section 401 of the Code satisfies the requirements of the Code and has received
a favorable determination letter from the Internal Revenue Service regarding
such status and has not, since receipt of the most recent favorable
determination letters, been amended or operated in a way which could adversely
affect such qualified status;
(v) there are no actions, suits, or claims pending
(other than routine claims for benefits) or threatened against or with respect
to, any of the Plans, Benefit Programs or their respective assets;
(vi) all contributions required to be made to the
Plans and Benefit Programs pursuant to their respective terms and provisions and
applicable law have been timely made;
(vii) as to any Plan subject to ERISA, no event or
condition which presents a risk of Plan termination or accumulated funding
deficiency within the meaning of Section 302 of ERISA or Section 412 of the Code
has occurred. No reportable event within the meaning of Section 4043 of ERISA
has occurred, no notice of intent to terminate the Plans has been given, no
proceeding to terminate the Plan has been instituted, there has been no
termination of the Plan and no liability to the Pension Benefit Guaranty
Corporation has been incurred;
(viii) none of the Plans or their trustees has
engaged in any prohibited transactions or party in intent transactions as such
terms are defined in Section 4975 of the Code and Section 406 of ERISA;
(ix) there is no matter pending with respect to any
Plan or Benefit Program before the Internal Revenue Service, the U.S. Department
of Labor, or the Pension Benefit Guaranty Corporation;
(d) Except as otherwise set forth on the Disclosure Schedule,
neither the execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby will:
(i) entitle any current or former employee of the
Company to severance pay, unemployment compensation or any similar payment;
(ii) accelerate the time of payment or vesting or
cause any increase in the amount of any compensation due to any such employee or
former employee; or
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(iii) directly or indirectly result in any payment
made to or on behalf of any person to constitute a parachute payment within the
meaning of Section 2805 of the Code.
5.13 Labor and Employment Matters.
(a) The Company is presently, and has at all times been, in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, including
without limitation the following: The Fair Labor Standards Act ("FLSA"), the
Immigration and Control Act ("IRCA"), the Workers Adjustment and Retraining
Notification Act ("WARN"), the Americans with Disabilities Act ("ADA") and such
laws respecting employment discrimination, equal opportunity, affirmative
action, workers compensation, occupational safety and health requirements and
unemployment insurance and related matters.
(b) No investigation or review by, or before, any Governmental
Authority is pending, nor is any investigation threatened, or has any
investigation occurred during the last three (3) years and no Governmental
Authority has provided any notice to the Company or any Shareholder asserting an
intention to conduct any such investigation.
(c) The Company does not have any (i) controversies between it
and its employees, (ii) unresolved labor liens, grievances or organization
efforts; or (iii) unfair labor practices or labor arbitration proceedings
pending or threatened.
(d) Except as described in the Disclosure Schedule, the
Company is not a party to any agreement and has not established any policy or
practice requiring the Company to make a payment or provide any other form of
compensation or benefit to any person including any officer, director or
Shareholder performing services for the Company upon termination of such
services.
(e) The Disclosure Schedule sets forth, by number and
employment classification, the approximate number of employees of the Company as
of the date hereof. None of such employees are subject to collective bargaining
agreements with the Company. The Company has not at any time had, or been
threatened with, any work stoppages or other labor disputes or controversies
with respect to its employees.
5.14 Personal Property. The Disclosure Schedule contains a list of all
personal property owned or leased by the Company. All assets and properties
reflected in the Disclosure Schedule or the Financial Statements or acquired
after such date, other than such assets and properties sold or otherwise
disposed of in the ordinary course of Business subsequent to such date, and all
of such equipment and other assets and properties are owned free and clear of
all liens, mortgages, pledges, claims and encumbrances.
5.15 Insurance. The Disclosure Schedule contains a list of all policies
of insurance owned by the Company, and the amounts of such coverage of each
policy, all premiums on such policies or renewals thereof having been paid. All
policies of insurance insuring the Company or its business, assets, employees,
officers and directors are in full force and effect. The Company has previously
delivered copies of all such insurance policies and proof of payment of such
premiums to Parent. There are no material claims by the Company under any such
policy as to which any insurance company is denying liability or defending under
a reservation of rights.
5.16 Contracts and Commitments. Except as set forth on the Disclosure
Schedule, the Company is not a party to, or bound or affected by any contract,
lease, agreement, covenant, license, instrument or commitment (whether written
or oral) of any type, including the following:
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<PAGE> 17
(a) contracts for the employment or compensation of any
officer or individual employee, not terminable without further liability at any
time:
(b) contracts with any labor union;
(c) continuing contracts for the future purchase of materials,
supplies or equipment, at a cost of $1,000 or more, or to be delivered more than
thirty (30) days after the date hereof;
(d) continuing contracts for the future provision of its
services;
(e) distribution or agency contracts, franchise contracts, or
advertising commitments, which cannot be terminated without further liability to
the Company upon no more than thirty (30) days' notice;
(f) pension, profit sharing, deferred compensation, retirement
or stock option or stock purchase plans in effect with respect to officers,
employees or others;
(g) leases under which it is lessor or lessee;
(h) underwriting agreements or agreements with a broker or
finder;
(i) consulting agreements;
(j) contracts for the acquisition of a business, or
substantially all of the property, assets, or stock of a business under which
there are any continuing or unperformed obligations on the part of any of the
parties thereto; or
(k) Any other contract, agreement, or commitment involving
$1,000 or more or which is not terminable without further liability to the
Company upon no more than thirty (30) days' notice.
There have been delivered to Parent true and correct copies of each of
the Contracts listed in the Disclosure Schedule. All Contracts are valid,
binding and in full force and effect and are enforceable in accordance with
their terms against all other parties to such Contracts. The Company has
performed all obligations required to be performed by it to date and is not in
default in any material respect under any Contract to which it is a party. None
of the Contracts were arrived at, or otherwise reflect, less than arms length
negotiations or bargaining.
5.17 Contracts with Physicians, Hospitals, HMO's and Third Party
Payors. The Disclosure Schedule contains a list of all outstanding contracts,
partnerships, joint ventures and other arrangements or understandings (written
or oral) between the Company and any physicians, hospital, HMO, other managed
care organization or other third party payor related to the provision of medical
or other services, treatments, patients, referrals or similar activities.
5.18 Inspection of Records. The Company and Shareholders have made, or
will make, available for inspection by Parent and Sub full and complete
information concerning the Company's patients, suppliers, vendors and all
aspects of the Company's business, including complete copies of any customer,
vendor, or supplier contracts.
5.19 Inventories. The inventory of the Company as of the Closing Date
shall, in all material respects, consist of items of a quality, condition and
quantity consistent with normal inventory levels of the Company and be useable
and saleable in the ordinary and usual course
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of business for the purposes for which intended. Such inventory is carried on
the Company's books of account in accordance with GAAP consistently applied.
5.20 Equipment and Other Tangible Property. The Company's equipment,
furniture, machinery, vehicles, structures, fixtures and other tangible property
included in the Financial Statements or as listed in the Disclosure Schedule
shall, as of the Closing Date, be in all material respects suitable for the
purposes for which intended and in good operating condition and repair
consistent with normal industry standards, except for reasonable and ordinary
wear and tear.
5.21 Permits. The Company has all material Permits necessary to
construct, own, operate, use and/or maintain its assets and the Business in all
locations where the Company conducts such business. Such Permits are valid and
subsisting and all fees required to be paid thereon have been paid. No
proceeding is pending or threatened to modify, suspend, revoke, withdraw,
terminate or otherwise limit any Permit which could adversely affect the ability
of the Company to own, operate, use or conduct the Business currently operated.
5.22 Intangible Rights. The Company owns or has the right to use all of
the Intangible Rights listed on the Disclosure Schedule. The conduct of the
Business does not infringe or conflict with, and has not in the past infringed
or conflicted with, and the Company is not in receipt of any notice or complaint
of conflict with or infringement of, the asserted rights of others in any
Intangible Rights of others.
5.23 Litigation. Except as listed on the Disclosure Schedule:
(a) There is no action, suit, judicial or administrative
proceeding (whether or not on behalf of the Company), arbitration or
investigation pending or threatened against or affecting or involving the
Company, the Shareholders or their properties or which involve the possibility
of any judgment or liability before any court, arbitrator or other Governmental
Authority;
(b) There is no judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against the Company or any Shareholders. The Company is
not in default with respect to any order, writ, injunction or decree of any
court or Governmental Authority. The Company is in compliance in all material
respects with all laws, rules, regulations and orders materially applicable to
its Business.
5.24 Compliance with Laws.
(a) The Company is and has been in compliance in all respects
with any and all laws, regulations, ordinances, rules, orders or decrees
applicable to the Company. The Company has not received or entered into any
citation, complaints, consent order, compliance schedules or other similar
enforcement order or received written notice from any Governmental Authority
that would indicate that the Company is not currently in compliance with all
such laws, regulations, ordinances, rules, orders or decrees.
(b) Neither the Company or any Shareholder has directly or
indirectly paid or delivered any fees, commission or any money or property,
however characterized, to any physician or any other party for the referral of
patients to the Company or its Business or any business or operation of the
Company or the Shareholders.
5.25 Absence of Material Changes. From the date of the Financial
Statements to the date hereof, the Company has not:
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(a) issued any capital stock or other corporate securities or
granted any option to any person for the acquisition of any capital stock or
other corporate securities;
(b) incurred any obligations or liabilities (absolute or
contingent) except current liabilities incurred, and obligations under contracts
entered into, in the ordinary course of business;
(c) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent) other than obligations or
liabilities referred to in (b) above;
(d) declared or made any payment or distribution to
shareholders, or purchased or redeemed any shares of its capital stock;
(e) mortgaged, pledged, or subjected to any lien, charge, or
other encumbrance, any of its assets, tangible or intangible, other than liens
for taxes not yet due or which are being contested in good faith by appropriate
proceedings;
(f) sold or transferred any of its tangible assets or canceled
any debts or claims, except in each case in the ordinary course of business;
(g) sold, assigned, or transferred any Intangible Rights;
(h) suffered any material operating or extraordinary loss or
waived any right of substantial value;
(i) made any loan to, borrowed money from, or entered into any
contract or understanding with, any employee, officer, director or Shareholder
of the Company;
(j) made any payment or contracted for payment of any bonus,
gratuity, or other compensation to employees other than wages and salaries in
effect as of the date of the Financial Statements, except wage and salary
adjustments made in the ordinary course of business for employees who are not
officers or directors of the Company;
(k) had any union or labor difficulties or work stoppage;
(l) entered into any transaction other than in the ordinary
course of business (as defined in Section 7.1 herein);
(m) entered into any leases of real or personal property; or
(n) received any notice of termination of any contract, lease
or other agreement which in the aggregate would have a material adverse affect
on the Company.
(o) entered into any contracts for which the Company will
incur a loss from the provision of services.
5.26 Banking Information. The Disclosure Schedule contains a list of
all bank accounts and credit facilities and authorized signatories on bank
accounts and credit facilities of the Company. No other persons, other than as
listed on the Disclosure Schedule, are authorized to withdraw any funds on the
bank accounts or to draw down on such credit facilities.
5.27 Tax Returns. The Company has duly filed, or duly received
extensions for the filing, of all federal, state, local or foreign tax returns
required to have been filed by it and have
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paid the tax shown to be due on any such returns filed and no waivers or
extension of the statutory period of limitation within which assessments may be
made have been granted with respect to any such tax return. For the purpose of
this Agreement, the term "tax" (including "taxes" and "taxable") shall include
all federal, state, local and foreign income, profit, franchise, gross receipts,
payroll, sales, employment, use, property, withholding, excise and other taxes,
duties or assessments of any nature whatsoever, together with all interest,
penalties and additions imposed with respect to such matters. Such tax returns
are accurate and complete in all material respects. No federal, state or local
tax returns of the Company have ever been examined by the Internal Revenue
Service or any other Governmental Authority. The Company is not a party to any
action or proceeding by any governmental authority for assessment or collection
of taxes nor have any claims for assessment and collection been asserted against
the Company. The reserves made for taxes, governmental charges and duties on the
Company's balance sheet are sufficient in all material respects for the payment
of all unpaid taxes, governmental charges and duties payable by the Company,
attributable to all periods on or before the date of the Company's balance sheet
and there is no basis or claim for any penalties or interest through the Closing
Date. The Company shall (i) make adequate provision on its books for all taxes
accruable and (ii) timely remit all withholding, 1099's, 1120's, employment,
sales, ad valorem, personal property and estimated income taxes due and payable
to date and which becomes due prior to, or on, the Closing Date. The Company has
made available to Parent copies of all the Company's federal, state and local
tax returns.
5.28 Accounts Receivable. The accounts receivable and other receivables
shown on the Financial Statements or thereafter acquired prior to the Closing
Date hereof, have been collected or are collectible in amounts not less in the
aggregate than the net book amount thereof. All such accounts receivable arose
from bona fide transactions in the ordinary course of business and the goods and
services involved have been sold, delivered and performed for the Company's
patients. No further goods are required to be provided and no services are
required to be rendered in order to complete the sales and to entitle the
Company to collect the account receivables. None of the accounts receivable are
subject to set-off or counterclaim. Since the date of the Financial Statements,
there has been no significant reduction in the accounts receivable and other
receivables of the Company. The Company's accounts receivable as of the date
herein are listed on the Disclosure Schedule.
5.29 Medicare Matters. The Company is receiving payments under Titles
XVIII and XIX of the Social Security Act and the Medicaid programs in each state
in which it conducts business. There is no pending or threatened termination of
such status. The Company and Shareholders have no knowledge of and have not
received any notice of any claims, actions, payment reviews or appeals pending
or threatened before any commission, board or agency, including without
limitation, any intermediary or carrier or the Administrator of the Health Care
Financing Administration with respect to any Medicare and Medicaid claims filed
by or on behalf of the Company, or program compliance matters, which if
adversely determined would have a material adverse effect on the Company or its
Business. The Company and Shareholders have no knowledge of, and has not
received any notice of, any validation review or program integrity review or
investigation or review with respect to false claims, fraud and abuse or other
violations of federal or state laws, rules and regulations respecting the
Medicare and Medicaid programs or the delivery of payment for health care
services, by any commission, board or agency in connection with the Medicare and
Medicaid programs, including the Health Care Financing Administration, the U.S.
Department of Justice or the HHS Office of Inspector General and no such reviews
are scheduled, pending or threatened against the Company. All of the Company's
Medicare and Medicare billings and collections thereof are in all respects
appropriate and in compliance with all applicable federal and state laws, rules,
regulations and orders and there are no denials, past payment denials or
recoupments pending or threatened with respect to the
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billings and collections. The Medicare and Medicaid accounts receivables
reflected on the Company's books and records are valid claims in the full
amounts so reflected.
5.30 Compliance with Instruments. The consummation of the transaction
contemplated by this Agreement will not result in a breach or violation of any
of the terms, provisions or conditions of, or constitute a default under, or
result in the creation of any lien, charge or encumbrance on any property or
assets of the Company pursuant to its Articles of Incorporation, all amendments
thereto, By-Laws, any provision of law, judgment, decree, indenture, agreement
or instrument to which the Company is a party or by which it is bound.
5.31 Brokers' Commissions. Neither the Company or any Shareholder have
entered into any agreement or understanding with any person, firm or entity or
have become indirectly a party to any agreement for the payment or any
commission, finders or brokerage fee in connection with this Agreement and the
transaction contemplated hereof. The Company and the Shareholders hereby agree
to indemnify and hold harmless the Parent and Sub from any claims for a
commission, finder's or broker's fee.
5.32 Books and Records. The books of account and other records of the
Company are materially complete and correct and in the aggregate present and
reflect all of the transactions entered into by it or to which it is a party.
The Company and the Shareholders have no knowledge of any condition whether
pending or threatened which would have a material adverse effect upon the
Business of the Company or prevent such Business from being carried on in
substantially the same manner in which it is presently carried on.
5.33 Accuracy of Information. All information provided to Parent and
Sub by the Company and Shareholders as an inducement to Parent and Sub to enter
into this Agreement or in compliance with the provisions of this Agreement are
accurate and complete and do not contain any untrue statement of a material fact
or omit any material fact necessary to make the information provided not
misleading.
5.34 Environmental Regulations. The Business and the Company are in
compliance with all applicable federal, state and local laws and regulations
governing the environment, public health and safety and employee health and
safety (including all provisions of the Occupational Safety and Health Act) and
no charge, complaint, action, suit, proceeding, hearing, investigation, claim,
demand or notice has been filed or commenced against the Company or the
Shareholders alleging any failure to comply with any such law or regulation.
Neither the Company or any of its affiliates, agents or licensees has engaged in
the storage, release, holding, emission, discharge, generation, processing,
disposition, handling or transportation of any substance or material designated
as a Hazardous Material in violation of any federal, state or local law,
ordinance or regulation. There are no Hazardous Materials at, on or in any of
the Company's properties in violation of any federal, state or local laws,
ordinances or regulations and there is no proceeding or inquiry pending or
threatened by any federal, state or local governmental agency with respect
thereto.
5.35 Accounting Matters. Neither the Company, nor any Shareholder nor
any of their affiliates, have taken, or agreed to take, any action that would
hinder or prevent Parent from accounting for the Merger as a "pooling of
interest."
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ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represents and warrants that:
6.1 Parent Organization. Parent is duly organized and validly existing
as a corporation in good standing under the laws of the State of Florida and has
full corporate power to carry on its business as now conducted and is entitled
to own or lease its properties and to carry on its business as now conducted in
the places where such properties are now leased, owned or operated or such
business is now conducted.
6.2 Sub Organization. Sub is duly organized and validly existing as
a corporation in good standing under the laws of the State of Mississippi and
has full corporate power to carry on its business as now conducted and is
entitled to own or lease its properties and to carry on its business as now
conducted in the places where such properties are now leased, owned or operated
or such business is now conducted.
6.3 Parent Capitalization. Parent is authorized to issue 30,000,000
shares of capital stock, consisting of 25,000,000 Renex Shares and 5,000,000
shares of preferred stock $.01 par value. As of November 30, 1995, Parent has
5,946,500 Renex Shares and 1,000,000 shares of Series A Preferred Stock
outstanding, all of which are validly issued, fully paid and nonassessable. Each
share of Series A Preferred Stock is convertible under certain circumstances,
into two (2) shares of Common Stock. In addition, as of November 30, 1995 the
Company has outstanding common stock purchase warrants entitling the holders to
purchase an aggregate of 738,500 Renex Shares for an exercise price of $3.00 per
share and common stock purchase warrants entitling the holder to purchase an
aggregate of 633,029 Renex Shares for an exercise price of $2.00 per share. The
Company has a Directors Stock Option Plan ("Directors Plan") and an Employee
Stock Option Plan ("Employee Plan"). The Directors and Employee Plan each have
500,000 Renex Shares available for issuance upon grants of options. As of the
date of this Agreement, there were outstanding options to purchase 35,000 Renex
Shares under the Directors Plan, options to purchase 271,000 Renex Shares under
the Employee Plan and options to purchase 110,000 Renex Shares not granted under
any plan.
6.4 Sub Capitalization. Sub is authorized to issue 1,000 shares of
common stock par value $1.00 per share, of which 100 shares of common stock are
validly issued and outstanding, fully paid and non-assessable. All such shares
of common stock are owned by Parent.
6.5 Authority. Parent and Sub have full power and authority to enter
into this Agreement and the consummation of the transaction contemplated by this
Agreement will not result in any breach of any of the terms, provisions, or
conditions of, or constitute a default under, or result in the creation of, any
lien, charge, or encumbrance of any property or assets of Parent and Sub
pursuant to their respective Articles of Incorporation, By-Laws or any
indenture, agreement, instrument, order, judgment, or decree to which they are
parties or by which they are bound.
6.6 Litigation.
(a) There is no action, suit, judicial or administrative
proceeding (whether or not on behalf of the Parent or Sub), arbitration or
investigation pending or threatened against or affecting or involving the
Parent, Sub, or their properties or which involve the possibility of any
judgment or liability before any court, arbitrator or other Governmental
Authority;
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<PAGE> 23
(b) There is no judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against the Parent or Sub. Parent and Sub are not in
default with respect to any order, writ, injunction or decree of any court or
Governmental Authority. Parent and Sub are in compliance in all material
respects with all laws, rules, regulations and orders materially applicable to
its Business.
6.7 Medicare Matters. Parent is receiving payments under Titles XVIII
and XIX of the Social Security Act and the Medicaid programs in each state in
which it conducts business. There is no pending or threatened termination of
such status. Parent has no knowledge of and has not received any notice of any
claims, actions, payment reviews or appeals pending or threatened before any
commission, board or agency, including without limitation, any intermediary or
carrier or the Administrator of the Health Care Financing Administration with
respect to any Medicare and Medicaid claims filed by or on behalf of Parent, or
program compliance matters, which if adversely determined have a material
adverse effect on Parent or its business. Parent has no knowledge of, and has
not received any notice of, any validation review or program integrity review or
investigation or review with respect to false claims, fraud and abuse or other
violations of federal or state laws, rules and regulations respecting the
Medicare and Medicaid programs or the delivery of payment for health care
services, by any commission, board or agency in connection with the Medicare and
Medicaid programs, including the Health Care Financing Administration, the U.S.
Department of Justice or the HHS Office of Inspector General and no such reviews
are scheduled, pending or threatened against Parent. All of Parent's Medicare
and Medicaid billings and collections thereof are in all respects appropriate
and in compliance with all applicable federal and state laws, rules, regulations
and orders and there are no denials, past payment denials or recoupments pending
or threatened with respect to the billings and collections. The Medicare and
Medicaid accounts receivables reflected on Parent's books and records are valid
claims in the full amounts so reflected.
6.8 Brokers' Commissions. Except for a finder's fee payable to Thomas
Carter, neither the Parent or Sub have entered into any agreement or
understanding with any person, firm or entity or have become indirectly a party
to any agreement for the payment or any commission, finders or brokerage fee in
connection with this Agreement and the transaction contemplated hereof. Parent
hereby agrees to indemnify and hold harmless the Shareholders from any claims
for a commission, finder's or broker's fee resulting from any agreement by
Parent.
ARTICLE VII. OBLIGATIONS PRIOR TO CLOSING
7.1 Operation of Business. The Company and Shareholders agree that,
from the date hereof to the Closing Date, the Company shall conduct its Business
and affairs only in the ordinary course. For the purpose of this Agreement, the
phrases "the ordinary course" and "the ordinary course of business" shall mean
the conduct and operation of the Business of the Company only in the manner in
which it conducted and operated such Business during the period represented by
the Financial Statements, its usual and ordinary accounting practices, making
ordinary accruals, incurring ordinary liabilities and expenditures, and making
ordinary commitments for merchandise, insurance, rentals, and other ordinary
Business purposes.
7.2 Access to Books and Records. From and after the date hereof, the
Company shall (a) afford to the officers, employees and representatives of
Parent and Sub full and free access to its assets, personnel, properties,
records and books of account at all reasonable times during business hours, (b)
to furnish to such officers, employees and representatives such other
information as Parent and Sub may reasonably request, and (c) to authorize its
accountants and auditors to permit Parent's independent public accountants and
representatives to examine
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<PAGE> 24
records pertaining to the Company's Financial Statements and other books and
records of the Company. Parent and Sub agree to treat all such material as
confidential and not make use of such materials except for the purposes
expressed in this Agreement unless such use comes into the public domain.
7.3 Negative Covenants. The Company and Shareholders covenant that from
and after the date hereof and through the Closing Date, without the prior
written consent of Parent, the Company will not:
(a) enter into any material written or oral contract,
agreement, or commitment of any type, including the following,
(i) contracts for the employment or compensation of
any officer, director, or individual employee;
(ii) contracts with any labor union;
(iii) continuing contracts for the future purchase of
inventory, materials, supplies, or equipment at a cost of $5,000 or more;
(iv) continuing contracts for future services;
(v) distribution or agency contracts, franchise
contracts, or advertising commitments;
(vi) pension, profit sharing, deferred compensation
retirement, stock option, stock purchase plans, group health insurance, or
similar plans with respect to officers, directors, employees, or others;
(vii) leases under which the Company is a lessor or
lessee;
(viii) underwriting agreements or agreements with a
broker or finder;
(ix) consulting agreements;
(x) contracts for the acquisition of a business or
substantially all of the property, assets or capital stock of a business;
(xi) any other contract, agreement, or commitment
involving $1,000 or more.
(b) declare or pay any dividend, or make any distribution of
its properties or assets to its shareholders, or allow the issuance of any of
its securities.
(c) discharge or satisfy any lien or encumbrance or pay any
obligation or liability except in the ordinary course of business;
(d) make any change in its Articles of Incorporation or
By-Laws;
(e) issue any capital stock or other corporate securities or
grant options, warrants or rights of any kind to purchase any of its capital
stock or corporate securities;
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<PAGE> 25
(f) mortgage, pledge or subject to any lien, charge or other
encumbrance any of its tangible or intangible assets;
(g) make any payment, or enter into any contract for payment
of any bonus, gratuity or other compensation, or increase the rate or form of
compensation payable to any agent or employee, except salary adjustments in the
ordinary course of business for employees who are not officers, directors or
stockholders of the Company;
(h) dispose of any of its properties or assets except in the
ordinary course of business;
(i) incur any indebtedness, except for operating expenses in
the ordinary course of business, nor allow any material adverse change to be
made in its financial affairs, nor allow any tax or other liability to be
extended by waiver of the statutes of limitation or otherwise;
(j) make any loan to, borrow any money from, or entered into
any contract or understanding with, any officer, director or shareholder of the
Company; or
(k) enter into any transaction other than in the ordinary
course of business.
(l) fail to use all reasonable efforts to take, or omit to
take, any action which would make any representation or warranties of the
Company and Shareholders herein untrue or incorrect in any material subject.
7.4 Affirmative Covenants. The Company and Shareholders covenant that
from and after the date hereof and through the Closing Date, the Company and the
Shareholders will:
(a) keep the Company's properties and assets insured
consistent with its prior practices in respect thereto;
(b) perform in the normal course of business all of their
obligations under contracts, leases and documents relating to or affecting its
assets, properties and business;
(c) materially preserve intact the Company's Business,
organization, agencies and goodwill, to the end that Parent shall continue to
operate the Company as a going business as now constituted, after the
consummation of the Transaction contemplated hereunder;
7.5 Company Acquisition Proposals. The Company and the Shareholders
will not, and will cause each of their respective directors, officers,
employees, financial advisors, legal counsel, accountants and agents and
representatives not to initiate, encourage or solicit, directly or indirectly,
any inquiries or the making of any proposal with respect to or engage in
negotiation concerning, providing any non-public or confidential information or
data to, or have any discussions with, or otherwise assist any person relating
to, any acquisition, business combination or purchase of all or any significant
position of the Business or assets of, or any equity interest in the Company
other than in connection with the Merger. The Company and each Shareholder will
promptly notify Parent if any such inquiries or proposals are received by
Company or a Shareholder or if any negotiations or discussions are sought to be
initiated or continued with the Company or any Shareholders.
7.6 Accounting Matters. Except as contemplated under this Agreement,
neither the Company nor any Shareholder shall (i) take any action which could
jeopardize the treatment of the Merger as a pooling of interest or (ii) take or
allow to be taken or fail to take any action which
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<PAGE> 26
act or omission would jeopardize qualification of the Merger as a reorganization
within the meaning of Section 368(a) of the Code.
7.7 Current Information. From the date of this Agreement to the
Effective Time, the Company and each Shareholder will cause one or more of its
designated representatives to confer on a regular and frequent basis with
representatives of the Parent and to report the status of the Business and to
deliver to Parent (not less than monthly) unaudited consolidated balance sheets
and related consolidated statements of income and cash flows for each month end
prior to the Effective Time. The Company shall promptly notify Parent of any
material changes to the operations or financial condition of the Company. From
the date of this Agreement to the Closing Date, Parent shall deliver to the
Shareholders monthly unaudited consolidated financial statements within
forty-five (45) days of each month end and shall keep Shareholders informed of
any material changes to the operations or financial conditions of Parent.
7.8 Public Announcements. Prior to the Closing Date, the parties hereto
agree that they will not issue any press release or other information regarding
the transaction contemplated hereby, without the prior approval of the other
party.
7.9 Leases for Facilities.
(a) Jackson Clinic. Following the Closing Date, a partnership
consisting of the Shareholders (the "JCD Partnership") shall cause to be
constructed a new 5,000 square foot building on the real property where the
Company's present Jackson clinic is located. The JCD Partnership shall pay all
costs of construction of the building. The Company will lease the building from
the JCD Partnership for a period of ten (10) years at the rate of $11 per square
foot, which amount includes maintenance of the structure and other items not
included in tenant finishes, taxes and insurance, all subject to, and in
accordance with, a lease substantially in the form attached as Exhibit "F" to
the Disclosure Schedule. The JCD Partnership shall build-out the facility in
accordance with plans, specifications and budget approved by Parent at Parent's
expense not to exceed $175,000. Any amounts in excess of $175,000 would be paid
by the JCD Partnership. The Company shall provide insurance covering its
leasehold improvements and damages caused by its use of such property. The JCD
Partnership shall ensure adequate parking for all of the Company's personnel and
patients. In addition, the JCD Partnership shall lease to the Company the
existing facility at 1828 Raymond Road, Jackson, Mississippi for use as
additional office space and home training for a period of five (5) years at the
rate of $2,200 per month on the same terms and conditions as the new facility,
with an option to extend such lease for a period of five (5) years at the same
rent and terms.
(b) Delta Clinic. Following the Closing Date, the Company will
lease the real property on which the Delta clinic is situated to the JCD
Partnership at the rate of $160 per month, for a term of thirty (30) years with
an option to purchase the real property at the end of the second lease year for
its book value as shown on the Financial Statements, all subject to, and in
accordance with, a lease substantially in the form attached as Exhibit "G" to
the Disclosure Schedule. The JCD Partnership shall cause to be constructed on
such real property a 7,500 square foot building for use as a dialysis clinic.
The Company will lease the building from the JCD Partnership for a period of ten
(10) years at the rate of $11 per square foot, which amount includes maintenance
of the structure and other items not included in tenant finishes, taxes and
insurance, all subject to the lease substantially in the form attached as
Exhibit "H" to the Disclosure Schedule. The JCD Partnership shall build out the
facility in accordance with plans, specifications and budget approved by Parent
at Parent's expense not to exceed $262,500. The Company shall provide insurance
covering its leasehold improvements and damages caused by its use of the
property. Any amounts in excess of $262,500 would be paid by the JCD
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Partnership. The JCD Partnership shall ensure adequate parking for all of the
Company's personnel and patients.
ARTICLE VIII. CONDITIONS PRECEDENT TO THE CLOSING
8.1 Conditions to Obligations of Parent and Sub. The obligations of
Parent and Sub to consummate this Agreement shall be subject to, and be
conditioned upon, each of the following conditions:
(a) Properties Intact. No properties or assets of the Company
shall have suffered any destruction or damage by fire, accident or other
casualty or act of God not fully covered by insurance or affecting in a material
and adverse way the conduct of the Business of the Company considered as a
whole.
(b) Representations and Warranties. The representations and
warranties made by the Company and Shareholders in Article V hereof shall be
correct in all material respects on and as of the Closing Date with the same
force and effect as though such representations had been on and as of the
Closing Date; none of the covenants of the Company or Shareholders contained in
Articles VII hereof shall have been breached in any material respect as of the
Closing Date.
(c) No Material Adverse Changes. That since the date of the
Financial Statements, there has been no material adverse change in the condition
of the Company, financial or otherwise, from that set forth in the Financial
Statements.
(d) Approvals and Consents. All consents, approvals,
authorizations or orders of any individual entity, court or Governmental
Authority or administrative body, if any, shall have been obtained and in effect
on the Closing Date which are required for the consummation of the transaction
be contemplated by this Agreement, including any approvals or consents necessary
with regard to the certificates of need issued by the Mississippi State
Department of Health as a result of the change of control of the Company.
(e) No Litigation. No claim, proceeding, investigation, or
litigation, either administrative or judicial, shall be threatened or be pending
against the Parent, Sub, Company or any Shareholder which, in the opinion of
counsel for Parent, presents a reasonable probability that the transaction
contemplated by this Agreement would be enjoined or prevented or that the right
of Parent to continue the operations of the property, assets and Business of the
Company would be materially affected.
(f) Due Diligence. Parent shall have completed its due
diligence investigation and the results thereof shall not have revealed that any
of the representations, warranties or covenants made by the Company or any
Shareholder in this Agreement are untrue or incorrect in any material respect or
otherwise be unsatisfactory to Parent.
(g) No Violations of Law. At the Closing Date, there shall
exist no violations of any Federal, state or local law, ordinance or regulation
materially affecting the assets, properties or Business of the Company.
(h) Performance by Shareholders and the Company. All of the
terms and conditions of this Agreement to be complied with and performed by the
Shareholders and the Company on or before the Closing Date shall have been
complied with and performed.
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(i) Leases. All consents or approvals regarding any Contracts
or Leases shall have been obtained, if necessary.
(j) Medical Director's Employment Agreement. C. DAVID FINCH,
JR., M.D. shall have entered into a new Medical Director's employment agreement
with the Company as Medical Director as required in Section 4.5(e) hereof.
(k) Financial Statements. Parent shall have commenced the
audit of its financial statements as of December 31, 1994 and for the year then
ended.
(l) Accounting Treatment. Parent shall have received a letter
dated no later than the Closing Date from Parent's independent auditors,
addressed to Parent, in form and substance satisfactory to it, to the effect
that the Merger qualifies for "pooling of interests" treatment for financial
reporting requirements and that such accounting treatment is in accordance with
generally accepted accounting principles.
8.2 Conditions to Obligations of the Company and Shareholder. The
obligations of the Company and Shareholders to consummate this Agreement are
subject to, and shall be conditioned upon, each of the following conditions:
(a) Representations and Warranties. The representations and
warranties made by Parent and Sub herein shall be correct in all material
respects on and as of the Closing Date with the same force and effect (except as
affected by the transactions contemplated herein or otherwise approved in
writing by the Company and the Shareholders and changes occurring after the date
hereof in the ordinary course of Parent's business) as though such
representations had been made on and as of the Closing Date. The covenants of
Parent and Sub contained herein shall not have been breached in any material
respects as of the Closing Date, and Parent and Sub shall have delivered to the
Shareholders and the Company, a certificate to such effect signed by a duly
authorized officer of Parent.
(b) Performance by Parent and Sub. All of the terms, covenants
and conditions of this Agreement to be complied with and performed by Parent and
Sub on or before the Closing Date shall have been complied with and performed.
ARTICLE IX. POST-CLOSING OBLIGATIONS
9.1 Survival of the Closing. All covenants, agreements,
representations, and warranties made hereunder and in any certificates delivered
at the Closing pursuant hereto shall be deemed to have been relied upon by
Parent, Sub, Shareholders and the Company, and shall survive the Closing for the
applicable statute of limitation period.
9.2 Further Assurances. Following the Closing, each of the
Shareholders, the Company and Parent shall execute and deliver such documents,
and take such other action as shall be reasonably requested by any other party
hereto to carry out the transaction contemplated by this Agreement.
9.3 Indemnification by Shareholders. The Shareholders agree to
indemnify, reimburse and hold harmless Parent, Sub and the Surviving Corporation
against and from:
(a) All damages in excess of $50,000 in the aggregate
suffered, incurred, or sustained by Parent or the Surviving Corporation as a
result of (i) the existence on or before the Closing Date of any material
liabilities, absolute or contingent, of the Company which were not
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disclosed to Parent in accordance with the terms of this Agreement or any
Collateral Agreement and which the Shareholders knew or should have known
existed; (ii) the material untruth of any other representation or the breach of
any other warranty made in this Agreement or any Collateral Agreement; (iii) the
material untruth of any certificate required under this Agreement or any
Collateral Agreement to be delivered by the Shareholders or the Company to
Parent on the Closing Date; (iv) the material breach of this Agreement by the
Company or the Shareholders.
(b) Parent shall give the Shareholders prompt notice of any
claim to indemnification it may wish to assert pursuant to this Article IX as
soon as reasonably practicable. Before being required to make any payments
pursuant to this Section 9.3, the Shareholders may, in their discretion and at
their expense, take all necessary steps properly to contest any claim or
liability or action in respect thereof involving third parties, or to prosecute
such contest or action to conclusion or settlement satisfactory to Parent and
themselves. Parent shall cooperate fully with the Shareholders in the reasonable
conduct of any such contest or action, legal proceedings, negotiation, or
settlement and will not permit compromise voluntarily or settle any such
contest, action, legal proceeding, claim or demand without prior notice to and
approval by the Shareholders.
(c) Upon the payment to Parent by the Shareholders of any
amount which Parent is entitled to receive by way of indemnification under this
Article IX, Parent and the Surviving Corporation shall forthwith assign to the
Shareholders all of their right, title, and interest in any item for which
indemnification shall so be made, including claims against third parties.
(d) In the event that the Shareholders shall dispute the right
of Parent to be indemnified under this Article IX of any item with respect to
which Parent shall so request indemnification, or if the Shareholders shall
dispute the amount which Parent shall be entitled to receive with respect to
such item by way of indemnification, such dispute shall be submitted to
arbitration in the City of Miami, in accordance with the rules then in effect of
the American Arbitration Association.
(e) Parent shall have the right to set-off any amounts due it
pursuant to a claim for indemnification against the Renex Shares held by the
Escrow Agent pursuant to the Escrow Agent.
9.4 Non-Competition Agreement. The Shareholders shall enter into
agreements at the Closing substantially in the form attached as Exhibit "I" of
the Disclosure Schedule, in which such Shareholders agree as follows:
(a) The Shareholders covenant and agree that for a period of
ten (10) years from the Closing Date without the prior written consent of
Parent, they will not be an employee (except with Parent or the Surviving
Corporation), independent contractor, agent, director, stockholder or owner
(except of not more than one percent (1%) of the securities of a publicly traded
entity), partner, consultant, financial backer, creditor or be otherwise
directly or indirectly connected with or participate in the management,
operation or control of any business, firm, proprietorship, corporation,
partnership, association, entity or venture engaged in a business similar to the
Business within fifty (50) miles of any existing or future location of the
Surviving Corporation for any remuneration.
(b) The Shareholders covenant and agree that for a period of
ten (10) years from the Closing without the prior written consent of Parent,
they will not contact, call upon, solicit business from, sell or render services
to any patient or customer of the Surviving Corporation or Parent with respect
to the provision of any services or supplies similar to the Business or
otherwise directly or indirectly aid or assist any other person, firm or entity
to do any of the
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<PAGE> 30
aforesaid acts, except on behalf of the Surviving Corporation, Parent or their
subsidiaries or affiliates.
(c) The Shareholders covenant and agree that for a period of
ten (10) years from the Closing without the prior written consent of Parent,
they will not directly or indirectly as principal, agent, owner, partner,
stockholder, officer, director, employee, independent contractor or consultant
or in any individual or representative capacity for themselves or on behalf of
any business firm, corporation, partnership, association or proprietorship enter
into any agreements with or solicit, or directly or indirectly cause others to
solicit, the employment of any officer or other employee of the Surviving
Corporation, Parent or any of their subsidiaries and affiliates for the purpose
of causing said officer or employee to terminate employment with the Surviving
Corporation, Parent or their subsidiaries and affiliates.
(d) The Shareholders agree that they shall not at any time
disclose directly or indirectly to any person, firm or entity any confidential
information about the Surviving Corporation, the Business or Parent or any
information concerning their respective financial condition, customers, sources
of patients and methods of obtaining business or any other methods generally of
doing and operating the Business, except to the extent that such information is
a matter of public knowledge or is required to be disclosed by law through
judicial or administrative process.
(e) It is recognized and acknowledged by the parties hereto
that a breach, threatened breach, or violation by any Shareholder of any of the
covenants and agreements contained in Section 9.4 may cause irreparable harm and
Damage to the Surviving Corporation and Parent in a monetary amount which may be
impossible to ascertain. Each Shareholder agrees that Parent shall be entitled
to an injunction from any court of competent jurisdiction enjoining or
restraining any breach or violation of any or all of the covenants and
agreements contained in this Section 9.4 and that such right to injunction shall
be cumulative and in addition to whatever other rights or remedies the Parent or
the Surviving Corporation may possess hereunder at law or in equity.
(f) Parent and Sub agree that the provisions of this Section
9.4 shall not be enforceable by Parent or Sub: (i) following termination of the
leases described in Section 7.9 herein, if such termination results from a
default in the provisions thereof by the Surviving Corporation following the
Closing; or (ii) upon exercise of the right of first refusal contained in
Section 9.9 herein.
9.5 Publicity. The Company and Shareholder shall not issue or make, or
cause to have made, any public release or announcement concerning this Agreement
or the transaction contemplated hereby, without the advance written approval of
the form and substance by Parent, which approval shall not be unreasonably
withheld.
9.6 Employment Arrangement. The Surviving Corporation agrees to employ
JEFFERY FINCH and CHARLES D. FINCH, SR. following the Closing on the terms and
conditions set forth in those Employment Letters attached to the Disclosure
Schedule as Exhibits "J" and "K."
9.7 Audit. The Company shall cause to be completed an audit of its
financial statements as of December 31, 1994 and December 31, 1995 and for the
twelve (12) months in each of the periods then ended, by an independent public
accounting firm to be chosen by Parent. The financial statements shall be
audited in accordance with GAAP.
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<PAGE> 31
9.8 Board of Directors. Parent shall use its best efforts to cause the
nomination and election of C. DAVID FINCH, JR., M.D. to Parent's Board of
Directors in accordance with Parent's Articles of Incorporation and By-laws.
9.9 Right of First Refusal. Parent and Shareholders shall enter into
Right of First Refusal Agreement substantially in the form attached to the
Disclosure Schedule as Exhibit "L", whereby Parent shall grant to Shareholders
a right of first refusal on the sale of the Company. In the event of a bona
fide offer, accepted by Parent, in which Parent agrees to sell the Company or
substantially all of its assets to a third party, the Shareholders shall have
the right to purchase the Company on the same terms and conditions of the bona
fide offer. The right of first refusal shall not apply to any sale or other
transaction involving other assets of Parent not involving the Company or the
sale of the Company in conjunction with the sale of other assets of Parent,
which assets have a value in excess of the value of the Company's assets. The
right of first refusal shall terminate on the earlier of (a) ten (10) years; or
(b) upon the sale by Shareholders of more than thirty percent (30%) of the
Renex Shares issued in connection with this transaction.
9.10 Personal Guarantees of Shareholders. Parent shall use its best
efforts to have personal guarantees of the Shareholders which were executed for
the benefit of the Company, terminated following the Closing. If any lender,
lessor or other party obligor on such liabilities refuses to terminate such
guarantees, Parent agrees to indemnify the Shareholders against any claims or
liabilities arising out of their guarantees. Parent shall take no action which
would in any way cause such guarantees to be increased.
ARTICLE X. MISCELLANEOUS
10.1 Costs and Expenses. Except as otherwise provided if this Agreement
is terminated in accordance with Section 4.8, each of the parties to this
Agreement shall bear their own expenses incurred in connection with the
negotiation, preparation, execution and closing of this Agreement and the
transaction contemplated hereby, including but not limited to, transfer taxes,
legal fees and accounting fees.
10.2 Remedies. The rights and remedies provided by this Agreement are
cumulative, and the use of any one right or remedy by any party hereto shall not
preclude or constitute a waiver of its right to use any and all other remedies.
Such rights and remedies are given in addition to any other rights and remedies
a party may have by law, statute or otherwise.
10.3 Exhibits and Schedules. The Exhibits and Schedules referred to
herein, including the Disclosure Schedule and its exhibits, are incorporated
herein by this reference.
10.4 Attorneys' Fees. In the event of any litigation or arbitration
proceedings arising out of this Agreement, the prevailing party shall be
entitled to an award of its attorneys' fees and costs (including any fees and
costs incurred in appellate proceedings) against the losing party.
10.5 Risk of Loss. Prior to the Closing, the risk of loss, damage to,
or destruction of any assets of the Company shall remain with the Company and
the Shareholders.
10.6 Assignment and Amendment of Agreement. This Agreement shall not be
assignable by any of the parties hereto except with the written consent of the
other party. This Agreement may be amended by written agreement of the parties
hereto and any such amendment may:
(a) change the time or place for performance of any of the
obligations or acts of the parties hereto, including changes of time and date of
the Closing Date or of the place of Closing,
(b) waive any inaccuracies in or modify the representations
contained in this Agreement or in any Exhibits or Schedules hereto or in any
documents delivered pursuant hereto, and
(c) waive compliance with or modify any of the covenants
herein contained and waive or modify performance of any of the obligations of
the parties hereto.
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<PAGE> 32
10.7 Notices. Any notice or communication given pursuant hereto by
either party to the other party shall be in writing and delivered or mailed by
certified mail, return receipt requested, postage prepaid, as follows:
If to Parent or Sub: Renex Corp.
2222 Ponce de Leon Boulevard, Suite 300
Coral Gables, Florida 33140
Attention: James P. Shea, President
Copy to: Wallace, Bauman, Fodiman & Shannon, P.A.
2222 Ponce de Leon Boulevard, Sixth Floor
Coral Gables, Florida 33134
Attention: Bryan W. Bauman, Esq.
If to the Company Dialysis Facilities, Inc.
or Shareholders: 1828 Raymond Road
Jackson, Mississippi
Attention: Jeffery C. Finch
Copy to: Daniel Coker Horton & Bell
111 East Capital Street, Suite 600
Jackson, Mississippi 39205
Attention: Rex D. Harvey, Esq.
or at such other address as hereafter shall be furnished in writing by any party
hereto to the other parties.
10.8 Entire Agreement. This Agreement, the Disclosure Schedule and all
exhibits attached thereto, constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written of the parties.
10.9 Waiver. Any forbearance, failure or delay by any of the parties
hereto to exercise any right, power or remedy hereunder shall not be deemed a
waiver of such right, power or remedy and any single or partial exercise of any
such right, power or remedy hereunder shall not preclude the further exercise
thereof and every right, power or remedy of either party shall continue in full
force and effect unless waived specifically by an instrument in writing executed
by such party.
10.10 Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Florida. Each party hereto irrevocably submits to
the jurisdiction of the Circuit Court of Dade County, Florida, in any action or
proceeding arising out of or relating to this Agreement and each party
irrevocably agrees that all claims in respect of any such action or proceeding
must be brought and/or defended in such court.
10.11 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
10.12 Captions. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
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<PAGE> 33
10.13 Successors and Assigns. All of the terms of this Agreement shall
be binding upon and inure to the benefit of, and be enforceable by and against
the parties and their respective successors and assigns.
10.14 Interpretation. Handwritten provisions inserted in this
Agreement, initialed in ink, shall control all typewritten provisions in
conflict therewith. This Agreement shall not be construed more strongly against
or in favor of any party, regardless of who is responsible for its preparation.
10.15 Severability. In the event any provision of this Agreement or the
application of such provision to any part shall be held by a court of competent
jurisdiction to be contrary to any rule of law or public policy, the remaining
provisions of this Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Signed, sealed, and delivered in the PARENT:
presence of:
RENEX CORP., a Florida corporation
- -------------------------------------
Print Name:
--------------------------
By: /s/ JAMES P. SHEA
- ------------------------------------- ------------------------------------
Print Name: JAMES P. SHEA, President
--------------------------
SUB:
RENEX ACQUISITION CORP., a Mississippi
corporation
Print Name:
--------------------------
By: /s/ JAMES P. SHEA
- ------------------------------------- ------------------------------------
Print Name: JAMES P. SHEA, President
--------------------------
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<PAGE> 34
COMPANY:
DIALYSIS FACILITIES, INC., a Mississippi
corporation
- -------------------------------------
Print Name:
--------------------------
By: /s/ C. DAVID FINCH, JR., M.D.
- ------------------------------------- -------------------------------------
Print Name: Name: C. DAVID FINCH, JR., M.D.
-------------------------- -----------------------------------
Title: President
----------------------------------
SHAREHOLDERS:
/s/ C. DAVID FINCH, JR., M.D.
----------------------------------------
C. DAVID FINCH, JR., M.D.
/s/ CHARLES D. FINCH, SR.
----------------------------------------
CHARLES D. FINCH, SR.
/s/ JEFFERY C. FINCH
----------------------------------------
JEFFERY C. FINCH
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<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
RENEX CORP.
The undersigned does hereby execute, acknowledge and file the following
Articles of Incorporation for the purpose of creating a corporation under the
laws of the State of Florida:
FIRST: The name of the Corporation is:
RENEX CORP.
(hereinafter the "Corporation").
SECOND: This Corporation shall commence its perpetual existence on the date
these Articles of Incorporation are filed with the Secretary of State.
THIRD: The general purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may now or hereafter be organized under
the Laws of the State of Florida.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 35,000,000 shares, consisting of 30,000,000 shares of
common stock, par value $.001 per share (the "Common Stock"), and 5,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock").
Shares of Preferred Stock of the Corporation may be issued from time to
time in one or more classes or series, each of which class or series shall have
such a distinctive designation or title as shall be fixed by the Board of
Directors of the Corporation (the "Board of Directors") prior to the issuance of
any shares thereof. Each such class or series of Preferred Stock shall have such
voting powers, full or limited. or no voting powers, and such preferences and
relative, participating, optional or other special rights and such
qualifications limitations or restrictions thereof, as shall be stated in such
resolution or resolutions providing for the issue of such class or series of
Preferred Stock as may be adopted from time to time by the Board of Directors
prior to the issuance of any shares thereof pursuant to the authority hereby
expressly vested in it, all in accordance with the laws of the State of
Delaware.
FIFTH: The street address of the initial registered office of the
Corporation and the initial registered agent as well as the mailing address of
the Corporation are as follows:
BISCAYNE REGISTERED AGENTS, INC
100 S.E. 2nd Street, Suite 2100
Miami, FL 33131
SIXTH: The name and mailing address of the first Director of the
Corporation is as follows:
MARIA T. ZUCKER
100 S.E. 2nd Street, Suite 2100
Miami, FL 33131
<PAGE> 2
SEVENTH: The name and mailing address of the Incorporator is as follows:
MARIA T. ZUCKER
100 S.E. 2nd Street, Suite 2100
Miami, FL 33131
EIGHTH: The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors consisting of not less than three
(3) directors nor more than twenty-one (21) directors, the exact number of
directors to be determined from time to time by resolution adopted by the Board
of Directors. The directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the entire
Board of Directors. The term of the initial Class I directors shall terminate on
the date of the 1994 annual meeting of stockholders; the term of the initial
Class II directors shall terminate on the date of the 1995 annual meeting of
stockholders and the term of the initial Class III directors shall terminate on
the date of the 1996 annual meeting of stockholders. At each annual meeting of
stockholders beginning in 1994, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement
disqualification or removal from office. Any vacancy on the Board of Directors,
howsoever resulting, may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy shall hold office for a term that shall
coincide with the term of the class to which such director shall have been
elected.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Articles of Incorporation or the resolution or resolutions adopted
by the Board of Directors pursuant to Article FOURTH applicable thereto, and
such directors so elected shall not be divided into classes pursuant to this
Article EIGHTH unless expressly provided by such terms.
NINTH: Subject to the rights, if any, of the holders of shares of Preferred
Stock then outstanding, any or all of the directors of the Corporation, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of an eighty (80%) majority of the outstanding securities of
the Corporation then entitled to vote generally in the election of directors,
considered for purposes of this Article NINTH as one class.
TENTH: Elections of directors at an annual or special meeting of
stockholders shall be by written ballot unless the Bylaws of the Corporation
shall otherwise provide.
ELEVENTH: Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken only upon the vote of the
stockholders at an annual or
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<PAGE> 3
special meeting duly noticed and called, as provided in the By-laws of the
Corporation, and may not be taken by a written consent of the stockholders
pursuant to the Florida Business Corporation Act ("FBCA").
TWELFTH: Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Board of Directors, the
Chairman of the Board of Directors or the President. Special meetings of the
stockholders of the Corporation may not be called by any other person or
persons.
THIRTEENTH:
A. In addition to any affirmative vote required by law or these Articles of
Incorporation or the Bylaws of the Corporation, and except as otherwise
expressly provided in Section B of this Article THIRTEENTH, a Business
Combination (as hereinafter defined) with, or proposed by or on behalf of, any
Interested Stockholder (as hereinafter defined) or any Affiliate or Associate
(as hereinafter defined) of any Interested Stockholder or any person who
thereafter would be an Affiliate or Associate of such Interested Stockholder
shall require the affirmative vote of not less than sixty-six and two-thirds
(66-2/3%) percent of the votes entitled to be cast by the holders of all the
then outstanding shares of Voting Stock (as hereinafter defined), voting
together as a single class, excluding Voting Stock beneficially owned by any
Interested Stockholder (as hereinafter defined). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a lesser
percentage or separate class vote may be specified, by law or in any agreement
with any national securities exchange or otherwise.
B. The provisions of Section A of this Article THIRTEENTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by law or by
any other provision of these Articles of Incorporation or the By-laws of the
Corporation, or any agreement with any national securities exchange, if all of
the conditions specified in either of the following Paragraphs 1 or 2 are met
or, in the case of a Business Combination not involving the payment of
consideration to the holders of the Corporation's outstanding Capital Stock (as
hereinafter defined), if the condition specified in the following Paragraph 1 is
met:
1. The Business Combination shall have been approved, either
specifically or as a transaction which is within an approved category of
transactions, by a majority (whether such approval is made prior to or
subsequent to the acquisition of, or announcement or public disclosure of the
intention to acquire beneficial ownership of the Voting Stock that caused the
Interested Stockholder to become an Interested Stockholder) of the Continuing
Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate per share amount of cash and the Fair Market
Value (as hereinafter defined), as of the date of the consummation of the
Business Combination, of consideration other than cash to be received by holders
of Common Stock in such Business Combination shall be at least equal to the
highest amount determined under clauses and (i), (ii), (iii) and (iv) below:
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<PAGE> 4
(i) The highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or
on behalf of the Interested Stockholder for any share of Common Stock in
connection with the acquisition by the Interested Stockholder of beneficial
ownership of shares of Common Stock: (x) within the two-year period immediately
prior to the first public announcement of the proposed Business Combination (the
"Announcement Date") or (y) in the transaction in which it became an Interested
Stockholder, whichever is higher, in either case as adjusted for any subsequent
stock split stock dividend, subdivision or reclassification affecting or
relating to the Common Stock;
(ii) The Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested stockholder became
an Interested Stockholder (the "Determination Date"), whichever is higher, as
adjusted for any subsequent stock split, stock dividend, subdivision or
reclassification affecting or relating to the Common Stocks;
(iii) The price per share equal to the Fair Market
Value per share of Common Stock determined pursuant to the immediately preceding
clause (ii), multiplied by the ratio of (x) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by or on behalf of the Interested Stockholder for any share of Common
Stock in connection with the acquisition by the Interested Stockholder of
beneficial ownership of shares of Common Stock within the two-year period
immediately prior to the Announcement Date, as adjusted for any subsequent stock
split, stock dividend, subdivision or reclassification affecting or relating to
the Common Stock to (y) the Fair Market Value per share of Common Stock on the
day immediately preceding the first day in such two-year period on which the
Interested Stockholder acquired beneficial ownership of any share of Common
Stock, as adjusted for any subsequent stock split, stock dividend, subdivision
or reclassification affecting or relating to the Common Stock; and
(iv) The Corporation's net income per share of Common
Stock for the four full consecutive fiscal quarters immediately preceding the
Announcement Date, multiplied by the higher of the then price/earnings multiple
(if any) of such Interested Stockholder or the highest price/earnings multiple
of the Corporation within the two-year period immediately preceding the
Announcement Date (such price/earnings multiples being determined as customarily
computed and reported in the financial community).
(b) The aggregate amount per share of cash and the Fair Market
Value, as of the date of the consummation of the Business Combination, of
consideration other than cash to be received by holders of shares of any class
or series of outstanding Capital Stock, other than Common Stock, shall be at
least equal to the highest amount determined under clauses (i), (ii), (iii) and
(iv) below:
(i) The highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or
on behalf of the Interested Stockholder for any share of such class or series of
Capital Stock in connection with the acquisition by the Interested Stockholder
of beneficial ownership of shares of such class or series of Capital Stock: (x)
within the two-year period immediately prior to the Announcement Date or (y) in
the transaction in which it became an Interested Stockholder, whichever is
higher, in either case as adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification affecting or relating to such class or
series of Capital Stock;
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<PAGE> 5
(ii) The Fair Market Value per share of such class or
series of Capital Stock on the Announcement Date or on the Determination Date,
whichever is higher, as adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification affecting or relating to such class or series of
Capital Stock;
(iii) The price per share equal to the Fair Market
Value per share of such class or series of Capital Stock determined pursuant to
the immediately preceding clause (ii), multiplied by the ratio of (x) the
highest per share price (including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for
any share of such class or series of Capital Stock in connection with the
acquisition by the Interested Stockholder of beneficial ownership of shares of
such class or series of Capital Stock within the two-year period immediately the
Announcement Date, as adjusted for any subsequent stock split, stock dividend,
subdivision or reclassification affecting or relating to such class or series of
Capital Stock to (y) the Fair Market Value per share of such class or series of
Capital Stock on the day immediately preceding the first day in such two-year
period on which the Interested Stockholder acquired beneficial ownership of any
share of such class or series of Capital Stock, as adjusted for any subsequent
stock split, stock dividend, subdivision or reclassification affecting or
relating to such class or series of Capital Stock; and
(iv) The highest preferential amount per shares to
which the holders of shares of such class or series of Capital Stock would be
entitled in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation regardless of whether the
Business Combination to be consummated constitutes such an event.
The provisions of this Subparagraph (b) shall be
required to be met with respect to every class or series of outstanding Capital
Stock, whether or not the Interested Stockholder has previously acquired
beneficial ownership of any share of a particular class or series of Capital
Stock.
(c) The consideration to be received by holders of a particular
class or series of outstanding Capital Stock shall be in cash or in the same
form as previously has been paid by or on behalf of the Interested Stockholder
in connection with its direct or indirect acquisition of beneficial ownership of
shares of such class or series of Capital Stock. If the consideration so paid
for shares of any class or series of Capital Stock varied as to form, the form
of consideration for such class or series of Capital Stock shall be either cash
or the form used to acquire beneficial ownership of the largest number of shares
of such class or series of Capital Stock previously acquired by the Interested
Stockholder.
(d) After the Determination date and prior to the consummation of
such Business Combination: (i) except as approved by a majority of the
Continuing Directors, there shall have been no failure to declare and pay at the
regular dates therefor any full quarterly dividends (whether or not cumulative)
payable in accordance with the terms of any outstanding capital stock; (ii)
there shall have been no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any stock split, stock dividend or
subdivision of the Common stock), except as approved by a majority of the
Continuing Directors; (iii) there shall have been an increase in the annual rate
of dividends paid on the Common Stock as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction that has the effect of reducing the
number of outstanding shares of Common Stock, unless the failure to so increase
such annual rate is approved by a majority of the Continuing
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<PAGE> 6
Directors; and (iv) such Interested Stockholder shall not have become the
beneficial owner of any additional shares of Capital Stock except as part of the
transaction that results in such Interested Stockholder becoming an Interested
Stockholder and except in a transaction that, after giving effect thereto, would
not result in any increase in the Interested Stockholder's percentage of
beneficial ownership of any class or series of Capital Stock.
(e) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), or any subsequent provisions replacing the Exchange Act, shall
be mailed to all stockholders of the Corporation at least thirty (30) days prior
to the consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to the Exchange Act or
subsequent provisions). The proxy or information statement shall contain on the
first page thereof, in a prominent place, any statement as to the advisability
(or inadvisability) of the Business Combination that the Continuing Directors,
or any of them, may choose to make and, if deemed advisable by a majority of the
Continuing Directors, the opinion of an investment banking firm selected by a
majority of the Continuing Directors as to the fairness (or absence thereof) of
the terms of the Business Combination from a financial point of view to the
holders of the outstanding shares of Capital Stock other than the Interested
Stockholder and its Affiliates or Associates, such investment banking firm to be
paid a reasonable fee for its services by the Corporation.
(f) Such Interested Stockholder shall not have any major change
in the Corporation's business or equity capital structure without the approval
of a majority of the Continuing Directors.
C. The following definitions shall apply with respect to this
Article THIRTEENTH:
1. The term "Business Combination" shall mean:
(a) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested Stockholder or (ii)
any other company (whether or not itself an Interested Stockholder) which is or
after such merger or consolidation would be an Affiliate or Associate of an
Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition or security arrangement, investment, loan, advance, guarantee,
agreement to purchase, agreement to pay, extension of credit, joint venture
participation or other arrangement (in one transaction or a series of
transactions) with or for the benefit of any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder involving any assets,
securities, obligations or commitments of the Corporation, any Subsidiary or any
interested Stockholder or any Affiliate or Associate of any Interested
Stockholder which has an aggregate Fair Market Value and/or involves aggregate
commitments of $2,500,000 or more or constitutes more than five 5% percent of
the book value of the total assets (in the case of transactions involving assets
or commitments other than capital stock) or five 5% percent of the stockholders'
equity (in the case of transactions in capital stock) of the entity in question
(the "Substantial Part"), as reflected in the most recent fiscal year-end
consolidated balance sheet of such entity existing at the time the stockholders
of the Corporation would be required to approve or authorize the Business
Combination involving the assets, securities, obligations and/or commitments
constituting any Substantial Part; PROVIDED that any arrangement, whether as
employee, consultant or otherwise, other than as a director, pursuant
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<PAGE> 7
to which any Interested Stockholder or any Affiliate or Associate thereof shall,
directly or indirectly, have any control over or management of any aspect of the
business or affairs of the Corporation, shall be deemed to be a "Business
Combination" irrespective of the value test set forth above; or
(c) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation or for any amendment to the Corporation's
By-laws; or
(d) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or otherwise involving an interested
Stockholder) that has the effect, directly or indirectly, of increasing the
proportionate share of any class or series of Capital Stock, or any securities
convertible into Capital Stock or into equity securities of any Subsidiary, that
is beneficially owned by any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder, or
(e) any agreement, contract or other arrangement providing for
any one or more of the actions specified in the foregoing clauses (a) to (d).
2. The term "Capital Stock" shall mean all capital stock of the
Corporation authorized to be issued from time to time under Article FOURTH of
these Articles of Incorporation, and the term "Voting Stock" shall mean all
Capital Stock which by its terms may be voted on all matters submitted to
stockholders of the Corporation generally.
3. The term "person" shall mean any individual, firm, company or other
entity and shall include any group comprised of any person and any other person
with whom such person or any Affiliate or Associate of such person has any
agreement, arrangement or understanding, directly or indirectly, for the purpose
of acquiring, holding, voting or disposing of Capital Stock.
4. The term "Interested Stockholder" shall mean any person (other than
the Corporation or any Subsidiary and other than any profit sharing, employee
stock ownership or other employee benefit plan of the Corporation or any
Subsidiary or any trustee of or fiduciary with respect to any such plan when
acting in such capacity) who (a) is or has announced or publicly disclosed a
plan or intention to become the beneficial owner of Voting Stock representing
ten (10%) percent or more of the votes entitled to be cast by the holders of all
then outstanding shares of Voting Stock; or (b) is an Affiliate or Associate of
the Corporation and at any time within the two-year period immediately prior to
the date in question was the beneficial owner of Voting Stock representing ten
(10%) percent or more of the votes entitled to be cast by the holders of all
then outstanding shares of Voting Stock, but excluding any person who owned 10%
or more of the voting shares prior to January 1, 1994.
5. A person shall be a "beneficial owner" of any Capital Stock
(a) which such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right to acquire (whether such
right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or (ii)
the right to vote pursuant to any agreement, arrangement or understanding; or
(c) which are beneficially owned, directly or indirectly, by any other person
with which such person or any of its Affiliates or Associates has any agreement,
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<PAGE> 8
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Capital Stock. For the purposes of determining
whether a person is an interested Stockholder pursuant to Paragraph 4 of this
Section C, the number of shares of Capital Stock deemed to be outstanding shall
include shares deemed beneficially owned by such person through application of
this Paragraph 5 of Section C, but shall not include any other shares of Capital
Stock that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
otherwise.
6. The term "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Exchange Act as in
effect on July 24, 1986 (the term "registrant" in said Rule 12b-2 meaning in
this case the Corporation).
7. The term "Subsidiary" means any company of which a majority of any
class of equity security is beneficially owned by the Corporation; PROVIDED,
however, that for the purposes of the definition of Interested Stockholder set
forth in Paragraph 4 of this Section C, the term "Subsidiary" shall mean only a
company of which a majority of each class of equity security is beneficially
owned by the Corporation.
8. The term "Continuing Director" means (i) any member of the initial
Board Of Directors of the Corporation, while such person is a member of the
Board of Directors of the Corporation (the "Board of Directors"), (ii) any
member of the Board of Directors, while such person is a member of the Board of
Directors, who is not an Interested Stockholder or an Affiliate or Associate or
representative of the Interested Stockholder and was a member of the Board of
Directors prior to the time that the Interested Stockholder became an Interested
stockholder, and (iii) any person who subsequently becomes a member of the Board
of Directors, while such person is a member of the Board of Directors, who is
not an Interested Stockholder or an Affiliate or Associate or representative of
the Interested Stockholder if such person's nomination for election or election
to the Board of Directors is recommended or approved by a majority of the
Continuing Directors then in office.
9. The term "Fair Market Value" means (a) in the case of cash, the
amount of such cash; (b) in the case of stock, the highest closing sale price
during the thirty (30) day period immediately preceding the date in question of
a share of such stock on the Composite Tape for New York Stock Exchange Listed
Stocks, or, if such stock is not quoted on the composite tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Exchange Act on
which such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a share of such
stock during the thirty (30) day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations System or
any similar system then in use, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as determined by a
majority of the Continuing Directors in good faith; and (c) in the case of
property other than cash or stock, the fair market value of such property on the
date in question as determined in good faith by a majority of the Continuing
Directors.
10. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used in
Paragraphs 2.(a) and 2.(b) of Section B of this Article THIRTEENTH shall include
the shares of Common Stock and/or the shares of any other class or series of
Capital Stock retained by the holders of such shares.
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D. A majority of the Continuing Directors shall have the power
and duty to determine for the purposes of this Article THIRTEENTH on the basis
of information known to them after reasonable inquiry, all questions arising
under this Article THIRTEENTH, including without limitation, (a) whether a
person is an Interested Stockholder, (b) the number of shares of Capital Stock
or other securities beneficially owned by any person, (c) whether a person is an
Affiliate or Associate of another, (d) whether a Proposed Action (as hereinafter
defined) is with, or proposed by, or on behalf of an Interested Stockholder or
an Affiliate or Associate of an Interested Stockholder, (e) whether the assets
that are the subject of any Business Combination have, or the consideration to
be received for the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market Value of
$2,500,000 or more, and (f) whether the assets or securities that are the
subject of any Business Combination constitute a Substantial Part. Any such
determination made in good faith shall be binding and conclusive on all parties.
E. Nothing contained in this Article ELEVENTH shall be construed
to relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. The fact that any Business Combination complies with the
provisions of Section 9 of this Article THIRTEENTH shall not be construed to
impose any fiduciary duty, obligation or responsibility on the Board of
Directors, or any member thereof, to approve such Business Combination or
recommend its adoption or approval to the stockholders of the Corporation, nor
shall such compliance limit, prohibit or otherwise restrict in any manner the
Board of Directors, or any member thereof, with respect to evaluations of or
actions and responses taken with respect to such Business Combination.
G. For the purposes of this Article THIRTEENTH, a Business
Combination or any proposal to amend, repeal or adopt any provision of these
Articles of Incorporation inconsistent with this Article THIRTEENTH
(collectively, "Proposed Action") is presumed to have been proposed by, or on
behalf of, an Interested Stockholder or an Affiliate or Associate of an
Interested Stockholder or a person who thereafter would become such if (1) after
the interested Stockholder became such, the Proposed Action is proposed
following the election of any director of the Corporation who with respect to
such Interested Stockholder, would not qualify to serve as a Continuing
Director, or (2) such Interested Stockholder, Affiliate, Associate or person
votes for or consents to the adoption of any such Proposed Action, unless as to
such Interested Stockholder, Affiliate, Associate or person a majority of the
Continuing Directors makes a good faith determination that such Proposed Action
is not proposed by or on behalf of such Interested Stockholder, Affiliate,
Associate or person, based on information known to them after reasonable
inquiry.
H. Notwithstanding any other provisions of these Articles of
Incorporation or the By-laws of the Corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, these
Articles of Incorporation or the By-laws of the Corporation), any proposal to
amend, repeal or adopt any provision of these Articles of Incorporation
inconsistent with this Article THIRTEENTH which is proposed by or on behalf of
an Interested Stockholder or an Affiliate or Associate of an Interested
Stockholder shall require the affirmative vote of the holders of not less than
sixty-six and two-thirds (66-2/3%) percent of the votes entitled to be cast by
the holders of all the then outstanding shares of voting Stock, voting together
as a single class, excluding Voting Stock beneficially owned by such Interested
Stockholder; PROVIDED, however, that this Section H shall not apply to, and such
sixty-six and two-thirds (66-2/3%) percent vote shall not be required for, any
amendment, repeal or adoption unanimously recommended by the Board of
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Directors if all such directors are persons who would be eligible to serve as
Continuing Directors within the meaning of Section C, Paragraph 8 of this
Article THIRTEENTH.
FOURTEENTH: The officers of the corporation shall be chosen in such manner,
shall hold their offices for such terms and shall carry out such duties as are
determined solely by the Board of Directors, subject to the right of the Board
of Directors to remove any officer or officers at any time with or without
cause.
FIFTEENTH: The Corporation shall indemnify to the full extent authorized or
permitted by law any person made, or threatened to be made, a party to any
action or proceeding (whether civil or criminal or otherwise) by reason of the
fact that he, his testator or intestate, is or was a director or officer of the
Corporation or by reason of the fact that such director or officer, at the
request of the Corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, in
any capacity. Nothing contained herein shall affect any rights to
indemnification to, which employees other than directors and officers may be
entitled by law. No amendment to or repeal of this Article FIFTEENTH shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
SIXTEENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend or rescind the By-laws of the Corporation.
SEVENTEENTH: The Corporation reserves the right to repeal, alter, amend, or
rescind any provision contained in these Articles of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned, being the Incorporator of the above
named corporation, for the purpose of forming a corporation to do business both
within and without the State of Florida, under the laws of the State of Florida,
does make and file these Articles of Incorporation, hereby declaring and
certifying the facts hereon stated are true and execute these Articles of
Incorporation on this 6th day of July, 1993.
/s/ Maria T. Zucker
-------------------
MARIA T. ZUCKER
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CERTIFICATE DESIGNATING PLACE OF BUSINESS
OR DOMICILE FOR THE SERVICE OF PROCESS WITHIN
THIS STATE, NAMING AGENT UPON WHOM PROCESS MAY BE SERVED
*******************
Pursuant to Chapter 48.091, FLORIDA STATUTES, the following is
submitted in compliance with said Act:
RENEX CORP., desiring to organize under the laws of the State of
Florida with its principal office, as indicated in the Articles of
Incorporation, at 100 S.E. 2nd Street, Suite 2100, Miami, Florida 33131, has
named Biscayne Registered Agents, Inc. as its agent to accept service of
process within this State.
ACCEPTANCE:
Having been named to accept service of process for the
above-stated corporation, at the place designated in this Certificate, I hereby
agree to act in this capacity, and agree to comply with the provisions of said
Act relative to keeping said office open.
BISCAYNE REGISTERED AGENTS, INC.
By: /s/ Maria T. Zucker
---------------------
Maria T. Zucker
(Registered Agent)
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<PAGE> 1
Exhibit 3.2
BY - LAWS
OF
RENEX CORP.
(A FLORIDA CORPORATION)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES - REPRESENTING STOCK. Certificates representing stock
in the Corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all signatures on
any such certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be an officer, transfer agent, or registrar
before such certificate is issued, such certificate may be issued by the
corporation with the same effect as if he were still such officer, transfer
agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall contain thereon the statements prescribed by the Florida
Business Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificates representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
Florida Business Corporation Law, the Board of Directors of the corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of the stock of the corporation shall be uncertificated shares. Within a
reasonable time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof the written notice
prescribed by the Florida Business Corporation Law.
<PAGE> 2
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or be uncertificated) or bearer form (represented
by a certificate) which shall entitle the holder to receive a full share upon
the surrender of such scrip or warrants aggregating a full share. A certificate
for a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or, subject
to the conditions that the shares for which scrip or warrants are exchangeable,
may be sold by the corporation and the proceeds thereof distributed to the
holders of scrip or warrants, or subject to any other conditions which the Board
of Directors may impose.
4. STOCK TRANSFERS. Upon compliance with any provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfer or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or for the purpose of determining stockholders entitled to
receive payment of any dividend or the allotment of any right, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of stockholders. Such date shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. If no record
date is fixed, such record date shall be determined in accordance with the
provisions of the Florida Business Corporation Law.
6. MEANING OF CERTAIN TERMS. As used herein with respect to the right
to notice of a meeting of stockholders or a waiver thereof or,to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the articles of incorporation confers
such rights where there are two or more classes or series of shares of stock or
upon which or upon whom the Florida Business Corporation Law confers such rights
notwithstanding that the articles of incorporation may provide for more than one
class or
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<PAGE> 3
series of shares of stock, one or more of which are limited or denied such
rights thereunder; provided, however, that no such right shall vest in the event
of an increase or a decrease in the authorized number of shares of stock of any
class or series which is otherwise denied voting rights under the provisions of
the articles of incorporation, except as any provision of law may otherwise
require.
7. STOCKHOLDER MEETINGS.
(a) Time. The annual meeting shall be held on the date and at the
time fixed from time to time, by the Board of Directors. A special meeting shall
be held on the date and at the time fixed by the Board of Directors.
(b) Place. Annual meetings and special meetings shall be held at
such place, within or without the State of Florida, as the Board of Directors
may, from time to time, fix. Whenever the Board of Directors shall fail to fix
such place, the meeting shall be held at the registered offices of the
corporation in the State of Florida.
(c) Call. Annual meetings and special meetings may be called by a
majority of the Board of Directors, the Chairman of the Board, or by such
officers instructed by the Board of Directors to call the meeting.
(d) Notice or Waiver of Notice. Written notice of all meetings
shall be given, stating the place, date, and hour of the meeting and stating
the place within the city or other municipality or community at which the list
of stockholders of the corporation may be examined. The notice of an annual
meeting shall state that the meeting is called for the election of directors
and for the transaction of other business which may properly come before the
meeting and shall, (if any other action which could be taken at a special
meeting is to be taken at such annual meeting) state the purpose or purposes.
The notice of a special meeting shall in all instances state the purpose or
purposes for which the meeting is called. The notice of any meeting shall also
include, or be accompanied by, any additional statements, information, or
documents prescribed by the Florida Business Corporation Law. Except as
otherwise provided by the Florida Business Corporation Law, a copy of the
notice of any meeting shall be given, personally or by mail, not less than ten
(10) days nor more than sixty (60) days before the date of the meeting, unless
the lapse of the prescribed period of time shall have been waived, and directed
to each stockholder at his record address or at such other address which he may
have furnished by request in writing to the Secretary of the corporation.
Notice by mail shall be deemed to be given when deposited, with postage thereon
prepaid, in the United States Mail. If a meeting is adjourned to another time,
not more than thirty days hence, and/or to another place, and if an
announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of,
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<PAGE> 4
any annual or special meeting of the stockholders need be specified in any
written waiver of notice.
(e) Advance Notice of Stockholder Nominations of Directors at
Annual Meetings. Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the corporation at an
annual meeting, except as may be otherwise provided in the articles of
incorporation of the corporation with respect to the rights of holders of
preferred stock of the corporation to nominate and elect a specified number of
directors in certain circumstances. Nominations of persons for election to the
Board of Directors may be made at any annual meeting of stockholders (a) by or
at the direction of the Board of Directors (or any duly authorized committee
thereof) or (b) by any stockholder of the corporation (i) who is a stockholder
of record on the date of the giving of the notice provided for in this Section 7
and on the record date for the determination of stockholders entitled to vote at
such meeting and (ii) who complies with the notice procedures set forth in this
Section 7.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the corporation.
To be timely, a stockholder's notice to the Secretary with respect to
an annual meeting must be delivered to or mailed and received at the principal
executive offices of the corporation, not less than sixty (60) days nor more
than ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty-one (31) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with the
solicitation of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares for capital stock of the corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filing required
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<PAGE> 5
to be made in connection with the solicitation of proxies for the election of
directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a written
consent of each proposed nominee to be named as a nominee and to serve a
director if elected.
No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 7. If the chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
(f) Advance Notice of Proposed Business at Annual Meeting. No
business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof), or (c) otherwise properly brought before the
annual meeting by any stockholder of the corporation (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 7
and on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this Section 7.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the secretary of
the corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the corporation
not less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty-one (31) days before or after such anniversary
date, notice by the stockholder in order to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the names and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such
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<PAGE> 6
stockholder intends to appear in person or by proxy at the annual meeting to
bring valid business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 7; provided, however, that, once business
had been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 7 shall be deemed to preclude discussion by
any stockholder of any such business. If the chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing, the chairman shall declare to the meeting that
the business was not properly brought before the meeting and such business shall
not be transacted.
(g) Business at Special Meetings. No business may be transacted at
a special meeting of stockholders, other than business that is specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors (or any duly authorized committee thereof).
(h) Stockholder List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
(i) Conduct of Meeting. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting - the Chairman of the Board, if any, the Vice Chairman of the
Board, if any, the President, a Vice President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
stockholders. The Secretary of the corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the chairman of the meeting shall appoint
a secretary of the meeting.
(j) Proxy Representation. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact, No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient
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in law to support an irrevocable power. A proxy may be made irrevocable
regardless of whether the interest with which it is coupled with an interest in
the stock itself or an interest in the corporation generally.
(k) Inspectors. The Board of Directors, in advance of any meeting,
may, but need not, appoint one or more inspectors of election to act at the
meeting or any adjournment thereof. If an inspector or inspectors are not
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all challenges
and questions arising in connection with the right to vote count and tabulate
all votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors, if
any, shall make a report in writing of any challenger question or matter
determined by him or them and execute a certificate of any fact found by him or
them.
(l) Quorum. The holders of a majority of the outstanding shares of
stock shall constitute a quorum at a meeting of stockholders for the transaction
of any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
(m) Voting. Except as otherwise provided in the corporation's
Articles of Incorporation, each share of common stock shall entitle the holder
thereof to one (1) vote. In the election of directors, a plurality of the votes
cast at the meeting, or by written consent, shall elect such director subject to
any rights of outstanding preferred stock. Any other action shall be authorized
by a majority of the votes cast except where the Florida Business Corporation
Law prescribes a different percentage of votes and/or a different exercise of
voting power, and except as may be otherwise prescribed by the provisions of the
Articles of Incorporation and these By-Laws.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
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<PAGE> 8
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Florida. The initial
Board of Directors shall consist of at least one person. Thereafter, the number
of directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be three. The number
of directors may be increased or decreased by action of the stockholders or of
the directors not to exceed the maximum number specified in the Articles of
Incorporation.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the articles of incorporation, shall be elected
by the incorporator or incorporators and shall hold office until the first
annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the term of the position expires as provided in the Articles of
Incorporation and until their successors are elected and qualified or until
their earlier resignation or removal. In the interim between annual meetings of
stockholders or of special meetings of stockholders called for the election of
directors and/or for the removal of one or more directors and for the filling of
any vacancy in that connection, newly created directorships and any vacancies in
the Board of Directors, including unfilled vacancies resulting from the removal
of directors for cause or without cause, may be filled by the vote of a majority
of the remaining directors then in office, although less than a quorum, or by
the sole remaining director.
4. MEETINGS.
(a) Time. Meetings shall be held at such times as the Board shall
fix, except that the first meeting of a newly elected Board shall be held as
soon after its election as the directors may conveniently assemble.
(b) Place. Meetings shall be held st such place within or without
the State of Florida as shall be fixed by the Board.
(c) Call. No call shall be required for regular meetings for which
the time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
(d) Notice or Actual or Constructive Waiver. No notice shall be
required for regular meetings for which the time and place have been fixed
written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express
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<PAGE> 9
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors need be specified in any written waiver of notice.
(e) Quorum and Action. A majority of the whole Board shall
constitute a quorum except when a vacancy or vacancies prevents such majority,
whereupon a majority of the directors in office shall constitute a quorum,
provided, that such majority shall constitute at least one-third of the whole
Board. A majority of the directors present, whether or not a quorum is present,
may adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the Florida Business Corporation
Law, the vote of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board. The quorum and voting
provisions herein stated shall not be construed as conflicting with any
provisions of the Florida Business Corporation Law and these By-Laws which
govern a meeting of directors held to fill vacancies and newly created
directorships in the Board or action of disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of telephone conference or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
(f) Chairman of the Meeting. The Chairman of the Board, if any and
if present and acting, shall preside at all meetings. Otherwise, the
Vice-Chairman of the Board, if any and if present and acting, or the President,
if present and acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
Florida Business Corporation Law, any director or the entire Board of Directors
may be removed only with cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee, In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by the Florida Business
Corporation Law, and may authorize the seal of the corporation to be affixed to
all papers which may require it.
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<PAGE> 10
7. WRITTEN ACTION. Any action required or permitted to be taken at, any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director, Any number of offices may be held by the
same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have, been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office, except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
INDEMNIFICATION
1. POWER TO INDEMNITY IN ACTIONS, SUITS, OR PROCEEDINGS OTHER THAN
THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article IV and without limiting the rights of the directors and officers of the
corporation under any provision of the Articles of Incorporation, the
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or
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<PAGE> 11
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director or officer of the
corporation, or is or was a director or officer of the corporation serving at
the request of the corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in. settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding 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, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. This
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding had reasonable cause to believe that his conduct was unlawful.
2. POWER TO INDEMNIFY INACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION. Subject to Section 3 of this Article IV and without
limiting the rights of the directors and officers of the corporation under any
provision of the Articles of Incorporation, the corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director or officer of the corporation, or is or was a director or
officer of the corporation serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) 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 shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that a
court of competent jurisdiction or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnify for such expenses which such other
court shall deem proper.
3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this
Article IV (unless ordered by a court) shall be made by the corporation (subject
to any other requirement by contract or otherwise) only as authorized in the
specific case upon a determination that indemnification of the director or
officer is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 1 or section 2 of this Article IV, as
the case may be. Such determination shall be made (i) by the Board of Directors
by a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the stockholders. To
the extent, however, that a director or officer of the corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described
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<PAGE> 12
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of authorization
in the specific case.
4. GOOD FAITH DEFINED. For purposes of any determination under Section
3 of this Article IV, a person shall be deemed to have acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, or, with respect to any criminal action or proceeding, to
have had no reasonable cause to believe his conduct was unlawful, if his action
is based on the records or books of account of the corporation or another
enterprise, or on information supplied to him by the officers of the corporation
or another enterprise in the courts of their duties, or on the advice of legal
counsel for the corporation or another enterprise or on information or records
given or reports made to the corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or 2 of this Article IV,
as the case may be.
5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IV and the
absence of any defemination thereunder, and without limiting the rights of the
directors and officers of the corporation under any provision of the Articles of
Incorporation, any director or officer may apply to any court of competent
jurisdiction in the State of Florida for indemnification to the extent otherwise
permissible under Sections 1 and 2 of this Article IV. The basis of such
indemnification by a court shall be a determination by such court that
indemnification of the director or officer is proper in the circumstances
because he has not met the applicable standards of conduct sat forth in Section
1 or 2 of this Article IV, as the case may be. Neither a contrary determination
in the specific case under Section 3 of this Article IV, nor the absence of any
determination thereunder shall be a defense to such application or create a
presumption that the director or officer seeking indemnification has not met any
applicable standard of conduct. Notice of any application for indemnification
pursuant to this Section 5 shall be given to the corporation promptly upon the
filing of such application. If successful, in whole or in part, the director or
officer seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a director or
officer in defending or in investigating a threatened or pending action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this Article IV.
7. NON-EXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
indemnification and advancement of expenses provided by or granted
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<PAGE> 13
pursuant to this Article IV shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under the Articles of Incorporation or any By-Law, agreement, contract, vote of
stockholders or disinterested directors or pursuant to the direction (howsoever
embodied) of any court of competent jurisdiction or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, it being the policy of the corporation that indemnification of the
persons specified in Section 1 and 2 of this Article IV shall be made to the
fullest extent permitted by law. The provisions of this Article IV shall not be
deemed to preclude the indemnification of any person who is not specified in
Sections 1 and 2 of this Article IV, but whom the corporation has the power or
obligation to indemnify under the provisions of the Florida Business Corporation
Law, or otherwise.
8. INSURANCE. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director or officer of the corporation, or
is or was a director and officer of the corporation serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power or the obligation to indemnify him against such
liability under the provisions of this Article IV.
9. CERTAIN DEFINITIONS. For purposes of this Article IV, reference to
"the corporation", shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger, which, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers, so that any
person who is or was a director or officer of such constituent corporation, or
is or was a director or officer of such constituent corporation serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employees
benefit plan or other enterprise, shall stand in the same position under the
provisions of this Article IV with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued. For purposes of this Article IV, reference to
fines shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee or agent
of the corporation which imposes duties on, or involves services by such
director or officer with respect to an employee benefit plan, its participants
or beneficiaries, and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner not
opposed to the best interests of the corporations as referred to in this Article
IV.
10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
indemnification and advancement of expanses provided by, or granted pursuant to,
this Article IV shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executers and administrators of such a
person.
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<PAGE> 14
11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything contained
in this Article IV to the contrary and without limiting the rights of the
directors and officers of the corporation under any provisions of the Articles
of Incorporation of the corporation, except for proceedings to enforce rights to
indemnification (which shall be governed by Section 5 hereof), the corporation
shall not be obligated to indemnify any director or officer in connection with a
proceeding (or part thereof) initiated by such person unless such proceeding (or
part thereof) was authorized or consented to by the Board of Directors of the
corporation.
12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The corporation may, to
the extent authorized from time to time by the Board of Directors, provide
rights to indemnification and to the advancement of expenses to employees and
agents of the corporation similar to those conferred in this Article IV to
directors and officers of the corporation.
13. REPEAL OR MODIFICATION. All rights to indemnification and to
advancement of expenses under this Article IV shall be deemed to be a contract
between the corporation and each director and officer who serve or has served in
any such capacity, and each other person as to whom the corporation has agreed
to grant indemnity at any time while the Article is in effect. Any repeal or
modification of this Article IV or any other applicable law shall not in any way
diminish any right to indemnification or to advancement of expenses of such
director, officer or other person as to whom the corporation has agreed to grant
indemnity or the obligations of the corporation, arising hereunder for claims
relating to matters occurring prior to such repeal or modification.
14. SEVERABILITY. If this Article IV or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer, and each
employee, agent and other person an to whom the corporation has agreed to grant
indemnity to the full extent permitted by any applicable portion of this Article
IV that shall not have been invalidated and to the full extent permitted by
applicable law.
ARTICLE V
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
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<PAGE> 15
ARTICLE VII
CONTROL OVER BY-LAWS
Subject to the provisions of the Articles of Incorporation and the
provisions of the Florida Business Corporation Law, the power to amend, alter or
repeal these By-Laws and to adopt new By-Laws may be exercised by the Board of
Directors.
I HEREBY CERTIFY that the foregoing is a full, true and correct copy of
the By-Laws of RENEX CORP., a Florida corporation, as in effect on the date
hereof.
WITNESS my hand and the seal of the corporation.
Date: July 9, 1993 /s/ MARK D. WALLACE
-------------------------------------- --------------------------------
Secretary
[SEAL]
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<PAGE> 1
EXHIBIT 5.1
OPINION OF WALLACE, BAUMAN, FODIMAN & SHANNON, P.A.
July 31, 1997
Renex Corp.
2100 Ponce de Leon Boulevard, Suite 950
Coral Gables, Florida 33134
RE: RENEX CORP. REGISTRATION STATEMENT ON FORM S-1
Gentlemen:
We have acted as counsel for Renex Corp., a Florida corporation (the
"Company"), in connection with the Company's Registration Statement on Form S-1
(the "Registration Statement") being filed by the Company under the Securities
Act of 1933, as amended, with respect to 3,450,000 shares (the "Shares") of the
Company's common stock, par value $.001 per share (the "Common Stock"). All such
Shares are being sold directly by the Company in accordance with the terms of
the Registration Statement.
In connection with the preparation of the Registration Statement and
this letter, we have examined, considered and relied upon the following
documents (collectively, the "Documents"): the Registration Statement; the
Company's Articles of Incorporation, as amended and filed with the Secretary of
State of the State of Florida; Bylaws and corporate minute book; and such
matters of law as we have considered necessary or appropriate for the expression
of the opinions contained herein.
In rendering the opinions set forth below, we have assumed, without
investigation, the genuineness of all signatures and the authenticity of all
documents submitted to us as originals, the conformity to authentic original
documents of all documents submitted to us as copies, and the veracity of the
Documents. As to questions of fact material to the opinions hereinafter
expressed, we have relied upon the representations and warranties of the Company
made in the Documents.
Based solely upon and subject to the Documents, and subject to the
qualifications set forth below, we are of the opinion that the Shares have been
duly authorized and when the Shares have been duly delivered against payment
therefor, the Shares will be validly issued, fully paid and nonassessable.
Although we have acted as counsel to the Company in connection with
certain other matters, our engagement is limited to certain matters about which
we have been consulted. Consequently, there may exist matters of a legal nature
involving the Company in connection with which we have not been consulted and
have not represented the Company. This opinion letter is limited to the matters
stated herein and no opinions may be implied or inferred beyond the matters
expressly stated herein. The opinions expressed herein are as of the date
hereof, and we assume no obligation to update or supplement such opinions to
reflect any facts or circumstances that may hereafter come to our attention or
any changes in law that may hereafter occur.
<PAGE> 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus contained in the Registration Statement.
Very truly yours,
WALLACE, BAUMAN, FODIMAN
& SHANNON, P.A.
By: /S/ BRYAN W. BAUMAN
-----------------------------
BRYAN W. BAUMAN
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT entered into as of this 22nd day of April,
1997 by and between RENEX CORP., a Florida corporation ("Company"), and JAMES P.
SHEA ("SHEA").
R E C I T A L S:
A. The Company is a provider of kidney dialysis treatments in various
parts of the United States to individuals suffering from end stage renal disease
(the "Business"); and
B. SHEA has been in the continuous employ of the Company since August
1993 as its President/Chief Executive Officer; and
C. The Company desires to continue to employ SHEA as the Company's
President/Chief Executive Officer and SHEA desires to continue to be employed by
the Company in such position on the terms and conditions provided herein; and
D. The Company believes that it is in the best interest of the Company
to assure Shea of a secure minimum compensation and to diminish the inevitable
distraction of SHEA that may result in the event of the possibility, threat or
occurrence of a change of control, by providing for certain compensation
arrangements upon a change of control.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and such other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. RECITATIONS. The above recitations are true and correct and are
incorporated herein by this reference.
2. EMPLOYMENT.
2.1. Position of Employment. The Company hereby continues the
employment of SHEA as its President/Chief Executive Officer upon all of the
terms and conditions hereinafter set forth. SHEA shall perform such duties as
are usually performed by a President/Chief Executive Officer of a business
similar in scope as the Business and such other reasonable additional duties as
may be prescribed from time to time by the Company's Board of Directors, taking
into account SHEA's education, experience and job responsibilities. SHEA shall
report directly to the Chairman of the Board. All actions shall be subject and
subordinate to review and approval by the Board of Directors and any and all
committees of the Board of Directors. The precise responsibilities of SHEA may
be modified from time to time in accordance with reasonable policy established
by the Board of Directors of the Company consistent with SHEA' qualifications
and experience.
2.2. Board Membership. During the term of this Agreement, the
Company shall use its best efforts to nominate and cause the election of SHEA to
the Company's Board of Directors.
2.3. Devotion of Time. During the term of SHEA' employment, SHEA
shall devote his full business time, ability and attention to the business
affairs of the Company. SHEA agrees to use his best efforts to perform
faithfully and efficiently such responsibilities. SHEA shall be permitted to (i)
serve on corporate, civic or charitable boards or committees; and (ii) deliver
lectures, fulfill speaking engagements or teach at educational institutions. All
income received from such other endeavors shall be for the exclusive benefit of
SHEA and the Company shall have no interest therein.
<PAGE> 2
2.4. Working Facilities. During the term of this Agreement, the
Company shall furnish, at SHEA's principal place of employment, an office,
furnishings, secretary and such other facilities commensurate and suitable to
his position and adequate for the performance of his duties hereunder.
2.5. Location of Employment. Unless otherwise agreed to by SHEA,
SHEA' principal place of business shall be within Dade or Broward Counties,
Florida.
3. TERM OF EMPLOYMENT
3.1. Term of Employment. The term of this Agreement shall begin on
the date hereof (the "Commencement Date") and shall end two years thereafter,
subject to earlier termination or extension as otherwise set forth in this
Agreement.
3.2. Automatic Extension. This Agreement shall be automatically
extended for successive two (2) year periods at the end of the initial or any
extended term, unless either party provides written notice of termination to the
other party at least 120 days prior to the expiration of the initial or extended
term respectively.
3.3. Termination of Employment by the Company for Cause. The Company
may terminate SHEA' employment upon fifteen (15) days written notice for the
reasons set forth in Section 3.3.1 below, if such default is not cured within
such notice period, or such additional time as is reasonably necessary to cure
such default if SHEA is using diligent efforts to cure such default. The Company
shall be entitled to terminate SHEA's employment without notice or an
opportunity to cure for the reasons set forth in Section 3.3.2 herein.
3.3.1. Notice. Notice or an opportunity to cure shall be
required for the following reasons:
(a) A default or breach by SHEA of any of the material
provisions of this Agreement detrimental to the Company;
(b) refusal to follow reasonable and lawful directives
of the Company's Board of Directors or any committee thereof which are
consistent with SHEA' duties and responsibility outlined in this Agreement; or
3.3.2. No Notice. No notice or an opportunity to cure shall be
required for the following:
(a) actions by SHEA constituting fraud, embezzlement or
dishonesty;
(b) the deliberate and knowing breach by SHEA of the
Company's internal financial controls;
(c) SHEA furnishing false, misleading, or omissive
information or omitting to furnish material information to the Company's Board
of Directors, or any committee thereof, in the reasonable judgment of the Board
of Directors;
(d) any action by SHEA which constitutes a breach of the
confidentiality of the Business and/or trade secrets of the Company;
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<PAGE> 3
(e) SHEA' gross negligence in the performance of his
duties as outlined in this Agreement;
(f) any violation of federal or state law by SHEA which
have a material detrimental impact on the Company;
(g) at such time as SHEA shall have failed, by reason of
mental or physical disability or illness ("Disability" as hereinafter defined),
to perform his services pursuant to this Agreement for a period of one hundred
eighty (180) days. Disability shall be defined to mean the inability of SHEA to
perform his duties under this Agreement, based on injury, illness or physical or
mental conditions as determined by the Company's Board of Directors, which
determination must be supported by two licensed physicians, one of each selected
by the Company and SHEA; provided, however, if the Company maintains a policy
insuring against the disability of SHEA, Disability shall have the meaning
ascribed in such policy. Upon the Board's initial determination of disability,
SHEA will submit to mental and physical examinations which shall be paid by the
Company, unless otherwise covered by health benefits provided by the Company to
SHEA. The failure of SHEA to submit to such reasonable examinations within
fifteen (15) days of such request shall be conclusive that such Disability
exists.
3.3.3. No Additional Compensation. Upon termination for the
reasons set forth in Section 3.3 herein, the Company shall not be liable for any
further compensation or benefits following the date of termination, other than
accrued Base Salary. Notwithstanding, SHEA shall be entitled to receive all
appropriate benefits mandated by the Consolidated Budget Reconciliation Act of
1985 ("COBRA").
3.4. Termination by SHEA. SHEA may terminate this Agreement upon
thirty (30) days written notice, upon the occurrence of a material default of
this Agreement by the Company, which default is not cured within the thirty (30)
day notice period. Such notice shall set forth with particularity the facts
underlying the claimed default.
3.5. Termination without Cause. The Company shall have the right to
terminate this Agreement, without cause, upon thirty (30) days written notice to
SHEA. Notwithstanding such termination, the Company shall be obligated to pay to
SHEA as severance herein the following:
3.5.1. Prior to Change of Control. If termination without cause
is prior to a "Change of Control," SHEA shall be entitled to severance equal to
the greater of (i) the Base Salary which would have been paid for the balance of
the term of this Agreement if it were not terminated, or (ii) one (1) year's
Base Salary. The severance payment under this Section 3.5.1 shall be payable in
twelve (12) equal monthly installments commencing on the first day of the month
following termination. In addition, during such twelve (12) month period, all
benefits to SHEA set forth on Section 4.5 herein shall continue to be paid.
3.5.2. Following a Change of Control. If SHEA is terminated
without cause at any time following a Change of Control, SHEA shall be entitled
to severance equal to the greater of (i) two times the Base Salary which would
have been paid for the remainder of the term had the Agreement not been
terminated, or (ii) two times the sum of (A) one year's Base Salary then in
effect, and (B) any and all bonuses paid to SHEA in the eighteen (18) months
prior to the effective date of termination. The severance payments under this
Section 3.5.2 shall be paid 50% in cash on the effective date of termination and
the balance in twelve (12) equal monthly payments on the 1st day of each month
commencing on the 1st day of the month following termination. In addition, all
benefits set forth in Section 4.5 herein shall continue to be paid during such
twelve month period.
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<PAGE> 4
3.5.3. Stock Options. Notwithstanding anything herein to the
contrary, in the event that SHEA' employment is terminated in accordance with
this Section 3.5, SHEA rights under any and all employee stock option programs
or individual stock option arrangements shall remain in effect and provide to
SHEA the ability to exercise any and all stock options vested as of the date of
termination through the remainder of the terms of such options, which
termination dates shall not be accelerated based on the termination of
employment.
3.6. Termination upon Death. This Agreement shall be terminated
immediately upon the death of SHEA. Within thirty (30) days following such
termination, the Company shall pay to SHEA' estate: (i) all accrued Base Salary
and bonuses; and (ii) a sum equal to six (6) months' Base Salary. In addition,
upon the determination of bonuses for the fiscal year in which SHEA died, the
Company shall pay to SHEA's estate, a prorated bonus based on the number of days
SHEA provided services hereunder during the year of his death.
3.7. Termination by SHEA Upon Change of Control. SHEA may terminate
this Agreement at any time within one hundred eighty (180) days following a
"Change of Control" of the Company by providing thirty (30) days written notice
of termination, which notice must be sent within the 180 day period. Upon such
termination, SHEA shall be entitled to a severance payment equal to the greater
of (i) two times the Base Salary which would have been paid for the remainder of
the term had the Agreement not been terminated, or (ii) two times the sum of (A)
one year's Base Salary then in effect, and (B) any and all bonuses paid to SHEA
in the eighteen (18) months prior to the effective date of termination. The
severance payment under this Section 3.7 shall be paid 50% in cash on the
effective date of termination and the balance in twelve (12) equal monthly
payments on the 1st day of each month commencing on the 1st day of the month
following termination. In addition, all benefits set forth in Section 4.5 herein
shall continue to be paid during such twelve month period. Notwithstanding
anything herein to the contrary, in the event that SHEA' employment is
terminated in accordance with this Section 3.5, SHEA rights under any and all
employee stock option programs or individual stock option arrangements shall
remain in effect and provide to SHEA the ability to exercise any and all stock
options vested as of the date of termination through the remainder of the terms
of such options, which termination dates shall not be accelerated based on the
termination of employment.
3.8. Definition of Change of Control. Change of Control is defined for
the purposes of this Agreement as any of the following acts:
3.8.1. The acquisition by any person, entity or "group" within the
meaning of ss. 13(d) or 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty-five (25%) percent or more of
either the then outstanding shares of the Company's common stock or the combined
voting power of the Company's then outstanding voting securities entitled to
vote generally in the election of directors. Notwithstanding, any purchase by
underwriters pursuant to a firm commitment underwriting shall not constitute a
Change of Control; or
3.8.2. If the individuals who serve on the Company Board of
Directors as of the Commencement Date (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors; provided,
however, that any person who becomes a director subsequent to the Commencement
Date whose election or nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the directors then compiling the
Incumbent Board shall be for purposes of this Agreement considered as if such
person was a member of the Incumbent Board; or
3.8.3. Approval by the Company's stockholders of (i) a merger,
reorganization or consolidation whereby the Company's shareholders immediately
prior to such approval do not, immediately after consummation of such
reorganization, merger or consolidation own more than 50% of the combined voting
power entitled to vote generally in the election of
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<PAGE> 5
directors of the surviving entity's then outstanding voting securities; or (ii)
liquidation or dissolution of the Company; or (iii) the sale of all or
substantially all of the assets of the Company.
3.9. Certain Reduction of Payments by the Company. Notwithstanding
anything in this Agreement to the contrary, in the event that it is determined
that any payment or distribution required to be made by the Company to SHEA
following a Change of Control under Sections 3.5.2 or 3.7 herein (a "Change of
Control Payment"), would be nondeductible by the Company for Federal income tax
purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended, then the aggregate amounts payable or distributable pursuant to this
Agreement shall be reduced to the "Reduced Amount." The Reduced Amount shall be
the greater of (i) an amount which is the maximum amount of Change of Control
Payments possible without causing any such Change of Control Payment to be
nondeductible by the Company because of Section 280G of the Code, or (ii) the
Change of Control Payment, if the Change of Control Payments provides SHEA with
a greater after tax benefit than (i) herein. The Reduced Amount specified in
(i) above shall be expressed in present value which maximizes the aggregate
present value of Change of Control Payments without causing any Reduced Amount
to be non-deductible by the Company under Section 280G. In addition, if the
Change of Control Payments can be restructured through the provision by SHEA of
personal services or otherwise following a Change of Control, then the parties
shall in good faith attempt to agree to a change in such relationship necessary
for SHEA to receive the full benefits of the Change of Control Payment.
However, any restructuring of the relationship shall not require SHEA to be
employed by the Company or be subject to a non-competition agreement. The
determinations required herein shall be made by the independent certified
public accounting firm which was engaged by the Company to audit the Company's
financial statements for the fiscal year preceding the year in which the Change
of Control occurs. SHEA shall have the right to contest such determination.
4. COMPENSATION AND BENEFITS
4.1. Salary. Subject to the provisions of Section 4.2 herein, the
Company shall pay to SHEA, a base salary at a total annual rate of $110,000 (the
"Base Salary") payable in cash. Base Salary shall be paid in regular payroll
intervals consistent with payroll policy established by the Company from time to
time. Base Salary shall be automatically increased to $190,000 per year on the
earlier of (i) the date that the Company's registration statement of its
initial public offering is declared effective by the Securities and Exchange
Commission; or (ii) a Change of Control.
4.2. Cost of Living Increase. On each anniversary date of this
Agreement during the term hereof or any extension, Base Salary shall be
increased by the greater of (i) six (6%) percent of then existing Base Salary,
or (ii) the percentage increase, if any, of the consumer price index for Urban
Wage Earners and Clerical Workers (Greater Metropolitan Miami area; all items)
issued by the Bureau of Labor Statistics of the U.S. Department of Labor. The
Company's Board of Directors shall have the discretion to grant increases in
Base Salary in excess of the amounts provided herein.
4.3. Bonus. Prior to the commencement of each fiscal year, the Board
of Directors or its compensation committee, if any, shall establish in good
faith a reasonable and justifiable incentive bonus plan for SHEA for such fiscal
year. The incentive bonus plan shall provide SHEA the ability to earn a bonus
based upon certain goals and objectives to be established in such incentive
bonus plan. Such bonus, if any, shall be payable within thirty (30) days
following the completion of the Company's audit for such fiscal year by its
independent auditors.
4.4. Stock Options. SHEA shall be eligible from time to time to
receive grants of stock options, under stock option plans or otherwise, in such
amounts and at such times as determined by the Board of Directors or any
committee thereof. All options granted to SHEA shall:
(a) have a minimum term of five (5) years within which to
exercise such options;
(b) have a vesting schedule of no worse than twenty-five (25%)
percent as of the date of grant and twenty-five (25%) on each anniversary date
of such grant thereafter;
(c) vesting shall be accelerated upon a change of control of the
Company;
(d) have an exercise price no greater than the market price of
the underlying securities as of the date of grant; and
(e) such other terms and conditions as are customary for similar
types of options.
4.5. Additional Benefits.
4.5.1. Vacation. SHEA shall be entitled to a reasonable number of
discretionary paid vacation days consistent with his level of employment, duties
and seniority during each twelve-month period during the term of this Agreement,
but in no event less than twenty (20) days during each period. Vacation time may
be accumulated for a period of not longer than two (2) years. SHEA shall not
receive compensation for days not used.
4.5.2. Automobile Expenses. During the term of this Agreement, the
Company shall pay to SHEA an automobile allowance of $700 per month, which shall
be inclusive
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<PAGE> 6
of all expenses associated with the operation of such automobile, including
depreciation, gasoline, insurance, repairs and maintenance.
4.5.3. Reimbursement of Expenses. SHEA shall be reimbursed by the
Company, upon presentation of adequate receipts, for all business expenses which
are reasonably incurred by SHEA in the performance of his duties under this
Agreement, including but not limited to travel, cellular phone and similar
expenses. All travel expenses shall be incurred in accordance with reasonable
policy established by the Board of Directors.
4.5.4. Participation in Employee Benefit Plans. SHEA shall be
entitled to participate, subject to eligibility and other terms generally
established by the Company's Board of Directors, in any group hospitalization,
health, dental care, profit sharing and pension, and other benefit plans, as may
be adopted or amended by the Company from time to time as affecting employees of
similar status. The Company shall provide health insurance for SHEA and his
dependents and shall pay all premiums incurred thereby.
5. REPRESENTATIONS. SHEA hereby represents to the Company that he is in
good health, he is physically and mentally capable of performing his duties
hereunder and he has no knowledge of any present or past physical or mental
condition which would cause an insurance company to reject an application by
SHEA for life insurance or for accident, sickness or disability insurance. SHEA
represents and warrants that to the best of his knowledge he is not subject to
any restrictive covenants under any other agreements prohibiting his performance
in full hereunder, or which would subject the Company to any valid claims for
tortious interference.
6. CONFIDENTIALITY AND NON-DISCLOSURE OF INFORMATION.
6.1. Confidentiality. SHEA shall not, during the term of this
Agreement or at any time thereafter, divulge, furnish or make accessible to
anyone without the Company's prior written consent, any knowledge or information
with respect to any aspect of the Business, including but not limited to: the
Company's costs; fees or models; physician or patient names; provider names;
referral sources; addresses and telephone numbers of patients and referral
sources; billing procedures, prices and terms; its business techniques, computer
programs and printouts; identity of prospective patients, providers or referral
sources; information disclosed by the Company's patients to the Company; or
other information concerning the Business or its employees. All information
given to SHEA in connection with his employment shall be considered confidential
and proprietary.
6.2. Ownership of Information. SHEA recognizes that all records;
patient lists; provider lists; referral lists; material cost data; fees or
models; files and correspondence with patients, referral services, physicians,
and providers of services; computer printouts; contracts; reports; notes;
business plans; compilations of other recorded matter; and copies or
reproductions thereof, relating to the Company's operations and activities made
or received by SHEA in the course of his employment are the exclusive property
of the Company and SHEA holds and uses same as trustee for the Company and
subject to the Company's sole control and will deliver same to the Company at
the termination of his employment, or earlier if so requested. All of such
information, which if used by SHEA outside the scope of his employment, could
cause irreparable and continuing injury to the Business for which there may not
be an adequate remedy at law.
7. RESTRICTIVE COVENANT. As an inducement to cause the Company to enter
into this Agreement, SHEA covenants and agrees that during his employment, and
for a period of one (1) year after he ceases to be employed by the Company,
regardless of the manner or cause of termination:
7.1. Non-Competition. SHEA will not be an employee, agent, director,
stockholder or owner (except of not more than 1% of the securities of any
publicly traded entity),
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<PAGE> 7
partner, consultant, financial backer, creditor or be otherwise directly or
indirectly connected with or participate in the management, operation or control
of any business, firm, proprietorship, corporation, partnership, association,
entity or venture engaged in the provision of services similar to the Company's
business as of termination (a "Competing Business") within 100 miles of any
office, center, clinic or other location of the Company, or any of its
subsidiaries or affiliates;
7.2. Solicitation of Business. SHEA will not contact, call upon,
solicit business from, sell or render services to any patient, provider,
insurer, HMO, managed care company or contract party of the Company, or any of
its affiliates with respect to a Competing Business or purchase from any
supplier or potential supplier any materials for same and SHEA shall not
directly or indirectly aid or assist any other person, firm or corporation to do
any of the aforesaid acts; or
7.3. Solicitation of Employees. SHEA will not directly or
indirectly, as principal, agent, owner, partner, stockholder, officer, director,
employee, independent contractor or consultant or in any individual or
representative capacity for himself or on behalf of any business, firm,
corporation, partnership, association or proprietorship enter into any
agreements with, solicit, or directly or indirectly cause others to solicit the
employment of any officer, sales person, agent, or other employee of the
Company, or any of its subsidiaries or affiliates for the purpose of causing
said officer, sales person, agent or other employee to terminate employment with
the Company.
7.4. Non-Enforcement of Restrictive Covenant: Notwithstanding
anything herein to the contrary, if this Agreement is terminated (a) by SHEA as
a result of the material breach of this Agreement by the Company, (b) if the
Company fails to make any severance payment required herein within ten (10) days
after such payment is due, or (c) in accordance with Sections 3.5.2 or 3.7
herein, then in such event the Restrictive Covenants contained in this Section 7
shall thereafter be unenforceable by the Company. Notwithstanding termination of
the restrictive covenants, the Company will still be obligated to pay the
remaining severance due.
8. ACKNOWLEDGEMENT. SHEA HEREBY ACKNOWLEDGES AND UNDERSTANDS THIS
AGREEMENT INHIBITS SHEA'S ABILITY TO WORK FOR THE SAME OR SIMILAR KIND OF
BUSINESS FOR A PERIOD OF ONE (1) YEAR AFTER THE END OF SHEA' EMPLOYMENT WITH THE
COMPANY. SHEA acknowledges and confirms that the length of the term and
geographic restrictions contained in this Agreement are fair and reasonable and
not the result of overreaching, duress or coercion of any kind. SHEA further
acknowledges and confirms that his full, uninhibited and faithful observance of
each of the covenants contained in this Agreement will not cause any undue
hardships, financial or otherwise and that enforcement of this Agreement will
not impair SHEA' ability to obtain employment commensurate with SHEA' abilities
and on terms fully acceptable to SHEA. SHEA acknowledges that SHEA will be
receiving significant information regarding the Business which SHEA has not
previously received and would not receive without being employed by the Company.
SHEA acknowledges and confirms that such information would cause the Company
serious injury and loss if used by SHEA for the benefit of a competitor.
9. MATERIAL VIOLATION. A violation of Sections 6 or 7 shall constitute
a material and substantial breach of this Agreement and shall result in the
imposition of the Company's remedies contained in Section 11. SHEA acknowledges
that compliance with the provisions of Sections 6 and 7 are necessary to protect
the goodwill and proprietary interests of the Company and is a material
condition of employment. SHEA acknowledges and agrees that proof of one such
personal solicitation by SHEA of a patient, referral source, HMO, managed care
company, insurance company, supplier or employee, shall constitute absolute and
conclusive evidence that SHEA has substantially and materially breached the
provisions of this Agreement.
10. MATERIAL COVENANTS. It is understood by and between the parties
that the foregoing covenants set forth in Sections 6 and 7 are essential
elements of this Agreement, and that but for the agreement of SHEA to comply
with such covenants, the Company would not have
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<PAGE> 8
entered into this Agreement. Such covenants by SHEA shall be construed as
agreements independent of any other provision of this Agreement and the
existence of any claim or cause of action SHEA may have against the Company
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of these covenants.
11. REMEDIES. SHEA hereby acknowledges, covenants and agrees that in
the event of a material default or breach under this Agreement:
(a) the Company will suffer irreparable and continuing damages as a
result of such breach and its remedy at law will be inadequate. SHEA agrees that
in the event of a violation or breach of this Agreement, in addition to any
other remedies available to them, the Company shall be entitled to an injunction
restraining any such default or any other appropriate decree of specific
performance, without any requirement to prove actual damages or to post any bond
or any other security and to any other equitable relief the court deems proper;
and
(b) Any and all of the Company's remedies described in this
Agreement shall not be exclusive and shall be in addition to any other remedies
which the Company may have at law or in equity including, but not limited to,
the right to monetary damages.
12. INDEMNIFICATION. The Company agrees to indemnify SHEA for any and
all liabilities to which he may be subject as a result of his service to the
Company as an officer, director, or agent or of any other enterprise in which he
serves at the request of the Company, or otherwise as a result of his employment
hereunder, including all expenses, including legal fees and costs incurred as a
result of any proceedings brought or threatened against SHEA, to the fullest
extent permitted by law. Counsel's fees, to the fullest extent permitted by law,
shall be paid by the Company in advance of any final disposition of a proceeding
upon receipt of an undertaking by SHEA that he will repay such fees if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to indemnification. The Company will use its best efforts to obtain and
keep in force adequate director and officer liability insurance during the term
of this Agreement and for six (6) years thereafter, if available at a reasonable
cost.
13. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections, subdivisions, subparagraphs, paragraphs
or articles contained in this Agreement shall not affect the enforceability of
the remaining portions of this Agreement or any part thereof, all of which are
inserted conditionally on their being legally valid. In the event that one or
more of the words, phrases, sentences, clauses, sections, subdivisions,
subparagraphs, paragraphs or articles are determined to be unenforceable and if
such invalidity shall be caused by the length of any period of time or the size
of any area set forth in any part hereof, such period of time or such area, or
both, shall be considered to be reduced to a period or area which would cure
such invalidity.
14. NOTICE. Any notices or other communications to any party pursuant
to or relating to this Agreement must be in writing and shall be deemed to have
been given or delivered when hand-delivered, mailed through the U.S. Postal
Service via certified mail, return receipt requested, postage prepaid, through a
nationally recognized overnight courier, or via facsimile to the party at their
addresses below:
Company: Renex Corp.
2100 Ponce de Leon Boulevard, Suite 950
Coral Gables, Florida 33134
Attention: Chairman of the Board
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<PAGE> 9
with a copy to: Bryan W. Bauman, Esq.
Wallace, Bauman, Fodiman & Shannon, P.A.
2222 Ponce de Leon Boulevard, Sixth Floor
Coral Gables, Florida 33134
SHEA: James P. Shea
10295 Collins Avenue #1420
Bal Harbor, FL 33154
or such other address given by such party to the other party at any time
hereafter.
15. ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all other prior written or oral agreements between them as to
such subject matter.
16. AMENDMENT. No amendment, waiver or modification of this Agreement
or any provisions of this Agreement shall be valid unless in writing and duly
executed by both parties.
17. BINDING AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective heirs, legal representatives,
successors and assigns.
18. WAIVER. Any waiver by any party of any breach of any provision of
this Agreement shall not be considered as or constitute a continuing waiver or
waiver of any other breach of any provision of this Agreement.
19. ASSIGNMENT. No party may assign their rights hereunder without the
prior written consent of the other, except that the Company may assign its
rights to any affiliate or successor entity without the consent of SHEA subject
to the provisions of Section 3.7 herein.
20. CAPTIONS. Captions contained in this Agreement are inserted only as
a matter of convenience or for reference and in no way defines, limits, extends,
or describes the scope of this Agreement or the intent of any provisions of this
Agreement.
21. ATTORNEYS' FEES. In the event of any litigation arising out of this
Agreement, the prevailing party shall be entitled to recover its attorneys' fees
and costs, including attorneys' fees and costs incurred on appeal.
22. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
RENEX CORP., a Florida corporation
By: /s/ Orestes L. Lugo
-----------------------------------
Name: Orestes L. Lugo
--------------------------------
Title: Vice President
-------------------------------
/s/ James P. Shea
--------------------------------------
JAMES P. SHEA
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<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT entered into as of this 22nd day of April,
1997 by and between RENEX CORP., a Florida corporation ("Company"), and ORESTES
L. LUGO ("LUGO").
R E C I T A L S:
A. The Company is a provider of kidney dialysis treatments in various
parts of the United States to individuals suffering from end stage renal disease
(the "Business"); and
B. LUGO has been in the continuous employ of the Company since August
1995 as its Vice President/Chief Financial Officer; and
C. The Company desires to continue to employ LUGO as the Company's Vice
President/Chief Financial Officer and LUGO desires to continue to be employed by
the Company in such position on the terms and conditions provided herein; and
D. The Company believes that it is in the best interest of the Company
to assure LUGO of a secure minimum compensation and to diminish the inevitable
distraction of LUGO that may result in the event of the possibility, threat or
occurrence of a change of control, by providing for certain compensation
arrangements upon a change of control.
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and such other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. RECITATIONS. The above recitations are true and correct and are
incorporated herein by this reference.
2. EMPLOYMENT.
2.1. Position of Employment. The Company hereby continues the
employment of LUGO as its Vice President/Chief Financial Officer upon all of the
terms and conditions hereinafter set forth. LUGO shall perform such duties as
are usually performed by a Vice President/Chief Financial Officer of a business
similar in scope as the Business and such other reasonable additional duties as
may be prescribed from time to time by the Company's Board of Directors, taking
into account LUGO's education, experience and job responsibilities. LUGO shall
report directly to the President. All actions shall be subject and subordinate
to review and approval by the Board of Directors and any and all committees of
the Board of Directors. The precise responsibilities of LUGO may be modified
from time to time in accordance with reasonable policy established by the Board
of Directors of the Company consistent with LUGO' qualifications and experience.
2.2. Devotion of Time. During the term of LUGO' employment, LUGO
shall devote his full business time, ability and attention to the business
affairs of the Company. LUGO agrees to use his best efforts to perform
faithfully and efficiently such responsibilities. LUGO shall be permitted to (i)
serve on corporate, civic or charitable boards or committees; and (ii) deliver
lectures, fulfill speaking engagements or teach at educational institutions. All
income received from such other endeavors shall be for the exclusive benefit of
LUGO and the Company shall have no interest therein.
2.3. Working Facilities. During the term of this Agreement, the
Company shall furnish, at LUGO's principal place of employment, an office,
furnishings, secretary and such other facilities commensurate and suitable to
his position and adequate for the performance of his duties hereunder.
<PAGE> 2
2.4. Location of Employment. Unless otherwise agreed to by LUGO,
LUGO's principal place of business shall be within Dade or Broward Counties,
Florida.
3. TERM OF EMPLOYMENT
3.1. Term of Employment. The term of this Agreement shall begin on
the date hereof (the "Commencement Date") and shall end two years thereafter,
subject to earlier termination or extension as otherwise set forth in this
Agreement.
3.2. Automatic Extension. This Agreement shall be automatically
extended for successive two (2) year periods at the end of the initial or any
extended term, unless either party provides written notice of termination to the
other party at least 120 days prior to the expiration of the initial or extended
term respectively.
3.3. Termination of Employment by the Company for Cause. The
Company may terminate LUGO's employment upon fifteen (15) days written notice
for the reasons set forth in Section 3.3.1 below, if such default is not cured
within such notice period, or such additional time as is reasonably necessary to
cure such default if LUGO is using diligent efforts to cure such default. The
Company shall be entitled to terminate LUGO's employment without notice or an
opportunity to cure for the reasons set forth in Section 3.3.2 herein.
3.3.1. Notice. Notice or an opportunity to cure shall be
required for the following reasons:
(a) A default or breach by LUGO of any of the material
provisions of this Agreement detrimental to the Company;
(b) refusal to follow reasonable and lawful directives
of the Company's Board of Directors or any committee thereof which are
consistent with LUGO' duties and responsibility outlined in this Agreement; or
3.3.2. No Notice. No notice or an opportunity to cure shall
be required for the following:
(a) actions by LUGO constituting fraud, embezzlement
or dishonesty;
(b) the deliberate and knowing breach by LUGO of the
Company's internal financial controls;
(c) LUGO furnishing false, misleading, or omissive
information or omitting to furnish material information to the Company's Board
of Directors, or any committee thereof, in the reasonable judgment of the Board
of Directors;
(d) any action by LUGO which constitutes a breach of
the confidentiality of the Business and/or trade secrets of the Company;
(e) LUGO's gross negligence in the performance of his
duties as outlined in this Agreement;
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<PAGE> 3
(f) any violation of federal or state law by LUGO which
have a material detrimental impact on the Company;
(g) at such time as LUGO shall have failed, by reason
of mental or physical disability or illness ("Disability" as hereinafter
defined), to perform his services pursuant to this Agreement for a period of
one hundred eighty (180) days. Disability shall be defined to mean the
inability of LUGO to perform his duties under this Agreement, based on injury,
illness or physical or mental conditions as determined by the Company's Board
of Directors, which determination must be supported by two licensed physicians,
one of each selected by the Company and LUGO; provided, however, if the Company
maintains a policy insuring against the disability of LUGO, Disability shall
have the meaning ascribed in such policy. Upon the Board's initial
determination of disability, LUGO will submit to mental and physical
examinations which shall be paid by the Company, unless otherwise covered by
health benefits provided by the Company to LUGO. The failure of LUGO to submit
to such reasonable examinations within fifteen (15) days of such request shall
be conclusive that such Disability exists.
3.3.3. No Additional Compensation. Upon termination for the
reasons set forth in Section 3.3 herein, the Company shall not be liable for any
further compensation or benefits following the date of termination, other than
accrued Base Salary. Notwithstanding, LUGO shall be entitled to receive all
appropriate benefits mandated by the Consolidated Budget Reconciliation Act of
1985 ("COBRA").
3.4. Termination by LUGO. LUGO may terminate this Agreement upon thirty
(30) days written notice, upon the occurrence of a material default of this
Agreement by the Company, which default is not cured within the thirty (30) day
notice period. Such notice shall set forth with particularity the facts
underlying the claimed default.
3.5. Termination without Cause. The Company shall have the right to
terminate this Agreement, without cause, upon thirty (30) days written notice to
LUGO. Notwithstanding such termination, the Company shall be obligated to pay to
LUGO as severance herein the following:
3.5.1. Prior to Change of Control. If termination without cause is
prior to a "Change of Control," LUGO shall be entitled to severance equal to the
greater of (i) the Base Salary which would have been paid for the balance of the
term of this Agreement if it were not terminated, or (ii) one (1) year's Base
Salary. The severance payment under this Section 3.5.1 shall be payable in
twelve (12) equal monthly installments commencing on the first day of the month
following termination. In addition, during such twelve (12) month period, all
benefits to LUGO set forth on Section 4.5 herein shall continue to be paid.
3.5.2. Following a Change of Control. If LUGO is terminated
without cause at any time following a Change of Control, LUGO shall be entitled
to severance equal to the greater of (i) two times the Base Salary which would
have been paid for the remainder of the term had the Agreement not been
terminated, or (ii) two times the sum of (A) one year's Base Salary then in
effect, and (B) any and all bonuses paid to LUGO in the eighteen (18) months
prior to the effective date of termination. The severance payments under this
Section 3.5.2 shall be paid 50% in cash on the effective date of termination and
the balance in twelve (12) equal monthly payments on the 1st day of each month
commencing on the 1st day of the month following termination. In addition, all
benefits set forth in Section 4.5 herein shall continue to be paid during such
twelve month period.
3.5.3. Stock Options. Notwithstanding anything herein to the
contrary, in the event that LUGO's employment is terminated in accordance with
this Section 3.5, LUGO's rights under any and all employee stock option programs
or individual stock option arrangements shall remain in effect and provide to
LUGO the ability to exercise any and all stock options vested
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<PAGE> 4
as of the date of termination through the remainder of the terms of such
options, which termination dates shall not be accelerated based on the
termination of employment.
3.6. Termination upon Death. This Agreement shall be terminated
immediately upon the death of LUGO. Within thirty (30) days following such
termination, the Company shall pay to LUGO' estate: (i) all accrued Base Salary
and bonuses; and (ii) a sum equal to six (6) months' Base Salary. In addition,
upon the determination of bonuses for the fiscal year in which LUGO died, the
Company shall pay to LUGO's estate, a prorated bonus based on the number of days
LUGO provided services hereunder during the year of his death.
3.7. Termination by LUGO Upon Change of Control. LUGO may terminate
this Agreement at any time within one hundred eighty (180) days following a
"Change of Control" of the Company by providing thirty (30) days written notice
of termination, which notice must be sent within the 180 day period. Upon such
termination, LUGO shall be entitled to a severance payment equal to the greater
of (i) two times the Base Salary which would have been paid for the remainder of
the term had the Agreement not been terminated, or (ii) two times the sum of (A)
one year's Base Salary then in effect, and (B) any and all bonuses paid to LUGO
in the eighteen (18) months prior to the effective date of termination. The
severance payment under this Section 3.7 shall be paid 50% in cash on the
effective date of termination and the balance in twelve (12) equal monthly
payments on the 1st day of each month commencing on the 1st day of the month
following termination. In addition, all benefits set forth in Section 4.5 herein
shall continue to be paid during such twelve month period. Notwithstanding
anything herein to the contrary, in the event that LUGO's employment is
terminated in accordance with this Section 3.7, LUGO's rights under any and all
employee stock option programs or individual stock option arrangements shall
remain in effect and provide to LUGO the ability to exercise any and all stock
options vested as of the date of termination through the remainder of the terms
of such options, which termination dates shall not be accelerated based on the
termination of employment.
3.8. Definition of Change of Control. Change of Control is defined for
the purposes of this Agreement as any of the following acts:
3.8.1. The acquisition by any person, entity or "group" within the
meaning of ss. 13(d) or 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty-five (25%) percent or more of
either the then outstanding shares of the Company's common stock or the combined
voting power of the Company's then outstanding voting securities entitled to
vote generally in the election of directors. Notwithstanding, any purchase by
underwriters pursuant to a firm commitment underwriting shall not constitute a
Change of Control; or
3.8.2. If the individuals who serve on the Company Board of
Directors as of the Commencement Date (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors; provided,
however, that any person who becomes a director subsequent to the Commencement
Date whose election or nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the directors then compiling the
Incumbent Board shall be for purposes of this Agreement considered as if such
person was a member of the Incumbent Board; or
3.8.3. Approval by the Company's stockholders of (i) a merger,
reorganization or consolidation whereby the Company's shareholders immediately
prior to such approval do not, immediately after consummation of such
reorganization, merger or consolidation own more than 50% of the combined voting
power entitled to vote generally in the election of directors of the surviving
entity's then outstanding voting securities; or (ii) liquidation or dissolution
of the Company; or (iii) the sale of all or substantially all of the assets of
the Company.
3.9. Certain Reduction of Payments by the Company. Notwithstanding
anything in this Agreement to the contrary, in the event that it is determined
that any payment or distribution required to be made by the Company to LUGO
following a Change of Control under Sections 3.5.2 or 3.7 herein (a "Change of
Control Payment"), would be nondeductible by the Company for Federal income tax
purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended, then the aggregate amounts payable or distributable pursuant to this
Agreement shall be reduced to the "Reduced Amount." The Reduced Amount shall be
the greater of (i) an amount which is the maximum amount of Change of Control
Payments possible without causing any such Change of Control Payment to be
nondeductible by the Company because of Section 280G of the Code, or (ii) the
Change of Control Payment, if the Change of Control Payments provides LUGO with
a greater after tax benefit than (i) herein. The Reduced Amount specified in
(i) above shall be expressed in present value which maximizes the aggregate
present value of Change of Control Payments without causing any Reduced Amount
to be non-deductible by the Company under Section 280G. In addition, if the
Change of Control Payments can be restructured through the provision by LUGO of
personal services or otherwise following a Change of Control, then the parties
shall in good faith attempt to agree to a change in such relationship necessary
for LUGO to receive the full benefits of the Change of Control Payment.
However, any restructuring of the relationship shall not require LUGO to be
employed by the Company or be subject to a non-competition agreement. The
determinations required herein shall be made by the independent certified
public accounting firm which was engaged by the Company to audit the Company's
financial statements for the fiscal year preceding the year in which the Change
of Control occurs. LUGO shall have the right to contest such determination.
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<PAGE> 5
4. COMPENSATION AND BENEFITS
4.1. Salary. Subject to the provisions of Section 4.2 herein, the
Company shall pay to LUGO, a base salary at a total annual rate of $102,500 (the
"Base Salary") payable in cash. Base Salary shall be paid in regular payroll
intervals consistent with payroll policy established by the Company from time to
time. Base Salary shall be automatically increased to $155,000 per year on the
earlier of (i) the date the Company's registration statement of its
initial public offering is declared effective by the Securities and Exchange
Commission; or (ii) a Change of Control.
4.2. Cost of Living Increase. On each anniversary date of this
Agreement during the term hereof or any extension, Base Salary shall be
increased by the greater of (i) six (6%) percent of then existing Base Salary,
or (ii) the percentage increase, if any, of the consumer price index for Urban
Wage Earners and Clerical Workers (Greater Metropolitan Miami area; all items)
issued by the Bureau of Labor Statistics of the U.S. Department of Labor. The
Company's Board of Directors shall have the discretion to grant increases in
Base Salary in excess of the amounts provided herein.
4.3. Bonus. Prior to the commencement of each fiscal year, the Board of
Directors or its compensation committee, if any, shall establish in good faith a
reasonable and justifiable incentive bonus plan for LUGO for such fiscal year.
The incentive bonus plan shall provide LUGO the ability to earn a bonus based
upon certain goals and objectives to be established in such incentive bonus
plan. Such bonus, if any, shall be payable within thirty (30) days following the
completion of the Company's audit for such fiscal year by its independent
auditors.
4.4. Stock Options. LUGO shall be eligible from time to time to receive
grants of stock options, under stock option plans or otherwise, in such amounts
and at such times as determined by the Board of Directors or any committee
thereof. All options granted to LUGO shall:
(a) have a minimum term of five (5) years within which to
exercise such options;
(b) have a vesting schedule of no worse than twenty-five (25%)
percent as of the date of grant and twenty-five (25%) on each anniversary date
of such grant thereafter;
(c) vesting shall be accelerated upon a change of control of the
Company;
(d) have an exercise price no greater than the market price of the
underlying securities as of the date of grant; and
(e) such other terms and conditions as are customary for similar
types of options.
4.5. Additional Benefits.
4.5.1. Vacation. LUGO shall be entitled to a reasonable number of
discretionary paid vacation days consistent with his level of employment, duties
and seniority during each twelve-month period during the term of this Agreement,
but in no event less than fifteen (15) days during each period. Vacation time
may be accumulated for a period of not longer than two (2) years. LUGO shall not
receive compensation for days not used.
4.5.2. Automobile Expenses. During the term of this Agreement, the
Company shall pay to LUGO an automobile allowance of $600 per month, which shall
be inclusive of all expenses associated with the operation of such automobile,
including depreciation, gasoline, insurance, repairs and maintenance.
4.5.3. Professional Education. During each calendar year during
the term of this Agreement, the Company shall pay for the cost of 40 hours of
continuing professional education ("CPE") credits necessary for LUGO to maintain
his certified public accounting license. Such CPE costs shall include LUGO's
attendance at one national out-of-town CPE class of his choice during each
calendar year, up to a maximum of $3,000 for such attendance, which expenses
shall include the cost of the CPE credits, travel, hotel accommodations and
other reimbursement of expenses consistent with normal Company travel policy.
4.5.4. Reimbursement of Expenses. LUGO shall be reimbursed by the
Company, upon presentation of adequate receipts, for all business expenses which
are reasonably
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<PAGE> 6
incurred by LUGO in the performance of his duties under this Agreement,
including but not limited to travel, cellular phone and similar expenses. All
travel expenses shall be incurred in accordance with reasonable policy
established by the Board of Directors.
4.5.5. Participation in Employee Benefit Plans. LUGO shall be
entitled to participate, subject to eligibility and other terms generally
established by the Company's Board of Directors, in any group hospitalization,
health, dental care, profit sharing and pension, and other benefit plans, as may
be adopted or amended by the Company from time to time as affecting employees of
similar status. The Company shall provide health insurance for LUGO and his
dependents and shall pay all premiums incurred thereby.
5. REPRESENTATIONS. LUGO hereby represents to the Company that he is
in good health, he is physically and mentally capable of performing his duties
hereunder and he has no knowledge of any present or past physical or mental
condition which would cause an insurance company to reject an application by
LUGO for life insurance or for accident, sickness or disability insurance. LUGO
represents and warrants that to the best of his knowledge he is not subject to
any restrictive covenants under any other agreements prohibiting his performance
in full hereunder, or which would subject the Company to any valid claims for
tortious interference.
6. CONFIDENTIALITY AND NON-DISCLOSURE OF INFORMATION.
6.1. Confidentiality. LUGO shall not, during the term of this
Agreement or at any time thereafter, divulge, furnish or make accessible to
anyone without the Company's prior written consent, any knowledge or information
with respect to any aspect of the Business, including but not limited to: the
Company's costs; fees or models; physician or patient names; provider names;
referral sources; addresses and telephone numbers of patients and referral
sources; billing procedures, prices and terms; its business techniques, computer
programs and printouts; identity of prospective patients, providers or referral
sources; information disclosed by the Company's patients to the Company; or
other information concerning the Business or its employees. All information
given to LUGO in connection with his employment shall be considered confidential
and proprietary.
6.2. Ownership of Information. LUGO recognizes that all records;
patient lists; provider lists; referral lists; material cost data; fees or
models; files and correspondence with patients, referral services, physicians,
and providers of services; computer printouts; contracts; reports; notes;
business plans; compilations of other recorded matter; and copies or
reproductions thereof, relating to the Company's operations and activities made
or received by LUGO in the course of his employment are the exclusive property
of the Company and LUGO holds and uses same as trustee for the Company and
subject to the Company's sole control and will deliver same to the Company at
the termination of his employment, or earlier if so requested. All of such
information, which if used by LUGO outside the scope of his employment, could
cause irreparable and continuing injury to the Business for which there may not
be an adequate remedy at law.
7. RESTRICTIVE COVENANT. As an inducement to cause the Company to
enter into this Agreement, LUGO covenants and agrees that during his employment,
and for a period of one (1) year after he ceases to be employed by the Company,
regardless of the manner or cause of termination:
7.1. Non-Competition. LUGO will not be an employee, agent,
director, stockholder or owner (except of not more than 1% of the securities of
any publicly traded entity), partner, consultant, financial backer, creditor or
be otherwise directly or indirectly connected with or participate in the
management, operation or control of any business, firm, proprietorship,
corporation, partnership, association, entity or venture engaged in the
provision of services similar to the Company's business as of termination (a
"Competing Business") within 100 miles of any office, center, clinic or other
location of the Company, or any of its subsidiaries or affiliates;
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<PAGE> 7
7.2. Solicitation of Business. LUGO will not contact, call upon,
solicit business from, sell or render services to any patient, provider,
insurer, HMO, managed care company or contract party of the Company, or any of
its affiliates with respect to a Competing Business or purchase from any
supplier or potential supplier any materials for same and LUGO shall not
directly or indirectly aid or assist any other person, firm or corporation to do
any of the aforesaid acts; or
7.3. Solicitation of Employees. LUGO will not directly or
indirectly, as principal, agent, owner, partner, stockholder, officer, director,
employee, independent contractor or consultant or in any individual or
representative capacity for himself or on behalf of any business, firm,
corporation, partnership, association or proprietorship enter into any
agreements with, solicit, or directly or indirectly cause others to solicit the
employment of any officer, sales person, agent, or other employee of the
Company, or any of its subsidiaries or affiliates for the purpose of causing
said officer, sales person, agent or other employee to terminate employment with
the Company.
7.4. Non-Enforcement of Restrictive Covenant: Notwithstanding
anything herein to the contrary, if this Agreement is terminated (a) by LUGO as
a result of the material breach of this Agreement by the Company, (b) if the
Company fails to make any severance payment required herein within ten (10) days
after such payment is due, or (c) in accordance with Sections 3.5.2 or 3.7
herein, then in such event the Restrictive Covenants contained in this Section 7
shall thereafter be unenforceable by the Company. Notwithstanding termination of
the restrictive covenants, the Company will still be obligated to pay the
remaining severance due.
8. ACKNOWLEDGMENT. LUGO HEREBY ACKNOWLEDGES AND UNDERSTANDS THIS
AGREEMENT INHIBITS LUGO'S ABILITY TO WORK FOR THE SAME OR SIMILAR KIND OF
BUSINESS FOR A PERIOD OF ONE (1) YEAR AFTER THE END OF LUGO' EMPLOYMENT WITH THE
COMPANY. LUGO acknowledges and confirms that the length of the term and
geographic restrictions contained in this Agreement are fair and reasonable and
not the result of overreaching, duress or coercion of any kind. LUGO further
acknowledges and confirms that his full, uninhibited and faithful observance of
each of the covenants contained in this Agreement will not cause any undue
hardships, financial or otherwise and that enforcement of this Agreement will
not impair LUGO's ability to obtain employment commensurate with LUGO's
abilities and on terms fully acceptable to LUGO. LUGO acknowledges that LUGO
will be receiving significant information regarding the Business which LUGO has
not previously received and would not receive without being employed by the
Company. LUGO acknowledges and confirms that such information would cause the
Company serious injury and loss if used by LUGO for the benefit of a competitor.
9. MATERIAL VIOLATION. A violation of Sections 6 or 7 shall constitute
a material and substantial breach of this Agreement and shall result in the
imposition of the Company's remedies contained in Section 11. LUGO acknowledges
that compliance with the provisions of Sections 6 and 7 are necessary to protect
the goodwill and proprietary interests of the Company and is a material
condition of employment. LUGO acknowledges and agrees that proof of one such
personal solicitation by LUGO of a patient, referral source, HMO, managed care
company, insurance company, supplier or employee, shall constitute absolute and
conclusive evidence that LUGO has substantially and materially breached the
provisions of this Agreement.
10. MATERIAL COVENANTS. It is understood by and between the parties
that the foregoing covenants set forth in Sections 6 and 7 are essential
elements of this Agreement, and that but for the agreement of LUGO to comply
with such covenants, the Company would not have entered into this Agreement.
Such covenants by LUGO shall be construed as agreements independent of any other
provision of this Agreement and the existence of any claim or cause of action
LUGO may have against the Company whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
these covenants.
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<PAGE> 8
11. REMEDIES. LUGO hereby acknowledges, covenants and agrees that in
the event of a material default or breach under this Agreement:
(a) the Company will suffer irreparable and continuing
damages as a result of such breach and its remedy at law will be inadequate.
LUGO agrees that in the event of a violation or breach of this Agreement, in
addition to any other remedies available to them, the Company shall be entitled
to an injunction restraining any such default or any other appropriate decree of
specific performance, without any requirement to prove actual damages or to post
any bond or any other security and to any other equitable relief the court deems
proper; and
(b) Any and all of the Company's remedies described in
this Agreement shall not be exclusive and shall be in addition to any other
remedies which the Company may have at law or in equity including, but not
limited to, the right to monetary damages.
12. INDEMNIFICATION. The Company agrees to indemnify LUGO for any and
all liabilities to which he may be subject as a result of his service to the
Company as an officer, director, or agent or of any other enterprise in which he
serves at the request of the Company, or otherwise as a result of his employment
hereunder, including all expenses, including legal fees and costs incurred as a
result of any proceedings brought or threatened against LUGO, to the fullest
extent permitted by law. Counsel's fees, to the fullest extent permitted by law,
shall be paid by the Company in advance of any final disposition of a proceeding
upon receipt of an undertaking by LUGO that he will repay such fees if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to indemnification. The Company will use its best efforts to obtain and
keep in force adequate director and officer liability insurance during the term
of this Agreement and for six (6) years thereafter, if available at a reasonable
cost.
13. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections, subdivisions, subparagraphs, paragraphs
or articles contained in this Agreement shall not affect the enforceability of
the remaining portions of this Agreement or any part thereof, all of which are
inserted conditionally on their being legally valid. In the event that one or
more of the words, phrases, sentences, clauses, sections, subdivisions,
subparagraphs, paragraphs or articles are determined to be unenforceable and if
such invalidity shall be caused by the length of any period of time or the size
of any area set forth in any part hereof, such period of time or such area, or
both, shall be considered to be reduced to a period or area which would cure
such invalidity.
14. NOTICE. Any notices or other communications to any party pursuant
to or relating to this Agreement must be in writing and shall be deemed to have
been given or delivered when hand-delivered, mailed through the U.S. Postal
Service via certified mail, return receipt requested, postage prepaid, through a
nationally recognized overnight courier, or via facsimile to the party at their
addresses below:
Company: Renex Corp.
2100 Ponce de Leon Boulevard, Suite 950
Coral Gables, Florida 33134
Attention: President
with a copy to: Bryan W. Bauman, Esq.
Wallace, Bauman, Fodiman & Shannon, P.A.
2222 Ponce de Leon Boulevard, Sixth Floor
Coral Gables, Florida 33134
LUGO: 1900 Sunset Harbor Drive, Unit 1102
Miami Beach, FL
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<PAGE> 9
or such other address given by such party to the other party at any time
hereafter.
15. ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all other prior written or oral agreements between them as to
such subject matter.
16. AMENDMENT. No amendment, waiver or modification of this Agreement
or any provisions of this Agreement shall be valid unless in writing and duly
executed by both parties.
17. BINDING AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective heirs, legal representatives,
successors and assigns.
18. WAIVER. Any waiver by any party of any breach of any provision of
this Agreement shall not be considered as or constitute a continuing waiver or
waiver of any other breach of any provision of this Agreement.
19. ASSIGNMENT. No party may assign their rights hereunder without the
prior written consent of the other, except that the Company may assign its
rights to any affiliate or successor entity without the consent of LUGO subject
to the provisions of Section 3.7 herein.
20. CAPTIONS. Captions contained in this Agreement are inserted only as
a matter of convenience or for reference and in no way defines, limits, extends,
or describes the scope of this Agreement or the intent of any provisions of this
Agreement.
21. ATTORNEYS' FEES. In the event of any litigation arising out of this
Agreement, the prevailing party shall be entitled to recover its attorneys' fees
and costs, including attorneys' fees and costs incurred on appeal.
22. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
RENEX CORP., a Florida corporation
By: /s/ James P. Shea
---------------------------------------
Name: James P. Shea
--------------------------------------
Title: President
-------------------------------------
/s/ Orestes L. Lugo
--------------------------------------------
ORESTES L. LUGO
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<PAGE> 1
Exhibit 10.3
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated as of
August 23, 1996 by and between DVI BUSINESS CREDIT CORPORATION, a Delaware
corporation ("Lender") and RENEX CORPORATION, a Florida corporation, RENEX
DIALYSIS CLINIC OF MIAMI BEACH, INC., a Florida corporation, RENEX DIALYSIS
CLINIC OF TAMPA, INC., a Florida corporation, RENEX DIALYSIS HOMECARE OF TAMPA,
INC., a Florida corporation, RENEX DIALYSIS CLINIC OF PHILADELPHIA, INC., a
Pennsylvania corporation, RENEX DIALYSIS CLINIC OF PITTSBURGH, INC., a
Pennsylvania corporation, RENEX DIALYSIS HOMECARE OF GREATER PITTSBURGH, INC., a
Pennsylvania corporation, RENEX DIALYSIS CLINIC OF AMESBURY, INC., a
Massachusetts corporation, RENEX DIALYSIS CLINIC OF CREVE COUER, INC., a
Missouri corporation, RENEX DIALYSIS HOMECARE OF GREATER ST. LOUIS, INC., a
Missouri corporation, RENEX DIALYSIS CLINIC OF UNIVERSITY CITY, INC., a Missouri
corporation, RENEX DIALYSIS CLINIC OF BRIDGETON, INC., a Missouri corporation,
and RENEX DIALYSIS FACILITIES, INC., a Mississippi corporation (collectively
hereinafter referred to as "Borrower") .
SECTION 1
DEFINITIONS
SECTION 1.1. SPECIFIC DEFINITIONS The following definitions
shall apply:
(a) "Account Debtors" shall mean Borrower's customers and all
other persons who are obligated or indebted to Borrower in any manner, whether
directly or indirectly, primarily or secondarily, contingently or otherwise,
with respect to Accounts.
(b) "Accounts" shall mean all accounts, accounts receivable,
monies and debt obligations in any form owing to Borrower (whether arising in
connection with contracts, contract rights, instruments, general intangibles or
chattel paper) arising out of the rendition of services by Borrower whether or
not earned by performance; all deposit accounts. credit insurance, guaranties.
letters of credit, advises of credit and other security for any of the above;
Borrower's Books relating to any of the foregoing.
(c) "Advance" shall mean an advance of loan proceeds constituting
all or a part of the Loan.
(d) "Borrower's Books" shall mean all of Borrower's books and
records including but not limited to: minute books, ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the Accounts; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs and other
computer prepared information and the equipment containing such information;
provided, however, that confidential patient records shall not be included
therein, except to the extent otherwise provided by law.
(e) "Prime Rate" shall mean the rate of interest announced
publicly by Bank of America from time to time as its prime rate.
(f) "Borrowing Base" shall mean, on the date of determination
thereof, an amount equal to the sum of eighty percent (80%) of the Net
Collectible Value for each type of Eligible Account.
(g) "Closing Date" shall mean the date of the first Advance of
the Loan.
(h) "Collateral" shall have the meaning specified in Section 3.1
hereof.
(i) "Commitment Amount" shall have the meaning set forth in
Section 2.1.
(j) "Distribution" shall mean, with respect to any shares of
capital stock or any warrant or right to acquire shares of capital stock or any
other equity security, (i) the retirement, redemption, purchase or other
acquisition, directly or indirectly, for value by the issuer of any such
security, except to the extent that the consideration therefor consists of
shares of stock, (ii) the declaration or (without duplication) payment of
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<PAGE> 2
any dividend in cash, directly or indirectly, on or with respect to any such
security, (iii) any investment in the holder of five percent (5%) or more of any
such security if a purpose of such investment is to avoid characterization of
the transaction as a Distribution, and (iv) any other cash payment constituting
a distribution under applicable laws with respect to such security.
(k) "Eligible Accounts" shall mean Borrower's accounts receivable
from commercial insurance, Medicare, Medicaid, and HMO/PPO payors (collectively
referred to as "Retail Accounts"), which have been due and payable for one
hundred eighty (180) or fewer days, and Borrower's account receivable under
contracts with hospitals and other similar health service providers (referred to
as "Institutional Accounts") which have been due and payable for one hundred
eighty (180) or fewer days.
(l) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all references to sections thereof shall include such
sections and any predecessor provisions thereto, including any rules or
regulations issued in connection therewith.
(m) "Event of Default" shall have the meaning specified in
Section 10 hereof.
(n) "Fair Value" means (i) with respect to Borrower's assets, if
Net Fair Value is being determined as of a date on or prior to the first
anniversary of the date hereof, the lower of (1) the value of such assets as
determined in accordance with Bankruptcy Code ss.5487 or (2) the value of such
assets as determined in accordance with the state fraudulent conveyance or
fraudulent transfer law that would be applicable to the determination whether
the obligations and/or the security interest relating thereto would constitute a
fraudulent conveyance or a fraudulent transfer (the "Applicable State Law"),
(ii) with respect to Borrower's assets, if Net Fair Value is being determined as
of a date after the first anniversary of the date hereof, the value of such
assets as determined in accordance with the Applicable State Law, (iii) with
respect to Borrower's liabilities, if Net Fair Value is being determined as of a
date on or prior to the first anniversary of the date hereof, the lower of (1)
the value of such liabilities as determined in accordance with Bankruptcy Code
ss.548 or (2) the value of such liabilities as determined in accordance with the
Applicable State Law, and (iv) with respect to Borrower's liabilities, if Net
Fair Value is being determined as of a date after the first anniversary of the
date hereof, the value of such liabilities as determined in accordance with the
Applicable State Law.
(o) "GAAP" means generally accepted accounting principles set
forth in the opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and/or in statements of the Financial
Accounting Standards Board, consistently applied.
(p) "Governmental Authority" shall mean any governmental or
political subdivision or any agency, authority, bureau, central bank,
commission, department or instrumentality thereof, or any court, tribunal, grand
jury or arbitrator, in any case whether foreign or domestic.
(q) "Health Care Laws" shall mean all federal, state and local
laws specifically relating to health care providers and healthcare services,
including, but not limited to, Section 1877(a) of the Social Security Act as
amended by the Omnibus Budget Reconciliation Act of 1993, 42 U.S.C. ss. 1395nn.
(r) "Indebtedness" of a Person shall mean (i) all items (except
items of capital stock, capital or paid-in surplus or of retained earnings)
which, in accordance with GAAP, would be included in determining total
liabilities as shown on the liability side of the balance sheet of such Person
as of the date as of which Indebtedness is to be determined, including any lease
which, in accordance with GAAP would constitute indebtedness; (ii) all
indebtedness secured by any mortgage, pledge, security, lien or conditional sale
or other title retention agreement to which any property or asset owned or held
by such Person is subject, whether or not the indebtedness secured thereby shall
have been assumed; and (iii) all indebtedness of others which such Person has
directly or indirectly guaranteed, endorsed (otherwise than for the collection
or deposit in the ordinary course of business), discounted or sold with recourse
or agreed (contingently or otherwise) to purchase or repurchase or otherwise
acquire, or in respect of which such Person has agreed to supply or
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advance funds (whether by way of loan, stock or equity purchase, capital
contribution or otherwise) or otherwise to become directly or indirectly liable.
(s) "Lender Expenses" shall mean (i) all costs or expenses
(including, without limitation, taxes and insurance premiums) required to be
paid by Borrower under this Agreement or under any of the other Loan Documents
that are paid or advanced by Lender; (ii) filing, recording, publication and
search fees paid or incurred by Lender in connection with Lender's transactions
with Borrower; (iii) costs and expenses incurred by Lender to correct any Event
of Default or enforce any provision of the Loan Documents or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
and preparing for sale or advertising to sell the Collateral, whether or not a
sale is consummated, after the occurrence of an Event of Default; (iv) costs and
expenses of suit incurred by Lender in enforcing or defending the Loan Documents
or any portion thereof, (v) reasonable costs and expenses incurred by Lender to
convert any data submitted to Lender by Borrower to an acceptable form; and (vi)
Lender's reasonable attorney fees and expenses incurred (before or after
execution of this Agreement) in advising Lender with respect to, or in
structuring, drafting, reviewing, negotiating, amending, terminating, enforcing,
defending or otherwise concerning, the Loan Documents or any portion thereof,
irrespective of whether suit is brought.
(t) "Lien" shall mean any security interest, mortgage, pledge,
assignment, lien or other encumbrance of any kind, including any interest of a
vendor under a conditional sale contract or consignment and any interest of a
lessor under a capital lease.
(u) "Loan" shall mean each loan or any other loan or loans made
by Lender to Borrower pursuant to this Agreement.
(v) "Loan Availability" shall mean the lesser of (a) the
Commitment Amount or (b) the Borrowing Base minus the aggregate Advances and
other Obligations outstanding under this Agreement.
(w) "Loan Documents" shall mean (i) this Agreement; (ii) the
Note; (iii) any other agreements or documents hereafter delivered to secure
repayment of the Loan; (iv) the Lock Box Agreement and (v) any other
certificates, documents, instruments, or financing statements delivered by
Borrower to Lender pursuant to the terms of this Agreement.
(w) "Lock Box Agreement" shall mean those certain Lock Box
Agreements between Borrower and any lock box servicer(s) ("servicer(s)") chosen
by Lender and Borrower and the letter of instructions with respect thereto among
Lender, Borrower and Servicer.
(y) "Net Collectible Percentage" shall mean the percentages
described on Exhibit A attached hereto. Based on a quarterly review of billings,
collections and adjustments, conducted by Lender in accordance with its standard
and consistently applied procedures, Lender reserves the right to amend the Net
Collectible Percentages from time to time, written notification of which shall
be given to Borrower by Lender.
(z) "Net Collectible Value" shall mean, for each type of Eligible
Account, the Net Collectible Percentage times the aggregate current outstanding
amount for such type of Eligible Account.
(aa) "Net Fair Value" the amount by which the Fair Value of
Borrower's assets exceeds the Fair Value of Borrower's liabilities (including
contingent liabilities).
(bb) "Note" shall mean the Secured Promissory Note executed by
Borrower pursuant to the terms of this Agreement.
(cc) "Obligations" means (i) all obligations (monetary or
otherwise) of Borrower arising under or in connection with this Agreement, the
Note and all other Loan Documents.
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(dd) "Permitted Liens" shall mean (i) Liens for property taxes
and assessments or governmental charges or levies and Liens securing claims or
demands of mechanics and materialmen, provided that payment thereof is not yet
due or is being contested as permitted in this Agreement; (ii) Liens of or
resulting from any judgment or award, the time for the appeal or petition for
rehearing of which has not expired, or in respect of which Borrower is in good
faith prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review has been secured;
(iii) Liens and priority claims incidental to the conduct of business or the
ownership of properties and assets (including warehouse's and attorney's Liens
and statutory landlord's Liens); deposits, pledges or Liens to secure the
performance of bids, tenders, or trade contracts, or to secure statutory
obligations; and surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided that in each case the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate actions
or proceedings; and further provided that any such warehouse's or statutory
landlord's Liens have been subordinated to the Liens of Lender in a manner
satisfactory to Lender; and (iv) Liens existing on the date of this Agreement
that secure Indebtedness of Borrower outstanding on such date and that are
disclosed on Schedule 1.1 hereto;
(ee) "Person" shall mean an individual, corporation, partnership,
limited liability company, trust, unincorporated association, joint venture,
joint-stock company, government (including political subdivisions), Governmental
Authority or any other entity.
(ff) "Proceeds" shall mean all proceeds and products of
Collateral and documents covering Collateral; all property received wholly or
partly in trade or exchange for Collateral; all claims against third parties
arising out of damage, destruction or decrease in value of the Collateral; all
leases of Collateral; and all rents, revenues, issues, profits and proceeds
arising from the sale, lease, license, encumbrance, collection or any other
temporary or permanent disposition of the Collateral or any interest therein.
(gg) "Subordinate Obligations" shall mean all Indebtedness of
Borrower subordinated to the Obligations pursuant to subordination and/or
intercreditor agreements in form satisfactory to Lender.
(hh) "Termination Date" shall mean the last day of any term as to
which a written notice of nonrenewal pursuant to Section 2.7 has been received
or, in the case of a termination due to a prepayment under Section 2.7, the date
of such prepayment.
(ii) "Unmatured Default" shall mean any event or condition that,
with notice, passage of time, or a determination by Lender or any combination of
the foregoing would constitute an Event of Default.
SECTION 1.2. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND UNIFORM
COMMERCIAL CODE. All financial terms used in this Agreement, other than those
defined in this Section 1, have the meanings accorded to them under GAAP. All
other terms used in this Agreement, other than those defined in this Section 1,
have the meanings accorded to them in the Uniform Commercial Code as enacted in
any applicable jurisdiction.
SECTION 1.3. CONSTRUCTION
(a) Unless the context of this Agreement clearly requires
otherwise, the plural includes the singular, the singular includes the plural,
the part includes the whole, "including" is not limiting, and "or" has the
inclusive meaning of the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder" and other similar terms in this Agreement refer to this
Agreement as a whole and not exclusively to any particular provision of this
Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against Lender or Borrower, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by each of the parties and its counsel and shall be construed and
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interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
SECTION 2
LOAN
SECTION 2.1. THE LOAN Subject to the terms and conditions and
relying on the representations and warranties set forth herein, Lender agrees to
make Advances to Borrower from time to time in an aggregate amount not to exceed
the lesser of (i) Four Million Dollars ($4,000,000.00) (the "Commitment
Amount"), and (ii) the Borrowing Base. Within the limits of the Loan
Availability, Borrower may borrow, make repayments pursuant to Section 2.4 and
reborrow. If, at any time, the aggregate Advances and other Obligations
outstanding exceed the then Loan Availability, then Borrower shall pay to Lender
a sum sufficient to reduce the Advances and other Obligations outstanding to an
amount not greater than the Loan Availability. Lender's commitment to make
Advances shall expire, and the amount of the Loan then outstanding shall mature
and be repaid by Borrower, without further action on the part of Lender, on the
Termination Date.
SECTION 2.2. NOTE All Loans made by the Lender under this
Agreement shall be evidenced by, and repaid with interest in accordance with, a
single promissory note of Borrower in substantially the form of Exhibit 2.02
duty completed, in the original principal amount equal to the initial Commitment
Amount, dated the Closing Date, payable to the Lender and maturing as to
principal on the Termination Date (the "Note"). The amount of each Advance and
payment of principal amount received by the Lender shall be recorded in the
books and records of the Lender, which books and records shall, in the absence
of manifest error, be conclusive as to the outstanding balance of and other
information related to the Loan. Lender shall be entitled at any time to endorse
on a schedule attached to the Note the amount and type of each Advance and
information relating thereto.
SECTION 2.3. THE BORROWING BASE On no less than a monthly basis
the Borrowing Base will be recalculated by adding monthly billings to the prior
month's Eligible Accounts and subtracting deposits and adjustments, if
applicable, and then multiplying this amount by the Net Collectible Percentage.
The Borrowing Base shall be calculated on the basis of the reports delivered to
Lender pursuant to Section 5.4.
SECTION 2.4. NOTICE OF BORROWING Whenever Borrower desires to
borrow under Section 2.1, Borrower shall deliver to Lender a Drawdown Request
Form, in a form reasonably satisfactory to Lender, signed by an authorized
officer no later than 2:00 p.m. Pacific Standard Time at least one (1) business
day in advance of the proposed funding date. The Drawdown Request Form shall
specify (i) the funding date (which shall be a business day) with respect to the
requested Loan and (ii) the amount of the proposed Advance.
SECTION 2.5. USE OF PROCEEDS The proceeds of the Loan shall be
used by Borrower to provide working capital and new clinics under development.
SECTION 2.6. LOAN REPAYMENT VIA LOCK BOX/SERVICER ACCOUNT. Upon
the execution hereof, Borrower shall become a party to the Lock Box Agreement
which provides for the receipt and processing of Account payments. Borrower
shall irrevocably direct: (i) all non-government payors to remit payment to the
servicer's post office box in Lenders name and control, and (ii) all government
payors to remit payment to a second post office box of such servicer in
Borrower's name. Prior to funding and upon receipt of the lock box post office
box number(s), Borrower shall provide Lender re-direct letters (in a form
satisfactory to Lender) to all of Borrower's payors on Borrower's letterhead,
including envelopes for Lender to process and mail (Lender will add postage
which shall be charged to Borrower). The Lock Box Agreement provides for the
servicer to deposit daily all receipts of the post office boxes into deposit
accounts, with non-government payor receipts paid into an account subject to
Lender's control and, government payor receipts paid into an account in
Borrower's name; such accounts shall be (i) at a financial institution
acceptable to Lender, and (ii) governed by terms and conditions acceptable to
Lender. Borrower agrees and acknowledges that all government pavor
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receipts will be immediately transferred to an account in the name and control
of Lender. Deposits (net of fees) shall be applied to reduce the Loan balance
including Advances, interest charged monthly, fees, all applicable charges and
other payments, if applicable, within 24 hours. Any receipts (net of such
servicer's fees) remaining after all such payments to Lender will be paid to
Borrower within 24 hours of receipt. Borrower shall bear all charges for
establishing and maintaining the post office box accounts and all bank charges
for such deposit accounts. Lender shall deduct from the deposit accounts all
sums Borrower owes to it hereunder, including fees, interest, reimbursements and
principal payments. Any Obligations not paid by such deduction shall be
satisfied by direct payment to Lender at 4041 MacArthur Blvd., Suite 401,
Newport Beach, California 92660. Any amounts hereunder not paid as agreed shall
be assessed a late payment penalty of five percent (5%).
SECTION 2.7. TERM OF AGREEMENT; PREPAYMENT. The Tenn of this
Agreement is two (2) years. Provided that no Event of Default or any Unmatured
Event of Default exists, Borrower may terminate this Agreement provided that it
pays to Lender an amount equal to two and one half percent (2.5%) of the
Commitment Amount if canceled in year 1 of the initial term; and one half
percent (.5%) of the Commitment Amount if canceled in year 2. This Agreement
shall be renewed for consecutive one (1) year terms unless this Agreement is
terminated, effective as of the last day of a term. by written notice by Lender
or Borrower no later than thirty (30) days before the expiration of such term.
All of Lender's obligations, responsibilities and duties shall cease upon the
date of termination of this Agreement, except for its obligation to remit excess
receipts from the lock box deposit accounts in accordance with the terms of this
Agreement.
SECTION 2.8. LENDER'S FEES Upon execution hereof, Lender shall be
entitled to an origination fee equal to Thirty Five Thousand and 00/100 Dollars
($35,000), less Fifteen Thousand and 00/100 Dollars ($15,000) currently on
deposit. On or before the first day of each month Borrower shall pay Lender a
monthly maintenance fee of Two Thousand Five Hundred Ninety Five and 00/100
Dollars ($2,595). The monthly maintenance fee shall cover costs incurred by
Lender including but not limited to daily handling of the account/deposits,
interfacing with lock box processor, monthly tracking of Borrowing Base Report
and quarterly on-site due diligence. Lender's fees will be deducted, when due,
directly from receipts from accounts receivable deposited in accordance with
Section 2.6
SECTION 2.9. INTEREST ON THE LOANS All Advances shall bear
interest on the unpaid principal amount thereof from the date made until paid in
full at a fluctuating rate equal to the Prime Rate plus two percent (2%).
Interest shall be payable monthly in arrears on the first day of each month for
the preceding month. Interest shall be calculated on the basis of a year of 360
days, but for the actual number of days elapsed. Interest accrued but not paid
pursuant to Section 2.6 shall be treated as an Advance if not otherwise paid
within five (5) days of the end of the month in which it accrues. Unpaid
Interest charges being treated as an Advance shall not be considered an Event of
Default.
SECTION 2.10. CONDITIONS TO THE CLOSING Lender's obligation to
make the initial Advance hereunder on the Closing Date is subject to Lender's
determination that Borrower as of the date of the Advance has satisfied, and
continues to satisfy, the following conditions:
(a) The representations and warranties set forth in this
Agreement and in the other Loan Documents shall be true and correct on and as of
the date hereof and shall be true and correct in all material respects as of the
Closing Date and Borrower shall have performed all obligations which were to
have been performed by it hereunder.
(b) Borrower shall have executed and delivered to Lender (or
shall cause to be executed and delivered to Lender by the appropriate Persons)
the following:
(i) this Agreement;
(ii) the Note;
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(iii) UCC-I Financing Statements;
(iv) the Lock Box Agreement/Tri-Party Agreement;
(v) Subordination Agreement by Berkeley;
(vi) pay-off letters, UCC Termination Statements and
Lien Releases as required to grant Lender a first priority security interest
other than Permitted Liens in Collateral pledged as security for repayment of
the Loan;
(vii) certified copies of resolutions of the Board of
Directors of Borrower authorizing the execution and delivery of Loan Documents
to be executed by Borrower; and
(viii) copies of the Articles of Incorporation of
Borrower certified by the Secretary of State of the applicable issuing state.
(ix) a certificate from an officer of Borrower
indicating that the representations and warranties contained herein are true and
correct as of the Closing Date.
(c) Neither an Event of Default nor an Unmatured Default
shall have occurred and be continuing as of the Closing Date,
(d) Borrower shall not have suffered a material adverse
change in its business, operations or financial condition from that reflected
in the Financial Statements of Borrower delivered to Lender or otherwise.
(e) Lender shall have received such additional supporting
documents, certificates and assurances as Lender shall reasonably request which
shall be satisfactory to Lender in form and substance.
SECTION 2.11. If there is more than one Borrower, the obligations
hereunder are joint and several obligations of the Borrowers. Notwithstanding
any other provision hereof, a Borrower's liability for the obligations at any
time shall not exceed the greater of (1) the sum of (a) the total principal of
the obligations that such Borrower directly or indirectly received and (b) the
interest and expenses accrued with respect to such principal, and (2) the
greater of (a) ninety-five percent (95%) of such Borrower's Net Fair Value on
the date hereof, and (b) ninety-five percent (95%) of such Borrower's highest
Net Fair Value during the period commencing after such date and terminating on
the date of determination of liability hereunder
SECTION 3
SECURITY INTEREST
SECTION 3.1. GRANT OF SECURITY INTEREST In order to secure prompt
payment and performance of all Obligations, Borrower hereby grants to Lender a
continuing first-priority pledge and security interest in the following property
of Borrower (the "Collateral"), whether now owned or existing or hereafter
acquired or arising and regardless of where located, subject only to Permitted
Liens. This security interest in the Collateral shall attach to all Collateral
without further action on the part of Lender or Borrower. The Collateral shall
consist of the following, subject in each case only to Permitted Liens together
with such third-party consents, lien waivers and estoppel certificates as Lender
shall reasonably require: All of Borrower's present and future Accounts.
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SECTION 4
SPECIFIC REPRESENTATIONS
SECTION 4.1. NAME OF BORROWER
The exact names, state law under which Borrower was organized,
prior legal names, current or prior trade names are set forth on Schedule 4.1.
SECTION 4.2. MERGERS AND CONSOLIDATIONS Except as disclosed on
Schedule 4.2, no entity has merged into any of Borrower or been consolidated
with Borrower.
SECTION 4.3. PURCHASE OF ASSETS Except as disclosed on Schedule
4.3 no entity has sold substantially all of its assets to Borrower or sold
assets to Borrower outside the ordinary course of such seller's business at any
time in the past.
SECTION 4.4. CHANGE OF NAME OR IDENTITY Borrower shall not change
its name, business structure or identity or use a new trade name without prior
notification to Lender or merge into or consolidate with any other entity.
SECTION 5
PROVISIONS CONCERNING ACCOUNTS
SECTION 5.1. OFFICE AND RECORDS OF BORROWER Borrower's chief
executive offices are located at: 2222 Ponce De Leon Blvd., Suite 300, Coral
Gables, Florida 33134. Borrower maintains all of its records with respect to
Accounts at 2222 Ponce De Leon Blvd., Suite 300, Coral Gables. Florida 33134.
Borrower has not at any time within the past four (4) months maintained their
chief executive office or their records with respect to Accounts at any other
location and shall not do so hereafter except with the prior written consent of
Lender.
SECTION 5.2. REPRESENTATIONS Borrower represents and warrants
that each Account at the time of its assignment to Lender (a) will be owned
solely by Borrower, (b) will be for a liquidated amount maturing as stated in
Borrower's Books; (c) will be a bona fide existing obligation created by the
rendition of services to Account Debtors or their insured by Borrower in the
ordinary course of its business; and (d) will not be subject to any known
deduction, offset, counterclaim, return privilege, or other condition, except as
reflected on Borrower's Books. Borrower shall neither redate any invoices nor
reissue new invoices in full or partial satisfaction of old invoices.
Allowances, if any, as between Borrower and its customers will be on the same
basis and in accordance with the usual customary practices of Borrower as they
exist on the date of this Agreement.
SECTION 5.3. RETURNS AND REPOSSESSIONS Borrower shall notify
Lender within five (5) business days of occurrence of all material claims
asserted by Account Debtors.
SECTION 5.4. BORROWING BASE REPORTS Borrower shall on no less
than a monthly basis execute and deliver to Lender, in form and content
satisfactory to Lender, (i) a Borrowing Base report; (ii) a detailed aging of
Accounts; and (iii) a charges, collections and adjustment summary for the month.
Borrower shall, upon the request of Lender execute and deliver to Lender an
updated Borrowing Base report reflecting additional billings, write-offs and
deposits and all of Borrower's accounts receivable data in a computer disc or
tape fori-nat acceptable to Lender. Lender shall periodically review Borrower's
actual adjustments to cash receipts and write-offs, as well as Borrower's payor
profile. To the extent Borrower's adjustments, write-offs and payor profile
materially changes, Lender may, in its reasonable discretion, change the Net
Collectible Percentage attributable to each type of account by written notice to
Borrower of such change.
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SECTION 5.5. COMPLIANCE CERTIFICATE. With each final month-end
Borrowing Base report which Borrower delivers to Lender, Borrower also shall
deliver to Lender a Compliance Certificate in the form of Exhibit 5.5 attached
hereto, which Compliance Certificate shall be completed and signed by an officer
of Borrower.
SECTION 5.6. LENDER'S RIGHTS Any officer, employee or agent of
Lender shall have the right, in Lender's reasonable discretion, at any time or
times hereafter, in the name of Lender or its nominee (including Borrower), with
prior notice to Borrower, to verify the validity, amount or any other matter
relating to any Accounts by mail, telephone or otherwise; and all reasonable
out-of-pocket costs thereof shall be payable by Borrower to Lender. Lender, or
its designee may at any time after default by Borrower hereunder notify
customers or Account Debtors that Accounts have been assigned to Lender or of
Lender's security interest therein and after default by Borrower hereunder
collect the same directly and charge all reasonable collection costs and
expenses to Borrower's account.
SECTION 5.7. DISCLAIMER OF LIABILITY Lender shall not be liable
to Borrower or any third person for the correctness, validity or genuineness of
any instruments or documents released or endorsed to Borrower by Lender (which
shall automatically be deemed to be without recourse to Lender in any event) or
for the existence, character, quantity, quality, condition, value or delivery of
any goods purporting to be represented by any such documents; and Lender, by
accepting a Lien on the Collateral or by releasing any Collateral to Borrower,
shall not be deemed to have assumed any obligation or liability to any supplier
or creditor of Borrower or to any other third party. Borrower agrees to
indemnify and defend Lender and hold it harmless in respect to any claim or
proceeding arising out of any matter referred to in this Section 5.7.
SECTION 5.8. POST DEFAULT RIGHTS If an Event of Default has
occurred and is continuing hereunder, no discount, credit or allowance shall be
granted or permitted by Borrower to any Account Debtor; provided, however, that,
notwithstanding the existence of an Event of Default, (i) Borrower may continue
to invoice and bill Account Debtors under discount, credit and allowance
arrangements that Borrower maintained in the ordinary course of business prior
to such Event of Default occurring, and (ii) Account Debtors may, during the
continuance of an Event of Default, utilize discount, credit and allowance
arrangements that Borrower extended to them in the ordinary course of business.
Lender may, after default by Borrower, settle or adjust disputes and claims
directly with Account Debtors for amounts and upon terms that Lender considers
advisable, and in such cases, Lender will credit Borrower's account with only
the net amounts received by Lender in payment of such disputed Accounts, after
deducting all Lender Expenses incurred in connection therewith.
SECTION 5.9. ACCOUNTS OWED BY FEDERAL GOVERNMENT If any Accounts
shall arise out of a contract with the United States of America or any
department, agency, subdivision or instrumentality thereof, Borrower shall
promptly notify Lender thereof in writing and take all other action requested by
Lender to protect Lender's Lien on such Accounts under the provisions of the
federal laws on assignment of claims.
SECTION 5.10. BUSINESS ACTIVITY REPORTS Borrower has filed and
shall file all legally required notices and reports of its business activities
with all the appropriate taxing authorities and the appropriate Governmental
Authority of each jurisdiction in which Borrower is legally required to file
such a notice or report.
SECTION 6
PROVISIONS CONCERNING GENERAL INTANGIBLES
SECTION 6.1. CONTRACTS
(a) Schedule 6.1. is a true and complete list of all material
contracts and agreements pertaining to the Collateral to which Borrower is a
party.
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(b) Borrower shall not amend, modify or supplement any contract
or agreement included in the Collateral or waive any provision thereof other
than in accordance with Borrower's standard business practice, nor shall such
standard business practice be materially changed without Lender's consent, which
shall not be unreasonably withheld.
(c) Borrower shall remain liable to perform all of its duties and
obligations under any contracts and agreements included in the Collateral to the
same extent as if this Agreement had not been executed; and Lender shall not
have any obligation or liability under such contracts and agreements by reason
of this Agreement or otherwise.
(d) Borrower need not pay any amount due under any contract or
agreement listed on Schedule 6.1, nor otherwise perform any action required
under the terms of any such contract or agreement, if such payment or
performance is being contested in good faith by appropriate proceedings promptly
initiated and diligently conducted, if Lender is notified in advance of such
contest, and if Borrower establishes any reserve or other appropriate provision
required by GAAP and deposits with Lender cash or an acceptable bond reasonably
requested by Lender.
SECTION 7
OTHER PROVISIONS CONCERNING COLLATERAL
SECTION 7.1. FURTHER ASSURANCES Borrower shall execute and
deliver to Lender, concurrent with Borrower's execution of this Agreement and at
any time or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles.
affidavits, reports, notices, schedules of Accounts, letters of authority and
all other documents Lender may reasonably request, in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens in the Collateral and
in order to consummate fully all of the transactions contemplated under the Loan
Documents. Borrower hereby irrevocably makes, constitutes and appoints Lender
(and any of Lender's officers, employees or agents designated by Lender) as
Borrower's true and lawful attorney with power to sign the name of Borrower on
any of the above-described documents or on any other similar documents that need
to be executed, recorded or filed in order to perfect or continue to be
perfected Lender's Liens in the Collateral.
SECTION 7.2. LENDER'S DUTY OF CARE Lender shall have no duty of
care with respect to the Collateral except that Lender shall exercise reasonable
care with respect to the Collateral in Lender's custody. Lender shall be deemed
to have exercised reasonable care if such property is accorded treatment
substantially equal to that which Lender accords its own property or if Lender
takes such action with respect to the Collateral as Borrower shall request or
agree to in writing provided that neither failure to comply with any such
request nor any omission to do any such act requested by Borrower shall be
deemed a failure to exercise reasonable care. Lender's failure to take steps to
preserve rights against any parties or property shall not be deemed to be
failure to exercise reasonable care with respect to the Collateral in Lender's
custody. A@11 risk, loss, damage or destruction of the Collateral shall be borne
by Borrower.
SECTION 7.3. REINSTATEMENT OF LIENS If, at any time after payment
in full by Borrower of all Obligations and termination of Lender's Liens, any
payments on Obligations previously made by Borrower or any other Person must be
disgorged by Lender for an reason whatsoever (including, without limitation, the
insolvency, bankruptcy, or reorganization of Borrower or such other Person),
this Agreement and Lender's Liens granted hereunder shall be reinstated as to
all disgorged payments as though such payments had not been made, and Borrower
shall sign and deliver to Lender all documents and other items necessary to
perfect all terminated Liens.
SECTION 7.4. LENDER EXPENSES To the extent Lender determines that
its interest in the Collateral might have been materially adversely affected by
Borrowers' failure, as required by the terms hereof (i) to pay any moneys
(whether taxes, assessments, insurance premiums or otherwise) due to third
persons or entities,
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<PAGE> 11
(ii) to make any deposits or furnish any required proof of payment or deposit or
(iii) to discharge any Lien not permitted hereby, then Lender may, in its
reasonable discretion and without prior notice to Borrower, make payment of the
same or any part thereof. Any amounts paid or deposited by Lender shall
constitute Lender Expenses, shall become part of the Obligations, shall bear
interest at the rate of eighteen percent (I 8%) per annum, and shall be secured
by the Collateral. Any payments made by Lender shall not constitute (a) an
agreement by Lender to make similar payments in the future or (b) a waiver by
Lender of any Event of Default under this Agreement. Lender need not inquire as
to, or contest the validity of, any such expense, tax, security interest,
encumbrance or Lien and the receipt of the usual official notice for the payment
of moneys to a governmental entity shall be conclusive evidence that the same
was validly due and owing.
Borrower shall immediately and without demand reimburse Lender
for all sums expended by Lender that constitute Lender Expenses, and Borrower
hereby authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
SECTION 7.5. INSPECTION OF RECORDS During usual business hours,
Lender shall have the right to inspect Borrower's Books and records in order to
verify the amount or condition of, or any other matter relating to, the
Collateral and Borrower's financial condition and to copy and make extracts
therefrom. Borrower waives the right to assert a confidential relationship, if
any, it may have with any accounting firm or service bureau in connection with
any information requested by Lender pursuant to this Agreement and agrees that
Lender may directly contact any such accounting firm or service bureau in order
to obtain such information.
SECTION 7.6. WAIVERS Except as specifically provided for herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper and guaranties
at any time held by Lender on which Borrower may in any way be liable.
SECTION 8
REPRESENTATIONS AND WARRANTIES
As of the date hereof Borrower hereby warrants and represents to
Lender the following:
SECTION 8.1. CORPORATE STATUS Borrower is a corporation validly
existing and in good standing under the laws of the state of its incorporation;
and is qualified and licensed to do business and is in good standing in any
state in which the conduct of its business or its ownership of property requires
that it be so qualified or licensed, and has the power and authority (corporate
and otherwise) to execute and carry out the terms of the Loan Documents to which
it is a party, to own its assets and to carry on its business as currently
conducted.
SECTION 8.2. AUTHORIZATION The execution, delivery, and
performance by Borrower of this Agreement and each other Loan Document have been
duly authorized by all necessary corporate or partnership action. Borrower, has
duly executed and delivered this Agreement and each other Loan Document to which
it is a party, and each of them constitutes a valid and binding obligation of
Borrower, as applicable, enforceable according to its terms except as such
enforceability may be limited by equitable principles and by bankruptcy,
insolvency or similar laws affecting the rights of creditors generally.
SECTION 8.3. NO BREACH The execution, delivery and performance by
Borrower of this Agreement and each other Loan Document to which they are a
party (a) will not contravene any law or any governmental rule or order binding
on Collateral; (b) will not violate any provision of the articles of
incorporation, bylaws or partnership agreement, as applicable, of Borrower; (c)
will not violate any agreement or instrument by which Borrower, as applicable,
is bound; (d) do not require any notice to consent by any Governmental
Authority;
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<PAGE> 12
and (e) will not result in the creation of a Lien on any assets of Borrower
except the Lien to Lender granted herein.
SECTION 8.4. TAXES All assessments and taxes, whether real,
personal or otherwise, due or payable by or imposed, levied or assessed against
Borrower or any of its property have been paid in full before delinquency or
before the expiration of any extension period; and Borrower has made due and
timely payment or deposit of all federal. state, and local taxes, assessments or
contributions required of it by law, except only for items that Borrower is
currently contesting diligently and in good faith and that have been fully
disclosed in writing to Lender.
SECTION 8.5. DEFERRED COMPENSATION PLANS Borrower has made all
required contributions to all deferred compensation plans to which it is
required to contribute, and Borrower has no liability for any unfunded benefits
of any single-employer or multi-employer plans. Borrower is not and at no time
has been a sponsor of, provided. or maintained for any employees any defined
benefit plan.
SECTION 8.6. LITIGATION AND PROCEEDINGS Except as set forth on
Schedule 8.6 attached hereto, there are no outstanding judgments against
Borrower or any of its assets and there are no material actions or proceedings
pending by or against Borrower before any court or administrative agency.
Borrower has no knowledge or belief of any material pending, threatened, or
imminent litigation, governmental investigations, or claims, complaints,
actions, or prosecutions involving Borrower, except for ongoing collection
matters in which Borrower is the plaintiff and except as set forth in Schedule
8.6 hereto.
SECTION 8.7. BUSINESS Borrower has all franchises,
authorizations, patents, trademarks, copyrights and other rights necessary to
advantageously conduct its business. They are all in full force and effect and
are not in known conflict with the rights of others. Borrower is not a party to
or subject to any agreement or restriction that is so unusual or burdensome that
it might have a material adverse effect on Borrower's business, properties or
prospects.
SECTION 8.8. LAWS AND AGREEMENTS Borrower is in compliance with
all material agreements applicable to it, including obligations to contribute to
any employee benefit plan or pension plan regulated by ERISA. Borrower is in
material compliance with all laws applicable to it.
SECTION 8.9. FINANCIAL CONDITION All financial statements and
information relating to Borrower that have been or may hereafter be delivered by
Borrower to Lender are accurate and complete and have been prepared in
accordance with GAAP. Borrower has no material obligations or liabilities of any
kind not disclosed in that financial information, and there has been no material
adverse change in the financial condition of Borrower since the date of the most
recent financial statements submitted to Lender.
SECTION 8.10. HEALTH CARE LAWS
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Borrower
and it and is in compliance in all material respects with all terms and
conditions of the required pen-nits, licenses and authorizations, and is also in
compliance in all material respects with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action, suit,
demand. claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or threatened against Borrower, relating in
any way to Health Care Laws.
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<PAGE> 13
SECTION 8.11. CUMULATIVE REPRESENTATIONS The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements that
Borrower shall give, or cause to be given. to Lender, either now or hereafter.
SECTION 9
COVENANTS
SECTION 9.1. ENCUMBRANCE OF COLLATERAL Borrower shall not create,
incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by Borrower, except for Liens to Lender and Permitted Liens.
SECTION 9.2. BUSINESS Borrower shall engage primarily in business
of the same general character as that now conducted by Borrower.
SECTION 9.3. CONDITION AND REPAIR Borrower shall maintain in good
repair and working order all properties used in their business and from time to
time shall make all appropriate repairs and replacements thereof.
SECTION 9.4. TAXES Borrower shall pay all taxes, assessments and
other governmental charges imposed upon it or any of its assets or in respect of
any of its franchises, business. income or profits before any penalty or
interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by GAAP. Borrower shall make timely payment or deposit of all
FICA payments and withholding taxes required of it by applicable laws and will,
upon request, famish Lender with proof satisfactory to Lender indicating that
Borrower has made such payments or deposits.
SECTION 9.5. ACCOUNTING System Borrower at all times hereafter
shall maintain a standard and modem system of accounting in accordance with
GAAP, with ledger and account cards or computer tapes, disks, printouts and
records that contain information pertaining to the Collateral that may from time
to time be requested by Lender. Borrower shall not modify or change its method
of accounting or enter into any agreement hereafter with any third-party
accounting firm or service bureau for the preparation or storage of Borrower's
accounting records without said accounting firm's or service bureau's agreeing
to provide to Lender information regarding the Collateral and Borrower's
financial condition.
SECTION 9.6. QUARTERLY FINANCIAL STATEMENTS. Borrower shall
famish Lender as soon as practicable but in no event later than forty-five (45)
days after the end of each of the first three quarterly fiscal periods of each
fiscal year with unaudited quarterly financial statements in form and substance
as required by Lender, including a balance sheet and an income statement
prepared in accordance with GAAP together with a certificate executed by the
chief financial officer of Borrower stating that the financial statements fairly
present the financial condition of Borrower as of the date and for the periods
covered and that as of the date of such certificate there has not been any
violation of any provision of this Agreement or the happening of any Event of
Default or Unmatured Default hereunder.
SECTION 9.7. ANNUAL FINANCIAL STATEMENTS. Borrower shall famish
Lender as soon as practicable but in no event later than one hundred twenty
(120) days after the close of each fiscal year commencing with fiscal 1996 with
audited annual financial statements, which financial statements shall be
prepared in accordance with GAAP and shall be certified without qualification by
an independent national certified public accounting firm. With all financial
statements, Borrower will also deliver a certificate of its chief
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<PAGE> 14
financial officer attesting that no Event of Default or Unmatured Default under
the Agreement has occurred and is continuing.
SECTION 9.8. FURTHER INFORMATION Borrower shall promptly supply
Lender with such other information concerning its affairs as Lender may
reasonably request from time to time hereafter and shall promptly notify Lender
of any material adverse change in Borrower's financial condition and any
condition or event that constitutes a breach of or event that constitutes an
Event of Default under this Agreement. In addition, Borrower authorizes Lender
to contact credit reporting agencies concerning, Borrower's credit standing.
Borrower also authorizes Lender to utilize Borrower's name in Lender's marketing
materials.
SECTION 9.9. ERISA COVENANTS Guarantor or Borrower shall comply
with all applicable provisions of ERISA and all other laws applicable to any
deferred compensation plans with which Guarantor or Borrower is associated, and
shall promptly notify Lender of the occurrence of any event that could result in
any material liability of Borrower to any person to any person whatsoever with
respect to any such plan.
SECTION 9.10. FINANCIAL COVENANTS, Borrower shall maintain at all
times during the term hereof the following financial covenants, measured in
accordance with GAAP: (i) not permit the sum of Subordinated Debt (not including
current maturities) plus Tangible Net Worth (defined as total equity
organization costs deferred loan costs goodwill) to be less than $6,000,000; and
(ii) not permit the ratio of Total Liabilities minus Subordinated Debt divided
by Tangible Net Worth plus Subordinated Debt to be greater than 1.2:1.
SECTION 9.11. REQUIRED CONSENTS ON MERGER, CONSOLIDATION, SALE OF
ASSETS, ISSUANCE OF STOCK, ETC Without prior written consent of Lender, Borrower
shall not:
(a) merge or consolidate with any Person in which Borrower is not
the surviving entity;
(b) sell, lease or otherwise dispose of its assets in any
transaction or series of related transactions (other than sales in the ordinary
course of business), however, the sale of the Miami Beach facility shall be
permitted;
(c) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
(d) acquire interests of any business in excess of Five Million
and 00/100 Dollars ($5,000,000.00) in the aggregate in any calendar year in any
business (whether by purchase of assets, purchase of stock, merger or
otherwise);
(e) become subject to any agreement or instrument which by its
terms would restrict Borrower's right or ability to perform any of its
obligations to Lender pursuant to the terms of the Loan Documents; or
SECTION 9.12. HEALTH CARE COVENANTS
(a) Borrower shall comply in all material respects with, and
shall obtain all permits required by, all Health Care Laws applicable to
Borrower.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any Governmental Authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any Governmental Authority with jurisdiction over Health Care Laws.
SECTION 9.13. DISTRIBUTIONS Borrower shall not make any
Distributions except as (i) set forth on Schedule 9.13 hereto, and (ii)
authorized by Lender, upon Borrower's request, which authorization shall not be
unreasonably withheld and which authorization shall not be deemed to authorize
any Distributions while an Event of Default is continuing or if such
Distribution would cause an Event of Default to occur.
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<PAGE> 15
SECTION 9.14. SUBORDINATE OBLIGATIONS Borrower shall not
voluntarily prepay any principal (including the making of any sinking fund
payment), interest or any other amount in respect of Subordinate Obligations.
SECTION 9.15. AMENDMENTS Borrower shall not amend any provision
of any Subordinate Obligation if such amendment would (i) affect any of the
subordination provisions thereof, (ii) advance the date of any required payment
or prepayment thereunder, (iii) make covenants therein more burdensome, when
considered in their entirety, to Borrower, (iv) reduce any default or grace
period therein provided, or (v) otherwise have a material adverse effect on the
interests of Lender.
SECTION 10
EVENTS OF DEFAULT
An Event of Default shall be deemed to exist if any of the
following events shall have occurred and be continuing:
(a) Borrower fails to make any payment of principal or interest
or any other payment on the Note or any other Obligation when due and payable,
by acceleration or otherwise, and such failure shall continue for five (5)
business days after the payment is due;
(b) Borrower fails to observe or perform any covenant condition
or agreement to be observed or performed pursuant to the terms hereof or any
other Loan Document to which it is a party and such failure is not cured as soon
as reasonably practicable and in any event within thirty (30) days after written
notice thereof by Lender;
(c) A court enters a decree or order for relief in respect of
Borrower in an involuntary case under any applicable bankruptcy, insolvency, or
other similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(d) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(e) Final judgment for the payment of money on any claim in
excess of $100,000 is rendered against Borrower and remains undischarged
(failure to comply) for twenty (20) days during which execution is not
effectively stayed;
(f) Any guarantor of the Obligations revokes or attempts to
revoke its guaranty of any of the Obligations, or becomes the subject of an
insolvency proceeding of the type described in clauses (c) or (d) above with
respect to Borrower or fails to observe or perform any covenant, condition or
agreement to be performed under any Loan Document to which it is a party;
(g) Borrower makes any payment on account of any Subordinate
Obligations, other than payments specifically permitted by the terms of such
subordination or this Agreement;
(h) Any Person holding any Subordinate Obligations becomes the
subject of any proceeding resulting in the termination of the subordination
arrangement, terminates the subordination arrangement or asserts that it is
terminated.
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<PAGE> 16
(i) Any Collateral or any part thereof is sold, agreed to be
sold, conveyed or allocated by operation of law or otherwise;
(j) Borrower defaults under the terms of any Indebtedness or
lease involving total payment obligations of Borrower in excess of $100,000 and
such default is not cured within the time period permitted pursuant to the terms
and conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
(k) Demand is made for payment of any Indebtedness in excess of
$100,000 that was not originally payable upon demand when incurred but the terms
of which were later changed to provide for payment upon demand;
(l) Borrower is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs;
(m) A judgment or other claim in excess of $100,000 becomes a
Lien upon any or all of Borrower's assets, other than a Permitted Lien;
(n) A notice of Lien, levy or assessment in excess of $100,000 is
filed of record with respect to any or all of Borrower's assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal or other Government Authority; or any tax or debt
owing at any time hereafter to any one or more of such entities becomes a Lien
upon any or all of Borrower's assets and the same is not paid on the payment
date thereof, except to the extent such tax or debt is being contested by
Borrower as permitted in Section 8.4;
(o) There is a material impairment of the value of the Collateral
or priority of Lender's Liens on the Collateral;
(p) Any of Borrower's assets in excess of $100,000 or any
Collateral are seized, subjected to a distress warrant, levied upon or come into
the possession of any judicial officer;
(q) Any representation or warranty made in writing to Lender by
any officer of Borrower in connection with the transactions contemplated in this
Agreement is materially incorrect when made;
(r) If the aggregate dollar value of all judgments, defaults,
demands, claims and notices of Liens under clauses (e), (j), (k), (m) and (n)
hereof exceeds $200,000; or
(s) Borrower shall intentionally fail to direct all receipts for
Accounts to the Lock Box.
SECTION 11
REMEDIES
SECTION 11.1. SPECIFIC REMEDIES Upon the occurrence of any Event
of Default:
(a) Lender may cease advancing money or extending credit to or
for the benefit of Borrower under this Agreement, under any other Loan Document,
or under any other agreement between Borrower and Lender.
(b) Lender may declare all Obligations to be due and payable
immediately, whereupon they shall immediately become due and payable without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by Borrower.
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<PAGE> 17
(c) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(d) Lender may pay, purchase, contest or compromise any
encumbrance, charge or Lien that, in the opinion of Lender, appears to be prior
or superior to its Lien and pay all reasonable expenses incurred in connection
therewith.
(e) Lender may (i) notify Account Debtors to make payment on
Accounts directly to Lender; (ii) settle, adjust, compromise, extend or renew
Accounts, whether before or after legal proceedings to collect such Accounts
have commenced; (iii) prepare and file any bankruptcy proofs of claim or similar
documents against any Account Debtor; (iv) prepare and file any notice,
assignment, satisfaction, or release of Lien, UCC termination statement or any
similar document; (v) sell or assign Accounts, individually or in bulk, upon
such terms, for such amounts, and at such time or times as Lender deems
advisable; and (vi) complete the performance required of Borrower under any
contract or agreement to which Borrower is a party and out of which Accounts
arise or may arise.
(f) Lender may (i) endorse Borrower's name on all checks, notes,
drafts, money orders or other forms of payment of or security for Accounts or
other Collateral; (ii) sign Borrower's name on drafts drawn on Account Debtors
or issuers of letters of credit; and (iii) notify the postal authorities in
Borrower's name to change the address for delivery of Borrower's mail to an
address designated by Lender, receive and open all mail addressed to Borrower,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Borrower.
SECTION 11.2. POWER OF ATTORNEY Borrower hereby appoints Lender
(and any of Lender's officers, employees, or agents designated by Lender) as
Borrower's attorney, with power whether before or after the occurrence of an
Event of Default: (a) to endorse Borrower's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into Lender's possession; (b) to sign Borrower's name on drafts against
Account Debtors, on schedules and assignments of Accounts, on verifications of
Accounts, and on notices to Account Debtors; (c) to notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Lender, to receive and open all mail addressed to Borrower and to
retain all mail relating to the Collateral and forward all other mail to
Borrower; (d) to send requests for verification of Accounts; (e) to execute UCC
Financing Statements; and (f) to do all things necessary to carry out this
Agreement. The appointment of Lender as Borrower's attorney and each and every
one of Lender's rights and powers, being coupled with an interest, are
irrevocable as long as any Obligations are outstanding. Lender agrees not to
exercise the power granted in clause 11.2(b) prior to the occurrence of an Event
of Default and agrees not to exercise the power granted in clause 11.2(d) prior
to notification of Borrower of its intent to do so, but such limitations do not
limit the effectiveness of such power of attorney at any time. Any person
dealing with Lender shall be entitled to rely conclusively on any written or
oral statement of Lender that this power of attorney is in effect. Lender may
also use Borrower's stationery in connection with exercising its rights and
remedies and performing the Obligations of Borrower.
SECTION 11.3. EXPENSES SECURED All expenses, including attorney
fees, incurred by Lender in the exercise of its rights and remedies provided in
this Agreement, in the other Loan Documents or by law shall be payable by
Borrower to Lender, shall be part of the Obligations, and shall be secured by
the Collateral.
SECTION 11.4. EQUITABLE RELIEF Borrower recognizes that in the
event Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, no remedy of law will provide adequate relief
to Lender, and Borrower agrees that Lender shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
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SECTION 11.5. REMEDIES ARE CUMULATIVE No remedy set forth herein
is exclusive of any other available remedy or remedies, but each is cumulative
and in addition to every other right or remedy given under this Agreement or
under any other agreement between Lender and Borrower or now or hereafter
existing at law or in equity or by statute. Lender may pursue its rights and
remedies concurrently or in any sequence, and no exercise of one right or remedy
shall be deemed to be an election. No delay by Lender shall constitute a waiver,
election or acquiescence by it.
SECTION 12
INDEMNITY
SECTION 12.1. GENERAL INDEMNITY Borrower shall protect, indemnify
and defend and save harmless Lender and its directors, officers, agents and
employees from and against any and all loss, cost, liability (including
negligence, tort and strict liability), expense, damage, suits or demands
(including fees and disbursements of counsel) on account of any suit or
proceeding before any Governmental Authority which arises from the transactions
contemplated in this Agreement or otherwise arising in connection with or
relating to the Loan and any security therefor, unless such suit, claim or
damages are caused by the negligence or intentional malfeasance of Lender or its
directors, officer, agents or employees. Upon receiving knowledge of any suit,
claim or demand asserted by A third-party that Lender believes is covered by
this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower shall survive
the termination of this Agreement and the repayment of the Note.
SECTION 13
MISCELLANEOUS
SECTION 13.1. DELAY AND WAIVER No delay or omission to exercise
any right shall impair any such right or be a waiver thereof, but any such right
may be exercised from time to time and as often as may be deemed expedient. A
waiver on one occasion shall be limited to that particular occasion.
SECTION 13.2. COMPLETE AGREEMENT This Agreement and the Schedules
are the complete agreement of the parties hereto and supersede all previous
understandings relating to the subject matter hereof. This Agreement may be
amended only by an instrument in writing that explicitly states that it amends
this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
SECTION 13.3. SEVERABILITY; HEADINGS If any part of this
Agreement or the application thereof to any Person or circumstance is held
invalid, the remainder of this Agreement shall not be affected thereby. The
section headings herein are included for convenience only and shall not be
deemed to be a part of this Agreement.
SECTION 13.4. BINDING EFFECT This Agreement shall be binding upon
and inure to the benefit of the respective legal representatives, successors and
assigns of the parties hereto; however, Borrower may not assign any of its
rights or delegate any of its Obligations hereunder. Lender (and any subsequent
assignee) may transfer and assign this Agreement and deliver the Collateral to
the assignee, who shall thereupon have all of the rights of Lender; and Lender
(or such subsequent assignee who in turn assigns as aforesaid) shall then be
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
SECTION 13.5. NOTICES Any notices under or pursuant to this
Agreement shall be deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when
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delivered by courier or when transmitted by telex, telecopy, or similar
electronic medium to the following addresses:
To Borrower: Renex Corporation
2222 Ponce de Leon Blvd., Suite 300
Coral Gables, FL 33134
Attention: Orestes Lugo, Chief
Financial Officer
Telephone: (305) 448-2044;
Telecopier: (305) 448-1154
To Lender: DVI Business Credit Corporation
4041 MacArthur Blvd., Suite 401
Newport Beach, CA 92660
Attention: Cynthia J. Cohn, Executive
Vice President
Telephone: (714) 474-6100;
Telecopier: (714) 474-6199
Copies to: DVI Business Credit Corporation
500 Hyde Park
Doylestown, PA 18901
Attention: Melvin C. Breaux, Esquire
General Counsel
Telephone: (215) 230-2931;
Telecopier: (215) 230-3537
Either party may change such address by sending notice of the
change to the other party; such change of address shall be effective only upon
actual receipt of the notice by the other party.
SECTION 13.6. GOVERNING LAW ALL ACTS AND TRANSACTIONS HEREUNDER
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED,
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA, WITHOUT
GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES.
SECTION 13.7. WAIVER OF TRIAL BY JURY LENDER AND BORROWER HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR THE RELATIONSHIP BETWEEN LENDER AND BORROWER.
SECTION 13.8. SUBMISSION TO JURISDICTION. (a) BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY CALIFORNIA OR FEDERAL COURT
SITTING IN ORANGE COUNTY, CALIFORNIA, OVER ANY ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT. BORROWER HEREBY AGREES THAT SERVICE OF COPIES
OF SUMMONS AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY
ACTION OR PROCEEDING ARISING HEREUNDER MAY BE MADE BY MAILING OR DELIVERING A
COPY OF SUCH PROCESS BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
BORROWER AT ITS ADDRESS SET FORTH AT THE BEGINNING OF THIS AGREEMENT.
(b) NOTHING IN THIS PARAGRAPH 13.8 SHALL AFFECT THE RIGHT OF
LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE
RIGHT OF LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ANY OF ITS
PROPERTIES IN THE COURTS OF OTHER JURISDICTIONS TO THE EXTENT OTHERWISE
PERMITTED BY LAW.
(c) TO THE EXTENT THAT BORROWER HAS OR HEREAFTER MAY ACQUIRE (i)
ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF CALIFORNIA OR ANY FEDERAL COURT
SITTING IN ORANGE COUNTY, CALIFORNIA OR FROM ANY LEGAL PROCESS OUT OF ANY SUCH
COURT (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY,
- 19 -
<PAGE> 20
OR (ii) ANY OBJECTION TO THE LAYING OF THE VENUE OR OF AN INCONVENIENT FORUM OF
ANY SUIT, ACTION OR PROCEEDING, IF BROUGHT IN CALIFORNIA OR FEDERAL COURT
SITTING IN ORANGE COUNTY, CALIFORNIA UNDER PROCESS SERVED IN ACCORDANCE WITH
SUBPARAGRAPH (a) ABOVE, BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY OR
OBJECTION IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE LOANS.
IN WITNESS WHEREOF, Borrower and Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
LENDER:
DVI BUSINESS CREDIT CORPORATION
By: /s/ Cynthia J. Cohn
------------------------------------------
Print Name: Cynthia J. Cohn
----------------------------------
Title: Executive Vice President
---------------------------------------
BORROWER:
RENEX DIALYSIS CLINIC OF MIAMI BEACH,
INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
RENEX DIALYSIS HOMECARE OF TAMPA, INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
RENEX DIALYSIS CLINIC OF PITTSBURGH,
INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
RENEX DIALYSIS CLINIC OF AMESBURY, INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
BORROWER:
RENEX CORPORATION
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
RENEX DIALYSIS CLINIC OF TAMPA, INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
RENEX DIALYSIS CLINIC OF PHILADELPHIA,
INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
RENEX DIALYSIS HOMECARE OF GREATER
PITTSBURGH, INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
RENEX DIALYSIS CLINIC OF CREVE COUER,
INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
- 20 -
<PAGE> 21
RENEX DIALYSIS HOMECARE OF GREATER
ST. LOUIS, INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
RENEX DIALYSIS CLINIC OF BRIDGETON, INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
RENEX DIALYSIS CLINIC OF UNIVERSITY
CITY, INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
RENEX DIALYSIS FACILITIES, INC.
By: /s/ James P. Shea
------------------------------------------
Print Name: James P. Shea
----------------------------------
Title: President
---------------------------------------
- 21 -
<PAGE> 1
Exhibit 10.4
RENEX CORP.
DIRECTORS' STOCK OPTION PLAN
ARTICLE I
PURPOSE
The purpose of the RENEX CORP. Directors' Stock Option Plan (the
"Plan") is to secure for RENEX CORP. and its stockholders the benefits arising
from stock ownership by its Directors. The Plan will provide a means whereby
eligible Directors may purchase shares of the common stock, $.001 par value, of
RENEX CORP. pursuant to options granted in accordance with the Plan.
ARTICLE II
DEFINITIONS
The following capitalized terms used in the Plan shall have the
respective meanings set forth in this Article:
2.1 "Annual Grant Date" shall mean the anniversary date of the Initial
Grant Date of each calendar year after 1994 during the term of the Plan or the
nearest preceding business day if such anniversary date falls on a weekend or
holiday.
2.2 "Board" shall mean the Board of Directors of RENEX CORP.
2.3 "Chairman" shall mean the duly appointed Chairman of any standing
Committee of the Board.
2.4 "Change of Control" shall mean the occurrence of any of the
following acts:
(a) The acquisition, other than (i) from the Company directly or
(ii) by any shareholder who at the time of Board adoption of the Plan owns in
excess of 10% of the outstanding Common Stock, by any person, entity or group,
within the meaning of ss.13(d) or 14(d) of the Exchange Act, of beneficial
ownership of twenty-five (25%) percent or more of the outstanding Common Stock;
(b) If the individuals who serve on the Board as of the date of
stockholder approval of the Plan, no longer constitute a majority of the members
of the Board; provided, however, any person who becomes a director subsequent to
the date of the stockholder approval of the Plan, who was elected to fill a
vacancy by a majority of the individuals then serving on the Board, shall be
considered as if a member prior to stockholder approval of the Plan;
(c) Approval by a majority of the voting stock of the Company of a
merger, reorganization or consolidation whereby the stockholders of the Company
immediately prior to such approval do not, immediately after consummation of
such reorganization merger or consolidation own more than 50% of the voting
stock of the surviving entity; or
(d) A liquidation or dissolution of the Company, or the sale of
all or substantially all of the Company's assets.
2.5 "Committee" shall mean a duly appointed standing committee of the
Board.
2.6 "Common Stock" shall mean the common stock, $.001 par value of the
Company.
2.7 "Company" shall mean RENEX CORP. and any subsidiaries.
2.8 "Director" shall mean any person who is a member of the Board of
Directors of the Company.
<PAGE> 2
2.9 "Eligible Director" shall be any Director who is not a full or
part-time employee of the Company.
2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended and the rules and regulations promulgated thereunder.
2.11 "Exercise Price" shall mean the price per share at which an Option
may be exercised.
2.12 "Fair Market Value" shall mean the closing price of a share of
Common Stock on the principal securities exchange on which such Common Stock is
traded on the last preceding business day prior to the date as to which Fair
Market Value is being determined, or on the next preceding business day on which
such Common Stock is traded, if no shares of Common Stock were traded on such
date. If the Common Stock is not traded on a securities exchange, Fair Market
Value shall be the closing sales price of the Common Stock as reported on the
NASDAQ-National Market System for the last preceding business day prior to the
date on which Fair Market Value is to be determined or on the next preceding
business day if the Common Stock was not traded on such date. If the Common
Stock is not quoted on the NASDAQ-National Market System, Fair Market Value
shall be the average of the high bid and low asked prices of the Common Stock in
the over-the-counter market on the last preceding business day prior to the day
as of which Fair Market Value is being determined, or on the next preceding day
on which such high bid and low asked prices were recorded. If the Common Stock
is not publicly traded, Fair Market Value shall be determined by the Board, in
good faith, but only during any period in which no equity security of the
Company's is registered pursuant to ss. 12 of the Exchange Act. In no case shall
Fair Market Value be less than the par value per share of the Common Stock. Fair
market value shall be determined without regard to any restriction other than a
restriction which, by its terms, will never lapse.
2.13 "Grant Date" shall mean the Initial Grant Date or the Annual Grant
Date as appropriate.
2.14 "Initial Grant Date" shall mean with respect to each Eligible
Director, the latter of (i) the date such Eligible Director is first elected as
a member of the Board, and (ii) the date on which the plan is approved by the
Company's Shareholders.
2.15 "Option" shall mean an Option, including a Reload Option, to
purchase shares of Common Stock granted pursuant to the Plan.
2.16 "Option Agreement" shall mean the written agreement described in
Article VI herein.
2.17 "Permanent Disability" shall mean the condition of an Eligible
Director who is unable to participate as a member of the Board by reason of any
medically determined physical or mental impairment which can be expected to
result in death or which can be expected to last for a continuous period of not
less than twelve (12) months.
2.18 "Purchase Price" shall be the Exercise Price multiplied by the
number of whole shares of Common Stock with respect to which an Option may be
exercised.
2.19 "Plan" shall mean this RENEX CORP. Directors' Stock Option Plan.
2.20 "Reload Option" means an option granted to an Eligible Director
equal to the number of shares of Common Stock delivered by the Eligible Director
to pay for the exercise of an option as more fully described in Article XIII -
RELOAD OPTIONS.
ARTICLE III
ADMINISTRATION
3.1 General. This Plan shall be administered by the Board in accordance
with the express provisions of this Plan, subject to the restrictions contained
in ss.16 of the Exchange Act.
- 2 -
<PAGE> 3
3.2 Powers of the Board. The Board shall have full and complete
authority to adopt such rules and regulations and to make all such other
determinations not inconsistent with the Plan or ss.16 of the Exchange Act (once
the Common Stock is registered pursuant to ss.12 of the Exchange Act), as may be
necessary for the administration of the Plan.
3.3 Section 16 Compliance. It is the intention of the Company that the
Plan, and the administration of the Plan (once the Company's Common Stock is
registered pursuant to ss.12 of the Exchange Act) comply in all respects with
ss.16 of the Exchange Act and the rules and regulations promulgated thereunder.
If any Plan provision, or any aspect of the administration of the Plan, is found
not to be in compliance with ss.16 of the Exchange Act, the provision or
administration shall be deemed null and void, and in all events the Plan shall
be construed in favor of its meeting the requirements of Rule 16b-3 promulgated
under the Exchange Act.
ARTICLE IV
SHARES SUBJECT TO PLAN
Subject to adjustment in accordance with Articles IX and XII an
aggregate of 500,000 shares of Common Stock are reserved for issuance under the
Plan. Shares of Common Stock reserved under this Plan may be either authorized,
but unissued shares of Common Stock or reacquired shares of Common Stock. If an
Option, or any portion thereof, shall expire or terminate for any reason without
having been exercised in full, the unpurchased shares of Common Stock covered by
such Option shall be available for future grants of Options. Any shares of
Common Stock used to pay the purchase price of any options in connection with
Article XIII shall be added to the shares of Common Stock reserved for issuance
under the Plan.
ARTICLE V
NON-DISCRETIONARY GRANTS
5.1 Initial Grants. On the Initial Grant Date, each Eligible Director
shall receive the grant of an option to purchase 2,500 shares of Common Stock.
5.2 Annual Grants. On each Annual Grant Date, each Eligible Director
shall receive the grant of an Option to purchase 2,500 shares of Common Stock.
5.3 Committee Service. Each Eligible Director who serves on a
Committee, other than the Executive Committee, shall receive the grant of
additional Options to purchase 1,000 shares of Common Stock on the Initial Grant
Date and each Annual Grant Date, for each Committee he serves on as of the Grant
date. Service on the Executive Committee shall entitle an Eligible Director to
receive Options to purchase 2,500 shares of Common Stock on the initial Grant
Date and each Annual Grant Date. The grant of Options pursuant to this Section
5.3 shall be in addition to the grant of Options contained in Sections 5.1 and
5.2, respectively.
5.4 Chairman of Committee. Each Eligible Director who serves as a
Chairman of a Committee as of a Grant Date, other than the Chairman of the
Executive Committee, shall receive an additional grant of Options to purchase
1,000 shares of Common Stock for each Chairmanship, on the Initial Grant Date
and each Annual Grant Date. Service as Chairman of the Executive Committee shall
entitle an Eligible Director to receive additional Options to purchase 2,500
shares of Common Stock on the Initial Grant Date and each Annual Grant Date. The
grant of Options pursuant to this Section 5.4 shall be in addition to the grant
of Options contained in Sections 5.1, 5.2 and 5.3, respectively.
- 3 -
<PAGE> 4
ARTICLE VI
TERMS OF OPTION
Each Option shall be evidenced by a written Option Agreement executed
by the Company and the Eligible Director which shall specify the Grant Date, the
number of shares of Common Stock subject to the Option, the Exercise Price and
shall also include or incorporate by reference the substance of all of the
following provisions and such other provisions consistent with this Plan as the
Board may determine:
6.1 Term. The term of the Option shall be five (5) years from the Grant
Date of each Option, subject to earlier termination in accordance with Articles
VI and X of the Plan.
6.2 Restriction on Exercise. No Option shall be exercisable until six
(6) months after the Grant Date, except in the case of the Eligible Director's
death or permanent disability, upon which events the Option will become
immediately exercisable. Thereafter, an Option, or any portion thereof, may be
exercised until the earlier of the expiration of the option's term or
termination of the Option in accordance with this Article VI.
6.3 Exercise Price. The Exercise Price for each share of Common Stock
subject to an Option shall be the Fair Market Value of the Common Stock as
determined in Section 2.12 herein.
6.4 Manner of Exercise. An option shall be exercised in accordance with
its terms, by delivery of a written notice of exercise to the Company and
payment of the full purchase price of the shares of Common Stock being
purchased. An Eligible Director may exercise an Option with respect to all or
less than all of the shares of Common Stock for which the Option may then be
exercised, but an eligible Director must exercise the Option in full shares of
Common Stock.
6.5 Payment. The Purchase Price pursuant to an Option or portion
thereof, may be paid:
(a) in United States dollars, in cash or by check, bank draft or
money order payable to the Company; or
(b) by delivery of shares of Common Stock owned by an Eligible
Director which has an aggregate Fair Market Value on the date of exercise equal
to the purchase price, subject to the provisions of ss.16(b) of the Exchange Act
and the rules and regulations promulgated thereunder; or
(c) to the extent authorized by the Board, or if specified in the
Option being exercised, by a promissory note from Optionee to the Company, upon
such terms and conditions determined by the Board and secured by the Common
Stock issuable upon exercise of the Option; or
(d) by any combination of the above methods of payment.
6.6 Transferability. No Option shall be transferable otherwise than by
will or the laws of descent and distribution, and an Option shall be exercisable
during the Eligible Director's lifetime only by the Eligible Director, his
guardian or legal representative.
6.7 Termination of Membership on the Board. If an Eligible Director's
membership on the Board terminates for any reason, an Option held on the date of
termination may be exercised in whole or in part at any time within one (1) year
after the date of such termination (but in no event after the actual expiration
of the term of the Option) and shall thereafter terminate.
ARTICLE VII
GOVERNMENT AND OTHER REGULATIONS
7.1 Delivery of Common Stock. The obligation of the Company to issue or
transfer and deliver shares of Common Stock for exercised Options under the Plan
shall be subject to all applicable laws, regulations, rules, orders and
approvals which shall then be in effect.
- 4 -
<PAGE> 5
7.2 Holding of Stock After Exercise of Option. The Option Agreement
shall provide that the Eligible Director, by accepting such option, represents
and agrees, for the Eligible Director and his permitted transferees that none of
the shares of Common Stock purchased upon exercise of the Option shall be
acquired with a view to any sale, transfer or distribution of the Common Stock
in violation of the Securities Act of 1933, as amended (the "Act") and the
person exercising an Option shall furnish evidence satisfactory to that Company
to that effect, including an indemnification of the Company in the event of any
violation of the Act by such person.
ARTICLE VIII
WITHHOLDING TAX
The Company may, in its discretion, require an Eligible Director to pay
to the Company, at the time of exercise of an Option an amount that the Company
deems necessary to satisfy its obligations, if any, to withhold federal, state
or local income or other taxes (which for purposes of this Article VIII includes
an Eligible Director's FICA obligation) incurred by reason of such exercise.
When the exercise of an Option does not give rise to the obligation to withhold
federal income taxes on the date of exercise, the Company may, in its
discretion, require an Eligible Director to place shares of Common Stock
received upon exercise of the Option in escrow for the benefit of the Company
until such time as federal income tax withholding is required on amounts
included in the Eligible Director's gross income as a result of the exercise of
an Option. At such time, the Company, in its discretion, may require an Eligible
Director to pay to the Company an amount that the Company deems necessary to
satisfy its obligation to withhold federal, state or local taxes incurred by
reason of the exercise of the Option, in which case the shares of Common Stock
will be released from escrow upon such payment by an Eligible Director.
ARTICLE IX
ADJUSTMENTS
9.1 Proportionate Adjustments. If the outstanding shares of Common
Stock are increased, decreased, changed into or exchanged into a different
number or kind of shares of Common Stock or securities of the Company through
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, an appropriate and
proportionate adjustment shall be made to the maximum number and kind of shares
of Common Stock as to which Options may be granted under this Plan. A
corresponding adjustment changing the number or kind of shares of Common Stock
allocated to unexercised Options or portions thereof, which shall have been
granted prior to any such change, shall likewise be made. Any such adjustment in
the outstanding Options shall be made without change in the Purchase Price
applicable to the unexercised portion of the Option with a corresponding
adjustment in the Exercise Price of the shares of Common Stock covered by the
Option. Notwithstanding the foregoing, there shall be no adjustment for the
issuance of shares of Common Stock on conversion of notes, preferred stock or
exercise of warrants or shares of Common Stock issued by the Board for such
consideration as the Board deems appropriate.
9.2 Dissolution or Liquidation. Upon the dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation of the Company
with one or more corporations as a result of which the Company is not the
surviving corporation, or upon a sale of substantially all of the property or
more than 50% of the then outstanding shares of Common Stock of the Company to
another corporation, the Company shall give to each Eligible Director at the
time of adoption of the plan for liquidation, dissolution, merger or sale either
(1) a reasonable time thereafter within which to exercise the Option prior to
the effective date of such liquidation or dissolution, merger or sale, or (2)
the right to exercise the Option as to an equivalent number of shares of Common
Stock of the corporation succeeding the Company or acquiring its business by
reason of such liquidation, dissolution, merger, consolidation or
reorganization.
- 5 -
<PAGE> 6
ARTICLE X
AMENDMENT OR TERMINATION OF PLAN
10.1 Amendments. The Board may at any time amend or revise the terms of
the Plan, provided no such amendment or revision shall, unless appropriate
stockholder approval of such amendment or revision is obtained:
(a) materially increase the maximum number of shares of Common
Stock which may be sold pursuant to Options granted under the Plan;
(b) materially increase the benefits accruing to participants under
the Plan;
(c) materially modify the requirements as to eligibility for
participants in the Plan.
10.2 Termination. The Board may suspend or terminate this Plan at any
time. This Plan, unless sooner terminated, shall terminate on the tenth (10th)
anniversary of its adoption by the Board. No Option may be granted under this
Plan, while this Plan is suspended or after it is terminated.
10.3 Holder of Consent. No amendment, suspension or termination of the
Plan shall, without the consent of the holder of Options, alter or impair any
rights or obligations under any Option theretofore granted under the Plan.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Privilege of Stock Ownership. No Eligible Director entitled to
exercise any Option granted under the Plan shall have any of the rights or
privileges of a stockholder of the Company with respect to any shares of Common
Stock issuable upon exercise of an Option until certificates representing the
shares of Common Stock shall have been issued and delivered.
11.2 Plan Expenses. Any expenses incurred in the administration of the
Plan shall be borne by the Company.
11.3 Use of Proceeds. Payments received from an Eligible Director upon
the exercise of Options shall be used for general corporate purposes of the
Company.
11.4 Governing Law. The Plan has been adopted under the laws of the
State of Delaware. The Plan and all Options which may be granted hereunder and
all matters related thereto, shall be governed by and construed and enforceable
in accordance with the laws of the State of Delaware as it then exists.
11.5 Gender and Number. Except as otherwise indicated by the context,
reference to the masculine gender shall include the feminine gender, the plural
shall include the singular and the singular shall include the plural.
11.6 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
- 6 -
<PAGE> 7
ARTICLE XII
STOCKHOLDER APPROVAL AND EFFECTIVE DATE
The Plan shall be submitted for approval by the holders of the
outstanding voting stock of the Company within twelve (12) months from the date
the Plan is adopted by the Board; provided, however, that if such vote was not
solicited substantially in accordance with the rules and regulations, if any, in
effect under ss.14(a) of the Exchange Act, at the time of such vote, the Company
will furnish in writing to the holders of record of the securities entitled to
vote for the Plan substantially the same information concerning the Plan which
would be required by the rules and regulations in effect under ss.14(a) of the
Exchange Act, as if proxies to be voted with respect to the approval or
disapproval of the Plan were then being solicited, on or prior to the date of
the first annual meeting of security holders held subsequent to the later of (i)
the first registration of an equity security under ss.12 of the Exchange Act; or
(ii) the acquisition of an equity security for which an exemption is claimed.
The Plan shall be deemed approved by the holders of the outstanding voting stock
of the Company by the affirmative vote of the holders of a majority of the
voting shares of the Company represented and voting at a duly held meeting at
which a quorum is present. Any Options granted under the Plan prior to obtaining
such stockholder approval shall be granted under the conditions that the Options
so granted (i) shall not be exercisable prior to such approval, and (ii) shall
become null and void if such stockholder approval is not obtained.
ARTICLE XIII
RELOAD OPTIONS
13.1 Reload Option. Whenever the Optionee holding any Option
outstanding under the Plan (including Reload Options granted under this Article
XIII) exercises the Option and makes payment of the Exercise Price pursuant to
Section 6.5(b) by tendering Common Stock previously held by the Optionee, then
the Company shall automatically grant a Reload Option for the number of shares
of Common Stock that is equal to the number of shares tendered by the Optionee
on payment of the Exercise Price of the Option being exercised.
13.2 Reload Option Exercise Price. The Reload Option Exercise Price per
share shall be an amount equal to the Fair Market Value per share of the
Company's Common Stock determined as of the date of receipt by the Company of
the notice by Optionee to exercise the option.
13.3 Term of Reload Option. The exercise period of the Reload
Option shall expire, and the Reload Option shall no longer be exercisable, on
the later of (i) expiration date of the original surrendered Option, or (ii) one
year from the date of grant.
13.4 Restriction on Exercise. Any Reload Option granted under this
Article XIII shall vest immediately, but shall not be exercisable until the end
of six months after the date of its issuance, except in the case of the death or
permanent disability of the Optionee, upon which event the Reload Option will
become immediately exercisable.
13.5 Other Terms of Reload Options. All other terms of the Reload
Options granted hereunder shall be identical to the terms and conditions of the
original Option, the exercise of which gives rise to the grant of the Reload
Option.
- 7 -
<PAGE> 1
Exhibit 10.5
RENEX CORP.
1994 EMPLOYEE STOCK OPTION PLAN
ARTICLE I
PURPOSE
The purpose of the 1994 Employee Stock Option Plan (the "Plan") of
RENEX CORP., a Florida corporation, is to secure for the Company and its
stockholders the benefits arising from stock ownership by employees of the
Company or its subsidiaries. The Plan will provide a means whereby (i) such
employees may purchase shares of the Common Stock, $.001 par value (the "Common
Stock"), of the Company pursuant to options which will qualify as "incentive
stock options" under Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code"), and (ii) such employees may purchase shares of the Common
Stock pursuant to "non-statutory" stock options.
ARTICLE II
DEFINITIONS
The following capitalized terms used in the Plan shall have the
respective meanings set forth in this Article:
2.1 "Board" shall mean the Board of Directors of RENEX CORP.
2.2 "Change of Control" shall mean the occurrence of any of the
following acts:
(a) The acquisition (other than from the Company directly) by any
person, entity or group within the meaning of ss. 13(d) or 14(d) of the Exchange
Act, of beneficial ownership of twenty-five (25%) percent or more of the
outstanding Common Stock;
(b) If the individuals who serve on the Board as of the date of
stockholder approval of the Plan, no longer constitute a majority of the
members of the Board; provided, however, any person who becomes a director
subsequent to the date of the stockholder approval of the Plan, who was elected
to fill a vacancy by a majority of the individuals then serving on the Board,
shall be considered as if a member prior to stockholder approval of the Plan;
(c) Approval by a majority of the voting stock of the Company of
a merger, reorganization or consolidation whereby the stockholders of the
Company immediately prior to such approval do not, immediately after
consummation of such reorganization merger or consolidation own more than 50%
of the voting stock of the surviving entity; or
(d) A liquidation or dissolution of the Company, or the sale of
all or substantially all of the Company's assets.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.4 "Committee" shall mean the committee appointed by the Board in
accordance with Paragraph 3 of the Plan.
2.5 "Common Stock" shall mean the common stock, $.001 par value, of the
Company.
2.6 "Company" shall mean RENEX CORP. and each of its subsidiaries, if
any.
2.7 "Control Person" shall mean any person who, as of the date of grant
of an option owns (within the meaning of Section 422A(b)(6) of the Code) stock
of the Company possessing more than ten (10%) percent of the total combined
voting power or value of all classes of stock of the Company or of any
subsidiary.
2.8 "Disinterested Director" shall mean a director who is not, during
the one year prior to service on the Committee, granted or awarded equity
securities pursuant to the Plan or any other plan of the Company, except as
would otherwise be permitted, pursuant to Rule 16b-3, promulgated pursuant to
the Exchange Act, for Disinterested Directors.
2.9 "Employee" shall mean any person (who may be an officer or
director) employed by the Company (within the meaning of Section 3401(c) of the
Code and the regulations promulgated thereunder), or any successor corporation
by merger or consolidation.
2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
2.11 "Exercise Price" shall mean the price per share of Common Stock as
determined by the "Committee or the Board at which an Option may be exercised.
<PAGE> 2
2.12 "Fair Market Value" shall mean the closing price of a share of
Common Stock on the principal securities exchange on which such Common Stock is
traded on the last preceding business day prior to the date as to which Fair
Market Value is being determined, or on the next preceding business day on which
such Common Stock is traded, if no shares of Common Stock were traded on such
date. If the Common Stock is not traded on a securities exchange, Fair Market
Value shall be the closing sales price of the Common Stock as reported on the
NASDAQ-National Market System for the last preceding business day prior to the
date on which Fair Market Value is to be determined or on the next preceding
business day if the Common Stock was not traded on such date. If the Common
Stock is not quoted on the NASDAQ-National Market System, Fair Market Value
shall be the average of the high bid and low asked prices of the Common Stock in
the over-the-counter market on the last preceding business day prior to the day
as of which Fair Market Value is being determined, or on the next preceding day
on which such high bid and low asked prices were recorded. If the Common Stock
is not publicly traded, Fair Market Value shall be determined by the Committee,
or the Board, in good faith. In no case shall Fair Market Value be less than the
par value per share of the Common Stock. Fair market value shall be determined
without regard to any restriction other than a restriction which, by its terms,
will never lapse.
2.13 "Incentive Stock Option" or "ISO" shall mean an Option granted
pursuant to the Plan intended to qualify under Section 422A of the Code.
2.14 "Non-Statutory Stock Option" or "NSO" shall mean an Option which
is not qualified as an ISO under Section 422A of the Code.
2.15 "Option" shall mean an Option, including Reload Options, to
purchase Common Stock as granted pursuant to the Plan.
2.16 "Optionee" shall mean any person whom the Committee or the Board,
as the case may be, has granted an Option.
2.17 "Permanent Disability" shall mean the condition of an Employee who
is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than twelve (12) months.
2.18 "Plan" shall mean this RENEX CORP. 1994 Employee Stock Option
Plan.
2.19 "Purchase Price" shall mean the Exercise Price multiplied by the
number of whole shares of Common Stock with respect to which an Option can be
exercised.
2.20 "Reload Option" means an Option granted to an Employee equal to
the number of shares of Common Stock tendered by the Employee to pay for the
Exercise Price of an Option as more fully described in Article XVI Reload
Options.
2.21 "Subsidiary" shall mean one or more subsidiaries of the Company as
defined in Section 424 of the Code.
ARTICLE III
ADMINISTRATION
3.1 Committee. The Plan shall be administered by the Board, or by a
Committee consisting of two (2) or more Disinterested Directors appointed by the
Board. The Board from time to time may remove members from, or add members to,
the Committee. Vacancies in the Committee, however caused, shall be filled by
the Board.
3.2 Activities of Committee. Any action of the Board or the Committee
with respect to administration of the Plan shall be taken by a majority vote or
written consent of its members. If a Committee is appointed by the Board, the
Committee shall hold meetings at such times and places as it may determine.
3.3 Construction of Plan. Subject to the provisions of the Plan and
such policies and criteria adopted by the Board, the Board or Committee, as the
case may be, shall have authority: (a) to construe and interpret the Plan, (b)
to define the terms used therein, (c) to prescribe, amend and rescind rules and
regulations relating to the Plan, (d) to determine the individuals to whom and
the time or times at which Options shall be granted, (e) to determine whether
such options will be ISO or NSO, (f) to determine the number of shares subject
to each Option, (g) to determine the Exercise Price, (h) to determine the number
of installments, advertising requirements, if any, in which each Option may be
exercised, (i) to determine the duration of each Option, (j) to approve and
determine the duration of leaves of absence which may be granted to Employees
without constituting a termination of their Employment for the purposes of the
Plan, and (k) to make all other determinations necessary or advisable for the
administration of the Plan.
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<PAGE> 3
The Board, or the Committee, as the case may be, shall have the sole
discretion to make all other determinations which may be necessary or advisable
for the administration of the Plan, including without limitation, the discretion
to construe and interpret the Plan and establish, amend and revoke rules and
regulations for the administration of the Plan. To the extent permitted by law,
and Rule 16b-3 promulgated under the Exchange Act, the Board or the Committee
may delegate its authority as identified hereunder.
3.4 Interpretations Under Plan. All determinations and interpretations
made by the Board or Committee shall be binding and conclusive on all Optionees
and their legal representatives and beneficiaries.
3.5 Section 16 Compliance. It is the intention of the Company that the
Plan, and the administration of the Plan, comply in all respects with ss. 16 of
the Exchange Act and the rules and regulations promulgated thereunder. If any
Plan provision, or any aspect of the administration of the Plan, is found not to
be in compliance with ss. 16 of the Exchange Act, the provision or
administration shall be deemed null and void, and in all events the Plan shall
be construed in favor of its meeting the requirements of Rule 16b-3 promulgated
under the Exchange Act.
ARTICLE IV
SHARES SUBJECT TO PLAN
The total number of shares of Common Stock available for grants under
the Plan shall be 2,000,000 subject to adjustment in accordance with Articles
XII and XVI of the Plan. These shares may be either authorized, but unissued, or
reacquired shares of Common Stock. If an Option or portion thereof shall expire
or terminate for any reason without having been exercised in full, the
unpurchased shares covered by such Option shall be available for future grants
of Option. For purposes of determining the number of shares that have been
issued or are available for issuance under the Plan, any shares received in
connection with the issuance of a Reload Option shall be added to the number of
shares available for grants under the Plan.
ARTICLE V
ELIGIBILITY
5.1 Incentive Stock Options. Incentive Stock Options shall only be
granted to Employees (including individuals who may be officers and directors of
the Company) for services connected with an Employee's employment by the Company
or any of the Company's subsidiaries.
5.2 Non-Statutory Stock Option. Non-Statutory Stock Options may be
granted to Employees who have performed, or reasonably may be expected to
perform, services of special importance to the management, operation or
development of the business of the Company or any subsidiary as the Committee or
the Board, as the case may be, shall determine, but subject to the terms and
conditions set forth in the Plan.
5.3 Board Members. Options may be granted to members of the Board if
such individuals are Employees, provided such Optionee is not a member of the
Committee.
ARTICLE VI
TERMS OF OPTIONS
6.1 Option Agreements. Each Option shall be evidenced by a written
agreement executed by the Company and the Optionee. Such Options shall be
subject to the applicable provisions of the Plan, and shall contain such
provisions as are required by the Plan and any other provisions the Board or
Committee may prescribe. All agreements evidencing Options shall among other
things specify the total number of shares of Common Stock subject to each grant,
the Exercise Price, the dates after which Options may be exercised, the Option
term and vesting requirements. Those Options that comply with the requirement of
an Incentive Stock Option shall be designated as such and all other Options
shall be designated as Non-Statutory Stock Options.
6.2 Exercise Price. The Exercise Price of the shares of Common Stock
covered by each Option shall be determined by the Board or the Committee, as the
case may be, but in the case of Incentive Stock Options shall not be less than
one hundred (100%) percent of the Fair Market Value of such Common Stock at the
time of grant. The Board, or the Committee, as the case may be, shall have the
authority, subject to the requirements of the Code and the Exchange Act, to
reduce the exercise price at any time after the grant in its sole discretion.
6.3 Duration of Options. Each Option and all rights associated
therewith shall expire on such date as the Board or Committee, as the case may
be, may determine, but in no event later than ten (10) years from the date on
which the Option is granted, and shall be subject to earlier termination as
provided herein. Notwithstanding any determination by the Board or the Committee
regarding the exercise periods of any installments of Options, all such
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<PAGE> 4
Options shall immediately become exercisable upon a Change of Control of the
Company, subject in all cases to the provision of Paragraph 6.7, which shall
prevail.
6.4 Limitations on Grants to Control Persons. No Incentive Stock Option
may be granted to an Employee, if at the time of the grant, the Employee is a
Control Person. However, a Control Person shall be eligible to receive Options
if:
(a) the exercise price of any Incentive Stock Option is at
least 110% of the Fair Market Value and the Incentive Stock Option by its terms
is not exercisable after the expiration of five (5) years from the date such
Option was granted; and
(b) The exercise price of an NSO is at least 85% of the Fair
Market Value.
6.5 Manner of Exercise and Payment. An Option, or any portion thereof,
shall be exercised by delivery of a written notice of exercise to the Company
and payment of the full price of the shares being purchased pursuant to the
Option. An Optionee may exercise an Option with respect to less than the full
number of shares for which the Option may then be exercised, but an Optionee
must exercise the Option in full shares of Common Stock. The Exercise Price of
Common Stock purchased pursuant to an Option, or portion thereof, may be paid:
(a) in United States dollars, in cash or by check, bank draft or
money order payable to the order of the Company;
(b) through the delivery of shares of Common Stock with an
aggregate Fair Market Value on the date of exercise equal to the Exercise
Price;
(c) to the extent authorized by the Committee or the Board, by
delivery of irrevocable instructions to a financial institution to deliver
promptly to the Company the portion of sale or loan proceeds sufficient to pay
the Exercise Price;
(d) to the extent authorized by the Board, or the Committee, as
the case may be, through the written election of the Optionee to have shares
of Common Stock withheld by the Company from the shares otherwise to be
received, with such withheld shares having an aggregate Fair Market Value on
the date of exercise equal to the Purchase Price;
(e) to the extent authorized by the Board, or the Committee, as
the case may be, or if specified in the Option being exercised, by a promissory
note made by the Optionee in favor of the Company, upon the terms and
conditions as determined by the Board or the Committee, and secured by the
Common Stock issuable upon exercise of the Option, or
(f) by any combination of the above methods of payment.
The Board, or Committee, shall determine acceptable methods for
tendering or withholding Common Stock as payment upon exercise of an Option and
may impose such limitations and prohibitions on the use of Common Stock to
exercise an Option as it deems appropriate, including, without limitation, any
limitation or prohibition designed to avoid certain accounting consequences
which may result from the use of Common Stock as payment upon exercise of an
Option.
6.6 Notification of Sales of Common Stock. Any Optionee who disposes of
shares of Common Stock acquired upon the exercise of an Incentive Stock Option
either (a) within two years after the date of the grant of the Incentive Stock
Option under which the Common Stock was acquired or (b) within one year after
the transfer of such shares to the Optionee, shall notify the Company of such
disposition and of the amount received upon such disposition.
6.7 Restriction on Exercise. No Option shall be exercisable until the
end of six months after the date of grant, except in the case of the Employee's
death or Permanent Disability, upon which event the Option will become
immediately exercisable.
ARTICLE VII
GOVERNMENT AND OTHER REGULATIONS
7.1 Delivery of Common Stock. The obligation of the Company to issue or
transfer and deliver shares for Options exercised under the Plan shall be
subject to all applicable laws, regulations, rules, orders and approvals which
shall then be in effect and required by governmental entities.
7.2 Holding of Stock After Exercise of Option. At the discretion of the
Board or Committee, any Option may provide that the Optionee, by accepting such
Option, represents and agrees, for the Optionee and his permitted
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<PAGE> 5
transferees (by will or the laws of descent and distribution), that none of the
Common Stock purchased upon exercise of the Option will be acquired with a view
to any sale, transfer or distribution of said Common Stock in violation of the
Securities Act of 1933 as amended (the "Act"), and the person entitled to
exercise the same shall furnish evidence satisfactory to the Company (including
a written and signed representation) to that effect in form and substance
satisfactory to the Company, including an indemnification of the Company in the
event of any violation of the Act by such person.
ARTICLE VIII
WITHHOLDING TAX
The Company may, in its discretion, require an Optionee to pay to the
Company at the time of exercise, an amount that the Company deems necessary to
satisfy its obligations to withhold Federal, state or local income or other
taxes (which for purposes of this Article includes an Optionees FICA
obligation), incurred by reason of such exercise. When the exercise of an Option
does not give rise to an obligation to withhold Federal income taxes on the date
of exercise, the Company may, in its discretion, require an Optionee to place
shares of Common Stock purchased under the Option in escrow for the benefit of
the Company until such time as Federal income tax withholding is required on
amounts included in the gross income of the Optionee as a result of the exercise
of an Option. At such time, the Company in its discretion may require an
Optionee to pay to the Company the amount that the Company deems necessary to
satisfy its obligation to withhold Federal, state or local taxes incurred by
reason of the exercise of the Option, in which case the shares of Common Stock
will be released from escrow upon such payment by Optionee.
ARTICLE IX
NON-TRANSFERABILITY
No Option granted under the Plan shall be transferable by the Optionee,
otherwise than by will or the laws of descent and distribution, or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act or the rules thereunder. Options shall
be exercisable during the Optionee's lifetime only by the Optionee, regardless
of any community property interest therein of the Optionee's spouse, or such
spouse's successors in interest. If the Optionee's spouse shall have acquired a
community property interest in such Option, the Optionee, or the Optionee's
permitted successors in interest, may exercise the Option on behalf of the
Optionee's spouse or such spouse's successors in interest.
ARTICLE X
TERMINATION OF EMPLOYMENT
10.1 Resignation of Employee. If an Optionee ceases to be employed by
the Company for any reason other than the Optionee's death or Permanent
Disability, the Optionee's Options shall immediately become void and of no
further force or effect; provided, however, that if such cessation of Employment
shall be due to the Optionee's voluntary resignation with the consent of the
Board, or the Committee, or to the Optionee's retirement under the provisions of
any pension or retirement plan of the Company or any Subsidiary then in effect,
such Option may be exercised to the extent exercisable on the date of such
cessation of Employment within three (3) months after the date the Optionee
ceases to be an Employee of the Company; provided, however that in no event
shall the exercise period extend beyond the term of the Option.
10.2 Leaves of Absence. For the purpose contained herein, the
employment relationship will be treated as continuing intact while the Optionee
is on military leave, approved sick leave or other bona fide leave of absence to
be approved in writing by the Board or Committee. However, no Option may be
exercised during any such leave of absence, except during the first three (3)
months thereof; provided, however that in no event shall the exercise period
extend beyond the term of the Option.
10.3 Termination by Reason of Death or Permanent Disability. If the
holder of an Option dies or suffers a Permanent Disability while the Optionee is
employed by the Company, the Optionee's Option shall expire one (1) year after
the date of such death or Permanent Disability; provided, however that in no
event shall the exercise period extend beyond the term of the Option. During
such period after death, such Option may, to the extent that it remains
unexercised (but exercisable by the Optionee according to such Option's term) on
the date of such death, be exercised by the person or persons to whom the
Optionee's rights under the Option shall pass by the Optionee's will or by the
laws of descent and distribution.
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<PAGE> 6
ARTICLE XI
LIMITATION ON GRANTS OF INCENTIVE STOCK OPTIONS
No one individual may be granted Incentive Stock Options under this
Plan or any other plan of the Company in any calendar year for Common Stock
having an aggregate Fair Market Value determined at the time the Option is
granted, in excess of $100,000.
ARTICLE XII
ADJUSTMENTS
12.1 Proportionate Adjustments. If the outstanding shares of Common
Stock are increased, decreased, changed into or exchanged for a different number
or kind of shares or securities of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of shares as to which Options may
be granted under this Plan. A corresponding adjustment changing the number of
kind or shares allocated to unexercised Options or portions thereof, which shall
have been granted prior to any such change, shall likewise be made. Any such
adjustment in the outstanding Options shall be made without change in the
aggregate Purchase Price applicable to the unexercised portion of the Option but
with a corresponding adjustment in the Exercise Price for the Common Stock
covered by the Option. Notwithstanding the foregoing, there shall be no
adjustment for the issuance of Common Stock upon conversion of notes, preferred
stock or exercise of warrants or Common Stock issued by the Board for such
consideration as the Board deems appropriate.
12.2 Dissolution or Liquidation. Upon the dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation of the Company
with one (1) or more corporations as a result of which the Company is not the
surviving corporation, or upon a sale of substantially all the property or more
than eighty (80%) percent of the then outstanding shares of Common Stock of the
Company to another corporation, the Board or Committee may provide in writing in
connection with such transaction for any or all of the following choices
(separately or in combinations): (i) for the Options theretofore granted to
become immediately exercisable; (ii) for the assumption by the successor
corporation of the Options theretofore granted or the substitution by such
corporation for such Options of new Options covering the stock of the successor
corporation, or a parent or subsidiary thereof, with appropriate adjustments as
to the number and kind of shares and prices; (iii) for the continuance of the
Plan by each successor corporation in which event the Plan and the Options
theretofore granted shall continue in the manner and under the terms so
provided; or (iv) for termination of the Plan and any Option theretofore granted
hereunder.
12.3 Board Determination. Adjustments under this Article 12 shall be
made by the Board or Committee, whose determination as to what adjustments shall
be made, and the extent thereof, shall be final, binding and conclusive. No
fractional shares of Common Stock shall be issued under the Plan on any such
adjustment.
ARTICLE XIII
AMENDMENT AND TERMINATION OF PLAN
13.1 Amendments. The Board or the Committee may at any time suspend or
terminate the Plan. The Board or the Committee may also at any time amend or
revise the terms of the Plan, provided that no such amendment or revision shall,
unless appropriate stockholder approval of such amendment or revision is
obtained:
(a) materially increase the benefits accruing to participants
under the Plan;
(b) materially increase the number of securities which may be
issued under Plan; or
(c) materially modify the requirements as to eligibility for
participation in the Plan.
13.2 Optionee Consent. No amendment, suspension or termination of the
Plan shall, without the consent of the Optionee, alter or impair any rights or
obligations under any Option theretofore granted under the Plan.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 Privileges of Stock Ownership. No person entitled to exercise any
Option granted under the Plan shall have any of the rights or privileges of a
stockholder of the Company in respect of any shares of Common Stock issuable
upon exercise of such Option until certificates representing such shares shall
have been issued and delivered. No shares shall be issued and delivered upon
exercise of any Option unless and until, in the opinion of counsel for the
Company, there shall have been full compliance with any applicable registration
requirements of the Act, any applicable listing requirements of any national
securities exchange on which stock of the same class is then listed, and any
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery.
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<PAGE> 7
14.2 Plan Expenses. Any expenses incurred in the administration of the
Plan shall be borne by the Company.
14.3 Use of Exercise Proceeds. Payments received from an Optionee upon
the exercise of Options shall be used for the general corporate purposes of the
Company, except that any Common Stock received in payment may be retired or
retained in the Company's treasury and reissued.
14.4 No Employment Rights. Neither the Plan, nor any action taken under
the Plan shall be construed as giving any Employee the right to become a
participant, nor shall any Option under the Plan be construed as giving a
participant any right with respect to continuance of employment by the Company.
The Company expressly reserves the right to terminate, whether by dismissal,
discharge or otherwise a participant's employment at any time, with or without
cause, except as may otherwise be provided in any written agreement between the
Company and the Employee.
14.5 Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board, or the Committee, the
members of the Committee and the Board shall be indemnified by the Company
against all costs and expenses reasonably incurred by them in connection with
any action, suit or proceeding to which they or any of them may be party by
reason of any action taken or failure to act under or in connection with the
Plan or any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any such action suit or proceeding, except a judgment based upon a finding of
bad faith; provided that upon the institution of any such action, suit or
proceeding, such indemnified party shall in writing give the Company notice
thereof and an opportunity, at its own expense, to handle and defend the same
before such indemnified party undertakes to handle and defend it on such
member's behalf.
14.6 No Obligation to Exercise Options. The granting of an Option shall
impose no obligation upon the Optionee to exercise such Option.
14.7 Governing Law. The Plan has been adopted under the laws of the
State of Delaware. The Plan, all Options which may be granted hereunder, and all
matters related thereto, shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware as it then exists.
14.8 Gender and Number. Except as otherwise indicated by the context,
reference to the masculine gender shall include the feminine gender, the plural
shall include the singular and the singular shall include the plural.
14.9 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE XV
STOCKHOLDER APPROVAL AND EFFECTIVE DATE
The Plan shall be submitted for approval by the holders of the
outstanding voting stock of the Company within twelve (12) months from the date
the Plan is adopted by the Board; provided, however, that if such vote was not
solicited substantially in accordance with the rules and regulations, if any, in
effect under ss. 14(a) of the Exchange Act, at the time of such vote, the
Company will furnish in writing to the holders of record of the securities
entitled to vote for the Plan substantially the same information concerning the
Plan which would be required by the rules and regulations in effect under ss.
14(a) of the Exchange Act, as if proxies to be voted with respect to the
approval or disapproval of the Plan were then being solicited, on or prior to
the date of the first annual meeting of security holders held subsequent to the
later of (i) the first registration of an equity security under ss. 12 of the
Exchange Act; or (ii) the acquisition of an equity security for which an
exemption is claimed. The Plan shall be deemed approved by the holders of the
outstanding voting stock of the Company by the affirmative vote of the holders
of a majority of the voting shares of the Company represented and voting at a
duly held meeting at which a quorum is present. Any Options granted under the
Plan prior to obtaining such stockholder approval shall be granted under the
conditions that the Options so granted (i) shall not be exercisable prior to
such approval, and (ii) shall become null and void if such stockholder approval
is not obtained.
ARTICLE XVI
RELOAD OPTIONS
16.1 Reload Option. Whenever the Optionee holding any Option
outstanding under the Plan (including Reload Options granted under this Article
XVI) exercises the Option and makes payment of the Exercise Price by tendering
Common Stock previously held by the Optionee pursuant to Section 6.5(b), then
the Company shall grant a Reload Option for the number of shares of Common Stock
that is equal to the number of shares tendered by the Optionee on payment of the
Exercise Price of the Option being exercised.
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<PAGE> 8
16.2 Reload Option Exercise Price. The Reload Option Exercise Price per
share shall be an amount equal to the Fair Market Value per share of the
Company's Common Stock determined as of the date of receipt by the Company of
the notice by Optionee to exercise the Option.
16.3 Term of Reload Option. The exercise period of the Reload Option
shall expire, and the Reload Option shall no longer be exercisable, on the later
of (i) the expiration date of the original surrendered Option, or (ii) one year
from the date of granting, unless otherwise determined by the Board or the
Committee, which shall have the discretion to extend the expiration date of the
Reload Options.
16.4 Restriction on Exercise. Any Reload Option granted under this
Article XVI shall vest immediately, but shall not be exercisable until the end
of six months after the date of its issuance, except in the case of the death or
permanent disability of the Optionee, upon which event the Reload Option will
become immediately exercisable.
16.5 Other Terms of Reload Options. All other terms of the Reload
Options granted hereunder shall be identical to the terms and conditions of the
original Option, the exercise of which gives rise to the grant of the Reload
Option.
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<PAGE> 1
Exhibit 10.7
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is entered into by and between the
Landlord and the Tenant hereinafter named.
ARTICLE I.
DEFINITIONS AND CERTAIN BASIC PROVISIONS
1.01
(1) "Landlord": JCD Partnership
(2) "Landlord's Address": 1828 Raymond Road,
Jackson, Mississippi 39204
(3) "Tenant": Renex Dialysis Facilities, Inc.
(4) Tenant's Address: 1828 Raymond Road, Jackson,
Mississippi 39204
(5) "Premises": The commercial office building
located at the above referenced address, which
is designed and equipped to accommodate
outpatient chronic dialysis clinics.
(6) "Lease Term": January 1, 1996, through December
31, 2000, with an option by Tenant to renew for
an additional five (5) years on the same terms
and conditions provided Tenant exercises this
option in writing and delivers same to Landlord,
not less than 60 days prior to the expiration of
the initial term.
(7) "Rent": As set forth in Section 3.01 of this
Lease.
1.02 Each of the foregoing definitions and basic provisions
shall be construed in conjunction with and limited by the references thereto in
the other provisions of this Lease.
ARTICLE II.
GRANTING CLAUSE
2.01 In consideration of the obligation of Tenant to pay Rent
as herein provided and in consideration of the other terms, covenants and
conditions herein, Landlord hereby leases to Tenant, and Tenant hereby takes
from Landlord, the Premises as described in paragraph 1.01(5) to have and to
hold the Premises for the Lease Term specified in paragraph 1.01(6), all on the
terms and conditions set forth in this Lease.
<PAGE> 2
ARTICLE III.
RENT
3.01 Tenant shall pay to Landlord Rent in monthly installments of
Two Thousand Two Hundred No/100 Dollars ($2,200.00). Installments shall be due
and payable on or before the first day of each calendar month during the Lease
Term and shall become past due on the tenth day thereof. Rent shall accrue
hereunder from January 1, 1996, and shall be payable at the place designated for
the delivery of notices to Landlord at the time of payment.
ARTICLE IV.
USE AND CARE OF PREMISES
4.01 Tenant shall use and occupy the premises solely for purposes
directly related to the maintenance of outpatient chronic dialysis facilities or
related medical or general office use.
4.02 Tenant shall procure at its sole expense any permits and
licenses required for the transaction of its business on the Premises. The
Tenant further agrees not to permit anything to be one on the premises which
will be contrary to the provisions of the policies of insurance hereon or which
will increase the premiums for such insurance, or be contrary to the rules and
regulations of any municipal, state or governmental authority.
4.03 Tenant agrees not to permit the premises, including
woodwork, floors, carpet, and walls, or any furniture or furnishing fixture, or
appliances contained therein to be damaged in any manner. Tenant is also
responsible for damage done by wind, or rain, followed by leaving windows or
doors open, and by overflow of water or stoppage of water pipes. Tenant agrees
to waive all rights and claims against the Landlord in connection with the
condition of the Premises after occupancy, and any subsequent action to repair
or vacate. After occupancy, Tenant shall keep the premises in good order, neat
in appearance, and free from all refuse, and shall promptly remove all garbage
and refuse of any kind from the premises during the Lease Term.
4.04 Tenant shall keep the foundation, exterior walls, air
conditioning, heating and ventilating systems and roof of the Premises in good
repair.
ARTICLE V.
UTILITIES
5.01 Tenant shall promptly pay all charges for electricity,
water, gas, sewerage service, and other utilities furnished to the Premises.
ARTICLE VI.
INSURANCE
6.01 Tenant shall, from and after the commencement of this Lease,
and throughout the entire term of this I-ease, keep the Premises insured against
loss or damage by fire, lightning
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and any other casualties and Landlord shall be named as Loss Payee on said
insurance policy(s) and Tenant shall maintain property damage insurance on all
contents located on the Premises.
ARTICLE VII.
DAMAGE BY FIRE OR OTHER CASUALTY
7.01 Tenant shall give immediate written notice to Landlord of
any damage caused to the Premises by fire or other casualty.
7.02 If the Premises shall be damaged or destroyed by fire or
other casualty insurable under standard fire and extended coverage insurance and
Landlord does not elect to terminate this Lease as hereinafter provided,
Landlord shall proceed with reasonable diligence and at Landlord's sole cost and
expense to rebuild and repair the Premises. Landlord shall proceed to rebuild
and repair the Premises with reasonable diligence and at Landlord's sole cost
and expense.
ARTICLE VIII.
INDEMNITY CLAUSE
8.01 Tenant agrees that it will protect and save and keep
Landlord harmless and indemnified against and from any penalty or damage or
charges imposed for any violation of any laws or ordinances, whether occasioned
by the neglect of Tenant or those holding under Tenant, and that Tenant will at
all times protect, indemnify and save and keep harmless Landlord against and
from any and all loss, cost, damage or expense, arising out of or from any
accident or other occurrence on or about said premises, causing injury to any
person or property whomsoever or whatsoever, and will protect, indemnify and
save and keep harmless the Lessor against and from any and all claims and
against from any and all loss, cost, damage or expenses arising out of any
failure of Tenant in any respect to comply with and perform all the requirements
and provisions hereof.
ARTICLE IX.
EMINENT DOMAIN
9.01 If the Premises should be taken for any public or
quasi-public use under any governmental law, ordinance, or regulation or by
right of eminent domain such that they are no longer suitable to operate
Tenant's business thereon, this Lease shall, at the election of Tenant,
terminate and the Rent shall be abated during the unexpired portion of this
Lease, effective on the date physical possession is taken by the condemning
authority.
9.02 All compensation awarded for any taking of the Premises
shall be the property of the Landlord, and Tenant hereby assigns their interest
in any such award to Landlord.
ARTICLE X.
PROPERTY TAXES
10.01 All real estate taxes shall be the responsibility of
Landlord.
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10.02 Tenant shall be liable for all taxes levied against
personal property and trade fixtures placed by Tenant on the Premises.
ARTICLE XI.
SUBLETTING
12.01 Tenant shall not sublet the Premises or assign this Lease,
or any part thereof, without the prior written consent of Landlord, which
consent shall not be unreasonably withheld.
ARTICLE XII.
INSPECTION
13.01 Landlord may enter said premises at reasonable times to
inspect the Premises upon reasonable notice.
ARTICLE XIII.
ALTERATIONS
14.01 Tenant agrees not to make any material alterations,
installations, repairs, or redecorations of any kind to the premises without
written permission from the Landlord which consent shall not be unreasonably
withheld.
ARTICLE XIV.
TERMINATION
15.01 Should Tenant fail to vacate on or before the termination
date, the rental for the holdover period shall be the maximum permitted by law.
In such case, Tenant shall be liable for such other damages incurred through the
loss of a prospective tenant, or other expenses incurred due to the breach of
this condition of this Lease.
ARTICLE XV.
DEFAULT
16.01 If the aforesaid rental or any part thereof shall remain
unpaid for ten (10) days after written notice, or if Lessee shall violate or be
in default on the performance of any of the other covenants or conditions
hereof, after thirty (30) days written notice or if Tenant abandons or vacates
the Premises during the term of this Lease for a period of time consisting of at
least 15 consecutive business days, or if Tenant shall be adjudicated bankrupt,
or makes any assignment for the benefit of creditors, Landlord may enter into
said premises, and again have and repossess the same as if this Lease had not
been made in accordance with applicable law. In case of any such default or
entry, Landlord shall thereupon have the right at its option and in its sole
discretion: (1) to terminate this Lease and the rent for the entire term shall
at once become due and payable and Landlord may proceed to collect the rent for
the entire term as if by the terms of this Lease the entire rent for the entire
term shall be made payable in advance; or (2) to relet said premises from
time-to-time during
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the remainder of the Lease Term for the highest rent obtainable and it may
recover from Tenant any deficiency between such amount and the rent herein
reserved, it being the intention of the parties that such re-entry and reletting
shall not discharge Tenant from liability for rent or for any other obligations
of Tenant under the terms of this Lease. In addition, upon default hereunder,
Landlord shall also be entitled to recover the cost of reletting the leased
premises, including, but not limited to advertising costs. Landlord may waive
any default without impairing the right to declare subsequent default hereunder,
this right being a continuing one.
Should Landlord place the claim for any past-due rent or any
other sum due Landlord under the terms and provisions of this Lease in the hands
of an attorney for collection, the Tenant shall pay, in addition to the amounts
due under any such claim, all reasonable costs, charges and expenses in
connection with the collection thereof, including a reasonable attorney's fee to
the attorney handling such claim.
ARTICLE XVI.
NOTICES
17.01 Whenever any notice is required or permitted hereunder,
such notice shall be in writing. Any notice or document required or permitted to
be delivered hereunder shall be deemed delivered upon actual receipt via the
United States mail, postage prepaid, certified mail, return receipt requested,
at the respective addresses set out in paragraph 1.01 above, or at such other
addresses as the parties hereafter specify by written notice delivered in
accordance with this Lease.
ARTICLE XVII.
MISCELLANEOUS
18.01 Nothing herein contained shall be deemed or construed by
the parties hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or of joint venture between the parties
hereto, or create any relationship between the parties hereto other than the
relationship of landlord and tenant. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular or plural
as the identity of the person or entity may require.
18.02 The captions used herein are for convenience only and do
not limit or amplify the provisions hereof.
18.03 Whenever a period of time is prescribed for action to be
taken by the parties to this lease, the parties shall not be liable or
responsible for, and there shall be excused from the computation of any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, or other causes of any kind whatsoever which are beyond the
reasonable control of the affected party.
18.04 Landlord agrees that if Tenant shall perform all of the
covenants and agreements herein required to be performed by Tenant, Tenant
shall, subject to the terms of this Lease, at all times during the continuance
of this Lease have the peaceable and quiet enjoyment and possession of the
Premises.
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<PAGE> 6
18.05 This Lease contains the entire agreement between the
parties, and no agreement shall be effective to change, modify, or terminate
this Lease in whole or in part unless such agreement is in writing and duly
signed by the party against whom enforcement of such change, modification, or
termination is sought.
18.06 The laws of the State of Mississippi shall govern the
interpretation, validity, performance, and enforcement of this Lease. If any
provision of this Lease should be held invalid or unenforceable, the validity
and enforceability of the remaining provisions of this Lease shall not be
affected thereby.
18.07 The terms, provisions, and covenants contained in this
Lease shall apply to, inure to the benefit of, and be binding upon the parties
hereto and their respective heirs, successors in interest, and legal
representatives except as otherwise herein expressly provided.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to
be executed on the dates indicated below to be effective as of January 1, 1995.
LANDLORD:
JCD PARTNERSHIP
By: C. David Finch, Jr., M.D.
----------------------------------------
C. DAVID FINCH, JR., M.D.
By: Jeffery C. Finch
----------------------------------------
JEFFERY C. FINCH
By: Charles D. Finch
----------------------------------------
CHARLES D. FINCH
TENANT:
RENEX DIALYSIS FACILITIES, INC.
By: C. David Finch, Jr., M.D.
----------------------------------------
C. DAVID FINCH, JR., M.D., President
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<PAGE> 7
STATE OF FLORIDA
COUNTY OF DADE
Personally appeared before me, the undersigned authority in and
for the said county and state, on this 29th day of December, 1995, within my
jurisdiction, the within named C. DAVID FINCH, JR., M.D. who acknowledged that
he executed the above and foregoing instrument for the intents and purposes
therein expressed.
My Commission Expires: /s/ Bryan W. Bauman
August 04, 1997 -----------------------------------
Commission No.: CC-796271 NOTARY PUBLIC
STATE OF FLORIDA
COUNTY OF DADE
Personally appeared before me, the undersigned authority in and
for the said county and state, on this 29th day of December, 1995, within my
jurisdiction, the within named JEFFERY C. FINCH who acknowledged that he
executed the above and foregoing instrument for the intents and purposes therein
expressed.
My Commission Expires: /s/ Bryan W. Bauman
August 04, 1997 -----------------------------------
Commission No.: CC-796271 NOTARY PUBLIC
STATE OF FLORIDA
COUNTY OF DADE
Personally appeared before me, the undersigned authority in and
for the said county and state, on this 29th day of December, 1995, within my
jurisdiction, the within named CHARLES D. FINCH who acknowledged that he
executed the above and foregoing instrument for the intents and purposes therein
expressed.
My Commission Expires: /s/ Bryan W. Bauman
August 04, 1997 -----------------------------------
Commission No.: CC-796271 NOTARY PUBLIC
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<PAGE> 8
STATE OF FLORIDA
COUNTY OF DADE
Personally appeared before me, the undersigned authority in and
for the said county and state, on this 29th day of December, 1995, within my
jurisdiction, the within named C. DAVID FINCH, JR., M.D. who acknowledged that
he is President of DIALYSIS FACILITIES, INC., a Mississippi corporation, and
that for and on behalf of the said corporation, and as its act and deed he
executed the above and foregoing instrument for the intents and purposes therein
expressed.
My Commission Expires: /s/ Bryan W. Bauman
August 04, 1997 --------------------------------
Commission No.: CC-796271 NOTARY PUBLIC
<PAGE> 9
EXHIBIT "A"
A 3.3 acre parcel being part of Lot 5, SAUNDERS FARM SUBDIVISION
as recorded in Book 2 at Page 107 in the office of the Chancery
Clerk of Hinds Co., being situated in the NE 1/4 of Sec. 14, T5N,
R1W, Hinds Co., Miss., and being more particularly described as
follows:
Commencing at the intersection of the south line of T.V. Road and
the west line of Robinson Road, said point being the northeast
comer of said Lot 5 of Saunders Farm, run thence NORTHWESTERLY
along the south line of T.V. Road 858.0 ft.; thence S 14'52' E -
1396.5 ft.; thence S 550 25' W - 174.0 ft. to the POINT OF
BEGINNING; run thence S 08045' W 460.5 ft. to a point in the
northerly right of way of Raymond Rd.; run thence SOUTHWESTERLY
along said right of way 155.3 ft. to the southeast comer of Lot
2, Block A of Raymond Road Farms Subdivision; run thence N 29'
00' W along the east side of said Raymond Road Farms 600.0 ft. to
the northeast comer of Lot 5 thereof; run thence N 66'46' E -
309.3 ft.; thence S 29'00' E - 116.8 ft. to the POINT OF
BEGINNING.
<PAGE> 1
Exhibit 10.8
Indexing Instructions: The NE 1/4 of Sec. 14, T5N, R1W, Hinds Co., Miss.
STATE OF MISSISSIPPI
COUNTY OF HINDS
LEASE CONTRACT AND AGREEMENT
THIS LEASE is made and entered into on December 29, 1995, by and
between JCD PARTNERSHIP, a Mississippi Partnership, (hereafter "Lessor" or
"Landlord"), and RENEX DIALYSIS FACILITIES, INC., a Mississippi corporation
(hereafter "Lessee" or "Tenant").
FOR AND IN CONSIDERATION OF the rental payments herein agreed
upon and the mutual covenants and promises herein expressed, and other valuable
consideration, the receipt of which is hereby acknowledged, the parties do
hereby enter into the following Lease Agreement whereby Lessor leases unto
Lessee, and Lessee leases from Lessor the real property described in Exhibit "A"
attached hereto and made a part hereof by reference, together with any building
located thereon (hereafter "Leased Property").
I. TERM
The term of this Lease (hereinafter "primary term") shall be for
a period of ten (10) years, commencing upon the date of the Certificate of
Occupancy of a 5000 square foot building to be constructed by Lessor on the
Leased Property using up to $175,000.00 in funds provided by Lessee for tenant
finishes with adequate parking for Lessee's personnel and patients and ending
ten (10) years thereafter. Lessor agrees that such construction, including
leasehold improvements, shall be substantially completed on or before a date to
be agreed upon between the parties, but in no event later than December 31,
1996. Lessor represents and warrants that the building shall be constructed in
accordance with plans and specifications as approved by Lessee and will be free
of defects, suitable for the purposes intended, built in compliance with
applicable building codes and all other statutes, regulations, ordinances and
rules pertaining to the Leased Property. The building will include all utility
hookups, HVAC unit and foundation plumbing. The actual construction of the
tenant fixtures shall be set forth in a separate agreement with a licensed
contractor. Lessor agrees to subordinate its lien to Lessee's institutional
financing lender upon the condition of Lessee's parent corporation guarantee of
Lessee's obligation under this Lease. The term "tenant finishes" as referred to
herein shall include all interior walls, finishes on exterior walls, ceilings,
insulator, paint, wiring, breakers, HVAC ducts, plumbing, pipes, drains, and
associated fixtures, and case work.
II. RENTAL
Lessee shall pay unto Lessor as rent during the term hereof the
sum of Eleven and No/100 Dollars ($11.00) per square foot of rentable area,
being approximately 5,000 square feet, or Fifty-Five Thousand and no/100 Dollars
($55,000.00) annual rent, subject to adjustment herein, payable in monthly
installments of $4,583.33 per month commencing on the date of the Certificate of
Occupancy and on the same day of each month thereafter and continuing throughout
the term of this Lease and until the expiration hereof. Upon completion of the
tenant finishes, Lessee shall have the right to measure the rentable area and
the actual annual rent shall be calculated on the actual square footage of the
building. All such rental payments shall be made payable at the office
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of Lessor on the aforesaid day of each month or at such other place as Lessor
may designate in writing, without notice or demand from Lessee.
It is further agreed that, notwithstanding anything contained
herein to the contrary, the property leased is leased for a total rental for the
ten-year period of $550,000.00, subject to adjustment above, payable at the time
of the completion of the construction of the building and the provisions herein
contained for the payment of such rent in installments are for the convenience
of the Tenant and that upon default in payment of such rent in installments as
herein allowed, the whole of the rent provided for and then remaining unpaid
shall at once become due and payable without notice or demand, at the option of
Lessor.
III. CONDITIONS
A. Tenant's Acceptance of Property. At the
commencement of the term, Tenant shall have an opportunity to inspect the
building, improvements, equipment, sidewalks, parking area, etc., and
acknowledge inspection of the same and advise Lessor of any visible defects. In
no event shall Landlord have any responsibility for tenant finishes.
B. Assignment of Lease. Tenant-shall not assign,
mortgage, or encumber this Lease, nor sublet or permit the Leased Property or
any part thereof to be used by others without the prior written consent of
Landlord in each instance. If this Lease is assigned or if the Leased Property
or any part thereof is sublet without the prior written consent of Landlord or
occupied by anyone other than Tenant, Landlord may, after default by Tenant,
collect rent from the assignee, subtenant, or occupant and apply the net amount
collected to the rent herein reserved. No such assignment, subletting,
occupancy, or collection shall be deemed a waiver of this covenant, or the
acceptance of the assignee, subtenant, or occupant as a tenant, or a release of
Tenant from the further performance by Tenant of the covenants in this Lease.
The consent by Landlord to an assignment or subletting shall not be construed to
relieve Tenant from obtaining the consent in writing of Landlord to any further
assignment or subletting.
C. Use and Occupancy Restrictions. Tenant hereby
agrees to restrict his use and occupancy of the premises herein leased to those
activities normally associated with a dialysis clinic and hereby covenants not
to use said premises for any unlawful or other purpose or make use of said
premises in such way as would cause additional rates of any insurance. Lessee
shall have access to the building at all times.
D. Lessor's Right of Inspection. At all times
during Lessee's business hours, Lessor shall have the right to enter the Leased
Property for the purpose of inspecting the Leased Property, provided that such
inspection will be performed in a manner to minimize interference with Lessee's
business operations.
E. Property Taxes. It is agreed and understood by
the parties that Lessee shall pay all personal property taxes assessed against
its property on the leased premises and its pro rata share of real property
taxes resulting from tenant finishes. Lessor shall otherwise pay the real
property taxes assessed on the leased premises.
F. Maintenance. Lessor shall maintain the exterior
of the building hereby leased, including the exterior walls and roof. Lessee
shall maintain the leasehold improvements and the interior of the Leased
Property, including glass and windows, and shall be responsible for
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<PAGE> 3
all other maintenance including, without limitation, upkeep and maintenance on
all appliances, plumbing, air conditioning, and heating units and hot water
heaters. In addition, Lessor and Lessee shall share equally in the costs to
maintain the lawn and landscape.
G. Utilities. Lessee agrees to pay all utilities
including, without limitation, all water, gas, telephone, electricity,
janitorial and hazardous waste services associated with Tenant's use of said
premises during the term of this Lease.
H. Improvements. Except for tenant finishes, no
material alteration, addition, or improvement to the Leased Property shall be
made by Tenant without the written consent of the Landlord, which shall not be
unnecessarily withheld. Any alteration, addition, or improvement made to the
Leased Property following the issuance of the Certificate of Occupancy shall be
made at the sole expense of Tenant and shall become a part of the Leased
Property to which all right, title, and interest shall belong to Lessor unless
same can be removed with only minimal harm to the Leased Property.
I. Public Liability and Property Damages Insurance.
Lessee shall, at its own expense, maintain public liability and property damage
insurance with a single combined liability limit of not less than One Million
and No/100 Dollars ($1,000,000.00), insuring against all liability of Lessee and
its authorized representatives arising out of or in connection with the Lessee's
lease, use and/or occupancy of the Leased Property, building, and all
improvements. Lessor shall be named as an additional insured, and all policies
shall contain cross-liability endorsements. All public liability and property
damage insurance acquired under this Lease shall:
1. be issued by and binding upon a solvent
insurance or insurance companies qualified and admitted to do
business in Mississippi;
2. be a primary policy or a combination of a
primary policy and an excess liability policy; and
3. contain an endorsement requiring thirty (30)
days written notice from the insurance company to Lessor and
Lessee before cancellation of the policy shall be effective.
A certificate of each policy shall be deposited with Lessor on or before the
commencement date of this Lease and, upon renewal or cancellation thereof, a new
certificate shall be deposited with Lessor not less than twenty (20) days before
the expiration or termination of the policy then in effect.
J. Fire and Extended Coverage Insurance. Lessor
shall maintain, at its expense, a standard fire and extended coverage insurance
policy issued by and binding upon a solvent insurance company licensed,
qualified, and admitted to do business in the State of Mississippi, insuring on
behalf of Lessor the building and improvements to the extent of their full
replacement value. Lessor shall not insure, nor have any duty or obligation to
insure, any furniture, equipment, machinery, trade fixtures, goods, or other
personal property that Lessee may bring or maintain upon the Leased Property nor
shall Lessor be liable for damage or destruction to any of such property from
any cause. Lessee shall maintain fire and extended coverage insurance on all of
Lessee's tenant finishes, furniture, equipment, machinery, trade fixtures,
goods, supplies, or other personal property.
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<PAGE> 4
K. Surrender in Same Good Order and Condition. Tenant's Option to
Remove His Property. Landlord's Right to Unremoved Property. Tenant shall vacate
the Leased Property in the good order and repair in which such property was at
the time of issuance of the Certificate of Occupancy, ordinary wear and tear and
casualties by accidental fire not occurring through the Tenant's negligence
alone excepted, and shall remove all its personal property therefrom so that the
Landlord can repossess the Leased Property not later than noon on the day upon
which this Lease or any extension thereof expires, whether upon notice,
holdover, or otherwise. Landlord shall have the same rights to enforce this
covenant by ejectment and for damages or otherwise as for the breach of any
other condition or covenant of this Lease. Tenant may at any time prior to or
upon the termination of this Lease or any renewal or extension thereof remove
from the Leased Property all materials, equipment, and property of every other
sort or nature owned and installed by the Tenant thereon, provided that such
property is removed without substantial injury to the Leased Property. No injury
shall be considered substantial if it is promptly corrected by restoration to
the condition prior to the installation of such property, if so requested by
Landlord. Any such property not so removed shall become the property of
Landlord.
L. Prohibition of Signs. Consent of Landlord Not to be
Unreasonably Withheld. Except as hereinafter provided, Tenant shall not, without
Landlord's consent, place or erect any signs of any nature on any part of the
Leased Property, the sidewalk adjoining the Leased Property, or on any part of
Landlord's property adjacent to the Leased Property. Landlord will not
unreasonably withhold its consent to the placement of a sign of reasonable size
bearing Tenant's trade name, but the location, colors, materials, styles, and
size of such sign shall be subject to Landlord's absolute right of approval and
the limitations and restrictions of state and local ordinances applicable
thereto.
M. Landlord to Repair. Rent Abatement During Repair. Where the
Leased Property is damaged by fire or other casualty without the fault of
Tenant, Landlord shall repair or replace the damage with reasonable dispatch, if
Lessor deems reasonable, and if the damage has rendered the Leased Property
untenantable, there shall be an apportionment of the rent until the damage to
Landlord's property has been repaired. In determining what constitutes
reasonable dispatch, consideration shall be given to delays caused by strikes,
adjustment of insurance, and other causes beyond Landlord's control. In no event
shall Landlord have any responsibility for the repair or replacement of tenant
finishes.
N. Right of Entry Upon Abandonment. Landlord's Rights to Relet.
Liability of Tenant. If at any time during the lease term, the Leased Property
or any part thereof shall be abandoned by Tenant, Landlord may, at its option,
enter into the Leased Property by force or otherwise without being liable for
any prosecution therefor, and without becoming liable to Tenant for damages or
for any payment of any kind whatsoever, and may, in its controlled discretion,
as agent of Tenant relet the Leased Property, or any part thereof, for the whole
or any part of the then unexpired term and, for the purposes of such reletting,
Landlord may make alterations and modifications of the Leased Property, and may
receive and collect all rent payable by virtue of such reletting and, if
Landlord shall, because of nonpayment of rent or other breach of condition or
covenant or agreement, re-enter and repossess the Leased Property pursuant to
the conditional limitations contained herein, by summary proceedings, force, or
otherwise, Landlord may, at its option, hold Tenant liable for the difference
between the rent and other charges that would have been payable hereunder during
the residue of the lease term, if this Lease had continued in force, and the net
rent for such period realized by Landlord by means of reletting to any other
tenant(s), on such terms and conditions as may, in the uncontrolled discretion
of Landlord be provided, and
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<PAGE> 5
Tenant shall pay monthly in advance, at such periods as the rent hereunder would
have fallen due if this Lease continued, the differential between the original
amount of each monthly payment, as herein provided plus such sums, if any, due
from Tenant as additional and augmented rent, and the net proceeds of reletting
after deducting expenses of every nature and description incurred by Landlord,
including, without limitation, commissions and the cost of all alterations and
modifications to the Leased Property made in reletting same.
O. Reimbursement of Litigation Expenses. Expenses Deemed
Landlord's Lien. In case either party shall, without fault on its part, be made
a party to any litigation commenced by the other, the prevailing party shall
recover all costs and reasonable attorney's fees incurred by it in enforcing the
covenants, terms, and provisions of this Lease, or in terminating this Lease by
reason of default; and all such costs and reasonable attorney's fees, if paid by
Landlord and Landlord is the prevailing party, and payment of all monies
provided in this Lease to be made by Lessee, shall be, and they are, hereby
declared to be a Landlord's lien upon any building and improvement and Lessee's
interest in any personal property placed upon the premises at any time during
the term of this Lease and upon the leasehold interest hereby created, and upon
the rent of any building and improvement situated upon the premises at any time
during the term of this Lease.
P. Landlord's Right to Cause Expiration Upon Listed Defaults.
Recovery of Rent for Balance of Term Less Reasonable Rental Value.
1. Landlord may give Tenant fifteen (15) days
notice of intention to terminate this Lease in any of the
following circumstances:
a. If Tenant shall be in default in the performance
of any covenant of this Lease and if such default is not cured
within fifteen (15) days after written notice thereof given by
Landlord to Tenant or, if such default shall be of such nature
that it cannot be cured completely within such fifteen-day
period or shall not thereafter proceed with reasonable diligence
and in good faith to remedy such default.
b. If Tenant shall be adjudicated as bankrupt, make a
general assignment for the benefit of creditors, or take the
benefit of any insolvency act, or if a permanent receiver or
trustee in bankruptcy shall be appointed for Tenant's property
and such appointment is not vacated within ninety (90) days. For
these purposes, "Tenant" shall mean the tenant then in
possession of the Leased Property.
c. If the Leased Property appears to have permanently
become vacant or deserted for a period in excess of thirty
(30) days.
d. If this Lease shall be assigned or the Leased
Property sublet other than in accordance with the terms of
this Lease.
e. If Tenant shall be in default in the payment of any
rental sums or other monetary obligations incurred hereunder.
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<PAGE> 6
2. If Landlord shall give the fifteen-day notice of
termination provided in subparagraph (a) of this paragraph P,
then at the expiration of such period, this Lease shall terminate
as completely as if that were the date herein definitely fixed
for the expiration of the term of this Lease, and Tenant shall
then surrender the Leased Property to Landlord. If this Lease
shall so terminate, it shall be lawful for Landlord, at its
option and without formal demand or notice of any kind, to remove
Tenant therefrom without being liable for any damages therefor.
Upon termination of this Lease, as herein provided, Landlord
shall have the right, at its election, to terminate any sublease
then in effect, without the consent of the sublessee concerned.
3. Tenant shall remain liable for all its obligations
under this Lease, despite the Landlord's re-entry, and Landlord
may relet or use the Leased Property as agent for Tenant, if
Landlord so elects. Tenants waives any legal requirement for
notice of intention to re-enter and any right of redemption.
4. Nothing in this Article shall be deemed to require
Landlord to give Tenant any notice, other than such minimum
notice as may be required by statute, prior to the commencement
of an unlawful detainer action for nonpayment of any basic rent
or additional rent, it being intended that the 15-day notice
provided hereunder is only for the purpose of creating a
conditional limitation hereunder pursuant to which this Lease
shall terminate.
5. Time is of the essence of this Lease with respect to
the performance by Tenant of its obligation hereunder.
Q. No Waiver of Landlord's Rights Through Failure to Seek Redress
or Receipt of Rent. The failure of Landlord to seek redress for violation of, or
to insist upon the strict performance of any covenant or condition of this Lease
shall not prevent a subsequent act, which would have originally constituted a
violation, from having all the force and affect of an original violation. The
receipt of rent by Landlord with knowledge of the breach of any covenant of this
Lease shall not be deemed a waiver of such breach.
R. Indemnification. Lessee shall release, indemnify, save and
hold harmless Lessor, together with all of its agents, successors, assigns and
attorneys, from and against all claims, actions, damages, liability and expenses
incurred in connection with loss of life, personal injury and/or damage to the
property arising from or out of any occurrence in, upon or at the Leased
Property, or the occupancy or use by Lessee of the Leased Property or any part
thereof, or occasioned wholly or in part by any act or omission of Lessee, its
agents, successors, assigns or invitees. Lessor shall release, indemnify, save
and hold harmless Lessee, together with all of its agents, successors, assigns
and attorneys, from and against all claims, actions, damages, liability and
expenses incurred in connection with loss of life, personal injury and/or damage
to the Leased Property arising from or out of any occurrence occasioned wholly
or in part by any act or omission of Lessor, its agents, successors, assigns or
invitees.
S. Notice by Registered or Certified Mail. Any notice under this
Lease must be in writing and must be sent by registered or certified mail to the
last address of the party to whom the notice is to be given, as designated by
such party in writing. Landlord hereby designates its address as 1828 Raymond
Road, Jackson, Mississippi 39204. Tenant hereby designates its address as 2222
Ponce De Leon Boulevard, 6th Floor, Coral Gables, Florida 33134.
- 6 -
<PAGE> 7
T. Lease Binding Upon Heirs, Executors, Administrators,
Successors, and Assigns of Landlord and Tenant. The covenants, terms,
conditions, provisions, and undertakings in this Lease or in any renewals
thereof shall extend to and be binding upon the heirs, executors,
administrators, successors, and assigns of the respective parties hereto, as if
they were in every case named and expressed, and shall be construed as covenants
running with the land; and wherever reference is made to either of the parties
hereto, it shall be held to include and apply also to the heirs, executors,
administrators, successors, and assigns of such party, as if in each and every
case so expressed.
U. Entire Agreement. This Lease contains the entire agreement
between the parties and cannot be changed, altered, or amended without the
express written consent of all parties hereto. This Agreement shall be construed
under the laws of the State of Mississippi.
JCD PARTNERSHIP, A MISSISSIPPI
PARTNERSHIP, LESSOR
By: /s/ C. David Finch, Jr., M.D.
--------------------------------------
C. DAVID FINCH, JR., M.D., Partner
By: /s/ Charles D. Finch, Sr.
--------------------------------------
CHARLES D. FINCH, SR., Partner
By: /s/ Jeffery C. Finch
--------------------------------------
JEFFERY C. FINCH, Partner
Attest: RENEX DIALYSIS FACILITIES, INC., A
MISSISSIPPI CORPORATION, LESSEE
By: /s/ James P. Shea
- ----------------------------------- --------------------------------------
Secretary JAMES P. SHEA, President
- 7 -
<PAGE> 8
STATE OF FLORIDA
COUNTY OF DADE
PERSONALLY APPEARED BEFORE ME, the undersigned authority in and
for the jurisdiction aforesaid, the within named C. DAVID FINCH, JR. M.D.,
CHARLES D. FINCH, SR., and JEFFERY C. FINCH, who, after having been by me first
duly sworn, state on their oath that they are all partners of JCD PARTNERSHIP, a
Mississippi Partnership, and that they signed, executed, delivered and entered
into the above and foregoing Lease Contract and Agreement for and on behalf of
said partnership being first duly authorized so to do.
SWORN TO AND SUBSCRIBED BEFORE ME, this 29th day of December,
1995.
My Commission Expires: /s/ Bryan W. Bauman
August 04, 1997 ----------------------------------
Commission No.: CC-796271 NOTARY PUBLIC
STATE OF FLORIDA
COUNTY OF DADE
PERSONALLY APPEARED BEFORE ME, the undersigned authority in and
for the jurisdiction aforesaid, the within named JAMES P. SHEA, who, after
having been by me first duly sworn, stated on his oath that he is president of
RENEX DIALYSIS FACILITIES, INC., a Mississippi corporation, and that he signed,
executed, delivered, and entered into the above and foregoing Lease Contract and
Agreement for and on behalf of said corporation being first duly authorized so
to do.
SWORN TO AND SUBSCRIBED BEFORE ME, this 29th day of December,
1995.
My Commission Expires: /s/ Bryan W. Bauman
August 04, 1997 -----------------------------------
Commission No.: CC-796271 NOTARY PUBLIC
- 8 -
<PAGE> 9
EXHIBIT "A"
A 3.3 acre parcel being part of Lot 5, SAUNDERS FARM SUBDIVISION
as recorded in Book 2 at Page 107 in the office of the Chancery
Clerk of Hinds Co., being situated in the NE 1/4 of Sec. 14, T5N,
RIW, Hinds Co., Miss., and being more particularly described as
follows:
Commencing at the intersection of the south line of T.V. Road and
the west line of Robinson Road, said point being the northeast
comer of said Lot 5 of Saunders Farm, run thence NORTHWESTERLY
along the south line of T.V. Road 858.0 ft.; thence S 14'52' E -
1396.5 ft.; thence S 55 0 25' W - 174.0 ft. to the POINT OF
BEGINNING; run thence S 08'45' W 460.5 ft. to a point in the
northerly right of way of Raymond Rd.; run thence SOUTHWESTERLY
along said right of way 155.3 ft. to the southeast comer of Lot
2, Block A of Raymond Road Farms Subdivision; run thence N 29'
00' W along the east side of said Raymond Road Farms 600. 0 ft.
to the northeast comer of Lot 5 thereof; run thence N 66'46' E -
309.3 ft.; thence S 29'00' E - 116.8 ft. to the POINT OF
BEGINNING.
<PAGE> 1
Exhibit 10.9
STATE OF LOUISIANA
PARISH OF MADISON
LEASE CONTRACT AND AGREEMENT
THIS LEASE is made and entered into on December 29, 1995, by and
between JCD PARTNERSHIP, a Mississippi Partnership, (hereafter "Lessor" or
"Landlord"), and RENEX DIALYSIS FACILITIES, INC., a Mississippi corporation
(hereafter "Lessee" or "Tenant").
For and in consideration of the rental payments herein agreed
upon and the mutual covenants and promises herein expressed, and other valuable
consideration, the receipt of which is hereby acknowledged, the parties do
hereby enter into the following Lease Agreement whereby Lessor leases unto
Lessee, and Lessee leases from Lessor the real property described in Exhibit "A"
attached hereto and made a part hereof by reference, together with any building
located thereon (hereafter "Leased Property").
I. TERM
The term of this Lease (hereinafter "primary term") shall be for
a period of ten (10) years, commencing upon the date of the Certificate of
Occupancy of a 7500 square foot building to be constructed by Lessor on the
leased property using up to $262,500.00 in funds provided by Lessee for tenant
finishes with adequate parking for Lessee's personnel and patients and ending
ten (10) years thereafter. Lessor agrees that such construction, including
leasehold improvements, shall be substantially completed on or before a date to
be agreed upon. Lessor represents and warrants that the building shall be
constructed in accordance with plans and specifications as approved by Lessee
and will be free of defects, suitable for the purposes intended, built in
compliance with applicable building codes. Lessor agrees to subordinate its lien
to Lessee's institutional financing lender upon the condition of Lessee's parent
corporation guarantee of Lessee's obligation under this Lease. The term "tenant
finishes" as referred to herein shall include all interior walls, finishes or
exterior walls, ceilings, insulator, paint, wiring, breakers, HVAC ducts,
plumbing, pipes, drains, and associated fixtures, and case work.
II. RENTAL
Lessee shall pay unto Lessor as rent during the term hereof the
sum of Eleven and no/100 Dollars ($11.00) per square foot of rentable area,
being approximately 7500 square feet, or Eighty-Two Thousand Five Hundred and
no/100 Dollars ($82,500.00) annual rent, payable in monthly installments of
$6,875.00 per month and due and owing on the same day of each month as the date
of the Certificate of Occupancy of the building, commencing on such date and
continuing throughout the term of this Lease and until the expiration hereof.
Lessee shall have the right to measure the rentable area. All such rental
payments shall be made payable at the office of Lessor on the aforesaid day of
each month or at such other place as Lessor may designate in writing, without
notice or demand from Lessee.
It is further agreed that, notwithstanding anything contained
herein to the contrary, the property leased is leased for a total rental for the
ten-year period of $825,000.00 payable at the time of the completion of the
construction of the building and the provisions herein contained for the payment
of such rent in installments are for the convenience of the Tenant and that upon
default in payment of such rent in installments as herein allowed, the whole of
the rent provided for and
- 1 -
<PAGE> 2
then remaining unpaid shall at once become due and payable without notice or
demand, at the option of Lessor.
III. CONDITIONS
A. Tenant's Acceptance of Property. At the
commencement of the term, Tenant shall have an opportunity to inspect the
building, improvements, equipment, sidewalks, parking area, etc., and
acknowledge inspection of the same and advise Lessor of any visible defects. In
no event shall Landlord have any responsibility for tenant finishes.
B. Assignment of Lease. Tenant shall not assign,
mortgage, or encumber this Lease, nor sublet or permit the Leased Property or
any part thereof to be used by others without the prior written consent of
Landlord in each instance. If this Lease is assigned or if the Leased Property
or any part thereof is sublet without the prior written consent of Landlord or
occupied by anyone other than Tenant, Landlord may, after default by Tenant,
collect rent from the assignee, subtenant, or occupant and apply the net amount
collected to the rent herein reserved. No such assignment, subletting,
occupancy, or collection shall be deemed a waiver of this covenant, or the
acceptance of the assignee, subtenant, or occupant as a tenant, or a release of
Tenant from the further performance by Tenant of the covenants in this Lease.
The consent by Landlord to an assignment or subletting shall not be construed to
relieve Tenant from obtaining the consent in writing of Landlord to any further
assignment or subletting.
C. Use and Occupancy Restrictions. Tenant hereby
agrees to restrict his use and occupancy of the premises herein leased to those
activities normally associated with a dialysis clinic and hereby covenants not
to use said premises for any unlawful or other purpose or make use of said
premises in such way as would cause additional rates of any insurance. Lessee
shall have access to the building at all times.
D. Lessor's Right of Inspection. At all times
during Lessee's business hours, Lessor shall have the right to enter the Leased
Property for the purpose of inspecting the Leased Property, provided that such
inspection will be performed in a manner to minimize interference with Lessee's
business operations.
E. Property Taxes. It is agreed and understood by
the parties that Lessee shall pay all personal property taxes assessed against
its property on the leased premises and its pro rata share of real property
taxes resulting from tenant finishes. Lessor shall otherwise pay the real
property taxes assessed on the leased premises.
F. Maintenance. Lessor shall maintain the exterior
of the building hereby leased, including the exterior walls and roof. Lessee
shall maintain the leasehold improvements and the interior of the Leased
Property, including glass and windows, and shall be responsible for all other
maintenance including, without limitation, upkeep and maintenance on all
appliances, plumbing, air conditioning, and heating units and hot water heaters.
In addition, Lessor and Lessee shall share equally in the costs to maintain the
lawn and landscape.
G. Utilities. Lessee agrees to pay all utilities
including, without limitation, all water, gas, telephone, electricity,
janitorial and hazardous waste services associated with Tenant's use of said
premises during the term of this Lease.
- 2 -
<PAGE> 3
H. Improvements. Except for tenant finishes, no
material alteration, addition, or improvement to the Leased Property shall be
made by Tenant without the written consent of the Landlord, which shall not be
unnecessarily withheld. Any alteration, addition, or improvement made to the
Leased Property following the issuance of the Certificate of Occupancy shall be
made at the sole expense of Tenant and shall become a part of the Leased
Property to which all right, title, and interest shall belong to Lessor unless
same can be removed with only minimal harm to the Leased Property.
I. Public Liability and Property Damages Insurance.
Lessee shall, at its own expense, maintain public liability and property damage
insurance with a single combined liability limit of not less than One Million
and No/100 Dollars ($1,000,000.00), insuring against all liability of Lessee and
its authorized representatives arising out of or in connection with the Lessee's
lease, use and/or occupancy of the Leased Property, building, and all
improvements. Lessor shall be named as an additional insured, and all policies
shall contain cross-liability endorsements. All public liability and property
damage insurance acquired under this Lease shall:
1. be issued by and binding upon a solvent
insurance or insurance companies qualified and admitted to do
business in Mississippi;
2. be a primary policy or a combination of a
primary policy and an excess liability policy; and
3. contain an endorsement requiring thirty (30)
days written notice from the insurance company to Lessor and
Lessee before cancellation of the policy shall be effective.
A certificate of each policy shall be deposited with Lessor on or before the
commencement date of this Lease and, upon renewal or cancellation thereof, a new
certificate shall be deposited with Lessor not less than twenty (20) days before
the expiration or termination of the policy then in effect.
J. Fire and Extended Coverage Insurance. Lessor
shall maintain, at its expense, a standard fire and extended coverage insurance
policy issued by and binding upon a solvent insurance company licensed,
qualified, and admitted to do business in the State of Mississippi, insuring on
behalf of Lessor the building and improvements to the extent of their full
replacement value. Lessor shall not insure, nor have any duty or obligation to
insure, any furniture, equipment, machinery, trade fixtures, goods, or other
personal property that Lessee may bring or maintain upon the Leased Property nor
shall Lessor be liable for damage or destruction to any of such property from
any cause. Lessee shall maintain fire and extended coverage insurance on all of
Lessee's tenant finishes and furniture, equipment, machinery, trade fixtures,
goods, supplies, or other personal property.
K. Surrender in Same Good Order and Condition.
Tenant's Option to Remove His Property. Landlord's Right to Unremoved Property.
Tenant shall vacate the Leased Property in the good order and repair in which
such property was at the time of issuance of the Certificate of Occupancy,
ordinary wear and tear and casualties by accidental fire not occurring through
the Tenant's negligence alone excepted, and shall remove all its personal
property therefrom so that the Landlord can repossess the Leased Property not
later than noon on the day upon which this Lease or any extension thereof
expires, whether upon notice, holdover, or
- 3 -
<PAGE> 4
otherwise. Landlord shall have the same rights to enforce this covenant by
ejectment and for damages or otherwise as for the breach of any other condition
or covenant of this Lease. Tenant may at any time prior to or upon the
termination of this Lease or any renewal or extension thereof remove from the
Leased Property all materials, equipment, and property of every other sort or
nature owned and installed by the Tenant thereon, provided that such property is
removed without substantial injury to the Leased Property. No injury shall be
considered substantial if it is promptly corrected by restoration to the
condition prior to the installation of such property, if so requested by
Landlord. Any such property not so removed shall become the property of
Landlord.
L. Prohibition of Signs. Consent of Landlord Not
to be Unreasonably Withheld. Except as hereinafter provided, Tenant shall not,
without Landlord's consent, place or erect any signs of any nature on any part
of the Leased Property, the sidewalk adjoining the Leased Property, or on any
part of Landlord's property adjacent to the Leased Property. Landlord will not
unreasonably withhold its consent to the placement of a sign of reasonable size
bearing Tenant's trade name, but the location, colors, materials, styles, and
size of such sign shall be subject to Landlord's absolute right of approval and
the limitations and restrictions of state and local ordinances applicable
thereto.
M. Landlord to Repair. Rent Abatement During
Repair. Where the Leased Property is damaged by fire or other casualty without
the fault of Tenant, Landlord shall repair or replace the damage with reasonable
dispatch, if Lessor deems reasonable, and if the damage has rendered the Leased
Property untenantable, there shall be an apportionment of the rent until the
damage to Landlord's property has been repaired. In determining what constitutes
reasonable dispatch, consideration shall be given to delays caused by strikes,
adjustment of insurance, and other causes beyond Landlord's control. In no event
shall Landlord have any responsibility for the repair or replacement of tenant
finishes.
N. Right of Entry Upon Abandonment. Landlord's
Right to Relet . Liability of Tenant. If at any time during the lease term, the
Leased Property or any part thereof shall be abandoned by Tenant, Landlord may,
at its option, enter into the Leased Property by force or otherwise without
being liable for any prosecution therefor, and without becoming liable to Tenant
for damages or for any payment of any kind whatsoever, and may, in its
controlled discretion, as agent of Tenant relet the Leased Property, or any part
thereof, for the whole or any part of the then unexpired term and, for the
purposes of such reletting, Landlord may make alterations and modifications of
the Leased Property, and may receive and collect all rent payable by virtue of
such reletting and, if Landlord shall, because of nonpayment of rent or other
breach of condition or covenant or agreement, re-enter and repossess the Leased
Property pursuant to the conditional limitations contained herein, by summary
proceedings, force, or otherwise, Landlord may, at its option, hold Tenant
liable for the difference between the rent and other charges that would have
been payable hereunder during the residue of the lease term, if this Lease had
continued in force, and the net rent for such period realized by Landlord by
means of reletting to any other tenant(s), on such terms and conditions as may,
in the uncontrolled discretion of Landlord be provided, and Tenant shall pay
monthly in advance, at such periods as the rent hereunder would have fallen due
if this Lease continued, the differential between the original amount of each
monthly payment, as herein provided plus such sums, if any, due from Tenant as
additional and augmented rent, and the net proceeds of reletting after deducting
expenses of every nature and description incurred by Landlord, including,
without limitation, commissions and the cost of all alterations and
modifications to the Leased Property made in reletting same.
- 4 -
<PAGE> 5
O. Reimbursement of Litigation Expenses. Expenses
Deemed Landlord's Lien. In case either party shall, without fault on its part,
be made a party to any litigation commenced by the other, the prevailing party
shall recover all costs and reasonable attorney's fees incurred by it in
enforcing the covenants, terms, and, provisions of this Lease, or in terminating
this Lease by reason of default; and all such costs and reasonable attorney's
fees, if paid by Landlord and Landlord is the prevailing party, and payment of
all monies provided in this Lease to be made by Lessee, shall be, and they are,
hereby declared to be a Landlord's lien upon any building and improvement and
Lessee's interest in any personal property placed upon the premises at any time
during the term of this Lease and upon the leasehold interest hereby created,
and upon the rent of any building and improvement situated upon the premises at
any time during the term of this Lease.
P. Landlord's Right to Cause Expiration Upon
Listed Defaults. Recovery of Rent for Balance of Term Less Reasonable Rental
Value.
1. Landlord may give Tenant fifteen (15)
days notice of intention to terminate this Lease in any of the
following circumstances:
a. If Tenant shall be in default in the
performance of any covenant of this Lease and if such
default is not cured within fifteen (15) days after
written notice thereof given by Landlord to Tenant or,
if such default shall be of such nature that it cannot
be cured completely within such fifteen-day period or
shall not thereafter proceed with reasonable diligence
and in good faith to remedy such default.
b. If Tenant shall be adjudicated as
bankrupt, make a general assignment for the benefit of
creditors, or take the benefit of any insolvency act, or
if a permanent receiver or trustee in bankruptcy shall
be appointed for Tenant's property and such appointment
is not vacated within ninety (90) days. For these
purposes, "Tenant" shall mean the tenant then in
possession of the Leased Property.
c. If the Leased Property appears to have
permanently become vacant or deserted for a period in
excess of thirty (30) days.
d. If this Lease shall be assigned or the
Leased Property sublet other than in accordance with the
terms of this Lease.
e. If Tenant shall be in default in the
payment of any rental sums or other monetary obligations
incurred hereunder.
2. If Landlord shall give the fifteen-day notice
of termination provided in subparagraph (a) of this paragraph P,
then at the expiration of such period, this Lease shall terminate
as completely as if that were the date herein definitely fixed
for the expiration of the term of this Lease, and Tenant shall
then surrender the Leased Property to Landlord. If this Lease
shall so terminate, it shall be lawful for Landlord, at its
option and without formal demand or notice of any kind, to remove
Tenant therefrom without being liable for any damages therefor.
Upon termination of this Lease, as herein provided, Landlord
shall have the right, at its election, to terminate any sublease
then in effect, without the consent of the sublessee concerned.
- 5 -
<PAGE> 6
3. Tenant shall remain liable for all its
obligations under this Lease, despite the Landlord's re-entry,
and Landlord may relet or use the Leased Property as agent for
Tenant, if Landlord so elects. Tenants waives any legal
requirement for notice of intention to re-enter and any right of
redemption.
4. Nothing in this Article shall be deemed to
require Landlord to give Tenant any notice, other than such
minimum notice as may be required by statute, prior to the
commencement of an unlawful detainer action for nonpayment of any
basic rent or additional rent, it being intended that the 15-day
notice provided hereunder is only for the purpose of creating a
conditional limitation hereunder pursuant to which this Lease
shall terminate.
5. Time is of the essence of this Lease with
respect to the performance by Tenant of its obligation hereunder.
Q. No Waiver of Landlord's Rights Through Failure to Seek Redress
or Receipt of Rent. The failure of Landlord to seek redress for violation of, or
to insist upon the strict performance of any covenant or condition of this Lease
shall not prevent a subsequent act, which would have originally constituted a
violation, from having all the force and affect of an original violation. The
receipt of rent by Landlord with knowledge of the breach of any covenant of this
Lease shall not be deemed a waiver of such breach.
R. Indemnification. Lessee shall release, indemnify, save and
hold harmless Lessor, together with all of its agents, successors, assigns and
attorneys, from and against all claims, actions, damages, liability and expenses
incurred in connection with loss of life, personal injury and/or damage to the
property arising from or out of any occurrence in, upon or at the Leased
Property, or the occupancy or use by Lessee of the Leased Property or any part
thereof, or occasioned wholly or in part by any act or omission of Lessee, its
agents, successors, assigns or invitees. Lessor shall release, indemnify, save
and hold harmless Lessee, together with all of its agents, successors, assigns
and attorneys, from and against all claims, actions, damages, liability and
expenses incurred in connection with loss of life, personal injury and/or damage
to the Leased Property arising from or out of any occurrence occasioned wholly
or in part by any act or omission of Lessor, its agents, successors, assigns or
invitees.
S. Notice by Registered or Certified Mail. Any notice under this
Lease must be in writing and must be sent by registered or certified mail to the
last address of the party to whom the notice is to be given, as designated by
such party in writing. Landlord hereby designates its address as 1828 Raymond
Road, Jackson, Mississippi 39204. Tenant hereby designates its address as 2222
Ponce De Leon Boulevard, 6th Floor, Coral Gables, Florida 33134.
T. Lease Binding Upon Heirs, Executors, Administrators,
Successors, and Assigns of Landlord and Tenant. The covenants, terms,
conditions, provisions, and undertakings in this Lease or in any renewals
thereof shall extend to and be binding upon the heirs, executors,
administrators, successors, and assigns of the respective parties hereto, as if
they were in every case named and expressed, and shall be construed as covenants
running with the land; and wherever reference is made to either of the parties
hereto, it shall be held to include and apply also to the heirs, executors,
administrators, successors, and assigns of such party, as if in each and every
case so expressed.
- 6 -
<PAGE> 7
U. Entire Agreement. This Lease contains the entire agreement
between the parties and cannot be changed, altered, or amended without the
express written consent of all parties hereto. This Agreement shall be construed
under the laws of the State of Mississippi.
JCD PARTNERSHIP, A MISSISSIPPI
PARTNERSHIP, LESSOR
By: /s/. C. David Finch, Jr., M.D.
---------------------------------------
C. DAVID FINCH, JR., M.D., Partner
By: /s/ Charles D. Finch, Sr.
---------------------------------------
CHARLES D. FINCH, SR. Partner
By: /s/ Jeffery C. Finch
---------------------------------------
JEFFERY C. FINCH, Partner
Attest: RENEX DIALYSIS FACILITIES, INC., A
MISSISSIPPI CORPORATION, LESSEE
By: /s/ James P. Shea
- ---------------------------------- ---------------------------------------
Secretary JAMES P. SHEA, President
STATE OF FLORIDA
COUNTY OF DADE
PERSONALLY APPEARED BEFORE ME, the undersigned authority in and
for the jurisdiction aforesaid, the within named C. DAVID FINCH, JR. M.D.,
CHARLES D. FINCH, SR., and JEFFERY C. FINCH, who, after having been by me first
duly sworn, state on their oath that they are all partners of JCD PARTNERSHIP, a
Mississippi Partnership, and that they signed, executed, delivered and entered
into the above and foregoing Lease Contract and Agreement for and on behalf of
said partnership being first duly authorized so to do.
SWORN TO AND SUBSCRIBED BEFORE ME, this the 29th day of December,
1995.
My Commission Expires: /s/ Bryan W. Bauman
August 04, 1997 --------------------------------
Commission No.: CC-796271 NOTARY PUBLIC
- 7 -
<PAGE> 8
STATE OF FLORIDA
COUNTY OF DADE
PERSONALLY APPEARED BEFORE ME, the undersigned authority in and
for the jurisdiction aforesaid, the within named JAMES P. SHEA, who, after
having been by me first duly sworn, stated on his oath that he is president of
RENEX DIALYSIS FACILITIES, INC., a Mississippi corporation, and that he signed,
executed, delivered, and entered into the above and foregoing Lease Contract and
Agreement for and on behalf of said corporation being first duly authorized so
to do.
SWORN TO AND SUBSCRIBED BEFORE ME, this 29th day of December,
1995.
My Commission Expires: /s/ Bryan W. Bauman
August 04, 1997 ----------------------------------
Commission No.: CC-796271 NOTARY PUBLIC
- 8 -
<PAGE> 9
EXHIBIT "A"
Lots Nine (9) and Ten (10) of Square or Block Ten (10) of the
Village of Delta, Louisiana.
BEING THE PROPERTY ACQUIRED BY VENDOR FROM MICHAEL J. CHANEY AND
HIS WIFE, MARY THURMOND CHANEY, AS EVIDENCED BY ACT OF SALE
BEARING DATE OF NOVEMBER 27,1987, RECORDED IN THE NOTARIAL
RECORDS OF MADISON PARISH, LOUISIANA IN CONVEYANCE BOOK "86',
PAGE 228, UNDER REGISTER NUMBER 75375.
LESS AND EXCEPT THEREFROM that certain portion of the above
described property taken in expropriation suit styled "State of
Louisiana, Through the Department of Highways vs. J. R. Hill, et
al.", bearing docket number 6144 on the docket of the Sixth
Judicial District Court, with the Order of Expropriation dated
November 20, 1969, being recorded in the Notarial Records of
Madison Parish, Louisiana in Conveyance Book "22", page 421 under
register number 36640, said land included within the
expropriation suit being particularly described as follows,
to-wit:
A certain tract or parcel of land and all the rights, ways,
privileges, servitudes and advantages thereunto belonging or in
anywise appertaining, situated in the Parish of Madison, State of
Louisiana, in Section 15, Township 16 North, Range 15 East, LAND
DISTRICT NORTH OF RED RIVER, and shown as Parcel No. 7-2 on a
white print of a plat of survey made by Fred O. Eldred and
Phillip C. Holland, Registered I-and Surveyors, dated March 10,
1969, revised, annexed to the above entitled and numbered suit,
said tract or parcel of land being outlined in red and being more
particularly described according to said plat of survey, as
follows:
Begin at the point which is the southwest comer
of Lot 9 of Block 10; from said point of beginning
proceed North 40 degrees 40 minutes 33 seconds
West a distance to 15.55 feet and comer; thence
proceed North 76 degrees 30 minutes 6 seconds
East a distance of 34.02 feet and comer; thence
proceed South 49 degrees 17 minutes 28 seconds
West a distance of 30.26 feet to the point of
beginning.
Lots Seven (7) and Eight (8) of Square or Block Ten (10) of the
Village of Delta, Louisiana.
LESS AND EXCEPT THEREFROM that certain portion of the above
described property conveyed to the State of Louisiana and the
Department of Highways of the State of Louisiana, by Angelina
Griefield, et al., as evidenced by Sale bearing date of October
13, 1969, recorded in the Notarial Records of Madison Parish,
Louisiana in Conveyance Book '22", page 125 under register number
36453, which property is particularly described as follows,
to-wit:
<PAGE> 10
PARCEL NO. 7-1
A certain tract or parcel of land together with all of the
improvements thereon and all rights, ways, privileges,
servitudes, and advantages thereunto belonging or anywise
appertaining, situated in Madison Parish, State of Louisiana, and
being a portion of Lot 8 of Block 10 and in Section 15, Township
16 -North, Range 15 East, Land District North of Red River,'the
boundary lines of which tract are more particularly described as
follows:
Begin at a point in the southwest comer of Lot 8 of Block 10 and
run thence North 40' 40' 33" West a distance of 46.39 feet to a
point and comer; thence North 761 30' 06" East a distance of
67.45 feet to a point and comer; thence South 40' 40' 33" East a
distance of 15.55 feet to a point and comer; thence South 49' 17'
28" West a distance of 60 feet to the point of beginning and
containing an area of 1,858 Square Feet, more or less, identified
as Parcel No. 7-1, as shown on the Right of Way map, prepared by
Fred O. Eldred and Philip G. Holland, Registered Land Surveyors,
dated March 10, 1969, for the TALLULAH-DELTA INTERSTATE HIGHWAY,
STATE PROJECT NO. 45 108-02, RELOCATION LA-US 80 and the I.C.R.R.
AT DELTA SECTION, F.A.P. NO. 1-20-4(3)169, MADISON PARISH, said
map being filed in the office of the Louisiana Department of
Highways in the City of Baton Rouge, Louisiana.
Being a portion of the same property acquired by Vendors in the
Succession of T.M. Morrissey filed and recorded November 24,
1943, in COB "GG" at page 483 and in the Will of Mrs. Josephine
R. Morrissey, dated December 14, 1965, filed September 14, 1966,
Probate No. 14, 1966, Chancery Court of Warren County,
Mississippi.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Renex Corp. and
Subsidiaries on Form S-1 of our report dated April 18, 1997, except for Note 18
for which the date is April 22, 1997, appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Miami, Florida
July 31, 1997
<PAGE> 1
Exhibit 23.2
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 8, 1995, in the Registration Statement (Form S-1)
and related Prospectus of Renex Corp. for the registration of 3,000,000 shares
of common stock.
ERNST & YOUNG LLP
Miami, Florida
July 31, 1997
<PAGE> 1
Exhibit 23.3
LAW OFFICES
LASHLY & BAER
A PROFESSIONAL CORPORATION
714 LOCUST STREET
ST. LOUIS, MISSOURI 03101-1699
(314) 621-2939
FAX: (314) 621-6844
July 31, 1997
We hereby consent to be named as an expert in the "Experts" section of the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission by Renex Corp.
Very truly yours,
LASHLY & BAER, P.C.
By: /s/ Richard Watters
------------------------------
Richard Watters
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