RENAL CARE GROUP INC, S-1/A, 1996-10-30

RENAL CARE GROUP INC
S-1/A, 1996-10-30
MISC HEALTH & ALLIED SERVICES, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1996

REGISTRATION NO. 333-13813

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RENAL CARE GROUP, INC.
(Exact name of Registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 8092 62-1622383
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>

2100 WEST END AVE, SUITE 800
NASHVILLE, TENNESSEE 37203
(615) 321-2333
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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SAM A. BROOKS, JR.
RENAL CARE GROUP, INC.
2100 WEST END AVE, SUITE 800
NASHVILLE, TENNESSEE 37203
(615) 321-2333
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:

<TABLE>
<S> <C>
STEVEN L. POTTLE, ESQ. PETER J. ROMEO, ESQ.
ALSTON & BIRD HOGAN & HARTSON L.L.P.
ONE ATLANTIC CENTER 555 THIRTEENTH ST., N.W.
1201 WEST PEACHTREE STREET WASHINGTON, D.C. 20004
ATLANTA, GEORGIA 30309-3424 (202) 637-5600
(404) 881-7000
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable on or after the effective date of this Registration Statement.

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. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

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 OCTOBER 30, 1996

3,000,000 SHARES

(LOGO) RENAL CARE GROUP

COMMON STOCK

Of the 3,000,000 shares of Common Stock of Renal Care Group, Inc. ("Renal
Care Group" or the "Company") offered hereby (the "Offering"), 1,276,318 shares
are being offered by the Company and 1,723,682 shares are being offered by
certain stockholders of the Company (the "Selling Stockholders"). See "Principal
and Selling Stockholders." The Company will not receive any of the proceeds from
the sales of shares of Common Stock by the Selling Stockholders. The Common
Stock of the Company (the "Common Stock") is quoted on the Nasdaq National
Market System (the "Nasdaq Stock Market") under the symbol "RCGI." On October
28, 1996, the last sale price of the Common Stock as reported by the Nasdaq
Stock Market was $35.00 per share.

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SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
---------------------
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.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total(3)................... $ $ $ $
</TABLE>

(1) See "Underwriting" for a description of indemnification arrangements with
the Underwriters.

(2) Before deducting expenses of the Offering, payable by the Company, estimated
at $600,000.

(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to an additional 450,000 shares of Common Stock on the same
terms and conditions as set forth above, solely to cover over-allotments,
if any. If such option is exercised in full, the total "Price to Public,"
"Underwriting Discount" and "Proceeds to Company" will be $ ,
$ and $ , respectively. See "Underwriting."
---------------------

The Common Stock is offered by the several Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by them and
subject to approval of certain legal matters by counsel for the Underwriters.
The Underwriters reserve the right to reject orders in whole or in part and to
withdraw, to cancel or to modify the offer without notice. It is expected that
delivery of certificates representing the Common Stock will be on or about
November , 1996.

EQUITABLE SECURITIES CORPORATION
HAMBRECHT & QUIST
MORGAN KEEGAN & COMPANY, INC.
NEEDHAM & COMPANY, INC.

The date of this Prospectus is November , 1996

<PAGE> 3
RENAL CARE GROUP CENTER LOCATIONS

[Map showing Renal Care Group Center locations]

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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S COMMON
STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including notes thereto, appearing elsewhere in this Prospectus.
Prospective investors should also review carefully the information set forth
under "Risk Factors." Unless otherwise indicated, the information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.

THE COMPANY

Renal Care Group is a specialized provider of nephrology services to
patients with kidney disease, including patients suffering from chronic kidney
failure, also known as end-stage renal disease ("ESRD"). The Company provides
dialysis and ancillary services to approximately 5,000 patients through 76
outpatient dialysis centers in 11 states and manages an additional ten dialysis
centers in five states, six of which are in affiliation with leading medical
centers such as Vanderbilt University Medical Center and The Cleveland Clinic
Foundation. In addition to its outpatient dialysis center operations, Renal Care
Group provides acute dialysis services through contractual relationships with 44
hospitals, staff-assisted dialysis services to 37 skilled nursing facilities and
physician practice management services to 16 of the 62 nephrologists who are
affiliated with the Company's outpatient dialysis centers.

Renal Care Group was formed by leading nephrologists with the objective of
creating an entity with the clinical and financial capability to manage the full
range of care for ESRD patients on a cost-effective basis. The Company is
working in conjunction with its affiliated physicians to develop fully
integrated nephrology networks that will implement clinical protocols designed
to improve outcomes and reduce costly medical complications associated with
ESRD.

Nephrology is the specialized practice of medicine dedicated to providing
care to patients with ESRD and other kidney-specific ailments. A key component
of the nephrologist's practice is the dialysis facility, where ESRD patients
receive their dialysis treatments three times per week in a technologically
advanced outpatient setting. Outpatient dialysis facilities generally are owned
by nephrology groups and comprise an integral component of the nephrologist's
practice because of the critical role that dialysis plays in the treatment of
ESRD patients. According to the Health Care Financing Administration ("HCFA"),
there were approximately 2,800 dialysis centers in the United States at the end
of 1995. The Company believes that approximately 45% were owned by multi-center
dialysis companies, 25% were owned by independent physicians and other companies
and 30% were hospital-based centers. Although numerous nephrology groups have in
the past sold their dialysis centers to entities engaged in the business of
owning and operating such facilities, the Company believes that many nephrology
groups recognize the need to affiliate with an entity having broader
capabilities that can provide clinical, financial and business expertise to help
them manage the increasingly complex and time-consuming aspects of both their
dialysis center operations and their nephrology practices. In addition, many
hospitals are motivated to sell or outsource management of their dialysis
facilities as they refocus their resources on their core business in response to
increasing competitive pressures.

ESRD is the state of advanced renal impairment that is irreversible and
imminently lethal. ESRD patients require dialysis or kidney transplantation to
sustain life, with dialysis being the form of treatment provided to all such
patients other than those who receive a transplant (approximately 6% of ESRD
patients annually). Since 1972, individuals with ESRD who are eligible for
Social Security have been entitled to Medicare benefits regardless of age or
financial circumstances. According to data published by HCFA, the number of
patients receiving chronic dialysis services in the United States has grown at a
compound annual rate of 8.9%, from 66,000 patients in 1982 to approximately
200,000 in 1995. According to the United States Renal Data System ("USRDS"), the
ESRD incidence rate among Medicare-eligible patients increased by 97.3% from
1984 to 1993. The USRDS estimates that the total direct medical charges for ESRD
were approximately $11.1 billion in 1994. The Company attributes the growth in
the number of ESRD patients principally to the aging of the general population
and better treatment and survival of patients with hypertension, diabetes and
other illnesses that lead to chronic kidney disease. In addition, improved
technology has enabled older patients and those who previously could not
tolerate dialysis due to other

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<PAGE> 5

illnesses to benefit from this life-sustaining treatment. The Company believes
these trends will result in continued growth in the number of ESRD patients and
increased demand for dialysis and associated nephrology services.

Renal Care Group's objective is to develop fully integrated nephrology
provider networks to assume and manage the clinical and financial risk
associated with providing renal disease management services on a capitated
basis. The Company seeks to achieve this objective by (i) acquiring, developing
and managing outpatient and university-based dialysis centers, (ii) integrating
its dialysis centers with affiliated nephrology practices, (iii) developing a
protocol-driven ESRD management model to enhance clinical outcomes and (iv)
providing an appropriate range of ancillary services to ESRD patients. The
Company believes an integrated network of nephrologists and dialysis centers,
combined with the Company's clinical expertise, management experience and access
to capital, will provide significant advantages to patients and third-party
payors by improving the quality of care while reducing the overall costs
associated with treating patients with all forms of kidney disease, including
those who have ESRD.

RECENT DEVELOPMENTS

On September 30, 1996, the Company completed a merger with RenalWest, L.C.
("RenalWest") which was accounted for as a pooling of interests. RenalWest,
which has 18 affiliated nephrologists, operates 19 freestanding hemodialysis
centers and three home peritoneal dialysis centers serving approximately 1,200
patients in the state of Arizona. RenalWest also provides inpatient dialysis
services to 16 acute care hospitals and staff-assisted dialysis services to 37
skilled nursing facilities.

In October 1996, the Company acquired a dialysis company in Anniston,
Alabama and the rights to develop a dialysis facility in Bay City, Texas, which
together serve an aggregate of approximately 200 patients.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,276,318 shares
Common Stock offered by the Selling
Stockholders............................... 1,723,682 shares
Common Stock to be outstanding after the
Offering(1)................................ 13,902,272 shares
Use of proceeds.............................. For general corporate purposes, which may
include potential future acquisitions. See
"Use of Proceeds."
Nasdaq Stock Market symbol................... RCGI
</TABLE>

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(1) Excludes (i)1,912,993 shares subject to options outstanding at a weighted
average exercise price of $20.12 per share, (ii) 220,000 shares subject to
warrants outstanding at an exercise price of $7.50 per share and (iii)
184,000 shares of Common Stock that may be issued upon conversion of
$1,380,000 in principal amount of Convertible Senior Subordinated
Promissory Notes (the "Convertible Notes"). See "Management -- Stock Option
and Stock Purchase Plans" and "Capitalization."

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<PAGE> 6

SUMMARY COMBINED FINANCIAL AND STATISTICAL DATA

(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)

The following presents summary combined financial and statistical data for
the periods indicated of Renal Care Group, five companies (the "Founding
Companies") acquired in simultaneous transactions in February 1996 (the
"Combination"), Main Line Suburban Dialysis Centers, Inc. ("Main Line") acquired
in April 1996 and RenalWest acquired in September 1996. The financial data set
forth below are unaudited and have been derived from the financial statements of
Renal Care Group and the Founding Companies and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes appearing elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31,(1) 30,(1)
----------------------------------------- -----------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995(2) 1995 1996 1996(3)
------- -------- -------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue................ $80,442.. $110,670.. $115,329 $ 115,329 $84,749 $97,363 $97,363
Patient care costs......... 58,314.. 75,366.. 80,417 79,949 58,956 68,124 68,124
General and administrative
expenses................ 6,799 12,616 12,866 15,466 9,775 9,860 9,860
Provision for doubtful
accounts................ 2,010 2,914 3,995 3,995 2,775 1,835 1,835
Depreciation and
amortization............ 2,416 3,414 3,661 3,914 2,824 3,370 3,370
Merger expenses............ -- -- -- -- -- 1,960 1,960
------- -------- -------- -------- ------- ------- -------
Income from operations..... 10,903 16,360 14,390 12,005 10,419 12,214 12,214
Income before income
taxes................... 10,443 15,714 13,377 11,499 9,813 12,514 12,514
Net income................. 7,129 7,838
Earnings per share......... $ 0.64(4) $ 0.59
Weighted average shares
outstanding............. 11,091(4) 13,207
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED(5)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................. $24,226 $ 66,175
Total assets.................................................... 88,779 130,728
Total debt...................................................... 6,638 6,638
Stockholders' equity............................................ 54,104 96,053
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATISTICAL DATA:
Treatments(6).......................... 470,035 598,274 624,988 465,637 510,360
Patients at period-end(7).............. 3,697 4,063 4,246 4,067 4,727
Outpatient centers at period-end(8).... 70 72 75 73 83
Acute service agreements at
period-end.......................... 43 43 44 44 44
</TABLE>

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(1) The Combination was accounted for using historical cost, in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 48,
because no single owner group from any of the Founding Companies held more
than a 50% equity interest in the Company as of the closing of the
Company's initial public offering. Accordingly, the Company has recorded
the net assets acquired at the Founding Companies' historical cost basis,
as determined by generally accepted accounting principles.
(2) Pro forma information for the year ended December 31, 1995 gives effect to
(a) the provision for federal and state income taxes as if not-for-profit
and S-corporations had been subject to such taxes;

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(b) additional estimated corporate overhead of approximately $2.6 million
that would have been incurred had the Combination occurred at the beginning
of 1995; and (c) certain other adjustments to reflect the Combination and
the initial public offering. See Pro Forma Combining Financial Statements
of Renal Care Group, Inc. (of Delaware).

(3) Pro forma information for the nine months ended September 30, 1996 gives
effect to the provision for federal and state income taxes as if
not-for-profit and S-corporations had been subject to such taxes. See Pro
Forma Combining Financial Statements of Renal Care Group, Inc. (of
Delaware). Net income and earnings per share before merger expenses for the
nine month period ended September 30, 1996 would have been $9,072,000 and
$0.69, respectively.

(4) The calculation of pro forma earnings per share for the year ended December
31, 1995 excludes 1,156,000 shares of Common Stock issued in the initial
public offering. The net proceeds from these shares were used for general
corporate purposes and therefore are excluded from the calculation. All
subsequent periods reflect the full impact of all shares issued in the
initial public offering.

(5) Adjusted to reflect the sale of 1,276,318 shares offered by the Company
hereby at an assumed public offering price of $35.00 per share and the
application of the net proceeds therefrom.

(6) Treatments include all hemodialysis treatments provided in outpatient
facilities, as well as all home dialysis treatments and acute care
treatments provided in hospitals. Peritoneal dialysis treatments are stated
in hemodialysis equivalents. Excludes treatments provided at centers
managed by the Company.

(7) Number of ESRD patients under care of outpatient centers at period-end,
including patients receiving treatments at the Company's outpatient centers
and in the patients' homes. Excludes patients receiving care at centers
managed by the Company.

(8) Includes centers managed by the Company.

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<PAGE> 8

RISK FACTORS

In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby. This
Prospectus contains certain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from the
results anticipated in these forward-looking statements as a result of the risk
factors set forth below and other factors described elsewhere in this
Prospectus.

LIMITED COMBINED OPERATING HISTORY

Renal Care Group has conducted operations as a combined entity only since
February 1996, when it acquired the Founding Companies effective upon the
closing of its initial public offering. Since the initial public offering, the
Company has made several additional acquisitions of entities that, in some
cases, have been part of the Company's combined operations for only a few weeks
or months. In particular, the Company's recent acquisition of RenalWest may
place significant demands on the Company's management and other resources, and
there can be no assurance that the Company will be able to integrate the
business operations of RenalWest successfully or that there will be any
operating efficiencies or economies of scale between the businesses. Further,
there can be no assurance that the Company will be able to integrate the
dialysis centers, information systems and related operations of the entities
acquired by it or to continue operating them profitably. Nor can there be any
assurance that the Company's management group will be able to implement
effectively the Company's operating and growth strategy while it is engaged in
acquisition activity. Failure to integrate successfully the centers and other
operations acquired by the Company or to implement effectively the Company's
operating and growth strategy could have a material adverse impact on the
Company's results of operations, financial condition and business. See
"Business -- Strategy."

DEPENDENCE ON GOVERNMENT REIMBURSEMENT

Renal Care Group is reimbursed for dialysis services primarily at fixed
rates established under the ESRD program administered by HCFA. Under this
program, once a patient becomes eligible for Medicare reimbursement, Medicare is
responsible for payment of 80% of the composite rate determined by HCFA for
dialysis treatments. Since 1972, qualified patients with ESRD have been entitled
to Medicare benefits regardless of age or financial circumstances. The Company
estimates that approximately 68%, 68% and 67% of its net revenue for the years
ended December 31, 1994 and 1995 and for the nine months ended September 30,
1996, respectively, consisted of reimbursements from Medicare under the ESRD
program, including revenue for the reimbursement of the administration of a
bio-engineered hormone, erythropoietin ("EPO"), to treat anemia. Since 1983,
Congressional actions have resulted in occasional changes in the Medicare
composite reimbursement rate, and the Company is not able to predict whether
future rate changes will be made. In August 1996, HCFA announced that an
increase in the composite rate may be appropriate within the next few years.
However, in making this announcement, HCFA also noted that any rate increase
must be considered in the context of Medicare budgetary concerns. HCFA stated
that it may recommend an update to the composite rate for fiscal year 1998.
Legislation or regulations may be enacted in the future that may significantly
modify the ESRD program or otherwise affect the amount paid for the Company's
services. Any such action could have a material adverse effect on the Company's
results of operations, financial condition and business. Furthermore, increases
in operating costs that are subject to inflation, such as labor and supply
costs, without a compensating increase in prescribed rates, may have a material
adverse effect on the Company's earnings in the future. The Company is also
unable to predict whether certain ancillary services, for which the Company
currently is reimbursed separately, may in the future be included in the
Medicare composite rate. See "Business -- Reimbursement -- Medicare
Reimbursement Rates."

Since June 1, 1989, the Medicare ESRD program has provided reimbursement
for the administration of EPO to dialysis patients. EPO is beneficial in the
treatment of anemia, a medical complication frequently experienced by dialysis
patients. The Company believes that in excess of 80% of its patients receive
EPO. Revenues from the administration of EPO (the substantial majority of which
are reimbursed through Medicare and Medicaid programs) were approximately 18%,
17% and 19% of the net revenue of the Company

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<PAGE> 9

for each of the years ended December 31, 1994 and 1995 and for the nine months
ended September 30, 1996, respectively. EPO reimbursement significantly affects
the Company's earnings. Any reduction in reimbursement rates for EPO could have
a material adverse effect on the Company's results of operations, financial
condition and business. EPO is produced by a single manufacturer, and any
interruption of supply or product cost increases could have a material adverse
effect on the Company's business. See "Business -- Reimbursement -- Medicare
Reimbursement Rates."

All of the states in which the Company currently operates dialysis centers
provide Medicaid (or comparable) benefits to qualified recipients to supplement
their Medicare entitlement. The Company estimates that approximately 8%, 7% and
7% of the Company's net revenue for the years ended December 31, 1994 and 1995
and for the nine months ended September 30, 1996, respectively, were funded by
Medicaid or comparable state programs. The Medicaid programs are subject to
statutory and regulatory changes, administrative rulings, interpretations of
policy and governmental funding restrictions, all of which may have the effect
of decreasing program payments, increasing costs or modifying the way the
Company operates its dialysis business. See
"Business -- Reimbursement -- Medicaid Reimbursement" and
"Business -- Government Regulation."

DEPENDENCE ON OTHER SOURCES OF REIMBURSEMENT

The Company estimates that approximately 24%, 25% and 26% of its net
revenue for the years ended December 31, 1994 and 1995 and for the nine months
ended September 30, 1996, respectively, were derived from sources other than
Medicare and Medicaid. Substantially all of this revenue comes from private
insurance for chronic dialysis treatments and payments from hospitals with which
the Company has contracts for the provision of acute dialysis services. In
general, private insurance reimbursement and payments for treatments performed
at hospitals are at rates significantly higher than 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. In addition, the Company
believes that health maintenance organizations ("HMOs") and other managed care
providers may have a strong incentive to reduce further the costs of specialty
care and may seek to reduce amounts paid for dialysis. The Company is unable to
predict whether and to what extent changes in these private reimbursement rates
may be made in the future. Any reduction in the rates paid by private insurers
and hospitals or a significant change in the Company's payor mix towards
additional Medicare or Medicaid reimbursement could have a material adverse
effect on the Company's results of operations, financial condition and business.
Similarly, increases in operating costs that are subject to inflation, such as
labor and supply costs, without a compensating increase in private reimbursement
rates, could have a material adverse effect on the Company's results of
operations, financial condition and business. See "Business -- Operations" and
"-- Reimbursement."

RISKS ASSOCIATED WITH GROWTH STRATEGY

The Company's strategy includes expanding its dialysis business through the
acquisition and development of dialysis centers and the acquisition and
management of nephrology practices. Competition for acquisitions in the dialysis
industry has increased significantly in recent years and, as a result, the cost
of acquiring dialysis centers has increased. There can be no assurance that the
Company will be able to identify, acquire or profitably integrate acquired
dialysis centers and nephrology practices. Acquisitions involve a number of
risks related to integration, including adverse short-term effects on the
Company's reported operating results, diversion of management's attention,
dependence on retention, hiring and training of key personnel, including Medical
Directors for each dialysis center, some or all of which could have a material
adverse effect on the Company's results of operations, financial condition and
business. In addition, there can be no assurance that acquired or managed
dialysis centers will achieve net revenue and earnings that justify the
Company's investment therein or expenses related thereto. In order to implement
its growth strategy, the Company may require substantial capital resources and
need to incur, from time to time, short- and long-term bank indebtedness. The
Company also may need to issue, in public or private transactions, equity or
debt securities, the terms of which will depend on market and other conditions.
There can be no assurance that any such

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<PAGE> 10

additional financing will be available on terms acceptable to the Company, if at
all. To the extent that the Company is unable to acquire dialysis centers or
acquire or manage nephrology practices, to integrate such centers and practices
successfully, or to obtain financing on terms acceptable to the Company, its
ability to expand its business could be reduced significantly. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Strategy."

DEPENDENCE ON PHYSICIAN REFERRALS

The Company's dialysis centers depend upon their Medical Directors and
other local nephrologists for referrals of ESRD patients for treatment and one
or a few physicians typically account for all or a significant portion of the
patient referral base at a center. The loss of one or more referring physicians
at a particular center could have a material adverse effect on the operations of
such center, and the loss of a significant number of referring physicians could
have a material adverse effect on the Company's results of operations, financial
condition and business. The illegal remuneration provisions of the Social
Security Act and similar state laws prohibit the payment of remuneration to
induce referrals. Furthermore, in many instances stockholders of the Company are
the primary referral sources for the dialysis centers operated by the Company.
If such ownership is deemed to violate applicable federal or state law, such
physician owners may be forced to dispose of their stock in the Company. The
Company cannot predict the effect such disposition would have on its business or
stock price. See "Business -- Operations -- Relationships With Referral Sources;
Medical Directors" and "Business -- Government Regulation."

OPERATIONS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION

The Company is subject to extensive federal, state and local regulation
regarding, among other things, fraud and abuse, patient referral, health and
safety, environmental compliance and toxic waste disposal. Much of this
regulation, particularly in the area of patient referral, is complex and open to
differing interpretations. There are two general frameworks under which patient
referrals are regulated. First, the illegal remuneration provisions of the
Social Security Act make it illegal for any person to, among other things,
solicit, offer, receive or pay any remuneration in exchange for referring, or to
induce the referral of, a patient for treatment which may be paid for by
Medicare, Medicaid or a similar state program. Second, certain provisions
contained in the Omnibus Budget Reconciliation Act of 1989 and the Omnibus
Budget Reconciliation Act of 1993 ("Stark I" and "Stark II," respectively)
prohibit physician referrals for clinical laboratory services and "designated
health services" (including some of the specific services offered by the
Company) to entities with which a physician or an immediate family member has a
"financial relationship." These laws contain certain statutory exceptions, and
federal agencies have promulgated regulations clarifying certain of these
provisions and exceptions and creating certain additional exceptions, or "safe
harbors," from such prohibitions. Many states have enacted similar provisions of
law, which may not have identical prohibitions or exceptions, but which may
apply regardless of whether Medicare or Medicaid funds are involved. However,
due to the breadth of the statutory provisions and the absence in many instances
of regulations or court decisions addressing the specific arrangements by which
the Company conducts its business, it is possible that some of the Company's
practices might be challenged under these laws. Violations of the federal laws
are punishable by civil sanctions, including disqualification from participation
in the Medicare or Medicaid programs, and, in the case of the federal illegal
remuneration provisions, criminal sanctions. There can be no assurance that the
Company's practices will not be challenged by governmental authorities, or that
the Company will not be subject to sanctions under such laws or be required to
alter or discontinue certain of its practices. In addition, there can be no
assurance that if the Company is required to alter its practices, that it will
be able to do so successfully. The occurrence of any of these events may result
in a material adverse effect on the Company's net revenues and earnings. See
"Business -- Government Regulation."

A number of proposals for health care reform have been made recently to
provide greater governmental control of health care spending and to provide
broader access to health care services. For example, the Health Insurance
Portability and Accountability Act of 1996 was signed into law in August 1996.
This law, among other things, provides for insurance portability for individuals
who lose or change jobs, limit exclusions

9
<PAGE> 11

for pre-existing conditions, and establish a pilot program for medical savings
accounts. It is uncertain what additional health care reform legislation, if
any, ultimately will be implemented or whether other changes in the
administration or interpretation of governmental health care programs will
occur. The Company cannot predict what effect future health care legislation or
other changes in the administration or interpretation of governmental health
care programs may have on the Company's operations. See "Business -- Government
Regulation -- Health Care Legislation."

SUBSTANTIAL COMPETITION

The dialysis industry is fragmented and is consolidating rapidly.
Accordingly, the industry is highly competitive, particularly from the
standpoint of competition for the acquisition of existing dialysis centers and
the development of relationships with referring physicians. Many of the
Company's competitors have substantially greater financial resources and more
established operations and infrastructure than the Company and may compete with
the Company for acquisitions of dialysis centers and nephrology practices. In
addition, the Company may also experience competition from referring physicians
who open their own dialysis centers. There can be no assurance that the Company
will be able to compete effectively with any such competitors. See
"Business -- Competition."

DELAYS AND COSTS OF IMPLEMENTING INTEGRATED OPERATING SYSTEMS

The Company is in the process of implementing and integrating certain
information and operating systems for its centers, all of which have been
acquired within the last several months. The Company may experience delays,
complications and expenses in implementing, integrating and operating such
systems, any of which could have a material adverse effect on the Company's
results of operations, financial condition and business. Furthermore, while the
Company believes that the technology that it implements will be adequate for the
Company's current needs, such systems may require modification, improvement or
replacement as the Company expands or if new technologies render the Company's
systems obsolete. Such modifications, improvements or replacements may require
substantial expenditures to design and implement and may require interruptions
in operations during periods of implementation, any of which could have a
material adverse effect on the Company's results of operations, financial
condition and business. See "Business -- Operations."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent upon the services of certain key executive
officers and the Chairman of the Board. The Company's growth will depend in part
upon its ability to attract and retain skilled employees, for whom competition
is intense. The Company believes that its future success will also depend on its
ability to attract and retain qualified physicians to serve as Medical Directors
of its dialysis centers. The Company does not carry key-man life insurance on
any of its officers. The loss by the Company of any of its executive officers or
the Chairman of the Board, or the inability to attract and retain qualified
management personnel and Medical Directors, could have a material adverse effect
on the Company's results of operations, financial condition and business. See
"Management."

SIGNIFICANT INFLUENCE BY MANAGEMENT AND PHYSICIAN STOCKHOLDERS

Upon completion of the Offering, the Company's directors, executive
officers and physician stockholders will beneficially own approximately 42.4% of
the outstanding shares of Common Stock (41.0% if the Underwriters'
over-allotment option is exercised in full). The Company's Amended and Restated
Certificate of Incorporation and Bylaws do not provide for cumulative voting.
Although directors, executive officers and physician stockholders do not have
any arrangements or understandings among themselves with respect to the voting
of the shares of Common Stock beneficially owned by such persons, such persons
acting together would be able to significantly influence the election of
directors and might be able to approve or disapprove any matter submitted to a
vote of stockholders, including a change in control in the Company. See
"Management" and "Principal and Selling Stockholders."

10
<PAGE> 12

POTENTIAL CONFLICTS OF INTEREST

The Company is a party to Medical Director agreements with Stephen D.
McMurray, M.D., W. Tom Meredith, M.D., Thomas A. Lowery, M.D., John D. Bower,
M.D. and Kenneth E. Johnson, M.D., each of whom is a director and stockholder of
the Company. In addition, the Company leases space from Dr. Bower, Dr. Lowery,
and an entity in which Dr. Meredith owns a one-third interest. The chairman of
the Company, Harry R. Jacobson, M.D., serves as Deputy Vice Chancellor of Health
Affairs at Vanderbilt University, and the Company has an agreement with
Vanderbilt University Medical Center to manage its outpatient dialysis facility.
The outside interests of these directors may give rise to certain conflicts of
interest concerning the fulfillment of their responsibilities as directors of
the Company, and such conflicts of interest could result in decisions that may
not reflect the interests of all stockholders equally. See "Certain
Transactions."

ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS

The Company's Amended and Restated Certificate of Incorporation and Bylaws
contain a number of provisions that could inhibit a change in control of the
Company by means of a tender offer, merger, proxy contest or otherwise,
including advance notice and super-majority voting provisions, provisions that
establish a classified board of directors, and provisions that enable the Board
of Directors to issue "blank check" preferred stock. See "Description of Capital
Stock -- Special Provisions of the Amended and Restated Certificate of
Incorporation, Bylaws and Delaware Law."

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the Common Stock may fluctuate substantially in
response to variations in the Company's operating and financial results, changes
in earnings estimates by securities analysts, general economic and market
conditions, and other factors. See "Price Range of Common Stock."

POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock in the public market or the
availability of such shares for sale following the Offering could adversely
affect the prevailing market price for the Common Stock. After completion of the
Offering, the Company will have 13,902,272 shares of Common Stock outstanding
(14,352,272 if the Underwriters' over-allotment option is exercised in full). Of
those shares, approximately 7,485,000 shares, including the 3,000,000 shares
offered hereby (7,935,000 and 3,450,000 shares, respectively, if the
Underwriters' over-allotment option is exercised in full), will be freely
tradeable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act of 1933, as amended (the "Securities Act"). In
addition, up to 1,912,993 shares of Common Stock are issuable upon the exercise
of options which will be freely tradeable without restriction unless purchased
by an "affiliate." The remaining approximately 6,417,272 shares outstanding,
plus up to 404,000 shares of Common Stock which may be issued upon exercise of
warrants or conversion of convertible securities, will become eligible for
future sale in the public market in accordance with Rule 144 under the
Securities Act, as currently in effect, beginning in February 1998. The Company
has granted certain "piggyback" registration rights with respect to shares of
Common Stock to the holders of a total of approximately 6,417,272 shares of
Common Stock and 220,000 shares issuable upon the conversion of warrants, such
"piggyback" registration rights not being exercisable except in connection with
a Company registration. The Company's officers and directors, and certain
stockholders of the Company, who upon completion of the Offering will own an
aggregate of approximately 5,902,000 shares of Common Stock, have agreed not to,
directly or indirectly, offer, sell, contract to sell, grant any option to
purchase or otherwise sell or dispose of any shares of Common Stock or other
capital stock or any securities convertible into, or exercisable or exchangeable
for, any shares of Common Stock or other capital stock for a period of 180 days
after the Offering, without the prior written consent of Equitable Securities
Corporation. See "Shares Eligible for Future Sale."

11
<PAGE> 13

THE COMPANY

Renal Care Group is a specialized provider of nephrology services that was
founded in June 1995 to focus on the provision of care to patients with kidney
disease, including patients suffering from chronic kidney failure. In February
1996, the Company commenced its business with the simultaneous acquisition in
the Combination of the five Founding Companies: Kidney Care, Inc. and Medical
Enterprises Ltd. ("MEL" and collectively "Kidney Care"); D.M.N. Professional
Corporation ("DMN"); Tyler Nephrology Associates ("Tyler"); Kansas Nephrology
Association ("Kansas"); and Renal Care Group, Inc., a Tennessee corporation
("Tennessee"). At the time of the Combination, the Founding Companies had an
aggregate of 41 dialysis centers serving approximately 2,663 patients in eight
states. The aggregate consideration paid by the Company in the Combination was
approximately 4,834,000 shares of Common Stock with an aggregate value at the
time of the Combination of approximately $87.0 million, $32.8 million in cash,
$7.3 million in notes payable and $13.8 million of assumed debt.

In February 1996, the Company entered into an agreement to develop a
dialysis center for the University of Louisville. In April 1996, the Company
announced an agreement to operate and manage the outpatient dialysis activities
of The Cleveland Clinic Foundation located in Cleveland, Ohio. The Cleveland
Clinic Foundation operates two dialysis facilities staffed by 11 nephrologists
serving approximately 370 patients.

On April 26, 1996, the Company completed a merger with Main Line Suburban
Dialysis, Inc. ("Main Line"). Main Line, based in Wynnewood, Pennsylvania,
operates five dialysis centers serving approximately 350 patients in the
suburban Philadelphia area. The Company acquired Main Line in exchange for
shares of Common Stock with an aggregate value of approximately $18.2 million at
the time the Company and Main Line entered into the merger agreement. The merger
was accounted for as a pooling of interests.

On July 1, 1996, the Company completed a merger with The Nephrology
Centers, Inc. ("TNC"), which is based in Pensacola, Florida and operated two
dialysis centers serving approximately 250 patients in the Pensacola and
Crestview, Florida areas. TNC constructed two additional satellite centers which
opened in September 1996. The Company acquired TNC in exchange for shares of
Common Stock with an aggregate value of approximately $10.2 million at the time
the Company and TNC entered into the merger agreement. The merger was accounted
for as a pooling of interests.

On September 30, 1996, the Company completed a merger with RenalWest, which
has 18 affiliated nephrologists and operates 19 freestanding hemodialysis
centers and three home peritoneal dialysis centers serving approximately 1,200
patients in the state of Arizona. RenalWest also provides inpatient dialysis
services to 16 acute care hospitals and staff-assisted dialysis services to 37
skilled nursing facilities. The Company acquired RenalWest in exchange for
shares of Common Stock with an aggregate value of approximately $72.0 million at
the time the Company and RenalWest entered into the merger agreement. The merger
was accounted for as a pooling of interests.

The Company's address is 2100 West End Avenue, Suite 800, Nashville,
Tennessee 37203, and its telephone number is (615) 321-2333.

12
<PAGE> 14

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,276,318 shares of
Common Stock offered by it, at an assumed public offering price of $35.00 per
share, are estimated to be approximately $41.9 million after deducting estimated
underwriting discounts and offering expenses payable by the Company, (or
approximately $57.0 million if the Underwriters' over-allotment option is
exercised in full). The net proceeds will be used for working capital and
general corporate purposes, including the potential acquisition and development
of additional dialysis centers. The Company continually reviews and evaluates
acquisition candidates as part of its growth strategy and is at various stages
of evaluation, discussion or negotiation with a number of such candidates. The
Company is not a party to any definitive agreement or letter of intent regarding
any material acquisition, nor are there any material acquisitions that it
considers probable. Pending application of the net proceeds as described above,
the Company intends to invest the net proceeds in short-term, interest-bearing,
investment-grade securities. The Company will not receive any proceeds from the
sale of shares of Common Stock offered by the Selling Stockholders. See
"Principal and Selling Stockholders."

PRICE RANGE OF COMMON STOCK

The Common Stock is quoted on the Nasdaq Stock Market under the symbol
"RCGI." The following table sets forth the high and low sales prices for the
Common Stock for the quarters indicated as reported on the Nasdaq Stock Market.

<TABLE>
<CAPTION>
PRICE RANGE
-------------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1996:
First Quarter(1)....................................................... $28.75 $23.25
Second Quarter......................................................... 36.00 27.75
Third Quarter.......................................................... 39.00 25.50
Fourth Quarter(2)...................................................... 37.50 34.50
</TABLE>

- ---------------

(1) Represents trading of the Common Stock from February 7, 1996 through March
31, 1996.

(2) Represents trading of the Common Stock from October 1, 1996 through October
28, 1996.

The last reported sale price of the Common Stock on the Nasdaq Stock Market
on October 28, 1996 was $35.00. As of October 28, 1996 there were approximately
1,800 stockholders of record.

DIVIDEND POLICY

The Company has never paid any cash dividends on its capital stock. The
Company currently anticipates that all of its earnings will be retained 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 declaration of dividends will be subject
to the discretion of the Company's Board of Directors and its review of the
Company's results of operations, financial condition, capital requirements and
surplus, contractual restrictions to pay such dividends and other factors it
deems relevant.

13
<PAGE> 15

CAPITALIZATION

The following table sets forth the short-term indebtedness and consolidated
capitalization of the Company as of September 30, 1996 and as adjusted to give
effect to the sale by the Company of 1,276,318 shares of Common Stock offered by
it at an assumed public offering price of $35.00 per share and the application
of the net proceeds therefrom as set forth under "Use of Proceeds." This table
should be read in conjunction with the Company's Combined Financial Statements
and related notes appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term debt........... $ 6,638 $ 6,638
======= =======
Long-term debt and capital lease obligations........................... -- --
Stockholders' equity:
Preferred Stock, $0.01 par value (10,000,000 shares authorized, no
shares issued and outstanding).................................... -- --
Common Stock, $0.01 par value (22,000,000 shares authorized,
12,555,954 shares issued and outstanding; 13,832,272 shares issued
and outstanding as adjusted)...................................... 126 139
Additional paid-in capital (stockholders' equity)...................... 53,860 95,796
Retained earnings...................................................... 118 118
------- -------
Total stockholders' equity................................... 54,104 96,053
------- -------
Total capitalization......................................... $54,104 $96,053
======= =======
</TABLE>

14
<PAGE> 16

SELECTED HISTORICAL, PRO FORMA AND COMBINED FINANCIAL DATA

The Selected Historical and Pro Forma Financial Data -- Renal Care Group,
Inc. on page 16 represent the historical results of operations of the Company
and includes the results of operations of Main Line and RenalWest, which were
acquired during 1996 in pooling-of-interests transactions; however, this
information does not include the results of operations for the Founding
Companies for any periods prior to the nine months ended September 30, 1996
except on a pro forma basis.

The Selected Combined and Pro Forma Financial Data -- Renal Care Group,
Inc. and Founding Companies on page 17 represent the results of operations had
the Founding Companies and the Company been combined on January 1, 1991 without
giving effect to the initial public offering for periods prior to February 1,
1996 except on a pro forma basis.

The Combination was accounted for using historical cost, in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 48, because no
single owner group from any of the Founding Companies held more than 50% equity
interest in the Company as of the closing of the Company's initial public
offering. Accordingly, the Company has recorded the net assets acquired at the
Founding Companies' historical cost basis, as determined by generally accepted
accounting principles.

The Selected Historical Financial Data -- Renal Care Group, Inc. for the
years ended December 31, 1994 and 1995 and the Selected Combined Financial
Data -- Renal Care Group, Inc. and Founding Companies for the years ended
December 31, 1993, 1994 and 1995 are derived from audited data included
elsewhere in this Prospectus. The unaudited combined financial statements have
been prepared on the same basis as the audited combined financial statements
and, in the opinion of management, contain all adjustments consisting of normal,
recurring accruals necessary for a fair presentation of the combined financial
position and the combined results of operations for the periods presented. The
following data should be read in conjunction with the financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that appear elsewhere in this Prospectus.

15
<PAGE> 17

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA -- RENAL CARE GROUP, INC.

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31,(1) SEPTEMBER 30,
--------------------------------------------------------- -----------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(2) 1995(1) 1996(3) 1996(4)
------ ------ ------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue.......................... $7,367 $8,713 $18,126 $41,627 $42,971 $115,329 $32,072 $90,987 $97,363
Patient care costs................... 5,336 6,309 13,034 25,003 26,908 79,949 20,090 63,397 68,124
General and administrative
expenses........................... 1,725 1,626 3,649 8,721 8,701 15,466 6,521 9,427 9,860
Provision for doubtful accounts...... 147 170 584 1,418 2,355 3,995 1,596 1,710 1,835
Depreciation and amortization........ 147 153 601 1,484 1,580 3,914 1,120 3,197 3,370
Merger expenses...................... -- -- -- -- -- -- -- 1,960 1,960
------ ------ ------- ------- ------- -------- ------- ------- -------
Total operating costs and expenses... 7,355 8,258 17,868 36,626 39,544 103,324 29,327 79,691 85,149
------ ------ ------- ------- ------- -------- ------- ------- -------
Income from operations............... 12 455 258 5,001 3,427 12,005 2,745 11,296 12,214
Interest income (expense), net....... (33) (44) (128) (363) (452) (506 ) (335) 394 300
------ ------ ------- ------- ------- -------- ------- ------- -------
Income (loss) before income taxes.... $ (21) $ 411 $ 130 $ 4,638 $ 2,975 11,499 $ 2,410 11,690 12,514
====== ====== ======= ======= ======= =======
Provision for income taxes........... 4,370 3,109 4,676
Tax adjustment(5).................... -- 1,500 --
-------- ------- -------
Net income........................... $ 7,129 $ 7,081 $ 7,838
======== ======= =======
Earnings per share................... $ 0.64 (6) $ 0.53 $ 0.59
======== ======= =======
Weighted average shares
outstanding........................ 11,091 (6) 13,350 13,207
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,(1)
--------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------ ------ ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................... $ 303 $ 774 $ 3,519 $ 3,171 $(1,418) $24,226
Total assets.................................................. 2,242 2,613 14,393 17,318 20,765 88,779
Total debt.................................................... 406 367 5,248 5,420 7,340 6,638
Stockholders' equity.......................................... 1,057 1,468 4,901 5,919 4,566 54,104
</TABLE>

- ---------------

(1) The financial information for each of the years and nine month period ended
September 30, 1995 does not include the Founding Companies except on a pro
forma basis. See "Selected Combined Financial Data" for financial
information of the Company including the income statement and balance sheet
data of the Founding Companies.

(2) Pro forma information for the year ended December 31, 1995 gives effect to
(a) the provision for federal and state income taxes as if not-for-profit
and S-corporations had been subject to such taxes; (b) additional estimated
corporate overhead of approximately $2.6 million that would have been
incurred had the Combination occurred at the beginning of 1995; and (c)
certain other adjustments to reflect the Combination and the initial public
offering. See Pro Forma Combining Financial Statements of Renal Care Group,
Inc. (of Delaware).

(3) The financial information for the nine months ended September 30, 1996
include the results of operations for the Founding Companies since February
1996 when they were acquired by the Company simultaneously with its initial
public offering.

(4) Pro forma information for the nine months ended September 30, 1996 gives
effect to the provision for federal and state income taxes as if
not-for-profit and S-corporations had been subject to such taxes. See Pro
Forma Combining Financial Statements of Renal Care Group, Inc. (of
Delaware). Net income and earnings per share before merger expenses for the
nine month period ended September 30, 1996 would have been $9,072,000 and
$0.69, respectively.

(5) Adjustment to reflect one-time provision in accordance with FAS 109 for
federal and state income taxes arising from timing differences due to the
conversion of RenalWest and MainLine from cash-basis to accrual-basis tax
reporting.

(6) The calculation of pro forma earnings per share for the year ended December
31, 1995 excludes 1,156,000 shares of Common Stock issued in the initial
public offering. The net proceeds from these shares were used for general
corporate purposes and therefore are excluded from the calculation. All
subsequent periods reflect the full impact of all shares issued in the
initial public offering.

16
<PAGE> 18

SELECTED COMBINED AND PRO FORMA FINANCIAL DATA -- RENAL CARE GROUP, INC.

AND FOUNDING COMPANIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31,(1) 30,(1)
------------------------------------------------------------- -----------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(2) 1995 1996 1996(3)
------- ------- ------- -------- -------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue...................... $56,575 $64,309 $80,442 $110,670 $115,329 $115,329 $84,749 $97,363 $97,363
Patient care costs............... 40,516 46,752 58,314 75,366 80,417 79,949 58,956 68,124 68,124
General and administrative
expenses....................... 5,409 4,423 6,799 12,616 12,866 15,466 9,775 9,860 9,860
Provision for doubtful
accounts....................... 1,131 1,309 2,010 2,914 3,995 3,995 2,775 1,835 1,835
Depreciation and amortization.... 1,752 1,895 2,416 3,414 3,661 3,914 2,824 3,370 3,370
Merger expenses.................. -- -- -- -- -- -- -- 1,960 1,960
------- ------- ------- -------- -------- ------- -------
Total operating costs and
expenses....................... 48,808 54,379 69,539 94,310 100,939 103,324 74,330 85,149 85,149
------- ------- ------- -------- -------- ------- -------
Income from operations........... 7,767 9,930 10,903 16,360 14,390 12,005 10,419 12,214 12,214
Interest income (expense), net... (693) (570) (460) (646) (1,013) (506 ) (606) 300 300
------- ------- ------- -------- -------- ------- -------
Income before income taxes....... $ 7,074 $ 9,360 $10,443 $ 15,714 $ 13,377 11,499 $ 9,813 $12,514 12,514
======= ======= ======= ======== ======== =======
Provision for income taxes....... 4,370 4,676
-------
Net income (loss)................ $ 7,129 $ 7,838
=======
Earnings per share............... $ 0.64 (4) $ 0.59
=======
Weighted average shares
outstanding.................... 11,091 (4) 13,207
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,(1)
------------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996(1)
------- ------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 6,244 $ 9,638 $14,761 $ 18,158 $ 12,237 $24,226
Total assets................................................ 24,864 28,670 42,770 49,918 60,899 88,779
Total debt.................................................. 4,495 4,037 8,265 8,620 15,915 6,638
Stockholders' equity........................................ 14,475 18,506 24,211 26,825 25,358 54,104
</TABLE>

- ---------------

(1) The financial information for each of the years and nine month periods
represents the results of operations of Renal Care Group and Founding
Companies combined without giving effect to the Company's initial public
offering for periods prior to February 1996 except on a pro forma basis.

17
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial
information referenced in the Index to Financial Statements, including the notes
thereto, and the other financial information appearing elsewhere in this
Prospectus.

OVERVIEW

Renal Care Group is a specialized provider of nephrology services to
patients with kidney disease, including patients suffering from chronic kidney
failure. The Company commenced operations in February 1996 when it acquired the
Founding Companies simultaneous with the completion of its initial public
offering. At the time of the Combination, the Founding Companies were
established businesses engaged in the operation of outpatient dialysis centers
as separate, independent entities for an average of 14 years. For all periods
presented, the Combined Financial Statements include the financial information
of the Founding Companies, Main Line, a merger which was completed in April
1996, and RenalWest, a merger which was completed in September 1996. Both the
Main Line and RenalWest mergers were accounted for as poolings of interests.
RenalWest was organized in September 1993; consequently, the Combined Financial
Statements do not include a full year of operating results for that period.
Because the Founding Companies, Main Line and RenalWest were independent
entities that had not been operated by the Company's management prior to their
respective dates of acquisition, the historical results prior to such times may
not be indicative of future performance. In addition, the Combined Financial
Statements do not give effect to any operating efficiencies prior to such dates
of acquisition that the Company believes typically would be attainable in an
integrated organization.

Renal Care Group believes that its dialysis centers, on an individual
basis, generally did not have the management, capital and other resources prior
to being operated by the Company that are required to generate sustainable
growth in the increasingly competitive dialysis industry. By combining the
dialysis centers under an experienced executive management team and providing
the combined entity with access to greater financial and other resources,
management believes the Company is positioned to pursue an aggressive growth
strategy comprised of increased internal growth and strategic acquisitions.
Significant factors that influence internal growth in the dialysis industry
include the number of nephrologists associated with a company's dialysis centers
and the availability of capital to fund the development of new centers. The
Company plans to increase internal growth by providing management, capital and
other resources required to develop new centers and to recruit additional
nephrologists to increase utilization of the Company's existing network of
dialysis centers. Since the Combination, the Company has completed four
acquisitions, including Main Line and RenalWest, which added approximately 2,000
ESRD patients, and management believes that additional acquisition candidates
will be available as the dialysis industry continues its rapid consolidation.

Renal Care Group has implemented company-wide supply, insurance and other
agreements that have resulted in lower operating costs for the combined entity.
Other operating efficiencies that the Company has realized include consolidation
of employee benefits, cash management and other similar functions. The Company
believes it will be able to realize economies of scale in both acquired and
managed operations by consolidating corporate and regional management expenses.
However, a portion of any operating efficiencies that may be achieved will be
offset by the need for increased general and administrative expenses as the
Company adds support services at the corporate headquarters.

SOURCES OF NET REVENUE

The Company's net revenue has been derived primarily from the following
sources: (i) outpatient hemodialysis services; (ii) ancillary services
associated with dialysis, primarily the administration of EPO; (iii) home
dialysis services; (iv) inpatient hemodialysis services provided pursuant to
contracts with acute care hospitals and skilled nursing facilities; (v)
management contracts with hospital-based and medical university dialysis
programs; and (vi) laboratory services. ESRD patients typically receive 156
dialysis treatments per year, with reimbursement for services provided primarily
by the Medicare ESRD program

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<PAGE> 20

based on rates that are established by HCFA. For the nine months ended September
30, 1996, approximately 74% of the Company's net revenue was derived from
reimbursement under the Medicare and Medicaid programs. 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. For patients with health insurance, dialysis generally is
reimbursed at rates higher than Medicare during the first 18 months of
treatment, after which time Medicare becomes the primary payor. Reimbursement
for dialysis services provided pursuant to a hospital contract is negotiated
with the individual hospital and generally is higher on a per treatment
equivalent basis than the Medicare rate. Because dialysis is a life-sustaining
therapy used to treat this chronic disease, utilization is predictable and is
not subject to seasonal fluctuations.

RESULTS OF OPERATIONS

The results of operations for all periods in the table below and in the
period comparisons that follow reflect the historical operations of the Company,
including the operations of Main Line and RenalWest, combined with the
operations of the Founding Companies. However, management of the Company did not
operate the Founding Companies until February 1996, Main Line until April 1996
and RenalWest until September 1996, the respective dates of acquisition of such
companies.

The following table sets forth, for the periods indicated, the percentage
of net revenue represented by the respective financial items:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -------------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Patient care costs............... 72.5 68.1 69.7 69.6 70.0
General and administrative
expenses....................... 8.5 11.4 11.2 11.5 10.1
Provision for doubtful
accounts....................... 2.5 2.6 3.5 3.3 1.9
Depreciation and amortization.... 3.0 3.1 3.2 3.3 3.5
Merger expenses.................. -- -- -- -- 2.0
----- ----- ----- ----- -----
Total operating costs and
expenses....................... 86.4 85.2 87.5 87.7 87.5
----- ----- ----- ----- -----
Income from operations........... 13.6% 14.8% 12.5% 12.3% 12.5%
===== ===== ===== ===== =====
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995

Net Revenue. Net revenue increased from $84,749,000 for the nine months
ended September 30, 1995 to $97,363,000 for the nine months ended September 30,
1996, an increase of $12,614,000, or 14.9%. This increase resulted primarily
from a 9.6% increase in the number of treatments from 465,637 in the 1995 period
to 510,360 in the 1996 period and a 4.4% increase in the average revenue per
treatment from $182 in the 1995 period to $190 in the 1996 period. The revenue
per treatment increase was due to an increase in EPO utilization and
higher-revenue generating acute treatments. The remaining revenue increase
resulted from management fee income.

Patient Care Costs. Patient care costs consist of costs directly related
to the care of patients, including direct labor, drugs, and other medical
supplies and operational costs of facilities. Patient care costs increased from
$58,956,000 for the nine months ended September 30, 1995 to $68,124,000 for the
nine months ended September 30, 1996, an increase of $9,168,000, or 15.6%. This
increase was due to the increase in the number of treatments, which caused a
corresponding increase in the use of drugs, supplies and labor. Patient care
costs as a percentage of net revenue increased slightly from 69.6% in the 1995
period to 70.0% in the 1996 period. Average patient care cost per treatment
increased from $127 in the 1995 period to $133 in the 1996 period. This increase
was due to normal health care inflation, increased EPO utilization and the
increase in higher cost acute treatments.

General and Administrative Expenses. General and administrative expenses
include corporate office costs and clinic costs not directly related to the care
of patients, including clinic administration, accounting,

19
<PAGE> 21

billing and information systems. General and administrative expenses increased
from $9,775,000 for the nine months ended September 30, 1995 to $9,860,000 for
the nine months ended September 30, 1996, an increase of $85,000, or 0.8%. The
net increase was a result of increased corporate overhead expenses partially
offset by reduced compensation to prior physician owners. General and
administrative expenses as a percentage of revenue decreased from 11.5% in the
1995 period to 10.1% in the 1996 period.

Provision for Doubtful Accounts. The provision for doubtful accounts
decreased from $2,775,000 for the nine months ended September 30, 1995 to
$1,835,000 for the nine months ended September 30, 1996. The provision for
doubtful accounts as a percentage of net revenue decreased from 3.3% in the 1995
period to 1.9% in the 1996 period. This decrease represented a return to a
normal level of provision for doubtful accounts in the 1996 period from the 1995
period when additional expense was recorded due to a deterioration in the aging
of certain accounts receivable. The provision for doubtful accounts is a
function of patient 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.

Depreciation and Amortization. Depreciation and amortization increased
from $2,824,000 for the nine months ended September 30, 1995 to $3,370,000 for
the nine months ended September 30, 1996, an increase of $546,000, or 19.3%.
This increase was due to the purchase of patient care facilities previously
leased, higher than normal replacement of dialysis machines and the purchase of
a clinical computer system.

Merger Expenses. Merger expenses of $1,960,000 represented legal,
accounting and employee severance and related benefits in connection with the
Main Line and RenalWest acquisitions.

Income from Operations. Income from operations increased from $10,419,000
for the nine months ended September 30, 1995 to $12,214,000 for the nine months
ended September 30, 1996, an increase of $1,795,000, or 17.2%. Income from
operations as a percentage of net revenue increased from 12.3% in the 1995
period to 12.5% in the 1996 period.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Net Revenue. Net revenue increased from $110,670,000 for the year ended
December 31, 1994 to $115,329,000 for the year ended December 31, 1995, an
increase of $4,659,000, or 4.2%. This increase resulted primarily from a 4.5%
increase in the number of treatments from 598,274 in the 1994 period to 624,988
in the 1995 period. Average revenue per treatment remained constant for the 1994
and 1995 periods at $185.

Patient Care Costs. Patient care costs increased from $75,366,000 for the
year ended December 31, 1994 to $80,417,000 for the year ended December 31,
1995, an increase of $5,051,000, or 6.7%. This increase was due to the increase
in the number of treatments, which caused a corresponding increase in the use of
drugs, supplies and labor. Patient care costs as a percentage of net revenue
increased from 68.1% in the 1994 period to 69.7% in the 1995 period. Average
patient care costs per treatment increased from $126 in the 1994 period to $129
in the 1995 period. This increase was the net result of normal health care
inflation and lower EPO utilization costs.

General and Administrative Expenses. General and administrative expenses
increased from $12,616,000 for the year ended December 31, 1994 to $12,866,000
for the year ended December 31, 1995, an increase of $250,000, or 2.0%. General
and administrative expenses as a percentage of net revenue decreased from 11.4%
in the 1994 period to 11.2% in the 1995 period. General and administrative
expenses decreased in the 1995 period due to the growth in revenue during the
period.

Provision for Doubtful Accounts. The provision for doubtful accounts
increased from $2,914,000 for the year ended December 31, 1994 to $3,995,000 for
the year ended December 31, 1995. The provision for doubtful accounts as a
percentage of net revenue increased from 2.6% in the 1994 period to 3.5% in the
1995 period. This increase was due to additional bad debt expense recorded as a
result of a revision in the estimated collectibility of accounts receivable for
RenalWest to reflect the Company's accounts receivable valuation policy.

20
<PAGE> 22

Depreciation and Amortization. Depreciation and amortization increased
from $3,414,000 for the year ended December 31, 1994 to $3,661,000 for the year
ended December 31, 1995, an increase of $247,000, or 7.2%. Depreciation and
amortization as a percentage of net revenue increased from 3.1% in the 1994
period to 3.2% in the 1995 period.

Income from Operations. Income from operations decreased from $16,360,000
for the year ended December 31, 1994 to $14,390,000 for the year ended December
31, 1995, a decrease of $1,970,000, or 12.0%. Income from operations as a
percentage of net revenue decreased from 14.8% in the 1994 period to 12.5% in
the 1995 period.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Net Revenue. Net revenue increased from $80,442,000 for year ended
December 31, 1993 to $110,670,000 for the year ended December 31, 1994, an
increase of $30,228,000, or 37.6%. This increase resulted primarily from a 27.3%
increase in the number of treatments from 470,035 in the 1993 period to 598,274
in the 1994 period, with a significant component of treatment growth resulting
from the full-year impact in 1994 of RenalWest which operated for only four
months in 1993. In addition, the average revenue per treatment increased 7.6%
from $172 in the 1993 period to $185 in the 1994 period due to an increase in
acute treatments and greater EPO utilization.

Patient Care Costs. Patient care costs increased from $58,314,000 for the
year ended December 31, 1993 to $75,366,000 for the year ended December 31,
1994, an increase of $17,052,000, or 29.2%. This increase was due to the
increase in the number of treatments, which caused a corresponding increase in
the use of labor, drugs and supplies. Patient care costs as a percentage of net
revenue decreased from 72.5% in the 1993 period to 68.1% in the 1994 period.
Average patient care costs per treatment increased 0.8%, from $125 in the 1993
period to $126 in the 1994 period. This increase was due to normal health care
inflation, increased EPO utilization, increased acute treatments and the
inclusion of RenalWest as of September 1993.

General and Administrative Expenses. General and administrative expenses
increased from $6,799,000 for the year ended December 31, 1993 to $12,616,000
for the year ended December 31, 1994, an increase of $5,817,000, or 85.6%.
General and administrative expenses increased as a percentage of net revenue
from 8.5% in the 1993 period to 11.4% in the 1994 period due primarily to the
inclusion of RenalWest as of September 1993 and increases in compensation to
prior physician owners.

Provision for Doubtful Accounts. The provision for doubtful accounts
increased from $2,010,000 for the year ended December 31, 1993 to $2,914,000 for
the year ended December 31, 1994. The provision for doubtful accounts as a
percentage of net revenue increased from 2.5% in the 1993 period to 2.6% in the
1994 period.

Depreciation and Amortization. Depreciation and amortization increased
from $2,416,000 for the year ended December 31, 1993 to $3,414,000 for the year
ended December 31, 1994, an increase of $998,000, or 41.3%. This net increase
was due to the purchase of patient care facilities in the normal course of
business and the inclusion of RenalWest as of September 1993.

Income from Operations. Income from operations increased from $10,903,000
for the year ended December 31, 1993 to $16,360,000 for the year ended December
31, 1994, an increase of $5,457,000, or 50.1%. Income from operations as a
percentage of net revenue increased from 13.6% in the 1993 period to 14.8% in
the 1994 period.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital primarily for the acquisition and the
development of dialysis centers, the purchase of property and equipment for
existing centers and to finance working capital requirements. At September 30,
1996, the Company's working capital was $24,226,000, cash and cash equivalents
were $25,476,000 and the Company's current ratio was 1.8:1.

21
<PAGE> 23

The Company's net cash provided by operating activities was $14,061,000 in
the nine months ended September 30, 1996. Generally, cash provided by operating
activities resulted from net income before depreciation and amortization
expense, partially offset by increases in accounts receivable. The Company's net
cash used in investing activities was $45,291,000 in the nine months ended
September 30, 1996. Cash used in investing activities resulted from $39,699,000
of cash, working capital and certain other distributions at the closing of the
Combination (including approximately $6,899,000 in distributions to former
stockholders of the Founding Companies) and $9,880,000 of capital expenditures,
partially offset by the $3,903,000 cash balances of the Founding Companies
acquired at the time of the Combination. Cash provided by financing activities
was $55,365,000 for the nine months ended September 30, 1996. The Company's
initial public offering in February 1996 resulted in the sale of 4,485,000
shares from which the Company received $71,797,000 after offering costs.
Long-term debt repayments totaled $10,266,000, and distributions of $6,246,000
were made to shareholders of acquired companies since the Combination.

The Company's line of credit allows for borrowings of up to $35,000,000 to
be used for acquisitions, working capital and capital expenditures. The line of
credit requires payments of interest only until May 1998 with the balance
outstanding at that time amortized quarterly over the next three years. The
credit facility bears interest at one of two floating rates selected by the
Company: (i) the base rate plus a margin ranging from 0.00% to 1.00% or (ii)
LIBOR plus a margin of 0.95% to 2.70%.

At October 28, 1996, the Company had $1,380,000 of outstanding Convertible
Notes due in December 1996 that are convertible into Common Stock at a price of
$7.50 per share.

A significant component of the Company's growth strategy is the acquisition
and development of dialysis centers. The Company believes that the net proceeds
from the Offering, existing cash and funds from operations, together with funds
available under the line of credit, will be sufficient to meet the Company's
acquisition, expansion, capital expenditure and working capital needs through at
least the end of 1997. In order to finance certain large strategic acquisition
opportunities, the Company may incur from time to time additional short and
long-term bank indebtedness and may issue equity or debt securities, the
availability and terms of which will depend on market and other conditions.
There can be no assurance that such additional financing, if required, will be
available on terms acceptable to the Company.

IMPACT OF INFLATION

A substantial portion of the Company's net revenue is subject to
reimbursement rates that are regulated by the federal government and do not
automatically adjust for inflation. The Company is unable to increase the amount
it receives for the services provided by its dialysis business that are
reimbursed under the Medicare composite rate. Increased operating costs due to
inflation, such as labor and supply costs, without a corresponding increase in
reimbursement rates, may adversely affect the Company's earnings in the future.

22
<PAGE> 24

BUSINESS

Renal Care Group is a specialized provider of nephrology services to
patients with kidney disease, including patients suffering from chronic kidney
failure, also known as end-stage renal disease. The Company provides dialysis
and ancillary services to approximately 5,000 patients through 76 outpatient
dialysis centers in 11 states and manages an additional ten dialysis centers in
five states, six of which are in affiliation with leading medical centers such
as Vanderbilt University Medical Center and The Cleveland Clinic Foundation. In
addition to its outpatient dialysis center operations, Renal Care Group provides
acute dialysis services through contractual relationships with 44 hospitals,
staff-assisted dialysis services to 37 skilled nursing facilities and physician
practice management services to 16 of the 62 nephrologists who are affiliated
with the Company's outpatient dialysis centers.

According to HCFA, there were approximately 2,800 dialysis centers in the
United States at the end of 1995. The Company believes that approximately 45%
were owned by multi-center dialysis companies, 25% were owned by independent
physicians and other companies and 30% were hospital-based centers. Although
numerous nephrology groups have in the past sold their dialysis centers to
entities engaged in the business of owning and operating such facilities, the
Company believes that many nephrology groups recognize the need to affiliate
with an entity having broader capabilities that can also provide clinical,
financial and business expertise to help them manage the increasingly complex
and time-consuming aspects of both their dialysis center operations and their
nephrology practices. In addition, many hospitals are motivated to sell or
outsource management of their dialysis facilities as they refocus their
resources on their core business in response to increasing competitive
pressures. As a result of these and other factors, the dialysis services
industry is undergoing rapid consolidation.

INDUSTRY OVERVIEW

End-Stage Renal Disease

ESRD is the state of advanced renal impairment that is irreversible and
lethal unless treated. This condition is most commonly a result of complications
associated with diabetes, hypertension, certain renal and hereditary diseases,
old age and other factors. In order to sustain life, individuals with ESRD
require either dialysis for the remainder of their lives or successful kidney
transplantation.

According to the USRDS, the total estimated direct medical charges for ESRD
exceeded $11.1 billion during 1994. Of the total direct medical charges for
ESRD, approximately $8.3 billion was paid by the federal government through the
Medicare program. As a result of legislation enacted in 1972, the federal
government provides Medicare funding for patients who are diagnosed with ESRD
regardless of their age or financial circumstances if eligible for Social
Security.

Based on Medicare ESRD enrollment data published by HCFA, the number of
ESRD patients in the United States requiring dialysis treatments has grown from
approximately 66,000 at the end of 1982 to approximately 200,000 at the end of
1995. Based on USRDS data, the ESRD incidence rate among Medicare-eligible
patients for all age groups was approximately 219 patients per million in 1993
as compared to 111 patients per million in 1984. Furthermore, USRDS data
indicates that the incidence rate in patients ages 65 to 74 increased 130% from
1984 to 1993, and in patients ages 75 and older the incidence rate increased
189% over the same period.

The Company attributes the growth in the number of ESRD patients
principally to the aging of the general population and the improved treatment
and increased survival rate of patients with diabetes, hypertension and other
illnesses that lead to ESRD. Moreover, improved dialysis technology has enabled
older patients and those who previously could not tolerate dialysis due to other
illnesses to benefit from this treatment.

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<PAGE> 25

Treatment Options for End-Stage Renal Disease

Currently, the three treatment options for ESRD are (i) hemodialysis, which
is performed either in a hospital setting, an outpatient facility or a patient's
home, (ii) peritoneal dialysis, which is generally performed in the patient's
home, and (iii) kidney transplant surgery. According to HCFA data, in 1995
approximately 83% of patients on dialysis in the United States received
outpatient hemodialysis treatment and approximately 17% received hemodialysis or
peritoneal dialysis in their homes.

- Hemodialysis is the most common form of ESRD treatment and is generally
performed either in a freestanding center or in a hospital. The process of
hemodialysis uses a dialyzer, essentially an artificial kidney, to remove
certain toxins, fluid and chemicals from the patient's blood and a device
to control external blood flow and to monitor certain vital signs of the
patient. The dialysis process occurs across a semi-permeable membrane that
divides the dialyzer into two chambers. While the blood is circulated
through one chamber, a pre-mixed dialysis fluid is circulated through the
adjacent chamber. The toxins and excess fluid contained in the blood cross
the membrane into the dialysis fluid. Hemodialysis treatment usually
requires approximately four hours and is administered three times per week
for the life of the patient pursuant to a nephrologist's plan of care.

- Peritoneal dialysis is generally performed by the patient at home and
uses the patient's peritoneal, or abdominal, cavity to eliminate fluids
and toxins in the patient's blood. Although there are several variations
of peritoneal dialysis, continuous ambulatory peritoneal dialysis ("CAPD")
and continuous cyclic peritoneal dialysis ("CCPD") are the most common.
CAPD uses a sterile dialysis solution which is introduced through a
surgically implanted catheter into the patient's peritoneal cavity. Toxins
in the blood continuously cross the peritoneal membrane into the dialysis
solution. After several hours, the patient drains the used solution and
replaces it with fresh solution. CCPD is performed in a manner similar to
CAPD, but utilizes a mechanical device to cycle dialysis solution through
the peritoneal membrane while the patient is sleeping or at rest. Patients
treated at home are monitored monthly either through a visit from a staff
person from a designated outpatient center or by the patient visiting the
center.

- Kidney transplantation, when successful, is the most desirable form of
therapeutic intervention. However, the shortage of suitable donors
severely limits the availability of this surgical procedure as a treatment
option. Approximately 6% of patients with ESRD undergo kidney
transplantation annually. Typically, transplant surgery is performed by
transplant surgeons and not nephrologists.

Ancillary Services

Nephrologists provide ancillary services to ESRD patients, the most
significant of which is the administration of EPO. EPO is a bio-engineered
protein that mimics a hormone found in a normal kidney by stimulating the
production of red blood cells. EPO is utilized in connection with all forms of
dialysis to treat anemia, a medical complication experienced by almost all ESRD
patients. EPO reduces or eliminates the need for blood transfusions in these
patients. Other ancillary services provided by nephrologists to or in connection
with ESRD patients may include but are not limited to (i) certain laboratory
tests required by Medicare to determine the effectiveness of dialysis
treatments, (ii) intradialytic parenteral nutrition ("IDPN"), which are
nutrients added to a patient's blood during hemodialysis, (iii) studies to test
the degree of a patient's bone deterioration, an ESRD complication, (iv)
electrocardiograms, (v) nerve conduction studies to test for deterioration of a
patient's nerves, another ESRD complication, (vi) Doppler flow testing for the
effectiveness of the patient's vascular access for dialysis, and (vii) blood
transfusions.

Nephrology Practice

Caring for ESRD patients is the primary clinical activity of nephrologists.
Other clinical activities of a nephrologist include the post-surgical care of
kidney transplant patients, the diagnosis and treatment of kidney diseases in
patients who are at risk for developing ESRD, and the diagnosis, treatment, and
management of clinical disorders including hypertension, kidney stones and
autoimmune diseases. Because of the complexity involved in treating patients
with chronic kidney disease, the nephrologist typically assumes the role of
primary

24
<PAGE> 26

care physician for the ESRD patient. The Company believes that while some
nephrologists practice independently or are members of multi-specialty groups,
most nephrologists practice in small single-specialty groups. Nephrology groups
typically provide services in relatively large geographic areas, and it is
common for a major part of a metropolitan area to be served by a single
nephrology group. Most nephrologists also have a significant office practice and
consult on numerous hospitalized patients who are not on dialysis. A
nephrologist typically derives income from services rendered (i) during office
visits, (ii) for the treatment of patients in acute care hospitals and (iii) for
the treatment of patients receiving dialysis services. Medicare reimburses
nephrologists based on a fixed fee per month for outpatient services rendered in
treating ESRD patients and based on designated rate schedules for services to
ESRD patients who are hospitalized.

STRATEGY

Acquire, Develop and Manage Outpatient and University-Based Dialysis Centers

Renal Care Group believes that the acquisition and development of dialysis
centers is the first step in the development of a fully integrated nephrology
management company. When considering the acquisition or development of dialysis
centers, the Company's most important criteria are the ability to secure
significant market share, the availability of one or more leading nephrologists
to serve as medical director(s) of the center and the quality of care provided
by such center. In addition, the Company also considers factors such as
financial results and the potential financial impact on the Company, the growth
potential and demographic characteristics of the market, the convenience of the
location for patients and physicians, the condition of the center and its
equipment, the local labor conditions, and the availability of qualified
clinical personnel.

The Company's acquisition and development strategy contains two primary
elements. First, physicians affiliated with the Company explore acquisition
opportunities from among their contacts with nephrologist owners of dialysis
centers throughout the country. Second, the Company seeks to acquire and/or
develop dialysis centers in underserved or expanding population areas that are
contiguous to the present markets of the Company.

In addition to acquiring and developing freestanding centers, the Company
develops and operates dialysis centers by entering into arrangements with
leading hospitals and university medical dialysis programs for the management of
ESRD care. The Company currently has inpatient dialysis contracts with 44
hospitals. The Company also manages dialysis programs in affiliation with
leading medical centers such as Vanderbilt University Medical Center and The
Cleveland Clinic Foundation. The Company believes that contracts with medical
centers and university dialysis programs provide access to relevant studies and
other research that will enable the Company to determine measurable ESRD
outcomes and thereby enhance both the quality and cost-effectiveness of care. In
addition, the Company believes such affiliations may expand relationships with
highly qualified independent nephrologists and result in increased opportunities
to acquire the dialysis centers of such nephrologists. See
"Business -- Operations."

25
<PAGE> 27

Integrate Dialysis Centers with Nephrology Practices

Renal Care Group intends to integrate its dialysis centers with affiliated
nephrologists into regional delivery networks. In order to facilitate this
integration, the Company attempts to acquire or enter into management agreements
with the practices of affiliated nephrologists. The Company believes that
increased managed care, capitation and other forms of risk-sharing between
payors and providers will require providers to offer integrated nephrology
services through a network of dialysis centers and nephrology practices. The
Company believes such arrangements will enable nephrologists to coordinate and
manage the delivery of care to ESRD patients more effectively. In addition, the
Company believes that a large, well-managed and well-capitalized nephrology
group will have an advantage in recruiting newly-trained nephrologists.

The Company believes that nephrology groups increasingly are recognizing
the need for professional, management and clinical services to assist in the
management of their practices and in the development and administration of the
most effective care for ESRD patients. The Company believes that nephrologists
typically practice independently or in small groups and lack (i) the capital to
expand or develop information systems, (ii) the ability to realize economies of
scale to manage resources or negotiate with suppliers, and (iii) the ability to
develop cost-effective clinical outcome strategies critical to contracting with
managed care payors.

The Company currently manages the practices of 16 nephrologists who have
practice privileges at 15 of its centers. In addition, the Company has certain
rights of first refusal with respect to any proposed arrangement with a third
party for the sale or management of the practices of 27 additional nephrologists
who have practice privileges at 34 of its centers. The Company provides billing,
information systems and general administrative services to the nephrology
practices it manages and is paid a management fee for such services. See
"Business -- Nephrology Practice Management."

Develop a Protocol-Driven ESRD Management Model to Enhance Clinical Outcomes

Renal Care Group believes that the provision of high quality care to ESRD
patients significantly reduces the aggregate costs associated with ESRD by
decreasing the number of days an ESRD patient spends in the hospital and thereby
limiting the most expensive component of ESRD health care. The Company believes
that access to medical research regarding causes and effects of ESRD, including
causes and lengths of hospitalization and resulting gross and standardized
mortality rates, and different types of treatment outcomes, is crucial to the
successful management of ESRD. The Company believes that its affiliation with
university and medical center dialysis programs provides it with access to such
outcomes research and to clinically advanced treatment protocols. For example,
according to data published by the USRDS, during 1993, the average number of
days spent in a hospital per year at risk by dialysis patients was 15.8.
Similarly, the USRDS calculated the overall mortality rate of dialysis patients
during the first year of therapy (starting in the 91st day after initiation of
therapy) to be 25.7% in 1993. Treatment protocols designed to address such
issues as adequacy of dialysis, nutrition, and management of hemodialysis access
complications can significantly improve mortality and decrease hospitalization
rates. The Company believes that the protocols it has implemented in the
dialysis program at Vanderbilt have been effective in maintaining an overall
mortality rate of approximately one-half of the national average and in reducing
the average hospitalization rate per year at risk to less than 10 days per
patient. The Company is in the process of implementing clinical protocols at its
centers and believes that such implementation will enhance outcomes and improve
operating efficiencies.

Provide an Appropriate Range of Ancillary Services

Renal Care Group provides a variety of ancillary services necessary for the
treatment of ESRD patients, the most significant of which is the administration
of EPO. EPO is a bio-engineered protein which stimulates the production of red
blood cells and is used in connection with all forms of dialysis to treat
anemia, a medical complication frequently experienced by ESRD patients. Other
ancillary services offered by the Company include studies to test the degree of
bone deterioration; electrocardiograms; nerve conduction studies to test the
degree of deterioration of nerves; Doppler flow testing to test the
effectiveness of the patient's vascular

26
<PAGE> 28

access for dialysis; and blood transfusions. The Company estimates that less
than 0.5% of its net revenue for the nine months ended September 30, 1996 was
reimbursement for the administration of IDPN.

In addition, the Company requires the services of a clinical laboratory to
perform certain blood testing in connection with dialysis treatment. Pursuant to
a management contract with Kidney Care, the Company provides certain management
services to and uses as a reference lab a full service laboratory owned by
Kidney Care with capacity to perform clinical testing services for up to
approximately 7,000 ESRD patients. Due to certain regulatory constraints, the
Company was not able to acquire the laboratory at the time of the Combination,
but has an option to purchase the assets of such laboratory expiring in April
1999, by which time the Company expects to be in a position to exercise the
option if it so desires. See "Certain Transactions" and "Business -- Government
Regulation."

OPERATIONS

Location, Capacity and Use of Facilities

Renal Care Group operates 76 outpatient dialysis centers in 11 states with
62 affiliated nephrologists and 1,212 certified dialysis stations, excluding ten
centers managed by the Company. The Company leases 61 centers and owns 15
centers. The Company also provides inpatient dialysis services to 44 acute care
hospitals and 37 skilled nursing facilities. Excluding managed centers, 624,988
and 510,360 hemodialysis treatments were provided at the Company's facilities
during the year ended December 31, 1995 and the nine months ended September 30,
1996, respectively.

The Company estimates that its centers were operating at approximately 66%
of capacity as of September 30, 1996, based on the assumption that a dialysis
center is able to provide up to three treatments a day per station, six days a
week. The Company believes it may increase the number of dialysis treatments at
its centers without making additional capital expenditures.

Operation of Facilities

Renal Care Group's dialysis centers provide outpatient hemodialysis and
related services to ESRD patients in a convenient setting. A majority of the
Company's centers utilize volumetric dialysis equipment that accommodates high
flux and high efficiency dialysis treatments. In addition to dialysis stations,
the Company's centers generally contain a nurses' station, a patient waiting
area, examination rooms, a supply room, a water treatment space to purify water
used in hemodialysis treatments, a dialyzer reprocessing room, staff work areas,
offices, and a staff lounge. Many of the Company's centers also have a
designated area for training patients in home dialysis and also offer certain
amenities for the patients.

In accordance with conditions for participation in the Medicare ESRD
program, each of the Company's centers is supervised by a qualified Medical
Director. Each center is managed by an administrator, typically a registered
nurse, who is responsible for the day-to-day operations of the center and its
staff. The staff of each center typically includes registered nurses, licensed
practical or vocational nurses, patient care technicians, social workers,
registered dietitians, a unit clerk, and biomedical equipment technicians. Each
center is staffed in a manner that allows the number of personnel to be adjusted
according to the number of patients receiving treatments.

Home Dialysis

All of Renal Care Group's centers offer various forms of peritoneal and
home hemodialysis, primarily CAPD or CCPD. As of September 30, 1996,
approximately 12% of the patients treated by the Company received home dialysis.
The Company's home dialysis services consist of providing equipment and
supplies, training, patient monitoring and follow-up assistance to patients who
prefer and are able to receive dialysis treatments in their homes. The Company
intends to expand its home dialysis program, which the Company believes is
important to the development of a fully integrated nephrology services company.

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Hospital and Skilled Nursing Facility Care

Certain of Renal Care Group's centers provide dialysis services through
contracts with 44 hospitals located within their respective service areas. Under
these contracts, the Company's centers typically provide equipment, supplies and
personnel required to perform hemodialysis and peritoneal dialysis in connection
with the hospital's inpatient services. Such inpatient dialysis services are
required for patients with acute renal failure resulting from accidents, medical
and surgical complications, patients in the early stage of renal failure and
ESRD patients who require hospitalization for other reasons. The terms of these
contracts are individually negotiated and vary by contract. Most of the
Company's hospital contracts specify predetermined fees per dialysis treatment,
although the Company believes that such fees may be subject to negotiation in
the future as the provision of health care services becomes increasingly
influenced by managed care and subject to capitated arrangements.

The Company also provides staff-assisted dialysis services to 37 skilled
nursing facilities in the Phoenix metropolitan area. A central office dispatches
equipment, supplies and personnel required to perform dialysis treatments in
connection with the extended care services of skilled nursing facilities.

University Division

Renal Care Group currently manages the dialysis programs at Vanderbilt
University Medical Center, The Cleveland Clinic Foundation and Case Western
Reserve University, provides home dialysis services for a group of patients at
the University of Arkansas, provides consulting services to the University of
Michigan Medical Center regarding its dialysis program and is developing a
dialysis center for the University of Louisville. The Company intends to expand
its university and medical center management program and is currently in various
stages of discussions concerning a number of such programs. In addition, the
Company also intends to acquire or develop university and medical center
dialysis centers. The Company believes that its affiliation with leading
nephrology groups will enhance its ability to attract and maintain agreements to
manage the dialysis programs of universities and medical centers. Furthermore,
the Company expects these affiliations will provide a greater number of
patients, including the potential for the development of new centers and access
to highly qualified Medical Directors and outcomes research.

Relationships with Referral Sources; Medical Directors

A key factor in the success of a dialysis center is its relationship with
local nephrologists. An ESRD patient generally seeks treatment at a center where
the patient's nephrologist has practice privileges. Consequently, Renal Care
Group relies on its ability to attract and to meet the needs of referring
nephrologists in order to receive and gain new referrals.

The Company has engaged practicing, board-eligible or board-certified
nephrologists to serve as Medical Directors for each of its centers. Each of the
Company's Medical Directors provides services pursuant to an independent
contractor agreement between the Company and the physician or his or her
professional practice group. Medical Directors' responsibilities primarily
consist of the administration and monitoring of the Company's patient care
policies, including patient education, administration of dialysis treatment,
development and training programs and assessment of all patients. Coordination
of the delivery of care is important in maintaining ESRD patients' general level
of health and in avoiding medical complications that might necessitate
hospitalization.

The Company typically enters into Medical Director agreements with
nephrologists at each of its centers containing terms of seven years with
three-year renewal options. The Company's Medical Director agreements typically
provide for its Medical Directors to be paid fees for their supervisory services
and include non-competition clauses with specific limitations on their ability
to compete with the Company for certain periods of time and in certain
geographic areas. In consideration for such non-competition agreements, the
Company has granted options to purchase shares of Common Stock to the physicians
serving as Medical Directors or their professional practice groups.

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<PAGE> 30

Nephrology Practice Management

Renal Care Group currently manages the practices of 16 physician
nephrologists pursuant to the terms of management service arrangements. Under
these arrangements, the Company typically provides to the physicians, in
exchange for a management fee, certain equipment, supplies and administrative
services, including billing, collection, accounting, human resources and
information systems. Each physician retains exclusive control of the provision
of medical services to his or her patients.

QUALITY ASSURANCE

In order to optimize therapy and improve outcomes, Renal Care Group
establishes and maintains quality criteria for its clinical operations, monitors
patient outcomes in all of its centers, utilizes a Medical Advisory Board to
develop a protocol-driven clinical management model and involves its patients in
their own care.

Quality Criteria

Renal Care Group actively involves its Medical Advisory Board in the
establishment of quality criteria for both owned centers and its acquisition
candidates. Regular evaluation of the prescribed dialysis treatments and the key
physiological parameters of patients constitutes part of the continuous quality
improvement that is the Company's primary clinical objective. The Company
employs a registered nurse as a corporate Quality Assurance Coordinator to
oversee the Company's continuous quality assurance program. In addition, each
center has a quality assurance committee that typically includes the Medical
Director, the center administrator and nurses, as well as other technical
personnel. This committee meets regularly to monitor the quality of care in the
center and to assure compliance with applicable regulations.

Outcomes Data

Renal Care Group believes that an important factor in the successful
management of ESRD is access to a broad database of treatment-specific outcomes
information from which clinical pathways may be defined. The Quality Assurance
Coordinator oversees the collection of patient outcomes and cost data in the
Company's centers to assist in implementing clinical pathways to enhance patient
outcomes while reducing the cost of care. Management believes that the
implementation of such clinical pathways is necessary to improve the overall
quality and operating efficiencies of its dialysis centers and to contract more
effectively with payors in a health care environment increasingly influenced by
managed care.

Medical Advisory Board

Renal Care Group's Medical Advisory Board meets quarterly to monitor the
development and implementation of clinical protocols and to review patient
outcomes. The Medical Advisory Board is chaired by Raymond Hakim, M.D., Ph.D.,
the Company's Chief Medical Officer, and is composed of affiliated
nephrologists. In addition, the Medical Advisory Board is responsible for
establishing, implementing and monitoring the Company's quality assurance
policies and procedures, identifying therapy deficiencies, and evaluating
technological changes. The Medical Advisory Board's principal task is the
development of a protocol-driven clinical management model that will enable the
Company to manage effectively the financial risk associated with ESRD
capitation.

Patient Involvement

The Company also attempts to ensure quality care by instructing all ESRD
patients before and after the initiation of dialytic therapy on methods for
participating in their own care to the fullest extent possible. In addition, in
some of the Company's centers, "self-care" units are formed in which
self-reliance is fostered through instruction and support.

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<PAGE> 31

REIMBURSEMENT

The following table sets forth information regarding the Company's
reimbursement sources:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- -----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Medicare................................ 72 % 68 % 68 % 69 % 67 %
Medicaid................................ 7 8 7 5 7
Private and other payors................ 15 18 20 21 21
Hospital inpatient dialysis services.... 6 6 5 5 5
--- --- --- --- ---
Total......................... 100 % 100 % 100 % 100 % 100 %
=== === === === ===
</TABLE>

The Social Security Act (the "Act") provides for Medicare coverage for
certain individuals who are medically determined to have ESRD. Once an
individual is medically determined to have ESRD, the Act 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 Act
provides that entitlement begins the third month after the month in which a
regular course of renal dialysis is initiated. 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.

Under the Medicare ESRD program, the reimbursement rates per treatment are
fixed but have been adjusted from time to time by legislation. Although this
form of reimbursement limits the allowable charge per treatment, it provides the
Company with predictable and recurring per treatment revenue. The Medicare
composite rate, set by HCFA, governs the Medicare reimbursement available for a
designated group of dialysis services, including the dialysis treatment,
supplies used for such treatment, certain laboratory tests and medications. The
Medicare composite rate is subject to regional differences based on certain
factors, including regional differences in wages. Certain other services and
drugs are eligible for separate reimbursement under Medicare and are not part of
the composite rate, including certain drugs such as EPO and certain physician
ordered tests provided to dialysis patients. The Company generally submits
Medicare claims monthly and is usually paid within 30 days of the submission.

Medicare Eligibility

Set forth below are summaries of the general requirements for participation
(assuming Social Security eligibility) in the Medicare ESRD program:

- Medicare generally covers those who are ages 65 and over, as well as
those who are under age 65 and who have been medically determined to have
ESRD. However, Medicare coverage is secondary for some patients who have
qualifying employer group health insurance.

- For patients eligible for Medicare based solely on ESRD (generally, those
under age 65), Medicare coverage begins three months after the month in
which the patient begins dialysis. During this three-month waiting period,
Medicaid (if the patient is eligible), private insurance, or the patient
is responsible for payment for dialysis services. This waiting period is
waived for individuals who participate in a self-care dialysis training
program.

- For ESRD patients under age 65 who have any employer group health
insurance coverage (regardless of the size of the employer or the
individual's employment status), Medicare coverage is secondary to the
employer coverage during the 18-month period following the establishment
of Medicare eligibility based on ESRD. Medicare continues to be secondary
regardless of whether the individual becomes eligible for Medicare based
on age or disability before the expiration of the 18 months.

- During the period of secondary coverage, 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 rates.
Medicare generally pays the difference between what the employer group
health plan paid and the gross amount payable by Medicare.

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<PAGE> 32

- For patients over ages 65 for whom Medicare already is the primary payor
and who later develop ESRD, Medicare remains the primary payor. (Some
group health coverage does not render Medicare coverage secondary for
beneficiaries eligible for Medicare based on age or disability.) However,
if the patient's employer group health coverage already was primary to
Medicare (based on the size of the employer and the patient's employment
status), then Medicare remains secondary for the 18-month period.

- When Medicare is the primary payor, it reimburses 80% of the amount set
by the Medicare prospective reimbursement system for each treatment. The
beneficiary is responsible for the remaining 20%, as well as any unmet
Medicare deductible amount, although Medicare supplemental insurance,
Medicaid, or other private health insurance may pay on the beneficiary's
behalf.

Following amendments in 1993 to the Medicare Secondary Payor ("MSP")
provisions, HCFA required employer group health plans to serve as the primary
payor during the 18-month period in situations where the beneficiary was
entitled to Medicare Benefits on the basis of both age and ESRD. In April 1995,
HCFA revised its interpretation of the 1993 MSP amendments to require Medicare
to serve as primary payor for the 18 month period only where employer coverage
was already secondary to Medicare for individuals eligible for Medicare benefits
on the basis of both age and ESRD. This change eliminates for some
dually-eligible individuals the 18-month period commencing 90 days after the
start of treatment during which the employer coverage would serve as primary
payor source and reimburse the Company at a rate that the Company believes is
higher than Medicare. Furthermore, HCFA also announced that the revised
interpretation would apply retroactively to August 1993 and, as a result,
amounts collected from employer-based group health plans as primary payors
between August 1993 and April 1995 were to be refunded if the plan was not
already serving as primary payor. In June 1995, the United States District Court
for the District of Columbia issued a preliminary injunction prohibiting HCFA
from applying this revised interpretation retroactively to August 1993, although
a final ruling on the issue has not yet been issued by the court. The Company
has established reserves for the retroactive application of the revised HCFA
interpretation and believes that the amount of such reserves is adequate.

Medicare Reimbursement Rates

The Medicare composite rate for outpatient dialysis services currently
averages $126 per treatment in free standing facilities and may vary depending
on regional wage differences. Medicare reimbursement rates are adjusted
periodically based on certain factors, including legislation and executive and
congressional budget reduction and control processes, inflation and costs
incurred in rendering the services, but in the past have had little relationship
to the cost of conducting business.

The Medicare ESRD composite reimbursement rate was unchanged from
commencement of the program in 1972 until 1983. From 1983 through December 1990,
numerous Congressional actions resulted in net reductions of the average
composite reimbursement rate from a fixed fee of $138 per treatment in 1983 to
approximately $125 per treatment in 1986. Congress increased the ESRD composite
reimbursement rate, effective January 1991, resulting in an average rate of $126
per treatment.

The Medicare ESRD composite reimbursement 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, the Prospective Payment
Assessment Commission ("PROPAC") recommended that the ESRD composite
reimbursement rate be increased by 2.0% for freestanding facilities for fiscal
year 1997. In August 1996, and in response to the March 1996 report of PROPAC,
HCFA announced that an increase in the composite rate may be appropriate within
the next few years. In making this announcement HCFA also stated that any rate
increase must be considered in the context of Medicare budgetary concerns.
Nevertheless, HCFA stated that it may recommend an update to the composite rate
for fiscal year 1998. In January 1996, HCFA announced a three-year demonstration
project involving the enrollment of ESRD patients in managed care organizations.
The demonstration project would adjust payment rates based upon treatment
status, age groups, and the cause of renal failure. Based upon the

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<PAGE> 33

results of the demonstration project, HCFA has stated it would make
recommendations to Congress concerning the appropriateness of paying for ESRD
services on a capitated basis. Congress is not required to implement these
recommendations and could either raise or lower the reimbursement rate. During
the last congressional session, there were various proposals for the reform of
numerous aspects of Medicare. 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 reimbursement rate could have a material
adverse effect on the Company's results of operations, financial condition and
business.

From June 1989 through December 1990, the Medicare ESRD program added $40
per administration of EPO to the dialysis center's allowable composite rate for
dosages of up to 9,999 units per administration. For higher dosages, an
additional $30 per treatment was allowed. Effective January 1991, the Medicare
allowable prescribed rate for EPO was changed to $11 per 1,000 units, rounded to
the nearest 100 units. Subsequently, legislation was enacted to reduce the
Medicare prescribed rate for EPO by $1 to $10 per 1,000 units for administration
of EPO in 1994. For subsequent periods, the Secretary of the Department of
Health and Human Services ("HHS") is authorized to determine an appropriate
rate, which currently is $10 per 1,000 units administered.

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. The programs also serve as supplemental insurance programs for the
Medicare co-insurance portion and provide certain coverages (e.g., oral
medications) that are not covered by Medicare. State regulations generally
follow Medicare reimbursement levels and coverages without any coinsurance
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 Reimbursement/Acute Care Contracts

The Company receives reimbursement from private payors for ESRD treatments
prior to Medicare becoming a patient's primary payor at rates significantly
higher than the per treatment rate set by Medicare. After Medicare becomes a
patient's primary payor, private secondary payors generally reimburse the
Company for 20% of the Medicare per treatment rate. The Company has negotiated
managed care contracts with certain payors at rates that are higher than the
Medicare rate. The Company also receives payments from hospitals under 21 acute
care contracts at rates significantly higher than the Medicare composite rate.

GOVERNMENT REGULATION

General

The Company's dialysis center operations are subject to extensive
governmental regulation at the federal, state and local levels. These
regulations require the Company to meet various standards relating to, among
other things, the management of centers, personnel, maintenance of proper
records, equipment and quality assurance programs. The dialysis centers are
subject to periodic inspection by state agencies and other governmental
authorities to determine if the premises, equipment, personnel and patient care
meet applicable standards. To receive Medicare reimbursement, the Company's
dialysis centers must be certified by HCFA as meeting certain Medicare
conditions of coverage. All of the Company's dialysis centers are so certified.
HCFA has announced that it is in the process of revising the current Medicare
Conditions of Coverage for ESRD services. The Company is unable to predict what,
if any, future changes may occur in the Medicare Conditions of Coverage for ESRD
facilities.

Any changes to the Medicare Conditions of Coverage, or 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 revenues is
derived or a change resulting from health care reform reducing dialysis
reimbursement or reducing or eliminating

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<PAGE> 34

coverage for dialysis services would have a material adverse effect on the
Company's operations, revenues and net earnings. To date, the Company and its
subsidiaries have maintained their licenses and their Medicare and Medicaid
authorizations. 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.

Furthermore, the Company potentially could be held responsible for actions
previously taken by entities it has acquired. As part of its announced
regulatory agenda for 1996, HHS intends to issue a proposed rule that would
automatically assign to the new owner of a Medicare provider or supplier
liability for any Medicare overpayments, violations, or sanctions incurred by or
imposed on, the previous owner. There can be no assurance that previous
operating practices of the Company's acquisitions will not be reviewed and
challenged by government regulators or that the Company will not be liable for
such practices.

Fraud and Abuse

The Company's operations are subject to the illegal remuneration provisions
of the Social Security Act (sometimes referred to as the "anti-kickback"
statute) and similar state laws that impose criminal 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, Medicaid or similar state programs.

Federal enforcement officials may attempt to impose civil false claims
liability with respect to claims resulting from an anti-kickback violation.
Violations of the federal anti-kickback statute are punishable by criminal
penalties, including imprisonment, fines and exclusion of the provider from
future participation in the Medicare or Medicaid programs. Civil penalties for
violations of the federal anti-kickback statute are punishable by criminal
penalties, including imprisonment, fines and exclusion of the provider 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. While
the federal anti-kickback statute expressly prohibits transactions that have
traditionally had criminal implications, such as kickbacks, rebates or bribes
for patient referrals, its language has been construed broadly and has not been
limited to such obviously wrongful transactions. Court decisions state that,
under certain circumstances, the statute is also violated when one purpose (as
opposed to the "primary" or a "material" purpose) of a payment is to induce
referrals. Congress has frequently considered federal legislation that would
expand the federal anti-kickback statute to include the same broad prohibitions
regardless of payer source. In fact, effective January 1, 1997, the Health
Insurance Portability and Accountability Act of 1996 expands the anti-kickback
statute to certain other "Federal Health Care Programs," such as CHAMPUS.

In July 1991 and in November 1992, the Secretary of HHS published
regulations that create exceptions or "safe harbors" for certain business
transactions. 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. The Company seeks to structure its various
business arrangements to satisfy as many safe harbor elements as possible under
the circumstances, although not all of the Company's arrangements satisfy all of
the elements of a safe harbor. Although the Company has never been challenged
under any anti-kickback statute and the Company believes it has a reasonable
basis for concluding that it complies in all material respects with the federal
anti-kickback statute and all other applicable related laws and regulations,
there can be no assurance that the Office of the Inspector General (the "OIG")
within HHS or other governmental agency will not take a contrary position or
that the Company will not be required to change its practices in a manner which
will cause, or will not otherwise experience, a material adverse effect as a
result of any such challenge or any sanction which might be imposed.

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<PAGE> 35

In July 1994, the Secretary of HHS proposed a rule that would modify the
original set of safe harbor provisions to give greater clarity to the rule
making's original intent. The proposed rule would make changes to the safe
harbors on personal services and management contracts, small entity investment
interests and space rentals, among others. The Company does not believe that its
current operations, as set forth above, would change if the proposed rule were
adopted in the form proposed. However, the Company cannot predict the outcome of
the rule making process or whether changes in the safe harbors rule will affect
the Company's position with respect to the federal anti-kickback statute.

Nephrologist Ownership. At the closing of the Combination and the
Company's recent mergers, shares of Common Stock were issued to certain
nephrologist owners of the facilities. In addition, pursuant to the terms of the
Company's agreements with its Medical Directors or their professional practice
groups, the Company pays fees for medical director services and has granted
options to purchase shares of Common Stock to individual Medical Directors or
their respective practice groups. Because these physicians refer to the
Company's centers, the federal anti-kickback statute could be found to apply to
referrals by nephrologists to the Company's facilities. However, the Company
believes these ownership relationships are in material compliance with the
federal anti-kickback statute. Also, the Company believes that the value of
Common Stock issued and options granted to nephrologists have and will be
consistent with the fair market value of assets transferred to, or services
performed by such nephrologists for, the Company and there is no intent to
induce referrals to the Company's facilities. There is a safe harbor for certain
investments in large public companies, and the Company believes that there are
good arguments that its physician ownership relationships meet at least a
majority of the criteria for this safe harbor. However, these relationships do
not satisfy all of the criteria of a safe harbor and there can be no assurance
that these relationships will not subject the Company to investigation or
prosecution by enforcement agencies.

Medical Director Relationships. The Conditions of Coverage under the
Medicare ESRD program mandate that treatment at a dialysis center be under the
general supervision of a medical director who is a licensed physician.
Generally, the medical director must be board eligible or board certified in
internal medicine or pediatrics and have had at least 12 months of experience or
training in the care of patients at ESRD centers. The Company has engaged
Medical Directors at each of its centers under contracts with physicians,
nephrologists or group practices. The compensation of the Medical Directors and
other physicians under contract with the Company is separately negotiated and
generally depends upon competitive factors in the local market, the physician's
professional qualifications and responsibilities and the size and utilization of
the center or relevant program. The aggregate compensation of the Medical
Directors and other physicians under contract with the Company is generally
fixed in advance for periods of one year or more by written agreement and is set
to reflect the fair market value of the services rendered and does not take into
account the volume or value of patients referred to the Company's facilities.
Because in all cases the Medical Directors and the other physicians under
contract with the Company refer patients to the Company's centers, the federal
anti-kickback statute could be found to apply. However, the Company believes it
has a reasonable basis for concluding that its contractual arrangements with
these physicians are in material compliance with the federal anti-kickback
statute. In all instances, the Company seeks to comply with the requirements of
the personal services and management contract safe harbor 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 and technical
personnel and technical services, and, in some 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 be found to apply. However, the Company believes 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. In all instances, the company seeks to comply
with the requirements of the personal services and equipment lease safe harbors
when entering into agreements or contracts for acute inpatient dialysis
services.

Certain Relationships with Laboratories, IDPN Suppliers, and
Hospitals. The Company enters into arrangements for purposes of obtaining
laboratory services. Such services include testing currently reimbursed

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<PAGE> 36

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 center obtains discounts from a laboratory for testing encompassed
within the Medicare composite rate in return for referring all or most of the
dialysis center's non-composite rate testing to the laboratory. Moreover, on
October 1, 1996, the OIG issued a report concluding that some laboratories may
be improperly seeking Medicare Reimbursement for tests already reimbursed under
the composite rate. The report recommended that HCFA monitor laboratory billing
for possible post-payment reviews. In addition, the Company enters into
arrangements with suppliers of IDPN. In May 1993, the OIG issued a report
indicating its belief that many ESRD patients receive IDPN despite not meeting
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 centers for administering IDPN to patients
during dialysis could violate the federal anti-kickback statute where the
payments made to the dialysis centers are unreasonably high (the report cited
fees in the range of $30 per administration as raising anti-kickback law
questions). Moreover, the Company enters into acute inpatient dialysis service
arrangements under which the Company agrees to provide a hospital with
supervised emergency or acute inpatient dialysis services, including qualified
nursing and technical personnel and technical services and, in some cases,
equipment and supplies. 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 be found to apply.

The Company believes that the current arrangements of the Company with
nephrologist owners, medical directors, laboratories, IDPN suppliers, hospitals,
and other persons or entities who either refer patients to the Company's
dialysis centers or from whom the Company purchases items or services generally
are in material compliance with the federal anti-kickback statute. Specifically,
the Company believes that such arrangements now generally provide, and will
provide for reasonable compensation to or by the Company for the items and
services it buys from or furnishes to such persons or entities. Moreover, the
Company intends that IDPN therapy will be furnished in accordance with specified
utilization protocols consistent with Medicare coverage guidelines, and only to
patients for whom it is deemed medically necessary, as demonstrated by
physician-authorized Certificates of Medical Necessity. However, there can be no
assurance that the Company's future arrangements will not be challenged or
subject to sanctions for any of the Founding Companies' 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 operations, net
revenue and earnings.

Stark II

Provisions enacted as part of the Omnibus Budget Reconciliation Act of 1993
("Stark II") restrict 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. Provisions enacted as part of the Omnibus Budget Reconciliation Act of
1989 ("Stark I") imposing comparable restrictions to clinical laboratory
services became effective in 1992. Stark II provisions applicable to "designated
health services" that may be relevant to the Company became effective in January
1995.

A "financial relationship" under Stark II 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 practices. The Medical Directors or their professional practices
also will own shares, and options to purchase shares, of Common Stock.
Accordingly, the Medical Directors will have a "financial relationship" with the
company for purposes of Stark II.

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; prosthetic
devices; physical and occupational therapy services; outpatient prescription
drugs; durable medical

35
<PAGE> 37

equipment; and inpatient and outpatient hospital services. Dialysis is not a
designated health service under Stark II. However, the Stark II 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 are considered separately rather than collectively as
dialysis. Under the final Stark I regulations published in August 1995, HCFA
provided an exception from Stark I for clinical laboratory services reimbursed
under the Medicare "composite rate" for dialysis. The Company believes it likely
that, when final Stark II regulations are published, they will contain a similar
exception for "designated health services" reimbursed under the composite rate.
However, there can be no assurance that HCFA will adopt such a position. Even if
the final Stark II regulations contain such an exception, the Company's
provision of, or arrangement and assumption of financial responsibility for,
outpatient prescription drugs, including EPO, enteral and parenteral nutrients,
such as IDPN, clinical laboratory services, center dialysis services and
supplies, home dialysis supplies and equipment, and services to hospital
inpatients and outpatients, includes services and items that are reimbursed
separate from the Medicare composite rate and therefore are likely to be
construed to be "designated health services" within the meaning of Stark II. In
addition, the Company obtains clinical laboratory services from the laboratory
that currently is operated by Kidney Care, a tax exempt entity under Section
501(c)(3) of the Internal Revenue Code. The Company holds an option to purchase
the assets of this laboratory. The Company has also entered into a management
agreement under which it provides certain management and administrative
services, equipment and technical support to the laboratory for a fee. The
Company believes, based on the fact that there is no direct or indirect
physician ownership of the laboratory and that the option relates only to the
assets of the laboratory (and not the entity that owns them or any earnings
therefrom) and, with respect to the management agreement, that the terms of the
contract with the laboratory comply with the material provisions of the personal
services and equipment and space lease exceptions under Stark II, that there are
sound arguments that the existence of the option and the management agreement
will not create an indirect ownership or compensation arrangement between the
laboratory and the Company's nephrologist owners or Medical Directors that would
prohibit the Company's dialysis centers from obtaining services from this
laboratory that are reimbursed separate from the Medicare composite rate in the
absence of a Stark II exception. However, there can be no assurance that HCFA or
the OIG would adopt or agree with this position.

Although the Company has learned that HCFA officials responsible for
drafting implementing regulations for Stark II have tentatively taken the
informal position that administration of certain prescription drugs that would
not be needed but for a patient's need for dialysis (e.g., EPO) will not be
treated as outpatient prescription drugs subject to the Stark II prohibition on
self-referral, this informal position is not binding on HCFA, and there can be
no assurance that final Stark II regulations will adopt such a position. With
respect to the other items and services provided by the Company that are likely
to be deemed to be "designated health services" subject to the Stark II
prohibition, the language of Stark II and of the Stark I final regulation
suggest that the Company will not be permitted to offer such services in the
absence of a Stark II exception.

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: (a)
bona fide employment relationships; (b) personal services contracts; (c) space
and equipment leasing arrangements; (d) certain group practice arrangements with
a hospital that were in existence prior to December 1989; and (e) 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. The
Company believes that several of its financial relationships with referring
physicians will meet the criteria for an exception. For example, the company
believes, based on the language of Stark II, that its agreements with Medical
Directors of their professional practices materially satisfy the exception for
compensation pursuant to a personal services contract. Similarly, the company
believes, based in part on the legislative history to Stark II, that it has a
reasonable basis for concluding that its contractual relationships with
hospitals for acute inpatient dialysis services should be deemed to satisfy the
criteria for the exceptions

36
<PAGE> 38

for personal services or leased equipment arrangements. In the case of certain
other financial arrangements, however, there may be no exception available.

Stark II also 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 $75.0 million in
stockholder equity at the end of the issuer's most recent fiscal year or on
average during the previous three (3) fiscal years. Prior to the Offering, the
Company has not had stockholder equity of at least $75.0 million, but expects
that the net proceeds to the Company from the Offering will enable it to meet
that requirement as of the end of 1996.

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 HHS to apply to the company's acute
dialysis arrangements with hospitals. However, Stark II contains exceptions for
certain equipment rental and personal services arrangements, and the company
believes it has a reasonable basis for concluding that its contractual
arrangements with hospitals for acute inpatient dialysis services are in
material compliance with the requirements of such exceptions to Stark II.

Consequently, if it were to apply, Stark II may require the Company to
restructure certain existing compensation agreements with its Medical Directors
or, in the alternative, to refuse to accept referrals for designated health
services from such physicians. Moreover, since Stark II prohibits Medicare or
Medicaid reimbursement of items or services provided pursuant to a prohibited
referral, and imposes substantial civil monetary penalties on entities which
present or cause to be presented claims for reimbursement in such cases, the
Company could be required to repay amounts reimbursed for items and services
that HCFA determines to have been furnished in violation of Stark II, and could
be subject to substantial civil monetary penalties, either or both of which
could have a material adverse effect on the Company's operations, net revenue or
earnings. The Company believes that if Stark II is interpreted to apply to the
Company's operations, the Company will be able on a prospective basis to bring
its financial relationships with referring physicians into material compliance
with the provisions of Stark II, including relevant exceptions, although
prospective compliance would not affect amounts or penalties determined to be
owed for past conduct, and there can be no assurance that such prospective
compliance, if possible, will not have a material adverse effect on the
Company's operations, net revenue or earnings. If Stark II is interpreted by HHS
to apply to the Company and the Company is determined to be liable for past
violations of Stark II by itself or one or more of the entities it has acquired,
the application of Stark II could have a material adverse effect on the Company.

STATE REFERRAL REGULATIONS

Several states have enacted statutes prohibiting physicians from holding
financial interests in various types of medical centers 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 state
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 is
interpreted to apply to the Company and the Company is determined to be liable
for violations of such state laws by itself or one or more of the entities it
has acquired, the application of such state laws could have a material adverse
effect on the Company.

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 payers) 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, or for medically unnecessary services may be excluded
from Medicare and Medicaid participation, required to repay previously collected
amounts, and/or subject to

37
<PAGE> 39

substantial civil monetary penalties. Although dialysis centers are generally
reimbursed by Medicare based upon prospectively determined composite rates, the
submission of Medicare cost reports and requests for payments by dialysis
centers will be covered by these laws. The Company believes that it has
procedures to ensure the accurate completion of cost reports and requests for
payment. However, there can be no assurance that cost reports or requests for
payment filed by the Company's dialysis centers will be materially accurate or
will not be subject to challenge under these laws. Furthermore, there can be no
assurance that cost reports or payment requests previously submitted by any of
the entities acquired by the Company will not be challenged under these laws.
Any such challenges, including any related sanctions which might be assessed,
could have a material adverse effect on the Company's operations, net revenue
and earnings.

STATE LAWS REGARDING PROVISION OF MEDICINE AND INSURANCE

The laws of many states prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from practicing medicine.
These laws vary from state to state and are enforced by the courts and by
regulatory authorities with broad discretion. Although the Company believes its
operations as currently conducted are in material compliance with existing
applicable laws, many aspects of the Company's business operations, including
the structure of the Company's relationship with physicians, have not been the
subject of state of federal regulatory interpretation. There can be no assurance
that review of the Company's business by courts or regulatory authorities will
not result in determinations that could materially adversely affect the
operations, revenues or net earnings of the Company or that the health care
regulatory environment will not change so as to restrict the Company's existing
operations or their expansion. In addition, expansion of the operations of the
Company to certain jurisdictions may require structural modifications of the
Company's form of relationships with physician groups, which could have a
material adverse effect on the operations, revenues and net earnings of the
Company.

Most states have laws regulating insurance companies and HMOs. The Company
is not qualified in any state to engage in the insurance or HMO business. As the
managed care business evolves, state regulators may begin to scrutinize the
practices of, and relationships between, third-party payers, medical service
providers and entities providing management and other services to medical
service providers with respect to the application of insurance and HMO laws and
regulations. The Company believes, based on its general knowledge of the health
care, HMO and insurance industries as operated in the states in which its
centers are located, that its practices are consistent with those of other
health care companies and should not subject it to such laws and regulations.
However, given the limited regulatory history with respect to such practices,
there can be no assurance that states will not attempt to regulate the Company
as an insurer or HMO. If the Company is subject to prosecution or other
enforcement proceeding by state regulatory agencies, it may be required to
change or discontinue certain practices which could have a material adverse
effect on the operations, revenues and net earnings of the Company.

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. 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. For example,
the 1995 budget reconciliation bill sent by Congress to the President (and
subsequently vetoed by the President) proposed extending the period during which
Medicare payment for ESRD would be secondary to a patient's employer group
health plan from 18 to 30 months. In addition, the conference report to the
reconciliation bill called for HHS to report to Congress not later than December
31, 1999 with recommendations on expanding the definition of individuals
eligible to enroll in the bill's proposed MedicarePlus managed care plans to
include ESRD patients, and the President's response would have immediately made
such persons eligible for participation in such plans.

The Health Insurance Portability and Accountability Act of 1996, signed
into law in August 1996, will, among other things, provide for insurance
portability for individuals who lose or change jobs, limit exclusions

38
<PAGE> 40

for preexisting conditions, and establish a pilot program for medical savings
accounts. In addition, this legislation also greatly expands federal efforts at
combating health care fraud and abuse by making numerous amendments to the
Social Security Act and the federal criminal code. Among other things, the new
legislation creates a new "Health Care Fraud and Abuse Control Account,"
provides for the issuance of "advisory opinions" by the OIG regarding the
application of the anti-kickback statute, extends certain criminal penalties for
Medicare and Medicaid fraud to other federal health care programs, expands the
exclusion authority of the OIG, extends Medicare and Medicaid civil monetary
penalty provisions to other federal health care programs, increases the amounts
of civil monetary penalties, and establishes a criminal health care fraud
statute. Most of the Act's fraud and abuse provisions take effect on January 1,
1997.

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 operations, revenue or earnings.

OTHER REGULATIONS

The Company's operations are subject to various state hazardous waste
disposal laws. Those laws as currently in effect do not classify most of the
waste produced during the provision of dialysis services to be hazardous,
although disposal of non-hazardous medical waste is also subject to regulation.
OSHA regulations require employers of workers who are occupationally subject to
blood or other potentially infectious materials require employers of workers who
are occupationally subject to blood or other potentially infectious materials to
provide those workers with certain prescribed protections against blood borne
pathogens. These regulatory requirements apply to all health care centers,
including dialysis centers, and require employers to make a determination as to
which employees may be exposed to blood or other potentially infectious
materials and to have in effect a written exposure control plan. In addition,
employers are required to provide hepatitis B vaccinations, personal protective
equipment, infection control training, post-exposure evaluation and follow-up,
waste disposal techniques and procedures, and engineering and work practice
controls. Employers are also required to comply with certain record-keeping
requirements. Some states have established certificate of need ("CON") programs
regulating the establishment or expansion of health care centers, including
dialysis centers. The Company believes that it is in material compliance with
the foregoing laws and 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. Such
investigation could result in the imposition of any combination of the penalties
discussed above depending upon the agency involved in such investigation and
prosecution. None of the Company's business arrangements with physicians,
vendors, patients or others have been the subject of investigation by any
governmental authority. No assurance can be given that the Company's activities
will not be reviewed or challenged by regulatory authorities. The Company
monitors legislative developments and would seek to restructure a business
arrangement if the Company determined that one or more of its business
relationships placed it in material noncompliance with such a statute. The
Company believes that in the near future the health care service industry will
continue to be subject to substantial regulation at the federal and state
levels, the scope 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 governmental authority from which a substantial portion of its
revenues are derived would have a material adverse effect on its operations,
revenues and net earnings.

COMPETITION

The dialysis industry is fragmented and highly competitive. Competition for
qualified physicians to act as Medical Directors is also significant. According
to HCFA, there were in excess of 2,800 dialysis centers in the United States at
the end of 1995. The Company believes that approximately 45% were owned by
multi-center dialysis companies, 25% were owned by independent physicians and
other companies and 30% were hospital-based centers. Certain 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

39
<PAGE> 41

centers and nephrology practices. The Company believes that competition for
acquisitions has increased the cost of acquiring dialysis centers and will
likely increase the cost of acquiring nephrology practices. The Company may also
experience competition from centers established by former Medical Directors or
other referring physicians. There can be no assurance that the Company will be
able to compete effectively with any such competitors.

PROPERTIES

Excluding the ten managed centers, the Company operates 76 dialysis centers
in 11 states, of which 61 are located in leased facilities and 15 are owned.
Certain of the premises are leased from physicians who practice at the center
and who are stockholders of the Company. The Company's leases generally have
terms ranging from one to 15 years and typically contain renewal options. The
sizes of the Company's centers range from approximately 400 to 17,000 square
feet. The Company leases office space in Nashville, Tennessee for its corporate
headquarters and university division under leases that expire in 2002 and 1999.
The Company considers its physical 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 centers would be subject
to compliance with conditions relating to participation in the Medicare ESRD
program. In states that require a certificate of need, approval of an
application submitted by the Company would be necessary for expansion or
development of a new dialysis center. The Company generally owns the equipment
used in its outpatient centers. The Company considers its equipment to generally
be in good operating condition and suitable for the purposes for which it is
being used.

LEGAL PROCEEDINGS

The Company is subject to claims and suits in the ordinary course of
business, including those arising from patient treatment, which the Company
believes will be covered by malpractice insurance. The Company is not currently
a party to any material legal actions.

40
<PAGE> 42

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The table below sets forth certain information concerning each of the
directors and executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Harry R. Jacobson, M.D.(1)......... 49 Chairman of the Board
Sam A. Brooks, Jr.(1).............. 57 President, Chief Executive Officer and Director
Gary Brukardt...................... 50 Executive Vice President, Chief Operating Officer
Joseph A. Cashia................... 40 Senior Vice President -- Development
Ronald Hinds....................... 48 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
Raymond Hakim, M.D., Ph.D.......... 51 Executive Vice President and Chief Medical Officer
John D. Bower, M.D.(1)............. 64 Vice Chairman of the Board
Joseph C. Hutts(2)(3).............. 55 Director
Kenneth Johnson, M.D............... 52 Director
Thomas A. Lowery, M.D.(3).......... 53 Director
Stephen D. McMurray, M.D.(2)....... 49 Director
W. Tom Meredith, M.D.(2)(3)........ 61 Director
</TABLE>

- ---------------

(1) Member of the Nominating Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.

Dr. Jacobson has been Chairman of the Board of Directors of the Company
since June 1995. He currently serves as Deputy Vice Chancellor for Health
Affairs at Vanderbilt University, a position he has held since August 1995, and
as Professor of Medicine and Director of the Division of Nephrology, Department
of Medicine, Vanderbilt University Medical Center, and Staff
Physician/Nephrologist, Veterans Administration Hospital in Nashville, positions
he has held since 1985. Dr. Jacobson received a B.S. degree from the University
of Illinois and his M.D. from the University of Illinois Abraham Lincoln School
of Medicine. He completed his internal medicine training at Johns Hopkins
Hospital and his nephrology training at Southwestern Medical School in Dallas,
Texas.

Mr. Brooks has been President and Chief Executive Officer of the Company
since June 1995, served as Treasurer from June 1995 to November 1995, and has
been President of Tennessee since February 1994. He also currently serves as
President of MedCare Investments Corp., a health care investment company, and
Chairman of the Board of National Imaging Affiliates, Inc., an owner of
outpatient diagnostic imaging centers, and has held such positions since June
1991 and April 1992, respectively. Mr. Brooks is a director of Kinetic Concepts,
Inc., a manufacturer and distributor of specialty hospital beds; Quorum Health
Group, Inc., an owner, operator and manager of acute care hospitals; Nationwide
Health Properties, Inc., a health care real estate investment trust; and PhyCor,
Inc., an operator of multi-specialty medical clinics.

Mr. Brukardt has been Executive Vice President and Chief Operating Officer
of the Company since August 1996. From 1991 to August 1996, Mr. Brukardt served
as Executive Vice President of Baptist Health Care Affiliates in Nashville,
Tennessee, where he was responsible for the development and operation of
physician practice management organizations and the management of four hospitals
and 22 outpatient facilities. In addition, from 1991 to August 1996, Mr.
Brukardt served as Chairman and President of HealthNet Management, Inc., a
managed care company.

Mr. Cashia has been Senior Vice President -- Development since June 1996
and served as Chief Operating Officer of the Company from June 1995 to June
1996. Mr. Cashia also has served as Chief Operating Officer of Tennessee since
April 1994. He served as Vice President of Operations for REN Corporation-USA,
an operator of dialysis centers and laboratories, from 1989 to 1993. Mr. Cashia
was

41
<PAGE> 43

employed by Community Dialysis Centers (now Vivra, Inc.), a provider of
outpatient dialysis services, from 1983 to 1989 in various positions, the last
of which was Vice President of Western Region Operations. Mr. Cashia attended
the University of Alabama and received his nursing degree from Samford
University and his M.B.A. from Vanderbilt University's Owen Graduate School of
Management.

Mr. Hinds has been an Executive Vice President and Chief Financial Officer
of the Company since August 1995. He was an audit partner with Deloitte & Touche
LLP from 1981 to 1994 where he managed the health care practice of the Nashville
office. During his tenure at Deloitte & Touche, Mr. Hinds also served as a
Regional Health Care Partner for the firm. Mr. Hinds received his B.A. in
accounting from Middle Tennessee State University.

Dr. Hakim has been Executive Vice President and Chief Medical Officer of
the Company since June 1995. He has published extensively on the adequacy of
dialysis and the clinical aspects of bio-compatibility. From 1992 to 1995, Dr.
Hakim served as Medical Director for the Vanderbilt Dialysis Program. He served
as a member of the Medical Board of Vanderbilt in 1992, as Chairman of the
Ambulatory Services Committee of Vanderbilt in 1990 and 1991, and as Director,
Clinical Nephrology of Vanderbilt from 1987 to 1991. He received his M.S. from
Rensselaer Polytechnic Institute, his Ph.D. from Massachusetts Institute of
Technology and his M.D. from McGill University. Dr. Hakim performed his
residency at Royal Victoria Hospital and his renal fellowship at Brigham and
Women's Hospital.

Dr. Bower has been a director of the Company since January 1996. He is a
board certified nephrologist trained at Medical College of Virginia and has been
practicing in Mississippi since 1972. He has been a Professor of Medicine and
Chief, Division of Nephrology at University of Mississippi Medical Center since
July 1976 and June 1990, respectively. In addition, he has served as Chairman of
the Board and President of MEL since October 1977, and served as Chief Executive
Officer of MEL from December 1993 to January 1995. He also has served as
Chairman of the Board and President of Kidney Care since August 1973.

Mr. Hutts has been a director of the Company since December 1995. He has
been Chairman of the Board, President and Chief Executive Officer of PhyCor,
Inc., an operator of multi-specialty medical clinics, since 1988. Mr. Hutts was
formerly with Hospital Corporation of America in various positions, the last of
which was President, HCA Health Plans. From 1986 to 1988, Mr. Hutts was Vice
Chairman and Chief Operating Officer of Equitable HCA Corporation d/b/a Equicor.
Mr. Hutts serves on the board of directors of Response Technologies, Inc., a
provider of cancer treatment services, and Quorum Health Group, Inc.

Dr. Johnson has been a director of the Company since September 1996. He is
a board certified nephrologist trained at the University of Utah. In 1975, Dr.
Johnson was a founding partner of Arizona Nephrology Associates and RenalWest.
Dr. Johnson has served as the director of the Critical Care Units of two
hospitals and serves as chairman of several Departments of Medicine in the East
Valley area of Mesa, Arizona. Dr. Johnson is a member of the Medical Review
Board of the Regional End Stage Renal Disease Network.

Dr. Lowery has been a director of the Company since January 1996. He is a
board certified nephrologist trained at Baylor College of Medicine and the
University of Alabama, Birmingham. He has served on the Executive Committee of
Southwest Organ Bank and has been the Director of the Renal Transplant Program
of East Texas Medical Center in Tyler, Texas. In addition, he has been
practicing as a partner of Tyler since 1979.

Dr. McMurray has been a director of the Company since January 1996. He is a
board certified nephrologist trained at Indiana University Medical Center and
has been practicing nephrology in Fort Wayne, Indiana, since 1977. He has been
President of the Medical Staff at Lutheran Hospital in Fort Wayne, Indiana, and
has been affiliated with DMN since 1991.

Dr. Meredith has been a director of the Company since January 1996. He is a
board certified nephrologist and has been practicing in Wichita, Kansas, since
1969. He has been Clinical Associate Professor Department of Internal Medicine,
The University of Kansas School of Medicine, Wichita, since 1977. In addition,
he has been the President of Kansas since November 1979 and the President of
Kansas Nephrology Physicians, P.A. since August 1990.

42
<PAGE> 44

BOARD OF DIRECTORS

Board Classes. The Company's Board of Directors is composed of three
classes, designated Class I, Class II and Class III. The initial term of the
Class I directors shall be until the 1997 annual meeting of stockholders of the
Company, the initial term of the Class II directors shall be until the 1998
annual meeting of the stockholders of the Company, and the initial term of the
Class III directors shall be until the 1999 annual meeting of the stockholders
of the Company. Each succeeding term of a director in Class I, Class II or Class
III shall be for three years or until his or her successor is elected.
Currently, the members of the three classes are as follows: Class I -- Mr.
Brooks and Dr. McMurray; Class II -- Mr. Hutts and Dr. Lowery; Class III -- Dr.
Jacobson, Dr. Bower, Dr. Meredith and Dr. Johnson.

Board Committees. The Board of Directors has established a Compensation
Committee, a Nominating Committee, and an Audit Committee. The Company's
Compensation Committee, composed solely of non-employee directors, is
responsible for establishing salaries, bonuses, and other compensation for the
Company's executive officers and administering any stock option and other
employee benefit plans of the Company. The Company's Nominating Committee is
responsible for considering nominations of Directors to the Company's Board of
Directors. The Company's Audit Committee, composed solely of nonemployee
directors, recommends the annual appointment of the Company's auditors, and, in
conjunction with such auditors, reviews the scope of audit and other assignments
and related fees, accounting principles used by the Company in financial
reporting and internal auditing procedures, and the adequacy of the Company's
internal control procedures.

Compensation of Directors. Employees of the Company who are members of the
Board of Directors of the Company do not receive any compensation for serving on
the Company's Board of Directors. Each non-employee member of the Board of
Directors receives a fee of $2,000 for each meeting of the Board of Directors
attended by such director, and $1,000 for each committee meeting not attended on
the same day as a meeting of the Board of Directors. All directors of the
Company, including members who are employees, receive reimbursement of
out-of-pocket expenses incurred in connection with attending Board of Directors
or committee meetings thereof. In February 1996, Dr. Jacobson was paid $75,000
by the Company for his efforts related to the initial public offering.

In January 1996, the Company adopted the Renal Care Group, Inc. 1996 Stock
Option Plan for Outside Directors (the "Director Plan") to provide for grants of
options to its non-employee directors. See "Management -- Stock Option and Stock
Purchase Plans." Supplemental to the Director Plan, Mr. Hutts has been granted
options to purchase an aggregate of 15,000 shares of Common Stock, of which
10,000 are exercisable at a price of $7.50 per share and 5,000 are exercisable
at $18.00 per share, and Dr. Jacobson has been granted options to purchase an
aggregate of 75,000 shares of Common Stock, of which 25,000 are exercisable at a
price of $7.50 per share and 50,000 are exercisable at $18.00 per share.

COMPENSATION OF EXECUTIVE OFFICERS

During 1996 Messrs. Brooks, Hinds, Brukardt and Cashia, and Dr. Hakim (the
"Named Executive Officers") will earn annual salaries of $250,000, $200,000,
$220,000, $184,000 and $200,000, respectively. See "Management -- Employment
Agreements" for more detail regarding these employment arrangements.

43
<PAGE> 45

OPTION GRANTS

The following table sets forth certain information concerning the grant of
options to purchase Common Stock to each of the Company's Named Executive
Officers.

OPTION GRANTS DURING 1995

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SHARES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED IN 1995(2) ($/SHARE) DATE 5% 10%
- -------------------------- ---------- ----------- ---------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sam A. Brooks, Jr......... 250,000(3)(4) 37.1% $ 7.50 November 4, 2005 $1,179,177 $2,988,267
Joseph A. Cashia.......... --(5) -- -- -- -- --
Raymond Hakim, M.D........ 100,000(4)(6) 14.8 7.50 November 4, 2005 471,671 1,195,307
Ronald Hinds.............. 60,000(4)(6) 8.9 7.50 November 4, 2005 283,003 717,184
25,000(4)(6) 3.7 18.00 November 4, 2005 283,003 717,184
------- ----
Totals........... 435,000 64.5%
======= ====
</TABLE>

- ---------------

(1) The potential realizable value through the expiration date of the options
has been determined on the basis of the market price per share at the time
of grant compounded annually over the term of the option, net of the
exercise price. These values have been determined based upon assumed rates
of appreciation mandated by the Securities and Exchange Commission and are
not intended to forecast the possible future appreciation, if any, of the
price or value of the Common Stock.
(2) The number of options granted to all employees in 1995 includes options to
purchase 673,948 shares of Common Stock, but does not include options to
purchase 115,500 shares of the Common Stock of Tennessee granted in April
1994 and January 1995 that were assumed by the Company in the Combination
in February 1996 on a share-for-share basis.
(3) Does not include warrants to purchase 90,000 shares of the common stock of
Tennessee granted in February 1994 at a price of $10.00 per share that were
assumed by the Company in February 1996 on a share-for-share basis but with
an exercise price of $7.50 per share. These warrants were exercisable as of
the grant date.
(4) In the event of certain changes in control of the Company and the
termination of the employment of the optionee, or in the event of certain
changes in control of the Company that result in the Common Stock or stock
of a successor not being traded on a national securities market, these
options may accelerate and be "cashed out" under the circumstances
described under "Management -- Stock Option and Stock Purchase
Plans -- 1996 Stock Option Plan."
(5) Does not include the following options to purchase shares of the common
stock of Tennessee granted in April 1994 that were assumed by the Company
in February 1996 on a share-for-share basis: 30,000 shares at an exercise
price of $7.50 per share; 25,000 shares at an exercise price of $6.00 per
share; 20,000 shares at an exercise price of $3.50 per share; and 10,000
shares at an exercise price of $2.00 per share.
(6) Options are exercisable as to 20% of these shares as of the grant date, and
an additional 20% will vest on each of the first four anniversaries of the
grant date.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Company's Compensation Committee are Joseph C. Hutts,
Stephen D. McMurray, M.D., and W. Tom Meredith, M.D. Mr. Brooks, the Chief
Executive Officer, President and a Director of the Company, is a member of the
board of directors of PhyCor, Inc., of which Mr. Hutts is the Chairman of the
Board, President and Chief Executive Officer. See "Certain Transactions."

EMPLOYMENT AGREEMENTS

The Company has entered into or assumed employment and non-competition
agreements with certain of its principal executive officers, including Messrs.
Brooks, Hinds, Brukardt and Cashia and Dr. Hakim, and with certain other key
personnel, except that Dr. Hakim's agreement does not contain non-competition
provisions. The Company has not and does not expect to enter into an employment
agreement with

44
<PAGE> 46

Dr. Jacobson, the Chairman of the Board, because he does not devote his full
time and attention to the affairs of the Company. Other than Dr. Hakim, each
Named Executive Officer's employment agreement contains restrictive covenants
prohibiting such officer from competing with the Company for a period of one
year after the end of the employment term. The terms of the employment
agreements commenced on February 6, 1996 and will continue for a term of three
years and successive one year renewal terms thereafter, except for Mr. Cashia's
which was assumed by the Company on February 12, 1996 and expires March 31,
1997, and Mr. Brukardt's which commenced on July 22, 1996 and will continue for
a term of three years and successive one year renewal terms thereafter.

The annual salaries of the Named Executive Officers as set forth in the
employment agreements are $250,000, $220,000, $200,000, $184,000 and $200,000
for Messrs. Brooks, Brukardt, Hinds and Cashia, and Dr. Hakim, respectively.
Each Named Executive Officer is eligible under his employment agreement for
bonuses at the sole discretion of the Company (up to a maximum, in Mr. Cashia's
agreement, of $50,000).

The employment agreements of Messrs. Brooks, Brukardt and Hinds, also
provide for severance for each such Named Executive Officer of (i) his salary
for 12 months if such officer is terminated without cause, (ii) his salary for
one month if such officer is terminated for cause, or (iii) his salary for 36
months if such officer is terminated within 12 months of certain changes in
control of the Company either (A) without cause, or (B) by resignation of the
officer as a result of declining to accept reassignment to a job that is not the
equivalent of his then current position. Dr. Hakim's employment agreement
contains similar severance provisions that become operative if he enters into a
non-competition agreement.

In addition to the above provisions, Mr. Brooks' employment agreement also
provides for (i) life insurance coverage of $2.0 million, (ii) long term
disability insurance of 60% of Mr. Brooks' annual base salary, (iii) an annual
bonus of 75% of his annual base salary to be earned if the Company meets or
exceeds its earning per share projections as approved by the Compensation
Committee, (iv) a $100,000 payment for efforts related to the initial public
offering, paid out of the proceeds of the initial public offering, and (v)
severance as provided above but based upon his salary plus his prior year's
bonus instead of just his salary.

The Company assumed the employment agreement between Tennessee and Mr.
Cashia dated April 1, 1994. Mr. Cashia's agreement provides for severance of his
salary for 12 months and the amount of any bonus paid to Mr. Cashia in the prior
year, and medical coverage during such 12 months for himself and his family if
he is terminated without cause (as defined in his agreement).

STOCK OPTION AND STOCK PURCHASE PLANS

Amended and Restated 1996 Stock Option Plan

In January 1996, the Company adopted the Renal Care Group, Inc. 1996 Stock
Option Plan (the "Employee Plan"), which was amended and restated effective
September 1996. Under the Employee Plan, options to purchase a total of
1,000,000 shares of Common Stock were reserved for grant to eligible employees
and consultants of the Company. Options granted under the Employee Plan may
qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or nonqualified stock options. Any key
employee or consultant of the Company selected by the Compensation Committee
will be eligible for grants under the Employee Plan. The Compensation Committee
will determine the number of shares of Common Stock subject to each grant and
prescribe the other terms and conditions of each grant. Options will become
exercisable and expire at such time and in such installments as the Compensation
Committee shall determine.

The Board of Directors, in its discretion, may amend, terminate or modify
the Employee Plan from time to time without stockholder approval; provided,
however, that the Committee may condition any amendment on the approval of
stockholders if such approval is necessary or deemed advisable with respect to
tax, securities or other applicable laws, policies or regulations. No
termination, amendment or modification of the Employee Plan shall adversely
affect any option previously granted under the plan, without the written consent
of the option holder.

45
<PAGE> 47

In the event of a change of control of the Company (as defined in the
Employee Plan), the Employee Plan requires that upon the termination of
employment of any employee option holder within 12 months after such change in
control (except for terminations for death, certain disabilities, cause, or
certain resignations), any vesting of such employee's outstanding options under
the Employee Plan will accelerate and the Company or its successor must "cash
out" such options by paying such employee an amount for each share subject to
such options equal to the difference of (i) the greater of the fair market value
of a share of Common Stock on the date of termination or the highest closing
price per share of Common Stock during the 90 day period ending on the date of
the change in control of the Company, minus (ii) the exercise price. In
addition, upon any such change in control of the Company that results in the
Common Stock or the stock of any successor to the Company ceasing to be publicly
traded in a national securities market, the foregoing acceleration and "cash
out" provisions (except that the "cash out" value is measured solely by the
difference of (i) the highest closing price per share of Common Stock during the
90 day period ending on the date of the change in control of the Company, minus
(ii) the exercise price) will be triggered for all outstanding option holders
under the Employee Plan unless otherwise determined by the Board of Directors.

1996 Stock Option Plan For Outside Directors

In January 1996, the Company adopted the Director Plan and reserved 100,000
shares of Common Stock for issuance to non-employee directors of the Company
thereunder. The Director Plan provides for grants of options to purchase 2,500
shares of Common Stock to "outside directors" who have been directors for at
least six months on the day after each annual meeting of stockholders of the
Company, and for grants of options to purchase 5,000 shares of Common Stock to
"outside directors" on the day such persons first become directors of the
Company. For purposes of the Director Plan, "outside director" means any
non-employee director who is not the Chairman or Vice Chairman of the Board and
who also is not a party to, and whose medical practice is not a party to, a then
currently effective Medical Director Agreement with the Company. The option
price for each option granted under the Director Plan will be equal to 100% of
the fair market value on the date of grant. An option under the Director Plan
will be immediately exercisable and will remain exercisable for ten years from
the date of grant. In the event of a change of control of the Company (as
defined in the Director Plan) that results in the Common Stock or the stock of
any successor to the Company ceasing to be publicly traded or quoted in a
national securities market, the Director Plan requires that the Company or its
successor must "cash out" such options by paying the director an amount for each
share subject to such options equal to the difference of the highest closing
price per share of Common Stock during the 90 day period ending on the date of
the change in control of the Company, minus the exercise price.

Amended and Restated Employee Stock Purchase Plan

The Renal Care Group, Inc. Amended and Restated Employee Stock Purchase
Plan (the "Purchase Plan") was adopted in January 1996 and became effective
February 6, 1996. A total of 300,000 shares of Common Stock have been reserved
for issuance under the Purchase Plan, which is intended to qualify under Section
423 of the Code. The Purchase Plan allows participants to purchase shares of
Common Stock in connection with option periods commencing January 1 and ending
the following December 31 (except the first option period which commenced
February 6, 1996 and ends December 31, 1996).

The Purchase Plan permits eligible employees of the Company and certain of
its subsidiaries to purchase Common Stock through payroll deductions, which may
not exceed 10% of the employee's base compensation, at a price equal to 85% of
the fair market value of the Common Stock at the beginning of the option period
or at the end of the option period, which ever is lower (subject to a minimum
price specified in the Purchase Plan). Employees are eligible to participate in
the Purchase Plan if they are employed by the Company or a participating
subsidiary for at least 20 hours per week and more than five months in any
calendar year and have been employed for at least six months since their last
date of hire, except that credit is given for service with acquired companies.

In the event of a change of control of the Company (as defined in the
Purchase Plan), each option under the Purchase Plan will (if the Company is the
surviving corporation) pertain to and apply to the securities to which a holder
of the number of shares of the Company subject to such option would have been
entitled in such transaction. If the Company is not the surviving corporation in
such change in control, then all options

46
<PAGE> 48

under the Purchase Plan will terminate, provided that the Compensation Committee
may determine that such options shall be exercisable on the day prior to such
change in control transaction.

CERTAIN TRANSACTIONS

CONSIDERATION FOR FOUNDING COMPANIES

In connection with the Combination, and as consideration for their
interests in the Founding Companies, certain officers, directors and holders of
5% or more of the Common Stock received cash (excluding $7.0 million of
contingent payments), shares of Common Stock (valued at the initial public
offering price of $18.00 per share) and notes approximately as follows: Harry R.
Jacobson, M.D. (Chairman of the Board) -- $2,674,000; Sam A. Brooks, Jr.
(President, Chief Executive Officer and Director) -- $1,337,000 (received in the
form of shares of Common Stock, as to which Mr. Brooks disclaims beneficial
ownership because the shares are held in a trust of which Mr. Brooks' daughter
is the sole beneficiary); Dr. Bower -- $13,436,000; Dr. McMurray -- $3,581,000;
Dr. Meredith -- $6,888,000; Dr. Lowery -- $5,281,000; and Kidney Care --
$31,783,000. In addition, the Company assumed indebtedness for which certain
officers, directors and holders of 5% or more of the Common Stock or their
Founding Companies were obligated approximately as follows: Dr.
Bower -- $2,244,000; Dr. McMurray -- $6,618,000; and Dr. Lowery -- $2,300,000,
all of which indebtedness was repaid with a portion of the proceeds of the
Company's initial public offering.

TENNESSEE WARRANTS

Various options and warrants of Tennessee outstanding at the time of the
Combination were assumed by the Company, on a share-for-share basis unadjusted
for the exchange rate in the transactions with Tennessee in the Combination. In
addition, the exercise price of the outstanding warrants of Tennessee was
reduced from $10.00 to $7.50 per share upon consummation of the Combination. Sam
A. Brooks, Jr., and Harry R. Jacobson, M.D., hold warrants for the purchase of
90,000 and 70,000 shares, respectively.

ISSUANCE OF CONVERTIBLE NOTES

The Company issued $1.38 million of Convertible Notes on December 7, 1995
to provide funds to complete the Combination and its initial public offering.
Certain executive officers, directors and holders of 5% or more of the Common
Stock purchased (and currently own) Convertible Notes as follows: Dr. Bower --
$100,000 (7.2% of the outstanding); Dr. McMurray -- $20,000 (1.4% of the
outstanding); Dr. Meredith -- $120,000 (8.7% of the outstanding); Dr.
Lowery -- $100,000 (7.2% of the outstanding); and Kidney Care -- $160,000 (11.6%
of the outstanding). The executive officers and directors as a group purchased
(and currently own) $340,000 of Convertible Notes (24.6% of the outstanding).
The Convertible Notes bear interest at 7.0% and, if not previously converted,
mature on December 7, 1996. The holders may convert the principal balance and
accrued interest into Common Stock at $7.50 per share and the Company may redeem
the Convertible Notes at par plus accrued interest. The shares of Common Stock
into which the Convertible Notes may be converted are eligible for the "piggy
back" registration rights applicable to the shares acquired by such holders in
the Combination.

MEDICAL DIRECTOR ARRANGEMENTS

Dr. McMurray is a member of Indiana Dialysis Management, P.C., a practice
group currently consisting of four nephrologists. The Company entered into a
Medical Director agreement dated February 12, 1996 with such practice group that
has a term of seven years with successive renewal terms of three years each and
provides for medical director fees of $228,000 in year one, $277,000 in year
two, and $326,000 in year three and each year thereafter in effect. In addition,
pursuant to the terms of such Medical Director agreement, on February 12, 1996,
the Company granted to such practice an option to purchase 37,500 shares of
Common Stock with an exercise price of $18.00 per share. See
"Business -- Operations -- Relationships with Referral Sources, Medical
Directors."

Dr. Meredith is a member of Kansas Nephrology Physicians, P.A., a practice
group currently consisting of four nephrologists. The Company entered into a
Medical Director agreement dated February 12, 1996 with

47
<PAGE> 49

such practice group that has a term of seven years with successive renewal terms
of three years each and provides for medical director fees of $245,000 in year
one, $289,000 in year two, and $350,000 in year three and each year thereafter
in effect. In addition, pursuant to the terms of such Medical Director
agreement, on February 12, 1996 the Company granted to such practice an option
to purchase 37,500 shares of Common Stock with an exercise price of $18.00 per
share. See "Business -- Operations -- Relationships with Referral Sources,
Medical Directors."

Dr. Lowery is a member of Tyler Dialysis & Transplant Associates, P.A., a
practice group currently consisting of five nephrologists. The Company entered
into a Medical Director agreement with such practice group dated February 12,
1996 that has a term of seven years with successive renewal terms of three years
each and provides for medical director fees of $274,000 in year one, $333,000 in
year two, and $392,000 in year three and each year thereafter in effect. In
addition, pursuant to the terms of such Medical Director agreement, on February
12, 1996, the Company granted to such practice an option to purchase 37,500
shares of Common Stock with an exercise price of $18.00 per share. See
"Business -- Operations -- Relationships with Referral Sources, Medical
Directors."

Dr. Bower is a party to an agreement with the Company dated February 12,
1996 to serve as Chief Medical Officer of the Company's centers in Mississippi
for which he is compensated $100,000 annually through February 2000. The
agreement has a term of four years with successive annual renewals.

Dr. Johnson is a party to a Medical Director Services Agreement with
several additional nephrologists dated September 30, 1996 that has a term of
seven years with successive renewal terms of three years each and provides for
medical director fees of $840,000 per year. See
"Business -- Operations -- Relationships with Referral Sources, Medical
Directors."

The Company believes that each of the foregoing Medical Director Agreements
were obtained on terms no less favorable to the Company than could be obtained
from unaffiliated third parties. The terms of each such Medical Director
Agreement were determined by arm's-length negotiations between the Company and
the practices, and such terms were subject to scrutiny and negotiations with
representatives of the Founding Companies in connection with the Combination.

LABORATORY MANAGEMENT AGREEMENT

The Company entered into an agreement with Kidney Care dated February 12,
1996, pursuant to which the Company provides certain business, management,
administrative and equipment maintenance services to Kidney Care's clinical
laboratory located in Jackson, Mississippi. The agreement has a term of one year
with a provision for automatic renewal for an additional one year term. In
consideration for the management services provided by the Company, Kidney Care
has agreed to pay the Company a fixed management fee of $250,000 per year and to
reimburse the Company for its expenses in providing services under the
agreement, including the cost of certain employees, laboratory supplies and
equipment maintenance.

DEVELOPMENT SERVICES

In connection with development services provided, and to be provided, to
the Company, the Company has granted options with an exercise price equal to
$18.00 per share to purchase 30,000, 20,000 and 20,000 shares of Common Stock to
Drs. Bower, Lowery and McMurray, respectively.

PURCHASE OF REAL PROPERTY

The Company has purchased certain real property owned by Dr. Bower on which
certain of the centers previously operated by Kidney Care are located. The
purchase price was paid by the Company by the issuance of 68,000 shares of
Common Stock valued at the initial public offering price of $18.00 per share
plus the assumption of approximately $1.1 million of indebtedness incurred by
Dr. Bower to finance such property. The consideration paid to Dr. Bower for the
real estate was determined by arm's-length negotiations between the Company and
Dr. Bower, and such consideration was subject to scrutiny by and negotiations
with representatives of the Founding Companies.

48
<PAGE> 50

LEASES OF REAL PROPERTY

Pursuant to a lease agreement dated February 12, 1996, the Company leases
from an affiliate of Dr. Bower approximately 20,000 square feet of
administrative and other space used by the Company for the operation of the
centers acquired from KidneyCare. The lease is a triple net lease at a rate of
approximately $6.00 per square foot per year, or a gross payment of
approximately $10,000 per month. The lease contains an initial term of ten years
and two five-year renewal options.

Dr. Lowery owns a 25% interest in certain real property and improvements
used in connection with the operation of two of Tyler's centers. Pursuant to a
lease agreement dated February 12, 1996, the Company leases those centers which
are located in Carthage and Tyler, Texas. Each lease is a triple net lease with
rent payable at $12.00 per square foot per year. The Tyler lease requires a
gross payment of $20,092 per month, and the Carthage lease requires a gross
payment of $2,479 per month. Each lease has an initial term of ten years with
two additional five-year renewal options. The amount of rent is subject to a
consumer price index adjustment after the initial five-year period. In addition,
the Company has subleased back to Tyler Nephrology Associates, Inc. a portion of
the Tyler center on terms substantially similar to those contained in the lease
of such center to the Company.

Dr. Meredith owns a one-third interest in a partnership that subleases to
the Company approximately 4,100 square feet for its Dodge City, Kansas center.
The sublease, dated February 12, 1996, has a term of five years, with five
additional options to renew for periods of five years. The sublease is a double
net sublease with a base rent payment of approximately $3,300 per month,
adjusted at the commencement of each extended term by a factor based on the
consumer price index.

EMPLOYMENT AGREEMENT

Ann N. Bower, Dr. Bower's daughter, is a party to an employment agreement
dated February 7, 1996 with the Company with an annual base salary of $125,000
and having a term of three years, renewable thereafter for successive one-year
terms. Ms. Bower serves as the chief operating officer of the Company's
Mississippi operations.

RELATIONSHIP WITH VANDERBILT UNIVERSITY

Dr. Jacobson currently serves as Deputy Vice Chancellor of Health Affairs
at Vanderbilt University and as Professor of Medicine and Director of the
Division of Nephrology, Department of Medicine, Vanderbilt University. On
February 12, 1996, the Company assumed a Dialysis Center Management Agreement
with Vanderbilt University Medical Center pursuant to which the Company manages
its outpatient dialysis center. The Company received revenues of approximately
$231,984 pursuant to this agreement for the nine months ended September 30,
1996. Such agreement has a one-year term that is automatically renewed each year
unless either party cancels the agreement at least 90 days prior to the end of
the current term. Vanderbilt University owns approximately 246,103 of the
outstanding shares of the Company.

SUPPLY RELATIONSHIP

The Company has entered into an agreement dated February 12, 1996, with
Healthcare Suppliers, Inc. ("HSI"), a former affiliate of Kidney Care, pursuant
to which the Company is obligated, for a period of 18 months, to purchase most
of the dialysis and related supplies required for its Kidney Care centers at
pre-determined prices no greater than the best prices available to any other
Founding Company as of November 1995. The Company believes it will purchase
approximately $5.0 million of supplies from HSI during the 18-month term of the
agreement.

COMPANY POLICY

The Company has adopted a policy pursuant to which transactions with
affiliates (other than those entered into pursuant to the Combination) must be
reviewed by the Audit Committee and approved by a majority of the disinterested
members of the Board of Directors and will be made on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.

49
<PAGE> 51

PRINCIPAL AND SELLING STOCKHOLDERS

The table below sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 28, 1996 and as adjusted to reflect
the sale of Common Stock offered hereby by: (i) each person or entity known by
the Company to own beneficially 5% or more of the Common Stock, (ii) each Named
Executive Officer and director of the Company, (iii) by each of the Selling
Stockholders, and (iv) all directors and executive officers of the Company as a
group.

<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR OWNERSHIP AFTER
TO OFFERING(1) NUMBER OF OFFERING(1)
------------------- SHARES BEING -------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- -------------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND 5%
STOCKHOLDERS:
Harry R. Jacobson, M.D.(2)................ 247,662 2.0% 35,000 212,662 1.5%
Sam A. Brooks, Jr.(3)..................... 340,000 2.6 -- 340,000 2.4
Gary Brukardt(4).......................... 20,000 * -- 20,000 *
Joseph A. Cashia(5)....................... 55,000 * -- 55,000 *
Ronald Hinds(6)........................... 34,000 * -- 34,000 *
Raymond Hakim, M.D., Ph.D.(7)............. 49,229 * -- 49,229 *
John D. Bower, M.D.(8).................... 828,425 6.6 -- 828,425 5.9
Joseph C. Hutts(9)........................ 6,000 * -- 6,000 *
Kenneth E. Johnson, M.D.(10) ............. 367,180 2.9 72,173 295,007 2.1
Thomas A. Lowery, M.D.(11)................ 283,991 2.3 50,000 233,991 1.6
Stephen D. McMurray, M.D.(12)............. 179,211 1.4 34,500 144,711 1.0
W. Tom Meredith, M.D.(13)................. 263,882 2.1 40,000 223,882 1.7
Kidney Care, Inc.(14)..................... 891,114 7.1 171,290 719,824 5.1
Directors and Executive Officers as a
Group (12 persons)(15)................. 2,674,580 20.1 231,673 2,442,907 16.7
ADDITIONAL SELLING STOCKHOLDERS:
Douglas A. and Lisa Anderson Family
Trust.................................. 169,200 1.3 70,000 99,200 *
Robert L. Benz, M.D....................... 101,865 * 20,373 81,492 *
Bimbaum Family Trust...................... 169,200 1.3 67,680 101,520 *
Kenneth R. Boren Family Revocable Trust... 364,980 2.9 145,992 218,998 1.6

Chang Family Trust........................ 53,004 * 21,000 32,004 *
James R. Cotton, Jr., M.D................. 266,658 2.1 53,332 213,326 1.5
Kevin A. Curran, Jr., M.D.(16)............ 177,772 1.4 88,886 88,886 *
Kimberly Ann Dauser....................... 29,877 * 5,975 23,902 *
Robert W. Detmer, M.D..................... 172,545 1.4 30,000 142,545 1.0
John K. Dyer, M.D......................... 172,545 1.4 25,900 146,645 1.0
Samuel R. Eby, M.D........................ 51,763 * 5,000 46,763 *
Richard P. Flick, M.D..................... 18,499 * 2,000 16,499 *
Ronald R. Fuller.......................... 28,711 * 14,300 14,411 *
Roy D. Gerard, Jr., M.D.(17).............. 177,772 1.4 44,400 133,372 *
Gary S. Gilgore, M.D...................... 101,865 * 17,250 84,615 *
John E. Greksa & Teresa L. Greksa
Revocable Trust........................ 54,545 * 21,818 32,727 *
Robert H. Harris, Jr., M.D................ 104,571 * 20,914 83,657 *
Ronald H. Hyde, M.D....................... 19,682 * 6,500 13,182 *
James Leininger........................... 164,068 1.3 37,800 126,268 *
Rick Maniscalco(18)....................... 4,810 * 1,000 3,810 *
Francis X. McCusker, M.D.................. 18,920 * 1,000 17,920 *
David F. McNamara, Sr..................... 26,463 * 5,293 21,170 *
Richard L. Nielsen........................ 172,545 1.4 30,000 142,545 1.0
Thomas D. Noland(19)...................... 9,101 * 600 8,501 *
</TABLE>

50
<PAGE> 52

<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR NUMBER OF OWNERSHIP AFTER
TO OFFERING(1) SHARES BEING OFFERING(1)
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- -------------------------------------------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C>
O'Regan Family Trust...................... 78,386 * 31,354 47,032 *
Packer Family Trust....................... 169,200 1.3 67,680 101,520 *
Thomas F. Parker(20)...................... 8,153 * 1,231 6,922 *
David A. Reichart, M.D.................... 364,980 2.9 145,992 218,988 1.6
Dennis L. Ross, M.D.(21).................. 338,661 2.7 5,000 333,661 2.4
Charles R. Schleifer, M.D................. 101,865 * 20,373 81,492 *
Keith T. Shearlock, M.D................... 134,449 1.1 26,890 242,008 *
Miles H. Sigler, M.D...................... 101,865 * 20,373 81,492 *
William E. Smith & Nina Smith Family
Trust.................................. 169,200 1.3 60,000 109,200 *
Brendan P. Teehan, M.D.................... 101,865 * 20,373 81,492 *
Denise VanValkenburgh(22)................. 7,608 * 1,000 6,608 *
Voit Family Trust......................... 169,200 1.3 50,760 118,440 *
Hugo P. Weber, Jr., M.D................... 247,882 2.0 65,000 182,882 1.5
Berne Yee, M.D............................ 169,200 1.3 67,680 101,520 *
</TABLE>

- ---------------

* Less than 1% of the outstanding Common Stock.

(1) Applicable percentage of ownership prior to the Offering is based upon
12,625,954 shares of Common Stock outstanding. Applicable percentage of
ownership after the Offering is based upon 13,902,272 shares of Common
Stock outstanding. Information relating to the beneficial ownership of
Common Stock by the above individuals is based upon information furnished
by each such individual using "beneficial ownership" concepts set forth in
rules promulgated by the Securities and Exchange Commission under Section
13(d) of the Securities Exchange Act of 1934, as amended. Except as
indicated in other footnotes to this table, the above individuals possessed
sole voting and investment power with respect to all shares set forth by
their names, except to the extent such power is shared by a spouse under
applicable law. Any security that any person named above has the right to
acquire within 60 days is deemed to be outstanding for purposes of
calculating the percentage ownership of such person, but is not deemed to
be outstanding for purposes of calculating the ownership percentage of any
other person.

(2) Includes 70,000 shares of Common Stock which may be acquired upon exercise
of immediately exercisable warrants. Includes 30,000 Shares of Common Stock
which may be acquired upon exercise of options exercisable within 60 days.

(3) Includes 90,000 shares of Common Stock which may be acquired upon exercise
of immediately exercisable warrants and 250,000 shares of Common Stock
which may be acquired upon exercise of options exercisable within 60 days.

(4) Includes 20,000 shares of Common Stock which may be acquired upon exercise
of options.

(5) Includes 55,000 shares of Common Stock which may be acquired upon exercise
of options.

(6) Includes 34,000 shares of Common Stock which may be acquired upon exercise
of options exercisable within 60 days.

(7) Includes 40,000 shares of Common Stock which may be acquired upon exercise
of options that will be exercisable within 60 days.

(8) Dr. Bower's address is 3925 West Northside Drive, Jackson, Mississippi
39209. Includes 13,333 shares of Common Stock that could be acquired upon
the conversion of Convertible Notes, which are presently convertible.
Includes 6,000 shares of Common Stock which may be acquired upon exercise
of options exercisable within 60 days. Does not include 31,500 shares of
Common Stock which may be acquired upon exercise of options that will not
be exercisable within 60 days. Dr. Bower is a director of Kidney Care, Inc.
Dr. Bower disclaims beneficial ownership of the shares held by Kidney Care,
Inc. and such shares are not included in Dr. Bower's holdings.

(9) Includes 6,000 shares of Common Stock which may be acquired upon exercise
of options that will be exercisable within 60 days.

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<PAGE> 53

(10) Includes 77,808 shares of Common Stock held for the benefit of (in the
amount of 9,726 each) Kenneth Eugene Johnson, Steven Michael Johnson,
Daniel Aaron Johnson, David Alexander Johnson, Timothy Paul Johnson, Rachel
Ann Johnson, Angela Sharon Johnson, and Graham Brinton Johnson.

(11) Includes 13,333 shares of Common Stock that could be acquired upon the
conversion of Convertible Notes, which are presently convertible and 4,000
shares of Common Stock which may be acquired upon exercise of options
exercisable within 60 days.

(12) Includes 2,666 shares of Common Stock that could be acquired upon the
conversion of Convertible Notes, which are presently convertible. Includes
4,000 shares of Common Stock which may be acquired upon exercise of options
exercisable within 60 days.

(13) Includes 16,000 shares of Common Stock that could be acquired upon the
conversion of Convertible Notes, which are presently convertible.

(14) The address of Kidney Care, Inc. is 3925 West Northside Drive, Jackson,
Mississippi 39209. Includes 34,666 shares of Common Stock that could be
acquired upon the conversion of Convertible Notes, which are presently
convertible. Kidney Care, Inc. is a not-for-profit corporation that has
eight members of its Board of Directors, only one of which, Dr. Bower, is
affiliated with the Company. See note 8 to this table.

(15) Includes 688,998 shares of Common Stock which may be acquired upon exercise
of options and warrants.

(16) Includes 88,886 shares held in escrow for the benefit of Thomas A. Lowery,
M.D. over which Kevin A. Curren, Jr., M.D. has voting control and 88,886
shares held in escrow for the benefit of James R. Cotton over which Kevin
A. Curran, Jr., M.D., has voting control.

(17) Includes 88,886 shares held in escrow for the benefit of Thomas A. Lowery,
M.D. over which Roy D. Gerrard, M.D. has voting control and 88,886 shares
held in escrow for the benefit of James R. Cotton over which Roy D.
Gerrard, M.D. has voting control.

(18) Includes 600 shares of Common Stock which may be acquired upon exercise of
options exercisable within 60 days.

(19) Includes 6,025 shares of Common Stock which may be acquired upon exercise
of options exercisable within 60 days.

(20) Includes 1,000 shares of Common Stock which may be acquired upon exercise
of options exercisable within 60 days.

(21) Includes 4,000 shares of Common Stock which may be acquired upon exercise
of options exercisable within 60 days.

(22) Includes 2,000 shares of Common Stock which may be acquired upon exercise
of options exercisable within 60 days.

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<PAGE> 54

DESCRIPTION OF CAPITAL STOCK

The following summary is a description of certain provisions of the
Company's Amended and Restated Certificate of Incorporation. Such summary does
not purport to be complete and is subject to, and is qualified in its entirety
by, all of the provisions of the Company's Amended and Restated Certificate of
Incorporation.

The Company's authorized capital stock consists of 22,000,000 shares, $.01
par value, of Common Stock and 10,000,000 shares of Preferred Stock, $.01 par
value ("Preferred Stock"). Upon completion of the Offering, the Company will
have outstanding 13,902,272 shares of Common Stock (14,352,272 if the
Underwriters' over-allotment option is exercised in full) and no shares of
Preferred Stock. As of October 28, 1996, there are approximately 1,800 record
holders of Common Stock.

COMMON STOCK

The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders and are not entitled to cumulative voting
in the election of directors. The holders of Common Stock are entitled to share
ratably in dividends, if any, as may be declared from time to time by the Board
of Directors in its discretion out of funds legally available therefor. The
Company currently anticipates that all of its earnings will be retained to
finance the growth and development of its business and, therefore, does not
anticipate that any cash dividends will be declared on the Common Stock in the
foreseeable future. The holders of Common Stock are entitled to share ratably in
any assets remaining after satisfaction of all prior claims upon liquidation of
the Company. The Company's Amended and Restated Certificate of Incorporation
gives holders of Common Stock no preemptive or other subscription or conversion
rights, and there are no redemption provisions with respect to such shares. All
outstanding shares of Common Stock are, and the shares offered hereby will be,
when issued and paid for, fully paid and nonassessable. The rights, preferences,
and privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of holders of shares of any series of Preferred Stock
which the Company may designate and issue in the future. See "Dividend Policy."

PREFERRED STOCK

Subject to conditions specified in the Company's Amended and Restated
Certificate of Incorporation, the Delaware General Corporation Law ("DGCL") and
other applicable law, the Board of Directors has the authority to issue
undesignated Preferred Stock in one or more class or series and to determine the
dividend rights, dividend rate, conversion rights, voting rights, redemption
rights and terms, liquidation preferences, sinking fund provisions, number of
shares constituting any class or series, and designations of such class or
series without any further vote or action by the stockholders of the Company.
The Company has no present intention to issue any shares of Preferred Stock.

One of the effects of undesignated Preferred Stock is to enable the Board
of Directors to render more difficult or to discourage an attempt to obtain
control of the Company by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of the Company's management.
For example, the Company could issue a series of preferred stock having
characteristics that would make a takeover prohibitively expensive. The issuance
of shares of the Preferred Stock pursuant to the Board of Directors' authority
described above may adversely affect the rights of the holders of Common Stock.
For example, Preferred Stock issued by the Company may rank senior to the Common
Stock as to dividend rights, liquidation preference or both, may have full or
unlimited voting rights and may be convertible into shares of Common Stock.
Accordingly, the issuance of shares of Preferred Stock may discourage bids for
the Common Stock or may otherwise adversely affect the market price of the
Common Stock.

SPECIAL PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW

Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws may be deemed to have an anti-takeover effect or may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in such stockholder's best interest, including those attempts
that might result in a premium over the market price for the shares held by a
stockholder.

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<PAGE> 55

Delaware Anti-Takeover Law. Section 203 of the DGCL ("Section 203")
applies to the Company and generally provides that a person who, together with
affiliates and associates owns, or within three years did own, 15% or more of
the outstanding voting stock of a corporation subject to the statute (an
"Interested Stockholder") but less than 85% of such stock may not engage in
certain business combinations with the corporation for a period of three years
after the date on which the person became an Interested Stockholder unless (i)
prior to such date, the corporation's board of directors approved either the
business combination or the transaction in which the stockholder became an
Interested Stockholder, (ii) the Interested Stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes such person an Interested Stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans), or (iii) subsequent to such date, the
business combination is approved by the corporation's board of directors and
authorized at a stockholders' meeting by a vote of at least two-thirds of the
corporation's outstanding voting stock not owned by the Interested Stockholder.
Section 203 defines the term "business combination" to encompass a wide variety
of transactions with or caused by an Interested Stockholder, including mergers,
asset sales, and other transactions in which the Interested Stockholder receives
or could receive a benefit on other than a pro rata basis with other
stockholders.

The Company's stockholders, by adopting an amendment to the Certificate of
Incorporation, may elect not to be governed by Section 203, which election would
be effective 12 months after such adoption. Neither the Amended and Restated
Certificate of Incorporation nor the Bylaws presently exclude the Company from
the restrictions imposed by Section 203, and the restrictions imposed by Section
203 apply to the Company. The provisions of Section 203 could delay or frustrate
a change in control of the Company, deny stockholders the receipt of a premium
on their Common Stock and have a depressing effect on the market price of the
Common Stock. The provisions also could discourage, impede or prevent a merger,
tender offer or proxy contest, even if such event would be favorable to the
interests of stockholders.

Classified Board of Directors. The Amended and Restated Certificate of
Incorporation of the Company provides for the Board of Directors to be divided
into three classes of directors serving staggered three-year terms. A director
may be removed from office prior to the expiration of his or her term only "for
cause," so any person acquiring control of the Company would need three annual
meetings to replace all of the members of the Board of Directors. The classified
board provision of the Company's Amended and Restated Certificate of
Incorporation could have the effect of making the removal of incumbent directors
more time-consuming and difficult, and, therefore discouraging a third party
from making a tender offer or otherwise attempting to obtain control of the
Company, even though such an attempt might be beneficial to the Company and its
stockholders. Thus, the classified board provision could increase the likelihood
that incumbent directors will retain their positions. The Company believes that
a classified Board of Directors will help to assure the continuity and stability
of the Board of Directors and of the business strategies and policies of the
Company as determined by the Board of Directors. See "Management -- Board of
Directors."

Number of Directors; Removal; Filling Vacancies. The Amended and Restated
Certificate of Incorporation and Bylaws of the Company provide that the number
of directors will be fixed from time to time with the consent of two-thirds of
the Board of Directors. Moreover, the Amended and Restated Certificate of
Incorporation provides that directors may only be removed with cause by the
affirmative vote of the holders of at least a majority of the outstanding shares
of capital stock of the Company then entitled to vote at an election of
directors. This provision prevents stockholders from removing any incumbent
director without cause and allows two-thirds of the incumbent directors to add
additional directors without approval of stockholders until the next annual
meeting of stockholders at which directors of that class are elected.

Advance Notice of Nominations and Stockholder Proposals. The Company's
Bylaws contain a provision requiring at least 60 but no more than 90 days'
advance notice by a stockholder of a proposal or director nomination that such
stockholder desires to present at any annual or special meeting of stockholders,
which would prevent a stockholder from making a proposal or a director
nomination at a stockholder meeting without the Company having advance notice of
the proposal or director nomination. This provision could make a change in
control more difficult by providing the directors of the Company with more time
to prepare an opposition to a proposed change in control.

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<PAGE> 56

Vote Requirement for Calling Special Meeting. The Company's Bylaws also
contain a provision requiring the vote of the holders of two-thirds of the
outstanding Common Stock in order to call a special meeting of stockholders.
This provision would prevent a stockholder with less than a two-thirds interest
from calling a special meeting to consider a merger unless such stockholder had
first garnered adequate support from a sufficient number of other stockholders.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Limitations of Director Liability. Section 102(b)(7) of the DGCL ("Section
102(b)") authorizes corporations to limit or to eliminate the personal liability
of directors to corporations and their stockholders for monetary damages for
breach of directors' fiduciary duty of care. Although Section 102(b) does not
change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Company's
Amended and Restated Certificate of Incorporation limits the liability of
directors to the Company or its stockholders to the full extent permitted by
Section 102(b). Specifically, directors of the Company are not be personally
liable for monetary damages for breach of a director's fiduciary duty as a
director, except for liability: (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the DGCL, or (iv) for any transaction
from which the director derived an improper personal benefit.

Indemnification. To the maximum extent permitted by law, the Amended and
Restated Certificate of Incorporation of the Company provides for mandatory
indemnification of directors and officers of the Company against an expense,
liability and loss to which they may become subject, or which they may incur as
a result of being or having been a director or officer of the Company. In
addition, the Company must advance or reimburse directors and officers for
expenses incurred by them in connection with indemnifiable claims.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Stock into the public market after
the Offering, or the perception that such sales could occur, could adversely
affect the prevailing market price for the Common Stock and the ability of the
Company to raise equity capital. The Company can make no prediction as to the
effect, if any, that the sale or availability for future sale of shares of
additional Common Stock will have on the market price of the Common Stock
prevailing from time to time.

Upon completion of the Offering, the Company will have 13,902,272 shares of
Common Stock outstanding (assuming no exercise of options or warrants and no
conversion of any Convertible Notes after the date of this Prospectus). The
3,000,000 shares sold in the Offering (plus any additional shares sold upon
exercise of the Underwriters' over-allotment option) and the 4,485,000 shares of
Common Stock sold in the initial public offering are freely tradable, except
that any shares purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act of 1933, as amended,
("Affiliates"), may generally only be sold in compliance with the limitations of
Rule 144 ("Rule 144") under the Securities Act of 1933, as amended (the
"Securities Act"), as described below.

The remaining 6,417,272 shares of Common Stock outstanding are not
registered under the Securities Act, and, accordingly, such shares may not be
sold except in transactions registered under the Securities Act or pursuant to
an exemption from registration. In addition, holders of approximately 5,902,000
shares of Common Stock have agreed not to sell any shares of Common Stock or
other capital stock or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock or other capital stock for a period
of 180 days following the Offering, without the prior written consent of
Equitable Securities Corporation. After the expiration of such 180 day period,
all of such shares may be sold in accordance with

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<PAGE> 57

Rule 144, subject to the applicable volume, holding period and other limitations
of Rule 144 as described below. These same individuals have entered into a
similar agreement with the Company covering a period until February 7, 1997.

The Company has granted certain registration rights to holders of 8,140,954
shares of restricted stock, of which 1,723,682 shares are being offered hereby.
If any such stockholder who has elected to participate in the Offering is not
able to dispose of 20% of his Common Stock in the Offering (40% in the case of
former stockholders of RenalWest), then such stockholders, upon the request of
persons holding at least 20% of the restricted shares of Common Stock, may
request, at any time prior to the expiration of the two-year holding period
specified in Rule 144 with respect to such shares, that the Company file a
registration statement under the Securities Act for an offering of no less than
10% of the restricted shares of Common Stock held by them. The Company is
obligated to effect only one such registration pursuant to such a request,
subject to certain exceptions. In addition, in the event that the Company
proposes to register under the Securities Act any Common Stock for its own
account or for the account of others at prior to the expiration of the two-year
holding period specified in Rule 144 with respect to such shares, subject to
certain exceptions, such stockholders have the right to require the Company to
include their shares in such registration, subject to the right of any managing
underwriter of the Offering to exclude some or all of the shares for marketing
reasons. In general, all fees, costs and expenses of such registrations (other
than underwriting commissions, dealer's fees, brokers' fees and concessions
applicable to shares of Common Stock registered and any counsel for the selling
stockholders) will be borne by the Company.

In addition to the shares of Common Stock that will be outstanding, an
aggregate of up to 1,912,993 shares of Common Stock may be issued upon exercise
of options that the Company has outstanding. These options and warrants will be
exercisable as follows: (i) options and warrants to purchase up to 585,822
shares of Common Stock are exercisable on or prior to December 31, 1996; (ii)
options to purchase up to 337,124 shares of Common Stock will become exercisable
on or prior to December 31, 1997; (iii) options to purchase up to 327,124 shares
of Common Stock will become exercisable on or prior to December 31, 1998; (iv)
options to purchase up to 317,124 shares of Common Stock will become exercisable
on or prior to December 31, 1999; (v) options to purchase up to 215,799 shares
of Common Stock will become exercisable on or prior to December 31, 2000; and
(vi) options to purchase up to 130,000 shares of Common Stock will become
exercisable on or prior to December 31, 2001. The Company has filed a
registration statement on Form S-8 under the Securities Act to register all
shares of Common Stock subject to these stock options. The shares covered by
these registration statements will be eligible for sale in the public markets,
subject to the lock-up agreements discussed above, if applicable.

The Company has outstanding warrants to purchase an additional 220,000
shares of Common Stock. The outstanding warrants to purchase shares of Common
Stock grant certain registration rights to their holders that may be acquired
upon exercise of such warrants, which rights under appropriate circumstances
would allow holders of warrants to cause the Company to register such shares,
even if the Company does not elect to effect the registration that it intends to
effect as described above. Upon any such registration, the shares of Common
Stock registered will immediately be eligible for resale in the public market,
unless such shares are purchased by an Affiliate.

Up to 184,000 additional shares may be issued upon conversion of the
Convertible Notes. These shares will not be registered under the Securities Act,
and, accordingly, such shares may not be sold except in transactions registered
under the Securities Act or pursuant to an exemption from registration. In the
event that the Company proposes to register under the Securities Act any Common
Stock for its own account or for the account of others during the first two
years following the completion of the Offering, subject to certain exceptions,
the holders of the Convertible Notes have the right to require the Company to
include their shares in such registration, subject to the right of any managing
underwriter of the offering to exclude some or all of the shares for marketing
reasons.

Any shares of Common Stock that have not been registered under the
Securities Act could be sold under Rule 144. In general, under Rule 144 as
currently in effect, a person (or persons whose shares are aggregated) who has
beneficially owned restricted shares for at least two years, including a person
who may be deemed an

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<PAGE> 58

Affiliate, is entitled to sell within any three-month period a number of shares
of Common Stock that does not exceed the greater of 1% of the then-outstanding
shares of Common Stock or the average weekly reported trading volume of the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are subject to certain restrictions relating to manner of sale, notice,
and the availability of current public information about the Company. A person
who is not an Affiliate at any time during the three months preceding a sale,
and who has beneficially owned shares for at least three years, would be
entitled to sell such shares immediately following the Offering without regard
to the volume limitations, manner of sale provisions, or notice or other
requirements of Rule 144.

The Securities and Exchange Commission has published a notice of proposed
rulemaking that, if adopted as proposed, would shorten the applicable holding
periods under Rule 144(d) and Rule 144(k) to one and two years, respectively
(from the current two- and three-year periods). The Company cannot predict
whether such amendments will be adopted or the effect thereof on the trading
market for its Common Stock.

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<PAGE> 59

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Equitable
Securities Corporation, Hambrecht & Quist LLC, Morgan Keegan & Company, Inc. and
Needham & Company, Inc. are acting as representatives (the "Representatives"),
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
-------------------------------------------------------------------------- ----------
<S> <C>
Equitable Securities Corporation..........................................
Hambrecht & Quist LLC.....................................................
Morgan Keegan & Company, Inc..............................................
Needham & Company, Inc....................................................
---------
Total Underwriters.............................................. 3,000,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share, and the Underwriters may allow, and
such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the Offering, the price and concessions and
reallowances to dealers may be changed by the Underwriters. The Common Stock is
offered subject to receipt and acceptance by the Underwriters and to certain
other conditions, including the right to reject orders in whole or in part.

The Company has granted a 30-day option to the Underwriters, to purchase up
to a maximum of 450,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial 3,000,000
shares to be purchased by the Underwriters. To the extent the Underwriters
exercise this option, each of the Underwriters will be committed, subject to
certain conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with the sale of the
shares of the Common Stock offered hereby.

The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.

The Company, its directors, executive officers, affiliates and other
persons who are holders of approximately 5,902,000 outstanding shares of Common
Stock as of the consummation of the Offering have agreed not to offer, issue,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock or any rights to
acquire Common Stock for a period of 180 days after the date of this Prospectus,
without the prior written consent of Equitable Securities Corporation. These
same individuals have entered into a similar agreement with the Company covering
a period until February 7, 1997. See "Shares Eligible for Future Sale."

The Representatives have advised the Company that the Underwriters do not
intend to confirm any sales to accounts over which they exercise discretionary
authority.

In connection with the Offering, certain Underwriters and selling group
members (if any) or their respective affiliates who are qualified registered
market makers on the Nasdaq Stock Market may engage in passive market making on
the Nasdaq Stock Market in accordance with rule 10b-6A under the Securities and
Exchange Act of 1934, as amended, during the two business day period before the
commencement of the offers or sales of the Common Stock. The passive market
making transactions must comply with the applicable volume and price limits and
be identified as such. In general, a passive market maker may display its bid at
a price not in excess of the highest independent bid for such security; if all
independent bids are lowered before the passive market maker's bid, however,
such bid must then be lowered when certain purchase limits are exceeded.

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<PAGE> 60

On December 7, 1995, Equitable Securities Corporation ("Equitable")
purchased in a private placement an aggregate principal amount of $50,000 of
Convertible Notes from the Company. The Convertible Notes mature on December 7,
1996, bear interest at a rate of 7.0% per annum, and the principal and accrued
interest thereof are convertible at a conversion price of $7.50 per share. The
Convertible Notes, and the Common Stock into which the Convertible Notes are
convertible, will not be sold, transferred, assigned, pledged or hypothecated by
Equitable prior to February 6, 1997. The Convertible Notes provide that
Equitable has the same "piggyback" registration rights applicable to the former
owners of the Founding Companies in connection with the Common Stock received by
such persons in the Combination. As a result of the purchase of such Convertible
Notes, Equitable will be deemed to have received additional compensation in
connection with the Offering. Equitable also acted as financial advisor to Renal
Care Group and rendered a fairness opinion in connection with the acquisition of
RenalWest in September 1996 and received a fee for such services.

LEGAL MATTERS

Certain legal matters with respect to the validity of the shares of the
Common Stock offered hereby will be passed upon for the Company by Alston &
Bird, Atlanta, Georgia. Certain legal matters related to the Offering will be
passed upon for the Underwriters by Hogan & Hartson L.L.P., Washington, D.C.

EXPERTS

The financial statements and schedules appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein
which, insofar as their report on Renal Care Group, Inc. (of Tennessee) and
Three Unrelated Businesses to be Acquired, is based in part on the reports of
Henry & Peters, P.C. and Allen, Gibbs & Houlik, L.C., independent auditors. The
financial statements referred to above are included herein in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information contained in the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or any other document are not necessarily complete; with respect to
each such contract or document filed as an exhibit to the Registration
Statement, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.

The Company is subject to the information requirements of the 1934 Act,
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information, as well as a copy of the Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the principal
office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York, 10048. Copies of such material may be obtained from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the Commission. Such reports,
proxy statements and other information, as well as the Registration Statement,
including the exhibits and schedules thereto, is also available on the
Commission's Web site at http://www.sec.gov. Statements contained in the
Prospectus concerning the provisions of certain documents filed as exhibits to
the Registration Statement are of necessity brief descriptions thereof, and are
not necessarily complete and each such statements is qualified in its entirety
by reference to the full text of such document.

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<PAGE> 61

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA COMBINING FINANCIAL STATEMENTS OF RENAL CARE GROUP, INC. (OF DELAWARE)
(UNAUDITED)
Pro Forma Combining Statements of Operations for the nine months ended September 30,
1996 and the year ended December 31, 1995........................................... F-2
Notes to Pro Forma Combining Financial Statements..................................... F-5
RENAL CARE GROUP, INC.
Report of Independent Auditors'....................................................... F-6
Consolidated Balance Sheets as of December 31, 1994 and 1995, and September 30, 1996
(unaudited)......................................................................... F-7
Consolidated Income Statements for the years ended December 31, 1993, 1994 and 1995,
and the nine months ended September 30, 1995 and 1996 (unaudited)................... F-8
Consolidated Statements of Changes in Owners' Equity for the years ended December 31,
1993, 1994 and 1995, and the nine months period ended September 30, 1996
(unaudited)......................................................................... F-9
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995, and the nine months ended September 30, 1995 and 1996 (unaudited)............. F-10
Notes to Consolidated Financial Statements............................................ F-11
RENAL CARE GROUP, INC. (OF TENNESSEE) AND THREE UNRELATED BUSINESSES TO BE ACQUIRED
Report of Independent Auditors........................................................ F-19
Combined Balance Sheets as of December 31, 1994 and 1995.............................. F-22
Combined Statements of Operations for the years ended December 31, 1993, 1994, 1995... F-23
Combined Statements of Changes in Owners' Equity for the years ended December 31,
1993, 1994, 1995.................................................................... F-24
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994, and
1995................................................................................ F-25
Notes to Combined Financial Statements................................................ F-26
KIDNEY CARE, INC., ET AL. (PREDECESSOR COMPANY)
Report of Independent Auditors........................................................ F-36
Combined Balance Sheets as of January 31, 1995 and 1996............................... F-37
Combined Statements of Revenues, Expenses, and Changes in Unrestricted Net Assets for
the years ended January 31, 1994, 1995, and 1996.................................... F-38
Combined Statements of Cash Flows for the years ended January 31, 1994, 1995 and
1996................................................................................ F-39
Notes to Combined Financial Statements................................................ F-40
</TABLE>

F-1
<PAGE> 62

PRO FORMA COMBINING FINANCIAL STATEMENTS OF
RENAL CARE GROUP, INC. (OF DELAWARE)

The following unaudited pro forma combining financial statements give
effect to the acquisition by Renal Care Group, Inc., a Delaware Corporation
("RCG" or the "Company"), of Kidney Care, Inc. et al. ("KCI") and Renal Care
Group, Inc. (of Tennessee) and Three Unrelated Businesses to be Acquired
("Tennessee") which occurred on February 6, 1996 contemporaneously with an
initial public offering of RCG's stock (the "Combination"). The Combination was
accounted for using historical cost basis, in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 48. The historical financial
statements of RCG also include the results of operations of Main Line Suburban
Dialysis Centers, Inc. and RenalWest L.C., et al both accounted for as poolings
of interest. The unaudited pro forma combining financial statements have been
prepared by the Company based on the historical financial statements of RCG,
KCI, and Tennessee included elsewhere in this Prospectus, and certain
preliminary estimates and assumptions deemed appropriate by management of the
Company. These pro forma combining financial statements may not be indicative of
actual results as if the transactions had occurred on the dates indicated or
which may be realized in the future. The pro forma combining statements of
operations for the nine months ended September 30, 1996 and year ended December
31, 1995, assume the Company had completed the Combination on January 1, 1996
and 1995, respectively. The pro forma combining statement of operations for the
year ended December 31, 1995 includes the results of operations of KidneyCare
for the twelve months ended on January 31, 1996.

F-2
<PAGE> 63

PRO FORMA COMBINING FINANCIAL STATEMENTS OF RENAL CARE GROUP, INC.
(OF DELAWARE)

UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
RENAL CARE
GROUP, INC.
(OF TENNESSEE)
RENAL CARE AND THREE
GROUP, INC. KIDNEY UNRELATED THE PRO FORMA
OF DELAWARE CARE, INC. BUSINESSES COMPANY ADJUSTMENTS PRO FORMA
----------- ---------- -------------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.......................... $ 90,987 $ 3,440 $ 2,936 $97,363 $ $97,363
Operating costs and expenses:
Patient care costs................. 63,397 2,518 2,209 68,124 68,124
General and administrative
expenses......................... 9,427 254 179 9,860 9,860
Provision for doubtful accounts.... 1,710 77 48 1,835 1,835
Depreciation and amortization...... 3,197 70 103 3,370 3,370
Merger expenses.................... 1,960 -- -- 1,960 1,960
----------- ---------- -------------- ------- ----------- ---------
Total operating costs and
expenses.................. 79,691 2,919 2,539 85,149 85,149
----------- ---------- -------------- ------- ----------- ---------
Income from operations............... 11,296 521 397 12,214 12,214
Interest expense, net................ (394) 18 75 (300 ) (300)
----------- ---------- -------------- ------- ----------- ---------
Income before taxes.................. 11,690 503 322 12,514 12,514
Pro forma provision for income
taxes.............................. 4,609 -- -- 4,609 67(a) 4,676
----------- ---------- -------------- ------- ----------- ---------
Pro forma net income................. $ 7,081 $ 503 $ 322 $7,905 $ (67) $ 7,838
=========== ========= ============= ======== =========== =========
Pro forma net income per share....... $ .59
=========
Pro forma weighted average shares
outstanding........................ 13,207
</TABLE>

See accompanying notes to Unaudited Pro Forma Combining Financial Statements.

F-3
<PAGE> 64

PRO FORMA COMBINING FINANCIAL STATEMENTS OF RENAL CARE GROUP, INC.
(OF DELAWARE)

UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS -- (CONTINUED)

FOR THE YEAR ENDED DECEMBER 31, 1995

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
RENAL CARE
GROUP, INC.
(OF TENNESSEE)
RENAL CARE AND THREE
GROUP, INC. KIDNEY UNRELATED THE PRO FORMA
OF DELAWARE CARE, INC. BUSINESSES COMPANY ADJUSTMENTS PRO FORMA
----------- ---------- -------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net revenue......................... $ 42,971 $ 38,862 $ 33,496 $115,329 $ $115,329
Operating costs and expenses:
Patient care costs................ 26,908 29,890 23,619 80,417 (468)(f) 79,949
General and administrative
expenses........................ 8,701 927 3,238 12,866 2,600(b) 15,466
Provision for doubtful accounts... 2,355 851 789 3,995 3,995
Depreciation and amortization..... 1,580 903 1,178 3,661 253(c) 3,914
----------- ---------- -------------- -------- ----------- ---------
Total operating costs and
expenses................. 39,544 32,571 28,824 100,939 (2,385) 103,324
----------- ---------- -------------- -------- ----------- ---------
Income from operations.............. 3,427 6,291 4,672 14,390 (2,385) 12,005
Interest expense, net............... 452 167 394 1,013 507(e) 506
----------- ---------- -------------- -------- ----------- ---------
Income before taxes................. 2,975 6,124 4,278 13,377 1,878 11,499
Pro forma provision for income
taxes............................. -- -- -- -- 4,370(d) 4,370
----------- ---------- -------------- -------- ----------- ---------
Pro forma net income................ $ 2,975 $ 6,124 $ 4,278 $ 13,377 $(6,248) $ 7,129
=========== ========= ============= ========= =========== ==========
Pro forma net income per share...... .64
==========
Pro forma weighted average shares
outstanding....................... 11,091
</TABLE>

See accompanying Notes to Unaudited Pro Forma Combining Financial Statements.

F-4
<PAGE> 65

PRO FORMA COMBINING FINANCIAL STATEMENTS OF RENAL CARE GROUP, INC.
(OF DELAWARE)

NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS

PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS

(a) Reflects additional income tax provision of $1,567 for state and
federal taxes at a combined effective rate of 37.5% as the Founding Companies,
Main Line, and RenalWest previously were taxed as Subchapter S corporations,
partnerships, or organizations exempted from federal income tax under Internal
Revenue Code as amended Section 501(c)(3) reduced by $1,500 reflecting the
cumulative deferred tax adjustment included in the historical operations for
temporary differences existing at the time the conversion of RenalWest to a
taxable entity.

(b) Reflects additional corporate shared services costs of $2,600
consisting of general and administrative personnel, office facilities and
equipment, and other related expenses had the Company maintained a corporate
office beginning January 1, 1995.

(c) Depreciation and Amortization has been increased by $253 due to
additional depreciation on facilities purchased from the owners of Kansas and
Kidney Care and increased amortization as a result of DMN's buyout of a 50%
interest in a joint venture.

(d) Reflects additional income tax provision of $4,370 for state and
federal taxes at a combined effective rate of 38% as the Founding Companies,
Main Line, and RenalWest previously were taxed as Subchapter S corporations,
partnerships, or organizations exempted from federal income tax under Internal
Revenue Code as amended Section 501(c)(3).

(e) Interest expense has been reduced by $507 to reflect the repayment of
both existing and assumed debt from the net proceeds of the offering.

(f) Patient care costs have been reduced by $468 due to purchase of
facilities from the owners of Kansas and Kidney Care.

(g) The computation of pro forma net income per share for the nine months
ended September 30, 1996 is based upon 13,207 weighted average shares of Common
Stock outstanding, which includes (i) 4,834 shares issued to the owners of the
Founding Companies, (ii) 4,389 shares being sold in the Offering, (iii) 3,003
shares issued to entities acquired through a pooling-of-interests transaction,
and (iv) 981 shares outstanding using the treasury stock method on stock options
and warrants.

(h) The computation of pro forma net income per share for December 31, 1995
is based upon 11,091 weighted average shares of Common Stock outstanding, which
includes (i) 4,834 shares issued to the owners of the Founding Companies, (ii)
3,329 shares being sold in the Offering to cover the cash portion of the
purchase price to be paid in connection with the Combination, (iii) 2,928 shares
issued to entities acquired through an pooling-of-interests transaction.

F-5
<PAGE> 66

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Renal Care Group, Inc.

We have audited the accompanying consolidated balance sheets of Renal Care
Group, Inc. as of December 31, 1994 and 1995, and the related consolidated
income statements, statements of changes in owners' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Renal Care
Group, Inc. as of December 31, 1994 and 1995 and the consolidated results of
operations and cash flows for each of the three years then ended in conformity
with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Nashville, Tennessee

October 28, 1996

F-6
<PAGE> 67

RENAL CARE GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- 1996
1994 1995 -------------
------- ------- (UNAUDITED --
NOTE 12)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 298 $ 1,341 $25,476
Accounts receivable, net............................... 9,338 8,204 26,678
Inventory.............................................. 767 727 2,525
Prepaid expenses and other assets...................... 392 650 1,751
Related party receivable............................... 186 196 --
------- ------- -------
Total current assets........................... 10,981 11,118 56,430
Property, plant and equipment, net....................... 6,192 9,225 27,292
Intangible assets, net................................... 64 53 3,310
Other assets............................................. 81 369 1,747
------- ------- -------
Total assets................................... 17,318 20,765 88,779
======= ======= =======
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable....................................... 1,389 2,175 8,663
Accrued wages and benefits............................. 1,382 1,420 4,721
Due to third parties................................... 2,413 4,265 4,884
Due to related parties................................. 250 270 --
Accrued expenses and other current liabilities......... 545 729 6,675
Income taxes payable................................... -- -- 623
Line of credit......................................... 44 785 --
Current portion of long-term debt...................... 1,787 2,892 6,638
------- ------- -------
Total current liabilities...................... 7,810 12,536 32,204
Long-term debt, net of current portion................... 3,589 3,663 --
Deferred tax liabilities................................. -- -- 2,471
------- ------- -------
Total liabilities.............................. 11,399 16,199 34,675
Total owners' equity........................... 5,919 4,566 54,104
------- ------- -------
Total liabilities and owners' equity........... $17,318 $20,765 $88,779
======= ======= =======
</TABLE>

See accompanying notes.

F-7
<PAGE> 68

RENAL CARE GROUP, INC.

CONSOLIDATED INCOME STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED -- NOTE
12)
<S> <C> <C> <C> <C> <C>
Net revenue.................................... $18,126 $41,627 $42,971 $32,072 $90,987
Operating costs and expenses:
Patient care costs........................... 13,034 25,003 26,908 20,090 63,397
General and administrative expenses.......... 3,649 8,721 8,701 6,521 9,427
Provision for doubtful accounts.............. 584 1,418 2,355 1,596 1,710
Depreciation and amortization................ 601 1,484 1,580 1,120 3,197
Merger expenses.............................. -- -- -- -- 1,960
------- ------- ------- ------- -------
Total operating costs and expenses... 17,868 36,626 39,544 29,327 79,691
------- ------- ------- ------- -------
Income from operations......................... 258 5,001 3,427 2,745 11,296
Interest expense, net.......................... 128 363 452 335 (394)
------- ------- ------- ------- -------
Income before taxes............................ 130 4,638 2,975 2,410 11,690
Provision for income taxes..................... -- -- -- -- 4,609
------- ------- ------- ------- -------
Net income..................................... $ 130 $ 4,638 $ 2,975 $ 2,410 $ 7,081
======= ======= ======= ======= =======
Earnings per share............................. $ .53
=======
Weighted average shares outstanding............ 13,350
</TABLE>

See accompanying notes.

F-8
<PAGE> 69

RENAL CARE GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN OWNERS' EQUITY

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
TOTAL
--------
<S> <C>
Balance at December 31, 1992...................................................... $ 5,435
Capital contributions............................................................. 104
Net income........................................................................ 130
Distributions to owners........................................................... (768)
--------
Balance at December 31, 1993...................................................... 4,901
Capital contributions............................................................. 411
Net income........................................................................ 4,638
Distributions to owners........................................................... (4,031)
--------
Balance at December 31, 1994...................................................... 5,919
Capital contributions............................................................. 768
Net income........................................................................ 2,975
Distributions to owners........................................................... (5,096)
--------
Balance at December 31, 1995...................................................... 4,566
Initial Public Offering ("IPO") Proceeds (unaudited -- Note 12)................... 71,797
Common stock issued to Founders (unaudited -- Note 12)............................ 16,225
Net income (unaudited -- Note 12)................................................. 7,081
Distributions to owners (unaudited -- Note 12).................................... (6,246)
Dividends (Note 11) (unaudited -- Note 12)........................................ (39,699)
--------
Balance at September 30, 1996 (unaudited -- Note 12).............................. $ 54,104
========
</TABLE>

See accompanying notes.

F-9
<PAGE> 70

RENAL CARE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- --------
(UNAUDITED -- NOTE
12)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................................... $ 130 $ 4,638 $ 2,975 $ 2,410 $ 7,081
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 601 1,484 1,580 1,120 3,197
Loss (gain) on sale of property and
equipment................................. 72 -- 20 (7) (118)
Equity in earnings of subsidiary............ -- -- -- -- (309)
Deferred income taxes....................... -- -- -- -- 1,500
Changes in assets and liabilities:
Accounts receivable....................... (497) (3,284) 1,134 988 (5,469)
Inventory................................. (392) (72) 40 82 13
Prepaid expenses and other assets......... (369) 186 (258) (127) 2,177
Related party receivables................. (36) (75) 90 151 --
Accounts payable.......................... (637) 1,646 2,639 279 (1,596)
Accrued wages and benefits................ 68 235 38 430 --
Due to related parties.................... 1,210 250 20 -- --
Accrued expenses and other liabilities.... 1,075 2 184 (1,238) 3,770
Income taxes payable...................... -- -- -- -- 623
---- ------- ------- ------- --------
Net cash provided by operating activities........ 1,225 5,010 8,462 6,818 14,061
INVESTING ACTIVITIES
Sale of property and equipment................... 21 -- 171 48 196
Purchases of property and equipment.............. (1,051) (2,428) (4,804) (2,930) (9,880)
Cash acquired through business combination....... -- -- -- -- 189
Change in other assets........................... 105 15 (277) (27) --
Cash distributions to founders, net of cash
contributions.................................. -- -- -- -- (35,796)
---- ------- ------- ------- --------
Net cash used in investing activities............ (925) (2,413) (4,910) (2,909) (45,291)
FINANCING ACTIVITIES
Payments on line of credit....................... (3,253) (9,642) (8,414) (4,398) (10,814)
Proceeds from line of credit..................... 2,453 9,603 9,155 4,658 10,358
Payments on long-term debt and capital leases.... (296) (1,830) (1,765) (1,306) (10,266)
Proceeds from long-term debt and capital
leases......................................... 1,272 1,960 2,844 560 540
Capital contribution............................. 104 411 767 592 (4)
Distributions to owners.......................... (768) (4,031) (5,096) (3,930) (6,246)
IPO proceeds, net of IPO costs................... -- -- -- -- 71,797
---- ------- ------- ------- --------
Net cash provided by (used in) financing
activities..................................... 488 (3,529) (2,509) (3,824) 55,365
---- ------- ------- ------- --------
Increase (decrease) in cash and cash
equivalents.................................... (188) (932) 1,043 (85) 24,135
Cash and cash equivalents, at beginning of
year........................................... 1,418 1,230 298 298 1,341
---- ------- ------- ------- --------
Cash and cash equivalents (bank overdraft), at
end of year.................................... $ 1,230 $ 298 $ 1,341 $ (383) $ 25,476
==== ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.................................... $ $ 386 $ 469 $ 336 $ 588
==== ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
TRANSACTIONS:
Due from related party for issuance of
convertible senior subordinated promissory
notes.......................................... $ -- $ -- $ 100 $ -- $ --
==== ======= ======= ======= ========
Common stock issued to Founders.................. -- -- -- -- $ 16,186
==== ======= ======= ======= ========
Non-cash conversion of redeemable preferred stock
to common stock................................ -- -- -- -- $ 2,451
==== ======= ======= ======= ========
</TABLE>

See accompanying notes.

F-10
<PAGE> 71

RENAL CARE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
DECEMBER 31, 1995

1. ORGANIZATION AND BASIS OF PRESENTATION

Renal Care Group, Inc. (of Delaware) (the "Company") was formed in June
1995, primarily for the purpose of acquiring four dialysis businesses and Renal
Care Group, Inc. (of Tennessee) ("Tennessee"), in exchange for shares of its
Common Stock, cash, notes payable and the assumption of certain debt (the
"Combination"). As discussed more fully in Note 12, on February 6, 1996, the
Company closed an initial public offering of 3,900 shares of its Common Stock
and simultaneously consummated the Combination. The four related businesses
acquired in the Combination, which are comprised of numerous legal entities,
conduct business as Kidney Care, Inc. and certain operating divisions of Medical
Enterprises, Ltd. and Health Care Suppliers, Inc. ("KCI"), DMN Professional
Corporation ("DMN"), Tyler Nephrology Associates, P.A. ("Tyler"), and Kansas
Nephrology Associates, P.A. ("KNA") and Kansas Dialysis Supply, Inc. ("KDS,"
combined, "Kansas"). Tennessee and the four unrelated businesses acquired are
based in Tennessee, Mississippi, Indiana, Texas, and Kansas.

The Combination is being accounted for utilizing the historical cost basis
in accordance with Securities and Exchange Commission Staff Accounting Bulletin
No. 48 with the stock being valued at the historical cost of the net assets
exchanged. Cash consideration given in the Combination is treated for accounting
purposes as a dividend from the Company to Tennessee, KCI, DMN, Tyler, Kansas,
and their owners.

In April 1996, the Company acquired Main Line Suburban Dialysis Centers,
Inc. ("Main Line") in a merger accounted for as a pooling-of-interests through
the exchange of 528 shares of the Company's Common Stock. In September 1996, the
Company acquired RenalWest, L.C., et al ("RenalWest") in a merger accounted for
as a pooling-of-interests through the exchange of 2,400 shares of the Company's
common stock. These financial statements reflect the restated consolidated
financial statements of the Company effecting these poolings-of-interest.

As mentioned above, on February 6, 1996, the Company completed an initial
public offering of 3,900 shares of Common Stock and on February 20, 1996, the
underwriters of the offering fully exercised their over allotment option for an
additional 585 shares. The 4,485 shares were issued at the initial public
offering price of $18 per share.

Physician services are provided to the Company by stockholders or legal
entities owned by stockholders of the Company. Substantially all of the dialysis
treatments performed by the Company are referred by these related physician
groups.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company.
Significant intercompany transactions and accounts have been eliminated in
consolidation.

CASH EQUIVALENTS

The Company considers all highly-liquid investments with original
maturities of three months or less to be cash equivalents.

INVENTORIES

Inventories consist of drugs, supplies and parts consumed in dialysis
treatments and is stated at the lower of cost (using the average method and the
first-in, first-out method) or market.

F-11
<PAGE> 72

RENAL CARE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over the useful lives of the related assets, generally
three to five years. Leasehold improvements are amortized using the
straight-line method over the related lease terms. Maintenance and repair costs
are charged to operations as incurred.

OTHER ASSETS

Other assets at December 31, 1994 and 1995 consist primarily of costs
related to the Company's initial public offering. These costs were capitalized
and recorded as a reduction in proceeds from the initial public offering in
February 1996.

USE OF ESTIMATES

The preparation of the Company's combined financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect amounts reported in the combined
financial statements and accompanying notes. Actual results could differ from
those estimates. During 1995, the Company changed its assumptions in estimating
the accounts receivable allowance for doubtful accounts, resulting in a $1,680
increase in the provision for doubtful accounts.

NET REVENUE

Accounts receivable and net revenue are recorded at the estimated net
realizable amount from Medicare, Medicaid, patients, commercial insurers and
other third-party payors for services rendered. The Medicare and Medicaid
programs reimburse the Company at amounts that are different from the Company's
established rates. Contractual adjustments under these programs represent the
difference between the amounts billed for these services and the amounts that
are reimbursable by third party payors. A summary of the basis for reimbursement
with these payors follows:

Medicare

The Company is paid by the Medicare program on a prospective payment system
for dialysis services. Each facility receives a composite rate that is adjusted
to account for geographic differences in the cost of labor. The prospectively
determined composite rates are subject to retroactive adjustments.

Medicaid

Medicaid is a state administered program with reimbursements varying by
state. The Medicaid programs administered in each state in which the Company
operates reimburse the Company for dialysis services rendered.

Other

Other payments from patients, commercial insurers and other third-party
payors are received pursuant to a variety of reimbursement arrangements, which
are generally higher than those payments received from the Medicare and Medicaid
programs.

The allowance for doubtful accounts represent management's estimate of
potential credit losses associated with amounts due from patients, commercial
insurers and other third-party payors. Management of the Company does not
believe that receivables from the Medicare and Medicaid programs represent any
credit risk.

F-12
<PAGE> 73

RENAL CARE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reimbursements from Medicare and Medicaid at established rates approximated
83%, 78% and 71% for the years ended December 31, 1993, 1994 and 1995,
respectively.

INCOME TAXES

Prior to the Combination and mergers, KCI, DMN, Tyler, Kansas, Main Line
and RenalWest operated as not-for-profits, S Corporations or partnerships;
accordingly, income tax liabilities were the responsibility of the respective
owners or partners. Under these provisions, the entities did not pay corporate
income taxes; rather the income or loss was allocated to each stockholder for
inclusion in their respective income tax returns. Because of this practice,
provisions for income taxes and deferred tax assets and liabilities of these
taxable entities have not been reflected in these supplemental consolidated
financial statements.

Tennessee and the Company are C Corporations and account for income taxes
under the liability method. Under this method, deferred tax assets and
liabilities are determined based upon differences between financial reporting
and tax basis assets and liabilities and are measured using the enacted tax laws
that will be in effect when the differences are expected to reverse.

ESTIMATED MEDICAL PROFESSIONAL LIABILITY CLAIMS

The Company is insured for medical professional liability claims through
retrospectively rated commercial insurance policies. It is its policy that
provision for estimated premium adjustments to medical professional liability
costs be made for asserted and unasserted claims based on its experiences.
Provision for such professional liability claims included estimates of the
ultimate costs of such claims. To date, the Company's experience with such
claims has not been significant; accordingly, no such provision has been made.

OWNERS' EQUITY

Owners' equity includes capital stock, additional paid-in capital and
retained earnings of the Company.

EARNINGS PER SHARE (UNAUDITED)

Earnings per share for the nine months ended September 30, 1996 is based on
the weighted average number of shares outstanding during the period including
the dilutive effect of options and warrants and the 2,928 shares issued in
connection with the Main Line and RenalWest mergers.

NEWLY ISSUED ACCOUNTING STANDARDS

The Company has considered the impact of newly issued accounting
pronouncements, principally Statement of Financial Accounting Standards No 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and does not believe that adoptions of this and any other newly
issued pronouncements would have a significant impact on the consolidated
financial statements.

MARKET VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash and cash equivalents,
long-term debt and capital lease obligations. The market values for these
financial instruments approximates their carrying value at December 31, 1994 and
1995.

F-13
<PAGE> 74

RENAL CARE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. MERGERS

On April 26, 1996, the Company completed a merger with Main Line through
the exchange of shares of the Company's Common Stock with an aggregate value of
approximately $18,200 at the date of the merger agreement.

On August 7, 1996, the Company entered into a definitive agreement to merge
with RenalWest, L.C. et al. This transaction was completed on September 30,
1996. Each share of RenalWest common stock then issued and outstanding was
canceled and retired then converted into one share of RenalWest common stock.
Renal Care Group, Inc. exchanged 2,400 shares of its common stock for the one
share of RenalWest common stock.

The Main Line and RenalWest mergers have been accounted for as a
pooling-of-interests, and accordingly, the consolidated financial statements
give retroactive effect to the combined operations of Renal Care Group, Inc. for
all periods presented. The following is a summary of the results of operations
of the separate entities for periods prior to the Main Line and RenalWest
mergers:

<TABLE>
<CAPTION>
RCG MAIN LINE RENALWEST COMBINED
------- ------------ --------- --------
<S> <C> <C> <C> <C>
1993
Net revenue............................... $ -- $ 10,305 $ 7,821 $18,126
Income from operations.................... -- 831 (573) 258
Net income................................ -- 792 (662) 130
1994
Net revenue............................... -- 10,933 30,694 41,627
Income from operations.................... -- (807) 5,807 5,000
Net income................................ -- (841) 5,478 4,637
1995
Net revenue............................... -- 10,934 32,037 42,971
Income from operations.................... -- 12 3,415 3,427
Net income................................ (6) (25) 3,006 2,975
September 30, 1995 (unaudited -- Note 12)
Net revenue............................... -- 8,266 23,806 32,072
Income from operations.................... -- 214 2,531 2,745
Net income................................ -- 185 2,225 2,410
September 30, 1996 (unaudited -- Note 12)
Net income................................ 55,880 8,974 26,133 90,987
Income from operations.................... 6,386 1,011 3,899 11,296
Net income................................ 2,554 998 3,529 7,081
</TABLE>

4. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Patient accounts receivable...................................... 11,167 12,185
Allowance for doubtful accounts.................................. 1,829 3,981
------- -------
Net accounts receivable.......................................... $ 9,338 $ 8,204
======= =======
Percent of patient accounts receivable related to patients
participating in the Medicare and Medicaid programs............ 54% 60%
</TABLE>

F-14
<PAGE> 75

RENAL CARE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Medical equipment................................................ $ 6,246 $ 8,551
Furniture and nonmedical equipment............................... 1,740 2,591
Leasehold improvements........................................... 1,919 2,836
Buildings........................................................ 841 961
------- -------
10,746 14,939
Less accumulated depreciation.................................... 4,554 5,714
------- -------
Net property and equipment....................................... $ 6,192 $ 9,225
======= =======
</TABLE>

6. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt and capital lease obligations consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------ ------
<S> <C> <C>
Term note, bearing interest at the prime rate plus 1/2% (9.0% at December
31, 1995), payable in monthly installments, collateralized by inventory,
accounts receivable, property and equipment, due 1997...................... $1,088 $ 502
Nonrevolving line of credit converted to a term note, bearing interest at the
prime rate plus 3/8% (8.88% at December 31, 1995), payable in monthly
installments, collateralized by inventory, accounts receivable, property
and equipment, due 1999.................................................... 1,500 1,200
Equipment line of credit, advances made through December 31, 1995, bearing
interest at the variable bank base rate plus 3/8% (8.88% at December 31,
1995), converts May 28, 1996 to a term loan, bearing interest at the
variable Bank Base Rate plus 1/2%, due May 31, 2001....................... -- 1,460
Term note, bearing interest at the prime rate plus 1/2% (9.0% at December
31, 1995), payable in monthly installments, collateralized by inventory,
accounts receivable, property and equipment, due 1997...................... 1,869 1,263
Notes payable, bearing interest at prime plus 1/2%, (9.0% at December 31,
1995), paid in 1995........................................................ 102 --
Loans from related parties, secured by purchased equipment, monthly payments
due through 2001, at interest rates from 11% to 13.5%...................... 250 212
Convertible senior subordinated promissory notes............................. -- 1,380
Capital lease obligations, due through 1999.................................. 505 507
Other........................................................................ 62 31
------ ------
Total long-term debt......................................................... 5,376 6,555
Less current portion......................................................... 1,787 2,892
------ ------
Long-term debt, net of current portion....................................... $3,589 $3,663
====== ======
</TABLE>

At December 31, 1995 the Company has a $1,500 revolving line of credit with
a bank which expires in June 1996. Interest is payable monthly at the variable
Bank Base Rate plus 3/8% (8.88% at December 31, 1995). The Company also has an
unsecured line of credit available for $20 from a local bank. At December 31,
1995, no amounts were outstanding relative to this line of credit.

F-15
<PAGE> 76

RENAL CARE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On December 7, 1995, the Company issued an aggregate of principal amount of
$1,380 of Convertible Senior Subordinated Promissory Notes to provide funds to
complete the initial public offering. Such notes bear interest at a rate of 7%
per annum, mature on the first anniversary of their issuance, and the principal
and accrued interest thereof is convertible into shares of Common Stock of the
Company, beginning 180 days after the closing of the initial public offering, at
a conversion price of $7.50 per share. The Company offered such securities
solely to "accredited investors" (as defined in Regulation D promulgated under
the Securities Act) in a private placement exempt from registration under the
Securities Act and state securities laws.

Future maturities of long-term debt at December 31, 1995 are as follows:

<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES
--------- -------
<S> <C> <C>
1996............................................................. $ 2,749 $ 186
1997............................................................. 1,508 156
1998............................................................. 703 153
1999............................................................. 656 105
2000............................................................. 305 --
Thereafter....................................................... 127 --
----- -----
$ 6,048 600
===== =====
Less amounts representing interest............................... (93)
-----
Total minimum principal payments................................. $ 507
=====
</TABLE>

7. BENEFIT PLANS

The Company has qualified defined contribution plans covering substantially
all employees which permit participants to make voluntary contributions. The
Company pays all general and administrative expenses of the plans and makes
matching contributions on behalf of the employees. The Company made
contributions relating to these plans totaling $86, $284 and $157 for the years
ended December 31, 1993, 1994 and 1995, respectively.

8. RELATED PARTY TRANSACTIONS

PHYSICIAN SERVICES, MEDICAL DIRECTOR FEES AND MANAGEMENT FEES

Physician and medical director services are provided to the Company by
shareholders, partners or legal entities owned by shareholders or partners of
the Company. Physician and medical director fees included in patient care costs
were $1,327, $2,332 and $787 for the years ended December 31, 1993, 1994 and
1995, respectively. Management fees, which comprise administrative expenses and
general overhead expenses were $122, $221 and $243 for the years ended December
31, 1993, 1994 and 1995, respectively. Such fees are included in general and
administrative expenses.

OTHER RELATED PARTY BALANCES AND TRANSACTIONS

Expenses for leases and other services provided through entities owned by
shareholders or other related parties aggregated $20, $168 and $116 for the
years ended December 31, 1993, 1994 and 1995, respectively.

Certain shareholders of the Company established an organization named Main
Line Medical Leasing from which the Company has borrowed amounts to purchase
equipment. Amounts due to Main Line Medical Leasing were $212 and $177 at
December 31, 1994 and 1995, respectively. These balances are included in
long-term debt.

F-16
<PAGE> 77

RENAL CARE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Related party receivables consist primarily of amounts paid by the Company
on behalf of its owner members which were repaid subsequent to year-end.

During 1994 and 1995, related parties loaned the Company $75 and $20,
respectively. There are no terms or interest rates associated with these loans.

9. OPERATING LEASES

The Company rents office and medical facilities under lease agreements
which are classified as operating leases for financial statement purposes. At
December 31, 1995, future minimum rental payments under noncancelable operating
leases are:

<TABLE>
<S> <C>
1996........................................................................ $1,389
1997........................................................................ 1,416
1998........................................................................ 1,285
1999........................................................................ 934
2000........................................................................ 436
Thereafter.................................................................. 404
------
$5,864
======
</TABLE>

Rent expense related to operating leases amounted to $616, $1,428, and
$1,648 for the years ending December 31, 1993, 1994 and 1995, respectively.

10. INCOME TAXES

The provision for income taxes differs from the amounts computed by
applying the statutory federal income tax rate of 34% to income before provision
for deferred income taxes. The differences are summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
---- ------- -------
<S> <C> <C> <C>
Tax provision at statutory rate.............................. $ 44 $ 1,576 $ 1,012
State income tax less federal tax benefit.................... -- -- --
Adjustment to eliminate S Corporations....................... (44) (1,576) (1,014)
Change in valuation allowance................................ -- -- 2
---- ------- -------
$ -- $ -- $ --
==== ======= =======
</TABLE>

The Company made no payments for federal income taxes in 1993, 1994 or
1995.

PRO FORMA INCOME TAX INFORMATION (UNAUDITED)

As discussed in Note 2, certain entities comprising the Company operated
under 503(c)(1) and Subchapter S of the Internal Revenue Code and were not
subject to corporate federal income tax. In connection with the initial public
offering, the Subchapter S elections were terminated. As a result, these
entities are subject to corporate income taxes subsequent to the termination of
their S Corporation status. The Company had operating income for income tax
purposes of $131, $4,641, and $2,990 for the years ending December 31, 1993,
1994 and 1995, respectively and $2,430 and $4,290 for the nine months ended
September 30, 1995 and 1996, respectively (unaudited -- Note 12). Had the
Company filed federal and state income tax returns as a regular corporation for
these periods, income tax expense under the provisions of Financial Accounting
Standard No. 109 would have been $50, $1,764, and $1,136 for the years ending
December 31, 1993, 1994 and 1995, respectively, and $1,136 and $1,630 for the
nine months ended September 30, 1995 and 1996, respectively.

F-17
<PAGE> 78

RENAL CARE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At the date of termination of S Corporation status, the Company was
required to provide for a deferred tax liability for cumulative temporary
differences between financial reporting and tax reporting. Such deferred taxes
are based on the cumulative temporary difference at the date of termination of S
Corporation status. If the termination of S Corporation status had occurred at
December 31, 1995 and September 30, 1996, the deferred income tax liability
would have been $1,941 and $1,638, respectively. The effect of recognizing the
deferred taxes will be included in income from continuing operations in the year
of termination of S Corporation status.

11. SUBSEQUENT EVENTS

RECAPITALIZATION AND INITIAL PUBLIC OFFERING

On February 6, 1996, the Company completed an initial public offering of
3,900 shares of Common Stock and on February 20, 1996, the underwriters of the
offering fully exercised their over allotment option for an additional 585
shares, all of which were issued at $18 per share. Simultaneously the Company
exchanged 4,834 shares of Common Stock, plus cash, notes payable and the
assumption of certain debt for either stock or selected assets and liabilities
of KCI, NEI, Tyler, Kansas and Tennessee in accordance with executed combination
agreements. The exchange is being accounted for utilizing the historical cost
basis in accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 48 with the stock being valued at the historical cost of the net
assets exchanged. Cash consideration given in these acquisitions is treated for
accounting purposes as a dividend from the Company to Tennessee and the four
unrelated businesses acquired to their owners.

In May, 1996 the Company entered into a line of credit which allows for
borrowings of up to $35,000 to be used for acquisitions, working capital and
capital expenditures. The line of credit requires payments of interest only
until May, 1998 with the balance outstanding at that time amortized quarterly
over the next three years. The credit facility bears interest at one of two
floating rates selected by the Company: (i) the base rate plus a margin ranging
from 0.00% to 1.00% or (ii) LIBOR plus a margin of 0.95% to 2.70%. The Company
has pledged the stock of its subsidiaries as collateral and would be obligated
to pledge its assets and the assets of its subsidiaries if the Company should
become in default under the line of credit.

STOCK OPTION PLANS

In April 1996, the Company registered approximately 1,892 shares of Common
Stock with the Securities and Exchange Commission on Form S-8 for the following
plans: Renal Care Group, Inc. Employee Stock Purchase Plan (300 shares);
Outstanding Options Granted Outside of a Plan for 888 Shares Granted to
Employees, Directors, Medical Directors and Consultants (888 shares); Renal Care
Group, Inc. 1996 Stock Option Plan for Outside Directors (100 shares); and Renal
Care Group, Inc. 1994 Stock Option Plan (approximately 304 shares). In January
1996, the Company adopted the Renal Care Group, Inc. 1996 Stock Option Plan (the
"Employee Plan"), which was amended and restated effective September 1996. Under
the Employee Plan, options to purchase a total of 1,000,000 shares of Common
Stock were reserved for grant to eligible employees and consultants of the
Company. Options for the purchase of approximately 1,192 shares (includes
options and warrants assumed from Tennessee in connection with the combination
agreement) had been granted as of the date of the Company's Registration
Statement on Form S-8, at exercise prices ranging from $2 to $18 with varying
vesting provisions.

12. UNAUDITED FINANCIAL INFORMATION

The unaudited consolidated balance sheet as of September 30, 1996 and the
unaudited consolidated statements of income, changes in owners' equity and cash
flows for the nine months ended September 30, 1995 and 1996 have been prepared
by management. The financial statements include all adjustments, consisting of
only normal recurring adjustments necessary for a fair presentation of the
results.

F-18
<PAGE> 79

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Renal Care Group, Inc.

We have audited the accompanying combined balance sheets of Renal Care
Group, Inc. (of Tennessee) and Three Unrelated Businesses to be Acquired, as
identified in Note 1, as of December 31, 1994 and 1995, and the related combined
statements of operations, changes and owners' equity and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1993 and 1994 financial statements of Tyler
Nephrology Associates, P.A. and the combined financial statements of Kansas
Nephrology Associates, P.A. and Kansas Dialysis Supply, Inc., which statements
reflect total assets constituting 57% as of December 31, 1994 and total revenues
constituting 68% for the two years in the period ended December 31 1994. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to data included for Tyler Nephrology
Associates, P.A. and the combined financial statements of Kansas Nephrology
Associates, P.A. and Kansas Dialysis Supply, Inc., is based solely on the
reports of the other auditors.

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the combined financial position of Renal Care Group, Inc. (of Tennessee) and
Three Unrelated Businesses to be Acquired at December 31, 1994 and 1995, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.

September 30, 1996
Nashville, Tennessee

F-19
<PAGE> 80

INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors
Kansas Nephrology Associates, P.A. and
Kansas Dialysis Supply, Inc.

We have audited the accompanying combined balance sheet of Kansas
Nephrology Associates, P.A. and Kansas Dialysis Supply, Inc. as of December 31,
1994, and the related combined statements of operations, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1994.
These financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kansas Nephrology
Associates, P.A. and Kansas Dialysis Supply, Inc. as of December 31, 1994, and
the results of their operations and their cash flows for each of the two years
in the period ended December 31, 1994 in conformity with generally accepted
accounting principles.

/s/ Allen, Gibbs & Houlik, L.C.

Wichita, Kansas
July 15, 1995

F-20
<PAGE> 81

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
of Tyler Nephrology Associates, P.A.
Tyler, Texas

We have audited the accompanying balance sheets of The Dialysis Operations
of Tyler Nephrology Associates, P.A. as of December 31, 1994 and the related
statements of operations and cash flows for the two years then ended. These
financial statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

As described in Note 1, The Dialysis Operations of Tyler Nephrology
Associates, P.A., are a part of Tyler Nephrology Associates, P.A. The
accompanying financial statements include those assets and liabilities, and
revenues and expenses specifically identified with dialysis operations as well
as allocations of other items which in the opinion of management are properly
allocable to the dialysis operations.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Dialysis Operations of
Tyler Nephrology Associates, P.A. as of December 31, 1994, and the results of
its operations and its cash flows for the two years then ended in conformity
with generally accepted accounting principles.

/s/ Henry & Peters, P.C.

Tyler, Texas
July 24, 1995

F-21
<PAGE> 82

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

COMBINED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 2,096 $ 2,567
Held to maturity securities............................................ 1,638 111
Accounts receivable, net............................................... 5,344 4,767
Inventories............................................................ 583 592
Due from related parties............................................... 217 275
Prepaid expenses....................................................... 169 227
Other.................................................................. 261 334
------- -------
Total current assets........................................... 10,308 8,873
Property, plant and equipment, net....................................... 6,328 7,469
Intangible assets, net................................................... 30 2,933
Other assets............................................................. 1,091 2,761
------- -------
Total assets................................................... $17,757 $22,036
======= =======
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Current portion of long-term debt...................................... $ 303 $ 1,233
Accounts payable....................................................... 1,598 1,750
Accrued wages and benefits............................................. 789 1,090
Due to related parties................................................. -- 372
Other accrued expenses................................................. 182 983
------- -------
Total current liabilities...................................... 2,872 5,428
Long-term debt, net of current portion................................... 2,152 6,753
Advances received, net................................................... 2,449 --
Redeemable preferred stock............................................... -- 2,449
------- -------
Total liabilities.............................................. 7,473 14,630
Owners' equity........................................................... 10,285 7,406
------- -------
Total liabilities and owners' equity........................... $17,757 $22,036
======= =======
</TABLE>

See accompanying notes.

F-22
<PAGE> 83

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Total revenue..................................................... $30,950 $32,749 $33,496
Operating costs and expenses:
Patient care costs.............................................. 21,025 22,006 23,619
General and administrative expenses............................. 2,021 2,965 3,238
Provision for doubtful accounts................................. 710 726 789
Depreciation and amortization................................... 943 1,011 1,178
------- ------- -------
Total operating costs and expenses...................... 24,699 26,708 28,824
------- ------- -------
Income from operations............................................ 6,251 6,041 4,672
Interest expense, net............................................. 147 100 394
------- ------- -------
Income before taxes............................................... 6,104 5,941 4,278
Provision for income taxes........................................ -- 4 --
------- ------- -------
Net income........................................................ $ 6,104 $ 5,937 $ 4,278
======= ======= =======
</TABLE>

See accompanying notes.

F-23
<PAGE> 84

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY
(IN THOUSANDS)

<TABLE>
<S> <C>
Balance at December 31, 1992...................................................... $ 9,487
Net income...................................................................... 6,104
Capital distributions........................................................... (5,219)
-------
Balance at December 31, 1993...................................................... 10,372
Net income...................................................................... 5,937
Capital distributions........................................................... (6,026)
Capital contributions by owners and partners.................................... 2
-------
Balance at December 31, 1994...................................................... 10,285
Net income...................................................................... 4,278
Capital distributions........................................................... (8,028)
Capital contributions by owners and partners.................................... 495
Other decreases................................................................. 376
-------
Balance at December 31, 1995...................................................... 7,406
=======
</TABLE>

See accompanying notes.

F-24
<PAGE> 85

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................... $ 6,104 $ 5,937 $ 4,278
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 943 1,011 1,178
Loss on asset disposals..................................... 14 6 --
Other....................................................... 43 (175) (269)
Changes in assets and liabilities:
Accounts receivable and due to related parties........... 700 (1,368) 519
Inventories, prepaid expenses and other current assets... (307) 207 (140)
Other assets............................................. (100) (174) (1,670)
Accounts payable......................................... (388) 959 152
Accrued wages and benefits............................... 102 181 301
Other accrued expenses and other liabilities............. 48 35 1,173
------- ------- -------
Net cash provided by operating activities........... 7,159 6,619 5,522
INVESTING ACTIVITIES
Proceeds from sale of investments............................. -- 24,303 1,527
Purchases of investments...................................... -- (25,941) --
Proceeds from sale of property, plant and equipment........... 19 18 --
Purchases of property, plant and equipment.................... (549) (1,469) (1,691)
Intangible assets acquired.................................... -- -- (3,001)
Contributions from (to) an equity investment.................. (102) -- 116
------- ------- -------
Net cash used in investing activities............... (632) (3,089) (3,049)
FINANCING ACTIVITIES
Proceeds from long-term borrowings............................ 624 745 5,879
Principal payments on long-term debt and capital lease
obligations................................................. (1,329) (494) (348)
Capital contributions by owners and partners.................. -- 2 495
Advances received, net........................................ -- 2,449 --
Capital distributions......................................... (5,219) (5,623) (8,028)
------- ------- -------
Net cash used in financing activities......................... (5,924) (2,921) (2,002)
------- ------- -------
Net increase in cash and cash equivalents..................... 603 609 471
Cash and cash equivalents at beginning of period.............. 884 1,487 2,096
------- ------- -------
Cash and cash equivalents at end of period.................... $ 1,487 $ 2,096 $ 2,567
======= ======= =======
Supplemental disclosures of cash flow information:
Interest paid............................................... $ 202 $ 170 $ 315
======= ======= =======
Noncash capital transactions.................................. $ -- $ 404 $ 607
======= ======= =======
DMN Equity through acquisition................................ $ -- $ -- $ 311
======= ======= =======
</TABLE>

See accompanying notes.

F-25
<PAGE> 86

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 1995

1. ORGANIZATION AND BASIS OF PRESENTATION

Renal Care Group, Inc. (of Delaware) ("the Company") was formed in June
1995, primarily for the purpose of acquiring four dialysis businesses and Renal
Care Group, Inc. (of Tennessee) ("Tennessee"), in exchange for shares of its
Common Stock, cash, notes payable and the assumption of certain debt (the
"Combination"). The Combination was effected in accordance with executed
combination agreements with the four dialysis businesses and Tennessee and
occurred concurrently with the closing of the initial public offering of the
Company (the "Offering") in February 1996. Kidney Care, Inc. and certain
operating divisions of Medical Enterprises, Ltd. and Health care Suppliers, Inc.
(collectively "KidneyCare") has been designated as the Predecessor and thus
KidneyCare's financial statements are not included in these combined financial
statements. The Three Unrelated Businesses to be Acquired, which comprise
numerous legal entities, conduct business as Northeast Indiana Kidney Center
("NEI"), Tyler Nephrology Associates, P.A. ("Tyler"), and Kansas Nephrology
Associates, P.A. ("KNA") and Kansas Dialysis Supply, Inc. ("KDS," and with KNA,
"Kansas"). Tennessee and Three Unrelated Businesses to be Acquired are based in
Tennessee, Indiana, Texas, and Kansas. Effective July 31, 1995, D.M.N.
Professional Corporation, which is owned by the physician owners of NEI, bought
the remaining 50% ownership interest in NEI from its former joint venture
partner (See Note 3). The joint venture which is NEI is included in these
combined financial statements.

Physician services are provided to the Three Unrelated Businesses to be
Acquired by physician groups, which comprise shareholders, partners or legal
entities owned by shareholders or partners of the Three Unrelated Businesses to
be Acquired. Substantially all of the dialysis treatments performed by the Three
Unrelated Businesses to be Acquired are referred by these related physician
groups.

Tennessee and the Three Unrelated Businesses to be Acquired previously have
operated as separate independent entities. Their historical financial positions,
results of operations and cash flows have been combined in the accompanying
financial statements and do not reflect any adjustments relating to the
Combination or the impacts that may have occurred if the operations of Tennessee
and the Three Unrelated Businesses to be Acquired had been combined. All
significant intercompany accounts and transactions have been eliminated.

Two of the Three Unrelated Businesses to be Acquired maintain their books
and records on the cash basis of accounting. The accompanying financial
statements have been prepared on the accrual basis of accounting. These combined
financial statements have been prepared to show the combined operations and
combined financial position of Tennessee and Three Unrelated Businesses to be
Acquired. Certain entities are not required to pay federal or state income taxes
(due to their status as partnerships, S Corporations and corporations managed to
result in taxes being the responsibility of the respective owners), as further
described in Note 2.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NET REVENUE

Accounts receivable and net revenue are recorded at the estimated net
realizable amount from Medicare, Medicaid, patients, commercial insurers, and
other third-party payors for services rendered. The Medicare and Medicaid
programs reimburse Tennessee and Three Unrelated Businesses to be Acquired at
amounts that are different from the Company's established rates. Contractual
adjustments under these programs represent the

F-26
<PAGE> 87

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

difference between the amounts billed for these services and the amounts that
are reimbursable by third-party payors. A summary of the basis for reimbursement
with these payors follows:

Medicare

Tennessee and Three Unrelated Businesses to be Acquired are paid by
the Medicare program on a prospective payment system for dialysis services.
Each facility receives a composite rate that is adjusted to account for
geographic differences in the cost of labor. The prospectively determined
composite rates are not subject to retroactive adjustments.

Medicaid

Medicaid is a state administered program with reimbursements varying
by state. The Medicaid programs administered by each of Indiana, Ohio,
Texas, Kansas and Tennessee, reimburse Tennessee and the respective Three
Unrelated Businesses to be Acquired.

Other

Other payments from patients, commercial insurers, and other
third-party payors are received pursuant to a variety of reimbursement
arrangements, which are generally higher than those payments received from
the Medicare and Medicaid programs.

The allowance for doubtful accounts represents management's estimate
of potential credit losses associated with amounts due from patients,
commercial insurers, and other third-party payors. Management of Tennessee
and Three Unrelated Businesses to be Acquired does not believe that
receivables from the Medicare and Medicaid programs represent any
significant credit risk.

Reimbursements from Medicare and Medicaid at established rates
approximated 68%, 64%, and 69% of patient service revenue for the years
ended December 31, 1993, 1994 and 1995, respectively.

CASH AND CASH EQUIVALENTS

For the purpose of the combined statements of cash flows, cash and cash
equivalents include demand deposits and money market accounts at a financial
institution. All highly liquid investments with a maturity of three months or
less when purchased are considered to be cash equivalents. The carrying amount
reflected on the balance sheet at December 31, 1994 and 1995 is equal to
approximate fair value.

HELD-TO-MATURITY SECURITIES

Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when there is the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at cost, adjusted for amortization of premium and
accretion of discount to maturity. Any such amortization is included in interest
income. Any interest received on securities classified as held-to-maturity is
included in interest income. All held-to-maturity securities mature within one
year of the balance sheet date.

INVENTORIES

Inventories consist of dialysis supplies and are stated at the lower of
cost or market under the first-in, first-out method or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. The general
range of useful lives is five to 40 years for buildings and leasehold
improvements (limited to the terms of the lease including expected renewal
periods), and five to

F-27
<PAGE> 88

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

15 years for furniture, fixtures and equipment. Routine maintenance and repairs
are expensed as incurred, while costs of betterments and renewals are
capitalized.

OTHER ASSETS

Included in other assets are escrow deposits related to a performance
guarantee agreement between Kansas and a local hospital, which originated in
1986. Such agreement requires Kansas to deposit $8 per month with a designated
money manager until 1996, at which time Kansas will have unrestricted use of the
amounts deposited and any earnings thereon if it has fulfilled certain
obligations thereto. In the opinion of management of Kansas, the assets relating
to this guarantee are deemed fully collectible.

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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

INCOME TAXES

The Three Unrelated Businesses to be Acquired are S Corporations or
partnerships; accordingly, income tax liabilities are the responsibility of the
respective owners or partners. Under these provisions, the Three Unrelated
Businesses to be Acquired generally do not pay corporate income taxes; rather
the income or loss is allocated to each stockholder for inclusion in their
respective income tax returns. Because of this practice, provisions for income
taxes and deferred tax assets and liabilities of these taxable entities have not
been reflected in these combined financial statements.

Tennessee is a C Corporation and accounts for income taxes under the
liability method. Under this method, deferred tax assets and liabilities are
determined based upon differences between financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax and laws that will
be in effect when the differences are expected to reverse.

ESTIMATED MEDICAL PROFESSIONAL LIABILITY CLAIMS

Tennessee and each of the Three Unrelated Businesses to be Acquired are
insured for medical professional liability claims through retrospectively rated
commercial insurance policies. It is their respective policies that provision
for estimated premium adjustments to medical professional liability costs be
made for asserted and unasserted claims and based upon their experiences.
Provision for such professional liability claims includes estimates of the
ultimate costs of such claims. To date, their experiences with such claims has
not been significant. Accordingly, no such provision has been made.

OWNERS' EQUITY

Owners' equity includes the respective capital stock, additional paid-in
capital, partnership capital, and retained earnings of the various legal
entities reflected herein. The Three Unrelated Businesses to be Acquired have
multiple owners, various types of agreements exist among the owners which call
for the transfer of a physician's ownership interest by the continuing owners in
the case of certain events such as the owner's retirement or death. Frequently,
the existing owners are required to pay the departed owner for his interest.

NEWLY ISSUED ACCOUNTING STANDARDS

Tennessee and each of the Three Unrelated Businesses to be Acquired have
considered the impact of newly issued financial accounting pronouncements,
principally Statement of Financial Accounting Standards

F-28
<PAGE> 89

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," and do not believe that adoption of this and any
other newly issued pronouncements would have a significant impact on the
combined financial statements.

3. ACQUISITION OF PARTNERSHIP INTEREST

Effective July 31, 1995, the 50% physician owners of NEI bought out the
remaining 50% ownership interest of its joint venture partner for $4,200, which
was paid from the proceeds of new debt. This transaction was accounted for using
purchase accounting which resulted in the recognition of approximately $2,900 of
goodwill which is being amortized over forty years. Accumulated amortization is
approximately $62 at December 31, 1995.

4. CASH, CASH EQUIVALENTS AND HELD-TO-MATURITY SECURITIES

In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Tennessee adopted the provisions of the new
standard for investments held as of or acquired after January 1, 1994. In
accordance with the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle. There was no cumulative
effect of adopting Statement 115 as of January 1, 1994. The following is a
summary of cash, cash equivalents, and investments in held-to-maturity
securities as of:

<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
Cash and cash equivalents:
Demand deposits and money market account..... $2,096 $ -- $ -- $2,096
====== ====== ====== ======
Held-to-maturity securities:
Obligations.................................. $1,638 $ 6 $ -- $1,644
====== ====== ====== ======
DECEMBER 31, 1995
Cash and cash equivalents:
Demand deposits and money market account..... $2,567 $ -- $ -- $2,567
====== ====== ====== ======
Held-to-maturity securities:
Obligations.................................. $ 111 $ -- $ -- $ 111
====== ====== ====== ======
</TABLE>

5. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------- ------
<S> <C> <C>
Patient accounts receivable....................................... $ 6,058 $5,484
Other receivables................................................. 408 28
Allowance for doubtful accounts................................... (1,122) (745)
------- -------
Net accounts receivable........................................... $ 5,344 $4,767
======= =======
Percent of patient accounts receivable related to patients
participating in the Medicare and Medicaid programs............. 76% 69%
</TABLE>

F-29
<PAGE> 90

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Buildings........................................................ $ 2,323 $ 3,377
Furniture, fixtures and equipment................................ 5,707 6,552
Leasehold improvements........................................... 1,598 2,002
Other............................................................ 5 --
------- -------
9,633 11,931
Less accumulated depreciation.................................... (3,305) (4,462)
------- -------
Net property, plant and equipment................................ $ 6,328 $ 7,469
======= =======
</TABLE>

7. SHORT-TERM AND LONG-TERM OBLIGATIONS

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1995
------ ------
<S> <C> <C>
Line of credit with bank, due February 2, 1996, interest of bank's
base rate (9.25%), secured by accounts receivable, equipment and
inventory, credit available of $1,000 at December 31, 1995....... $ -- $ --
Bank lines of credit, with conversion options to term loan, due
from 1995 to 2010, bearing interest ranging from 8.25% to 9.35%,
secured by certain equipment, inventory and accounts receivable,
credit available under such lines of $3,647 at December 31,
1995............................................................. 600 1,604
Notes payable to banks due through 1998, bearing interest ranging
from 8.5% to 9.5%, payable monthly, secured by certain equipment,
accounts receivable, and inventory............................... 529 965
Real estate mortgage notes payable, due through 2007, bearing
interest ranging from 8.375% to 8.75%, payable monthly, secured
by certain real estate and furniture and fixtures................ 1,326 1,217
Business financing note payable monthly beginning March 1, 1996
with interest at the bank's reference rate plus .5% (9.25% at
December 31, 1995) through August 31, 2005....................... -- 4,200
------- -------
Total long-term debt..................................... 2,455 7,986
Less current portion............................................... 303 1,233
------- -------
Long-term debt, net of current portion............................. $2,152 $6,753
======= =======
</TABLE>

One Unrelated Business to be Acquired has an unsecured line of credit
facility with a bank leasing interest at the bank's reference rate (9.35% at
December 31, 1995), in the amount of $500. There were no borrowings at December
31, 1994 and 1995.

Certain debt obligations contain covenants that require maintenance of
certain financial ratios. Default of any covenant could affect the ability of
individual entities to borrow under the agreements and, if not waived or
corrected, could accelerate the maturity of any borrowings outstanding under the
agreements. As of December 31, 1995, Tennessee and each of the Three Unrelated
Businesses to be Acquired had complied with

F-30
<PAGE> 91

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

existing loan covenants. Various of these debt instruments are guaranteed by the
respective owners or related entities.

As of December 31, 1995, the aggregate amounts of annual principal
maturities of long-term debt are as follows:

<TABLE>
<S> <C>
1996........................................................................ $1,233
1997........................................................................ 1,023
1998........................................................................ 944
1999........................................................................ 846
2000........................................................................ 666
Thereafter.................................................................. 3,274
------
$7,986
======
</TABLE>

Tennessee and Three Unrelated Businesses to be Acquired lease office space
as well as certain equipment under capital leases and noncancelable operating
lease agreements which expire at various dates. At December 31, 1995, minimum
annual rental commitments under noncancelable operating leases with terms in
excess of one year are as follows:

<TABLE>
<S> <C>
1996........................................................................ $ 629
1997........................................................................ 605
1998........................................................................ 502
1999........................................................................ 448
2000........................................................................ 422
Thereafter.................................................................. 147
------
Total minimum lease payments...................................... $2,753
======
</TABLE>

Rent expense related to operating leases amounted to $834, $963 and $998
for the years ended December 31, 1993, 1994 and 1995, respectively.

8. BENEFIT PLANS

The Three Unrelated Businesses to be Acquired have qualified defined
contribution plans which permit participants to make voluntary contributions.
The Three Unrelated Businesses to be Acquired pay all general and administrative
expenses of the plans and, in some cases, make matching contributions on behalf
of the employees. The Three Unrelated Businesses to be Acquired made
contributions related to these plans totaling $251, $351 and $414 in 1993, 1994
and 1995, respectively.

Tennessee and Three Unrelated Businesses to be Acquired do not typically
provide employees any post-retirement benefits other than pensions and,
accordingly, the impact of Statement of Financial Accounting Statements No. 106
had no material effect on these combined financial statements.

STOCK OPTIONS

Effective February 15, 1994, Tennessee adopted the 1994 Stock Option Plan.
The plan provided for the grant of options to purchase up to 320 shares of
Common Stock to directors, officers and other key persons. Under the plan
Tennessee may grant incentive stock options, nonqualified stock options or stock
appreciation rights. Options are exercisable as determined by the Board of
Directors.

F-31
<PAGE> 92

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The following is a summary of option transactions during the period from
February 11, 1994 (date of inception of Renal Care Group, Inc. (of Tennessee)
through December 31, 1995:

<TABLE>
<CAPTION>
EXERCISE
OPTIONS PRICE RANGE
------- -----------
<S> <C> <C>
Options granted................................................ 85 $2.00 - $7.50
Options exercised.............................................. --
Options forfeited.............................................. --
-------
Balance at December 31, 1994................................... 85 $2.00 - $7.50
Options granted................................................ 31 $7.50
Options exercised.............................................. --
Options forfeited.............................................. --
-------
Balance at December 31, 1995................................... 116 $2.00 - $7.50
======
Exercisable at December 31, 1995............................... 55
Available for future grant at December 31, 1995................ 204
</TABLE>

9. ADVANCES RECEIVED AND PREFERRED STOCK

Tennessee is authorized to issue 1,000 shares of Preferred Stock at $.01
par value per share. Tennessee has designated as Series A Preferred Stock, 667
shares, $.01 par value per share. The remaining 333 shares of the Preferred
Stock may be issued from time to time in one or more series, each such series to
be so designated as to distinguish the shares from the shares of all other
series or classes. The Board of Directors has the authority to divide the
Preferred Stock into series and determine the preferences, limitations and
relative rights.

The holders of the Series A Preferred Stock have voting rights and receive
dividends, if any, share for share, with Common Stock. The holders of Series A
Preferred Stock vote as a class with respect to amending the charter of
Tennessee, approving a consolidation or merger of Tennessee, changing the
preferences of the Series A Preferred Stock, and effecting an exchange of the
Series A Preferred Stock. The holders of Series A Preferred Stock have no
preferences with respect to dividends. The Series A Preferred Stock is
convertible into Common Stock and will receive a preference distribution equal
to its purchase price upon liquidation or sale of Tennessee. The holders shall
be entitled to a Preference Amount of $7.50. The number of shares of Common
Stock issuable will equal the result obtained by dividing the Preference Amount
by the Current Conversion Price. The Initial Conversion Price is set at $7.50
and shall be adjusted to the Current Conversion Price, as defined. In the event
of a public offering of Tennessee's Common Stock, the Series A Preferred Stock
will have the right to convert to Common Stock at anytime. In the event that
prior to May 6, 1999, Tennessee has neither sold shares in an initial public
offering nor effected a merger or consolidation, at the option of the holder of
Series A Preferred Stock, the shares become redeemable at $10.50 per share plus
an amount equal to $.0016438 per day for each day after May 6, 1999.

In April and May 1994, Tennessee received $2,449, net of commissions and
legal fees of $51, relating to the subscription of Series A Preferred Stock. On
June 22, 1995, the stock was issued to the subscribers. Such proceeds are
classified as advances received at December 31, 1994 and as redeemable preferred
stock at December 31, 1995.

10. WARRANTS

Tennessee issued warrants to two of its officers, effective February 14,
1994, to purchase an aggregate of 160 shares of Common Stock of Tennessee at
$7.50 per share. Also effective February 14, 1994, Tennessee issued to Equitable
Securities Corporation, as compensation for its investment banking services and
for

F-32
<PAGE> 93

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

nominal additional consideration, warrants to purchase 60 shares of Common Stock
of Tennessee at $7.50 per share. The warrants have a term of ten years from the
date of issuance.

11. INCOME TAXES

Income tax expense consists of the following (also see Note 2):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal........................................................... $-- $ 4 $--
State............................................................. -- -- --
--- --- ---
$-- $ 4 $--
=== === ===
</TABLE>

Significant components of the deferred tax assets and liabilities as of
December 31, 1994 and 1995, are as follows:

<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization...................................... $ 3 $ 15
Deferred tax liabilities............................................. 3 15
----- -----
Deferred tax assets:
Net operating loss carryforwards................................... 228 620
Other.............................................................. 1 2
----- -----
Deferred tax assets.................................................. 229 622
Valuation allowance.................................................. (226) (607)
----- -----
Net deferred tax assets.............................................. 3 15
----- -----
Net deferred tax liabilities (assets)................................ $ -- $ --
===== =====
</TABLE>

At December 31, 1994 and 1995, Tennessee had federal income tax operating
loss carryforwards expiring in 2009 and 2010, respectively, of approximately
$600 and $1,632, respectively.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Tax provision at statutory rate........................... $ 2,075 $ 2,256 $ 1,454
State income tax less applicable federal tax benefit...... 245 (34) 40
Income reported in not-for-profit corporation and
adjustment to eliminate S Corporations.................. (2,320) (2,445) (1,875)
Change in valuation allowance............................. -- 225 381
Other, net................................................ -- 2 --
------- ------- -------
$ -- $ 4 $ --
======= ======= =======
</TABLE>

Tennessee and Three Unrelated Businesses to be Acquired made no payments
for federal income taxes in 1993, 1994 and 1995.

F-33
<PAGE> 94

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

PRO FORMA INCOME TAX INFORMATION (UNAUDITED)

As discussed in Note 2, the Three Unrelated Businesses to be Acquired
operate under Subchapter S of the Internal Revenue Code and are not subject to
corporate federal income tax. In connection with the Offering (see Note 14), the
Subchapter S elections were terminated. As a result, the Three Unrelated
Businesses to be Acquired are subject to corporate income taxes subsequent to
the termination of their S Corporation status. Tennessee and Three Unrelated
Businesses to be Acquired had net operating income for income tax purposes of
$5,963, $6,341 and $4,061 for 1993, 1994 and 1995, respectively. Had Tennessee
and Three Unrelated Businesses to be Acquired filed federal and state income tax
returns as a regular corporation for 1993, 1994 and 1995, income tax expense
under the provisions of Financial Accounting Standard No. 109 would have been
$2,457, $2,455, and $1,754 respectively.

At the date of termination of S Corporation status, Tennessee and Three
Unrelated Businesses to be Acquired will be required to provide for a deferred
tax liability for cumulative temporary differences between financial reporting
and tax reporting. Such deferred taxes are based on the cumulative temporary
difference at the date of termination of S Corporation status.

12. COMMITMENTS AND CONTINGENCIES

THIRD-PARTY PAYOR SETTLEMENTS

Final determination of amounts earned under prospective payment and
cost-reimbursement activities is subject to review by appropriate governmental
authorities or their agents. In the opinion of management, adequate provision
has been made for any adjustments that may result from any such reviews.

SELF-INSURED EMPLOYEE HEALTH BENEFIT PLAN

One of the Three Unrelated Businesses to be Acquired adopted a
self-insurance program for health benefits which comprised a $25 per claim
self-insured portion and 20% self-insured portion in excess of $25 up to a
maximum specific loss benefit of $1,000.

Tennessee and Three Unrelated Businesses to be Acquired obtain medical
malpractice insurance and general liability coverage primarily with commercial
carriers. They are subject to claims and suits arising in the ordinary course of
its business for which they believe are adequately covered by insurance.

13. RELATED PARTY TRANSACTIONS

PHYSICIAN SERVICES, MEDICAL DIRECTOR FEES, AND MANAGEMENT FEES

Physician and management services are provided to the Three Unrelated
Businesses to be Acquired by shareholders, partners or legal entities owned by
shareholders or partners of the Three Unrelated Businesses to be Acquired.
Physician and Medical Director Fees included in patient care costs were $983,
$728 and $663 for the years ended December 31, 1993, 1994 and 1995,
respectively. Management fees, which comprise administrative and executive
expenses, accounting fees, maintenance fees, and general overhead expenses were
$165, $160 and $203 for the years ended December 31, 1993, 1994 and 1995,
respectively. Such fees are included in general and administrative expenses.

F-34
<PAGE> 95

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

LEASE TRANSACTIONS

Certain of the Three Unrelated Businesses to be Acquired lease facility
space from various partnerships and corporations which are owned by shareholders
or partners of the Unrelated Businesses to be Acquired.

Additionally, certain of the Three Unrelated Businesses to be Acquired
lease equipment from physician owners. Rent expense on related-party operating
leases amounted to $422, $429 and $349 for the years ended December 31, 1993,
1994 and 1995 respectively.

OTHER RELATED-PARTY BALANCES AND TRANSACTIONS

In various instances, relatives of the owners of the Three Unrelated
Businesses to be Acquired are employees of the clinics.

In 1995, one of the Three Unrelated Businesses to be Acquired began
providing personnel to staff the office of its physician owners. Revenue
recognized for the reimbursement of these services was $290 for the year ended
December 31, 1995.

In December 1995, Renal Care Group, Inc. (of Delaware) sold an aggregate
principal amount of $1,380 of Convertible Senior Subordinated Promissory Notes
(the "Convertible Notes") to provide funds to complete the Offering. Such
Convertible Notes bear interest at a rate of 7.0%, mature in one year, and the
principal and accrued interest thereof is convertible, beginning 180 days after
the closing of the Offering into shares of common stock of the Company at a
conversion price of $7.50 per share. The Company offered such securities solely
to "accredited investors" (as defined in Regulation D promulgated under the
Securities Act) in a private placement exempt from registration under the
Securities Act and state securities laws. Certain owners of Tennessee and
Unrelated Businesses to be Acquired purchased an aggregate principal amount of
$1,120 of the Convertible Notes.

14. SUBSEQUENT EVENTS

RECAPITALIZATION AND INITIAL PUBLIC OFFERING

In February 1996, the Company consummated the Offering and simultaneously
consummated the Combination, pursuant to which it exchanged shares of its common
stock, cash, notes payable and the assumption of certain debt for selected
assets of and liabilities of Tennessee and Three Unrelated Businesses to be
Acquired and the Predecessor. The exchange is accounted for utilizing the
historical cost basis with the common stock being valued at the historical cost
of the net assets exchanged. Cash consideration given in these acquisitions is
treated for accounting purposes as a dividend from the Company to Tennessee and
Three Unrelated Businesses to be Acquired, the Predecessor and their owners.

15. UNAUDITED FINANCIAL INFORMATION

The unaudited combined statements of operations, owners' equity and cash
flows for the nine months ended September 30, 1996 have been prepared by
management. The financial statements include all adjustments, consisting of only
normal recurring adjustments necessary for a fair presentation of the results.

F-35
<PAGE> 96

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Kidney Care, Inc.

We have audited the accompanying combined balance sheets of Kidney Care,
Inc., et al. (see Note 1) as of January 31, 1995 and 1996, and the related
combined statements of revenues, expenses and changes in net assets and cash
flows for the each of the three years in the period ended January 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Kidney Care, Inc.,
et al. as of January 31, 1995 and 1996, and the combined results of their
operations and cash flows for each of the three years then ended in conformity
with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Nashville, Tennessee
May 15, 1996

F-36
<PAGE> 97

KIDNEY CARE, INC., ET AL.

COMBINED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
JANUARY 31
-----------------
1995 1996
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 1,050 $ 3,895
Short-term government securities......................................... 1,000 512
Accounts receivable, net................................................. 7,814 8,348
Inventories.............................................................. 861 1,039
Due from related parties................................................. 771 728
Prepaid expenses......................................................... 135 177
Deferred income taxes.................................................... 65 23
------- -------
Total current assets............................................. 11,696 14,722
Property, plant and equipment, net......................................... 3,027 2,539
Other assets............................................................... 120 837
------- -------
Total assets..................................................... $14,843 $18,098
======= =======
LIABILITIES AND UNRESTRICTED NET ASSETS
Current liabilities:
Current portion of long-term debt........................................ $ 669 $ 389
Accounts payable......................................................... 1,208 1,838
Due to related parties................................................... 1,236 1,105
Accrued wages and benefits............................................... 928 908
Other accrued expenses................................................... 105 272
------- -------
Total current liabilities........................................ 4,146 4,512
Long-term debt, net of current portion..................................... 76 200
------- -------
Total liabilities................................................ 4,222 4,712
Unrestricted net assets.................................................... 10,621 13,386
------- -------
Total liabilities and unrestricted net assets.................... $14,843 $18,098
======= =======
</TABLE>

See accompanying notes.

F-37
<PAGE> 98

KIDNEY CARE, INC., ET AL.

COMBINED STATEMENTS OF REVENUES, EXPENSES
AND CHANGES IN UNRESTRICTED NET ASSETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Net revenue....................................................... $31,366 $36,294 $38,862
Operating costs and expenses:
Patient care costs.............................................. 24,255 28,357 29,890
General and administrative expenses............................. 1,129 930 927
Provision for doubtful accounts................................. 716 770 851
Depreciation and amortization................................... 872 919 903
------- ------- -------
Total operating costs and expenses...................... 26,972 30,976 32,571
------- ------- -------
Income from operations............................................ 4,394 5,318 6,291
Interest expense, net............................................. 185 183 167
------- ------- -------
Income before taxes............................................... 4,209 5,135 6,124
Provision for income taxes........................................ 1,074 944 1,213
------- ------- -------
Net income........................................................ 3,135 4,191 4,911
Unrestricted net assets not retained by the entity................ (1,447) (2,508) (2,146)
Unrestricted net assets at beginning of period.................... 7,250 8,938 10,621
------- ------- -------
Unrestricted net assets at end of year............................ $ 8,938 $10,621 $13,386
======= ======= =======
</TABLE>

See accompanying notes.

F-38
<PAGE> 99

KIDNEY CARE, INC., ET AL.

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................... $ 3,135 $ 4,191 $ 4,911
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 872 919 903
Gain on disposal of equipment............................ -- (6) (25)
Deferred income tax credit............................... (23) (28) 42
Changes in assets and liabilities:
Accounts receivable................................... (1,416) (1,048) (491)
Inventories........................................... (90) (7) (178)
Prepaid expenses and other assets..................... (136) 25 (778)
Recoverable sales tax................................. (570) 1,727 --
Accounts payable...................................... 662 (534) 630
Other accrued expenses and other liabilities.......... 371 (645) 16
------- ------- -------
Net cash provided by operating activities....................... 2,805 4,594 5,030
INVESTING ACTIVITIES
Maturities of short-term government securities.................. -- -- 3,095
Purchases of short-term government securities................... -- (1,000) (2,608)
Proceeds from sales of property, plant and equipment............ 10 19 25
Purchases of property, plant and equipment...................... (810) (761) (395)
------- ------- -------
Net cash provided by (used in) investing activities............. (800) (1,742) 117
FINANCING ACTIVITIES
Proceeds from long-term borrowings.............................. 406 428 483
Principal payments on long-term debt and capital lease
obligations................................................... (448) (497) (639)
Decrease in unrestricted net assets not retained by the
entity........................................................ (1,447) (2,508) (2,146)
------- ------- -------
Net cash used in financing activities........................... (1,489) (2,577) (2,302)
------- ------- -------
Net increase in cash and cash equivalents....................... 516 275 2,845
Cash and cash equivalents at beginning of year.................. 259 775 1,050
------- ------- -------
Cash and cash equivalents at end of year........................ $ 775 $ 1,050 $ 3,895
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid................................................. $ 106 $ 70 $ 50
======= ======= =======
</TABLE>

See accompanying notes.

F-39
<PAGE> 100

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
JANUARY 31, 1996

1. ORGANIZATION AND BASIS OF PRESENTATION

Kidney Care, Inc., et al. ("Kidney Care") consists of Kidney Care, Inc.
("KC") and certain operating divisions of its affiliates, Medical Enterprises,
Ltd. ("MEL") and Health Care Suppliers, Inc. ("HSI"). Kidney Care operates
dialysis treatment centers and provides outpatient and home patient dialysis
services in the southern United States. The combined financial statements
present the operating results and financial position of the divisions of those
entities affiliated with KC that became part of a combination referred to in
Note 12. KC, MEL and HSI have common management and members of the Boards of
Directors. All significant intercompany transactions between KC and the
operating divisions of MEL and HSI have been eliminated in the combination.

MEL and HSI provide various administrative services to Kidney Care
including data processing, accounting, personnel, purchasing and customer
service. It is Kidney Care's policy to charge the expenses of MEL and HSI first
on the basis of direct usage when identifiable, with the remainder allocated on
the basis of time spent by the service departments on Kidney Care matters.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Net Revenue

Net revenue is recorded as services are rendered at established rates net
of contractual adjustments. During the years ended January 31, 1994, 1995, and
1996, Kidney Care received approximately 86% of its net revenue from Medicare
and Medicaid reimbursement programs which reimburse dialysis services on a
prospective payment system. Contractual adjustments arise due to the terms of
certain reimbursement and managed care contracts. Such adjustments represent the
difference between charges at established rates and estimated amounts to be
reimbursed to Kidney Care and are recognized when the services are rendered. Any
differences between estimated contractual adjustments and actual final
settlements under reimbursement contracts are recognized when the final
settlements are made.

Kidney Care provides charity care to certain patients who are identified
based on financial information provided. Charity care patient service revenue,
which is not material, is recorded when payment is received.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with original maturity of
three months or less.

Short-term Government Securities

Short-term government securities are stated at cost, which approximates
market, and consist of U.S. Government agencies securities with maturities of
one year or less.

Inventories

Inventories are stated at cost (first-in, first-out method) and consist of
kidney dialysis supplies, drugs and raw materials and supplies used in the
production of dialysis concentrate.

Depreciation and Amortization

Depreciation and amortization are provided on the straight-line method over
the estimated useful lives of the assets which range from five to ten years for
furniture, fixtures and equipment and five to thirty-one years for leasehold
improvements and buildings. Repairs and maintenance costs are expensed as they
are incurred, while costs of betterments and renewals are capitalized.

F-40
<PAGE> 101

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Estimated Medical Professional Liability Claims

Kidney Care is insured for medical professional liability claims through a
retrospectively rated commercial insurance policy. It is Kidney Care's policy
that provision for estimated premium adjustments to medical professional
liability costs be made for asserted and unasserted claims and based upon Kidney
Care's experience. Provision for such professional liability claims includes
estimates of the ultimate costs of such claims. To date, Kidney Care's
experience with such claims has not been significant. Accordingly, no such
provision has been made.

Income Taxes

KC is a not-for-profit corporation as described in Section 501(c)(3) of the
Internal Revenue Code, as amended (the "Code") and is exempt from federal and
state income taxes on related income pursuant to Section 501(a) of the Code.
Consequently, the accompanying combined statements of revenues, expenses and
changes in net assets do not include provisions for income taxes from KC's
operations. Income taxes have been provided by the liability method on earnings
of the operating divisions of MEL and HSI included therein in accordance with
the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."

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 dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.

3. ACCOUNTS RECEIVABLE

Accounts receivable, net at January 31, 1995 and 1996 of $7,814 and $8,348,
respectively, includes an allowance for doubtful accounts of $2,616 and $1,855,
respectively.

4. RECOVERABLE SALES TAX

On January 5, 1994, the Mississippi State Tax Commission principally
granted Kidney Care an exemption from Mississippi sales taxes. Kidney Care
recovered sales tax of $1,727 principally applicable to supply purchases from
February 1, 1990 through December 31, 1994. Supplies and drugs expense included
in patient care costs in the accompanying combined statements of revenues,
expenses and changes in net assets is included net of the sales taxes recovered
applicable to the respective fiscal years.

F-41
<PAGE> 102

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consist of the following:

<TABLE>
<CAPTION>
JANUARY 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Land............................................................... $ 29 $ 29
Building........................................................... 78 78
Furniture, fixtures and equipment.................................. 8,629 8,143
Leasehold improvements............................................. 2,528 2,549
------- -------
11,264 10,799
Less accumulated depreciation...................................... (8,237) (8,260)
------- -------
Property, plant and equipment, net................................. $ 3,027 $ 2,539
======= =======
</TABLE>

6. CREDIT FACILITIES, LONG-TERM DEBT AND CAPITAL LEASES

<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Notes payable to a bank, due in monthly installments, bearing interest
at 8.75%, matured in fiscal 1996.................................... $151 $ --
Notes payable to a bank, due in monthly installments, bearing interest
at 8.75%, maturing in fiscal 1999................................... 169 152
Equipment notes payable, due in monthly installments, bearing interest
at rates from 5.9% to 8.75%, maturing in fiscal 1997 and 2000....... 10 35
Notes payable to insurance companies, due in monthly installments,
bearing interest at 6.4% to 7.4%, maturing in fiscal 1997........... -- 330
Notes payable to insurance companies, matured in fiscal 1996.......... 318 --
Capital lease obligation, due in monthly installments, including
interest at 10.8%................................................... 97 72
---- ----
$745 $589
==== ====
</TABLE>

At January 31, 1996, the aggregate maturities of long-term debt and capital
leases are as follows:

<TABLE>
<CAPTION>
CAPITAL
LONG-TERM LEASE
DEBT OBLIGATION
--------- ----------
<S> <C> <C>
1997......................................................... $ 360 $ 35
1998......................................................... 29 35
1999......................................................... 122 12
2000......................................................... 6 --
---- ----
Total aggregate payments........................... $ 517 82
====
Less amounts representing interest........................... (10)
----
Present value of net minimum lease payments.................. 72
Less amounts due in one year................................. 29
----
Long-term portion of capital lease obligations............... $ 43
====
</TABLE>

Kidney Care has a $1,200 line of credit with a bank, all of which was
available at January 31, 1996, that matures June 30, 1996. Interest on
borrowings under the line of credit bear an interest rate of prime plus 1% and
borrowings are collateralized by accounts receivable. Accounts receivable, land,
building and certain

F-42
<PAGE> 103

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

furniture, fixtures and equipment and leasehold improvements collateralize the
notes payable to a bank. Certain equipment collateralize the equipment notes
payable.

Kidney Care leases certain computer equipment under a capitalized lease.
The cost of such equipment at January 31, 1995 and 1996 was $134. Accumulated
amortization was $47 and $74, respectively.

7. BENEFIT PLANS

Kidney Care has a 403(b) defined contribution plan for its employees who
elect to participate in the plan. Kidney Care matches up to 5% of salaries of
participating employees. The retirement plan expense was $256, $316, and $330
for the years ended January 31, 1994, 1995, and 1996, respectively.

Kidney Care provides employee health coverage for its employees for claims
up to $35 per employee and total aggregate claims of $1,000 per annum. Effective
June 1, 1994, Kidney Care provides dental coverage claims up to $1.5 per
employee per annum. Kidney Care has reinsurance coverage for amounts in excess
of the self-insured amounts.

8. INCOME TAXES

Provision for income taxes consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------
1994 1995 1996
------ ---- ------
<S> <C> <C> <C>
Current:
Federal.................................................... $ 950 $885 $1,067
State...................................................... 147 87 104
------- ----- -------
1,097 972 1,171
Deferred (credits):
Federal.................................................... (20) (25) 39
State...................................................... (3) (3) 3
------- ----- -------
(23) (28) 42
------- ----- -------
$1,074 $944 $1,213
======= ====== =======
</TABLE>

The difference between provision for income taxes at Kidney Care's
effective tax rate and income taxes (credits) at the statutory federal tax rate
are as follows:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Statutory federal income taxes.............................. $1,431 $1,746 $2,082
State income taxes, net..................................... 95 83 107
Income reported in not-for-profit corporation............... (464) (900) (991)
Other....................................................... 12 15 15
------- ------- -------
$1,074 $ 944 $1,213
======= ======= =======
</TABLE>

The components of deferred income tax assets are as follows:

<TABLE>
<CAPTION>
JANUARY 31,
-----------
1995 1996
---- ----
<S> <C> <C>
Accounts receivable...................................................... $64 $23
Accrued expenses......................................................... 1 --
--- ---
$65 $23
=== ===
</TABLE>

F-43
<PAGE> 104

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

9. RELATED PARTY TRANSACTIONS

Kidney Care rents certain dialysis treatment facilities from one of its
directors. Kidney Care also obtained certain water and housekeeping services
from MEL and HSI. The following is a summary of these expenses.

<TABLE>
<CAPTION>
YEAR ENDED JANUARY
31,
--------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Patient care costs:
Water services............................................... $ 70 $ 42 $ 99
Facility rent................................................ 338 338 333
Housekeeping services........................................ 425 551 477
---- ---- ----
$833 $931 $909
==== ==== ====
</TABLE>

10. PRO FORMA INCOME TAXES (UNAUDITED)

The following unaudited pro forma information reflects income tax expense
of Kidney Care as if KC had been subject to federal and state income taxes:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................... $1,871 $1,840 $1,835
State...................................................... 290 285 176
------ ------ ------
2,161 2,125 2,011
Deferred credits............................................. (578) (193) 289
------ ------ ------
Pro forma income taxes....................................... 1,583 1,932 2,300
Income taxes as reported..................................... 1,074 944 1,213
------ ------ ------
Pro forma income tax adjustment.............................. $ 509 $ 988 $1,087
====== ====== ======
</TABLE>

The pro forma income tax expense differs from the statutory federal income
taxes as follows:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Statutory federal income taxes............................... $1,431 $1,746 $2,083
State income taxes, net...................................... 139 169 202
Other........................................................ 13 17 15
------ ------ ------
$1,583 $1,932 $2,300
====== ====== ======
</TABLE>

11. COMMITMENTS AND CONTINGENCIES

Kidney Care leases certain facilities and computer equipment. Rent expense
for the years ended January 31, 1994, 1995, and 1996 totaled $893, $948, and
$912, respectively. Minimum rental payments under noncancellable operating
leases having remaining terms in excess of one year as of January 31, 1996, by
fiscal year are as follows:

F-44
<PAGE> 105

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Kidney Care is involved from time to time in claims and routine litigation
in the normal course of its business. Management is of the opinion, based on the
advice of counsel, that the outcome of any matters presently pending will not
have a material adverse effect on the combined financial position or operations
of Kidney Care.

12. ASSET TRANSFER AGREEMENTS

On July 31, 1995, KC entered into an agreement with Renal Care Group, Inc.
("RCG") whereby RCG agreed to purchase substantially all of KC's assets and
assume certain of KC's liabilities. On November 14, 1995, MEL entered into an
agreement with RCG whereby MEL agreed to be acquired by RCG in a merger, prior
to which MEL's assets that are unrelated to its dialysis business will be spun
off into a separate entity.

Effective February 6, 1996, RCG completed an initial public offering of
3,900 shares of Common Stock. Simultaneous with the consummation of the
offering, a combination was consummated which included provisions for the
transfer agreements between RCG, KC and MEL described above.

F-45
<PAGE> 106

- ------------------------------------------------------
- ------------------------------------------------------

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OF 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 CIRCUMSTANCE CREATE ANY
IMPLICATION 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.......................... 7
The Company........................... 12
Use of Proceeds....................... 13
Price Range of Common Stock........... 13
Dividend Policy....................... 13
Capitalization........................ 14
Selected Historical Pro Forma and
Combined Financial Data............. 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 23
Management............................ 41
Principal and Selling Stockholders.... 50
Description of Capital Stock.......... 53
Shares Eligible for Future Sale....... 55
Underwriting.......................... 58
Legal Matters......................... 59
Experts............................... 59
Additional Information................ 59
Index to Financial Statements......... F-1
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------

3,000,000 SHARES

(LOGO)RENAL CARE GROUP

COMMON STOCK

-----------------

PROSPECTUS
-----------------

EQUITABLE SECURITIES CORPORATION

HAMBRECHT & QUIST

MORGAN KEEGAN & COMPANY, INC.

NEEDHAM & COMPANY, INC.

November , 1996

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 107

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses to be borne by the
Company in connection with the issuance and distribution of the securities being
registered hereby, other than underwriting discounts and commissions. The
Company is paying all of these expenses in connection with the issuance and
distribution of the securities.

<TABLE>
<CAPTION>
PAYABLE BY
THE REGISTRANT
--------------
<S> <C>
SEC registration fee............................................................ $ 37,898
NASD filing fee................................................................. 13,006
Nasdaq Stock Market's National Market listing fee............................... 17,500
Accountants' fees and expenses..................................................
Legal fees and expenses.........................................................
Printing and engraving costs....................................................
Blue Sky fees and expenses......................................................
Transfer Agent and Registrar fees...............................................
Miscellaneous...................................................................
--------
Total................................................................. $600,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Amended and Restated Certificate of Incorporation provides
that the Company shall, to the fullest extent permitted by Section 145 of the
General Corporation Law of the State of Delaware, as amended from time to time,
indemnify its officers and directors.

Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they 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 reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnify for such expenses despite such
adjudication of liability.

The Company's Amended and Restated Certificate of Incorporation contains a
provision which eliminates, to the fullest extent permitted by the General
Corporation Law of Delaware, director liability for monetary damages for
breaches of the fiduciary duty of care or any other duty as a director.

Reference is hereby made to the Underwriting Agreement, the form of which
is filed as Exhibit 1.1 hereto, in which the Company agrees to indemnify the
Underwriters and certain other persons against certain civil liabilities.

II-1
<PAGE> 108

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since its incorporation on June 20, 1995, the Company has issued the
following securities:

(A) On June 22, 1995, Sam A. Brooks purchased one share of Common
Stock for $10.00. Such sale was made in reliance upon the exemption from
registration contained in Section 4(2) of the Securities Act.

(B) At various times between July 19, 1995, and November 4, 1995, the
Company granted options to purchase 1,076,448 shares of Common Stock to
various consultants, directors and officers of the Company. Such grants
were made in reliance upon the exemption from registration contained in
Section 4(2) of the Securities Act and Rule 701 as promulgated thereunder.

(C) Between November 16, 1995 and December 8, 1995, the security
holders of the Founding Companies made their investment decision to
purchase 4,381,000 shares of Common Stock upon the closing of the initial
public offering. Obtaining such investment decisions and the ultimate sale
of such shares of Common Stock at the closing of the initial public
offering were made in reliance upon the exemption from registration set
forth in Section 4(2) of the Securities Act. Such shares of Common Stock
(along with certain cash payments and assumptions of liabilities by the
Company) were issued in exchange for the Founding Companies as described in
"The Company" and "Certain Transactions."

(D) On December 7, 1995, the Company sold an aggregate principal
amount of $1,380,000 of Convertible Senior Subordinated Promissory Notes to
17 owners of certain of the Founding Companies in a private placement
pursuant to the exemption from registration set forth in Section 4(2) of
the Securities Act. Such notes bear interest at a rate of 7.0% per annum,
mature on December 7, 1996, and the principal and accrued interest thereon
are convertible into shares of Common Stock of the Company at a conversion
price of $7.50 per share.

(E) On February 12, 1996, the Company issued 4,381,000 shares of
Common Stock to the former owners of the Founding Companies in a private
placement pursuant to the exemption from registration set forth in Section
4(2) of the Securities Act.

(F) On April 26, 1996, the Company issued 528,245 shares of Common
Stock to the former owners of Main Line Suburban Dialysis Centers, Inc. in
a private placement pursuant to the exemption from registration set forth
in Section 4(2) of the Securities Act.

(G) On July 1, 1996, the Company issued 298,775 shares of Common Stock
to the former owners of The Nephrology Centers, Inc. in a private placement
pursuant to the exemption from registration set forth in Section 4(2) of
the Securities Act.

(H) On September 30, 1996, the Company issued 2,400,000 shares of
Common Stock to the former owners of RenalWest, L.C. in a private placement
pursuant to the exemption from registration set forth in Section 4(2) of
the Securities Act.

(I) On September 30, 1996, the Company issued 70,000 shares of Common
Stock to the former owner of Northeast Alabama Kidney Center, Inc. in a
private placement pursuant to the exemption from registration set forth in
Section 4(2) of the Securities Act.

No underwriters were engaged in connection with the foregoing sales of
securities.

II-2
<PAGE> 109

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement among the Company and Equitable Securities
Corporation, Hambrecht & Quist LLP, Morgan Keegan & Company, Inc. and Needham &
Company, Inc., as the Representatives of the several Underwriters
2.1 -- Uniform Terms and Conditions attached to each of the Combination Agreements listed
in Exhibits 2.2 through 2.7(1)
2.2 -- Amended and Restated Transfer Agreement, dated November 11, 1995, between the
Company and Kansas Nephrology Association and its owners(1)
2.3 -- Amended and Restated Transfer Agreement, dated November 8, 1995, between the
Company and Tyler Nephrology Associates, P.A. and its owners(1)
2.4 -- Amended and Restated Transfer Agreement, dated November 8, 1995, between the
Company and D.M.N. Professional Corporation and its owners(1)
2.5 -- Agreement and Plan of Merger, dated November 14, 1995, between the Company and
Medical Enterprises, Ltd. and John Bower, M.D.(1)
2.6 -- Amended and Restated Transfer Agreement, dated November 14, 1995, between the
Company and Kidney Care, Inc.(1)
2.7 -- Agreement and Plan of Merger, dated November 15, 1995, between the Company and
Renal Care Group, Inc. (a Tennessee corporation)(1)
2.8 -- Agreement for Purchase and Sale of Real Property, dated July 31, 1995, between
Renal Care Group, Inc. and John D. Bower, M.D.(1)
*2.9 -- Agreement and Plan of Merger, dated August 7, 1996, by and among the Company, RCG
Three Corp., RCG Nine Corp., RCG Four Corp., RenalWest, L.C., 3-CO, Inc., 4-CO,
Inc. and 9-CO, Inc.
3.1 -- Amended and Restated Certificate of Incorporation of the Company(1)
3.2 -- Amended and Restated Bylaws of the Company(1)
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Certificate of
Incorporation and Bylaws of the Company defining rights of holders of Common Stock
of the Company(1)
4.2 -- Specimen stock certificate for the Common Stock of the Company(1)
4.3 -- Form of 7.0% Convertible Senior Subordinated Promissory Note(1)
5.1 -- Opinion of Alston & Bird, including consent
10.1 -- Employment Agreement, dated February 6, 1996, between the Company and Sam A.
Brooks(2)
*10.2 -- Employment Agreement, dated February 6, 1996, between the Company and Ron Hinds
10.3 -- Employment Agreement between the Company and Raymond Hakim, M.D.(1)
10.4 -- Employment Agreement, dated April 1, 1994, between the Company and Joseph A.
Cashia(2)
10.5 -- Employment Agreement, dated February 12, 1996, between the Company and Ann N.
Bower(2)
10.6 -- Medical Director Services Agreement, dated February 12, 1996, between the Company
and Kansas Nephrology Physicians, P.A.(2)
10.7 -- Medical Director Services Agreement, dated February 12, 1996, between the Company
and Indiana Dialysis Management, P.C.(2)
10.8 -- Medical Director Services Agreement, dated February 12, 1996, between the Company
and Tyler Dialysis & Transplant Associates, P.A.(2)
10.9 -- Lease agreement, dated February 5, 1996, between the Company and MEL, Inc. relating
to approximately 20,000 square feet of space.(2)
10.10 -- Lease agreement, dated February 12, 1996, among the Company and Thomas A. Lowery,
M.D., James R. Cotton, M.D., Roy D. Gerard, M.D. and Kevin A. Curran, M.D.,
relating to property in Carthage, Texas.(2)
</TABLE>

II-3
<PAGE> 110

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------------------------------------------------------------------
<C> <S> <C>
10.11 -- Lease agreement, dated February 12, 1996, among the Company and Thomas A. Lowery,
M.D., James R. Cotton, M.D, Roy D. Gerard, M.D. and Kevin A. Curran, M.D., relating
to property in Tyler Texas.(2)
10.12 -- Sublease agreement between M-W-R Investment and Kansas Nephrology Associates, P.A.
dated February 1, 1990, to be assumed by the Company, and the related Lease
agreement between Dodge City Medical Center Building, Inc. and M-W-R Investment.(1)
10.13 -- Sublease Agreement, dated February 12, 1996, with Tyler Nephrology Associates,
Inc.(2)
10.14 -- Dialysis Center Management Agreement, dated May 11, 1994 between Renal Care Group,
Inc (of Tennessee) and Vanderbilt University(1)
10.15 -- 1996 Stock Option Plan for Outside Directors(1)
*10.16 -- Amended and Restated 1996 Stock Option Plan
10.17 -- Employee Stock Purchase Plan(1)
10.18 -- Agreement between the Company and Healthcare Suppliers, Inc. dated December 7,
1995(1)
*10.19 -- Amendment No. 1 to the Company's Employee Stock Purchase Plan
*10.20 -- Laboratory Management Agreement, dated February 12, 1996, between the Company and
Kidney Care, Inc.
*10.21 -- Chief Medical Officer Agreement, dated February 12, 1996, between the Company and
John D. Bower, M.D.
*10.22 -- Medical Director Services Agreement, dated September 30, 1996, between the Company
and a group of individual physicians
*10.23 -- Employment Agreement, dated June 30, 1996, between the Company and Gary Brukardt
*10.24 -- Management Agreement, dated March 1, 1996, between the Company and The Cleveland
Clinic Foundation
10.25 -- Loan Agreement, dated May 30, 1996, among the Company, its subsidiaries and
NationsBank of Tennessee, N.A.
10.26 -- Revolving/Term Note, dated May 30, 1996, made by the Company and its subsidiaries
to the order of NationsBank of Tennessee, N.A.
10.27 -- Stock Pledge Agreement, dated May 30, 1996, between the Company and NationsBank of
Tennessee, N.A.
11.1 -- Statement regarding computation of per share earnings
21.1 -- List of subsidiaries of the Company
23.1 -- Consent of Alston & Bird (Contained in Exhibit 5.1.)
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of Henry & Peters, P.C.
23.4 -- Consent of Allen, Gibbs, & Houlik, L.C.
*24.1 -- Powers of Attorney with respect to amendments of this Registration Statement
</TABLE>

- ---------------

* Previously filed

(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Reg. No. 333-80221) effective February 6, 1996.
(2) Incorporated by reference to the Company's Form 10-Q for the Quarter ended
March 31, 1996 (Commission File No. 0-27640).

B. Financial Statement Schedules

Schedules other than those listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
financial statements or notes thereto.

II-4
<PAGE> 111

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company 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 Company 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 of 1933 and will be
governed by the final adjudication of such issue.

The Company hereby undertakes to provide to the Representative of the
Underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the Representative of the Underwriters to permit prompt delivery to each
purchaser.

The Company 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 of 1933 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> 112

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Nashville, State of Tennessee, on October 30, 1996.

RENAL CARE GROUP, INC.

By: /s/ SAM A. BROOKS, JR.
--------------------------------------
Sam A. Brooks, Jr.
President and Chief Executive Officer

II-6
<PAGE> 113

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed below by the following
persons in the capacities indicated on October 30, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------------- --------------------------------------------
<C> <S>
/s/ SAM A. BROOKS, JR. President, Chief Executive Officer and
- ----------------------------------------------- Director (Principal Executive Officer)
Sam A. Brooks, Jr.

/s/ RONALD HINDS Executive Vice President, Chief Financial
- ----------------------------------------------- Officer, Secretary and Treasurer
Ronald Hinds (Principal Financial Officer and Principal
Accounting Officer)

* Director
- -----------------------------------------------
Joseph C. Hutts

* Director and Chairman of the Board
- -----------------------------------------------
Harry R. Jacobson, M.D.

Director
- -----------------------------------------------
Thomas A. Lowery

* Director and Vice Chairman of the Board
- -----------------------------------------------
John D. Bower, M.D.

* Director
- -----------------------------------------------
Stephen D. McMurray, M.D.

* Director
- -----------------------------------------------
W. Tom Meredith, M.D.
Director
- -----------------------------------------------
Kenneth Johnson, M.D.

*By: /s/ RONALD HINDS
- -----------------------------------------------
Ronald Hinds, Attorney-in-Fact
</TABLE>

II-7
<PAGE> 114

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Renal Care Group, Inc.

We have audited the consolidated financial statements of Renal Care Group,
Inc., as of December 31, 1994 and 1995, and for each of the three years in the
period ended December 31, 1995, and have issued our report thereon dated October
28, 1996 (included elsewhere in this Registration Statement). Our audits also
included the consolidated financial statement schedule listed in Item 16(b) of
this Registration Statement. This consolidated schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits.

In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

/s/ Ernst & Young LLP

Nashville, Tennessee

October 28, 1996

S-1
<PAGE> 115

SCHEDULE II

RENAL CARE GROUP, INC.

CONSOLIDATED SCHEDULE -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ----------------------- BALANCE AT
BEGINNING OF CHARGED TO CHARGED TO END
PERIOD EXPENSE REVENUE WRITE-OFFS OF PERIOD
------------ ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1993............. $ 516 $ 584 $ -- $ (146) $ 954
========= ======== ======== ======= ========
Year ended December 31, 1994............. $ 954 $1,418 $ -- $ (543) $1,829
========= ======== ======== ======= ========
Year ended December 31, 1995............. $1,829 $2,355 $ -- $ (204) $3,980
========= ======== ======== ======= ========
</TABLE>

S-2
<PAGE> 116

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Renal Care Group, Inc.

We have audited the combined financial statements of Renal Care Group, Inc.
(of Tennessee) and Three Unrelated Businesses to be Acquired as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995, and have issued our report thereon dated September 30, 1996 (included
elsewhere in this Registration Statement). Our audits also included the combined
financial statement schedule listed in Item 16(b) of this Registration
Statement. This combined schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. We
did not audit the financial statements of Tyler Nephrology Associates, P.A. and
the combined financial statements of Kansas Nephrology Associates, P.A. and
Kansas Dialysis Supply, Inc. which statements reflect total assets constituting
57% as of December 31, 1994 and total revenues constituting 68% for the two
years in the period ended December 31, 1994. We have been furnished with the
report of other auditors with respect to Schedule II of Renal Care Group, Inc.
(of Tennessee) and Three Unrelated Businesses to be Acquired.

In our opinion, based on our audits and the reports of other auditors, the
combined financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

/s/ Ernst & Young LLP

Nashville, Tennessee
September 30, 1996

S-3
<PAGE> 117

INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors
Kansas Nephrology Associates, P.A. and
Kansas Dialysis Supply, Inc.

We have audited the combined financial statements of Kansas Nephrology
Associates, P.A. and Kansas Dialysis Supply, Inc. as of December 31, 1994 and
for each of the two years in the period ended December 31, 1994, and have issued
our report thereon dated July 15, 1995 (included elsewhere in this Registration
Statement). Our audits also included a combined financial statement schedule
which is included in the schedule listed in Item 16(b) of this Registration
Statement. This combined schedule is the responsibility of the Companies'
management. Our responsibility is to express an opinion based on our audits.

In our opinion, the combined financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

/s/ Allen, Gibbs & Houlik, L.C.

Wichita, Kansas
July 15, 1995

S-4
<PAGE> 118

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Tyler Nephrology Associates, P.A.
Tyler, Texas

We have audited the financial statements of Tyler Nephrology Associates,
P.A. as of December 31, 1994 and for each of the two years in the period ended
December 31, 1994, and have issued our report thereon dated July 24, 1995. Our
audits also included the combined financial statement schedule listed in Item
16(b) of this Registration Statement. This combined schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Henry & Peters, P.C.

Tyler, Texas
July 24, 1995

S-5
<PAGE> 119

SCHEDULE II

RENAL CARE GROUP, INC. (OF TENNESSEE) AND
THREE UNRELATED BUSINESSES TO BE ACQUIRED

COMBINED SCHEDULE -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS BALANCE
BALANCE AT ----------------------- AT
BEGINNING CHARGED TO CHARGED TO END
OF PERIOD EXPENSE REVENUE WRITE-OFFS OF PERIOD
---------- ---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
December 31, 1993.......................... $ 633 $ 710 $ -- $ (633) $ 710
======== ======== ======== ======== =======
December 31, 1994.......................... $ 710 $ 726 $ -- $ (314) $ 1,122
======== ======== ======== ======== =======
December 31, 1995.......................... $1,122 $ 789 $ -- $ (1,166) $ 745
======== ======== ======== ======== =======
</TABLE>

S-6
<PAGE> 120

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Kidney Care, Inc.

We have audited the combined financial statements of Kidney Care, Inc., et
al. as of January 31, 1995 and 1996, and for each of the three years in the
period ended January 31, 1996, and have issued our report thereon dated May 15,
1996 (included elsewhere in this Registration Statement). Our audits also
included the combined financial statement schedule listed in Item 16(b) of this
Registration Statement. This combined schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.

/s/ Ernst & Young LLP

Nashville, Tennessee
May 15, 1996

S-7
<PAGE> 121

SCHEDULE II

KIDNEY CARE, INC., ET AL.

COMBINED SCHEDULE -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ----------------------- BALANCE AT
BEGINNING CHARGED TO CHARGED TO END
OF PERIOD EXPENSE REVENUE WRITE-OFFS OF PERIOD
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
January 31, 1994........................... $ 482 $716 $ -- $ (847) $ 2,045
======== ======== ======== ======= ========
January 31, 1995........................... $2,045 $770 $ -- $ (198) $ 2,617
======== ======== ======== ======= ========
January 31, 1996........................... $2,617 $851 $ -- $ (1,613) $ 1,855
======== ======== ======== ======= ========
</TABLE>

S-8

<PAGE> 1
EXHIBIT 1.1

3,000,000 SHARES

RENAL CARE GROUP, INC.

COMMON STOCK

UNDERWRITING AGREEMENT

Equitable Securities Corporation November ___, 1996
Hambrecht & Quist, LLC
Morgan Keegan & Company, Inc.
Needham & Company, Inc.
As Representatives of the
several Underwriters named
in Schedule A
c/o Equitable Securities Corporation
Nashville City Center, Suite 800
511 Union Street
Nashville, Tennessee 37219

Ladies and Gentlemen:

Renal Care Group, Inc., a Delaware corporation (the "Company"), and
certain stockholders of the company named in Schedule B hereto (the "Selling
Stockholders") propose to sell to the several underwriters (the "Underwriters")
for whom you are acting as representatives (the "Representatives") an aggregate
of 3,000,000 shares (the "Firm Shares") of the Company's common stock, $.01 par
value (the "Common Stock"). The respective amounts of the Firm Shares to be
purchased by the several Underwriters are set forth opposite their names in
Schedule A hereto. The Company also proposes to sell at the Underwriters'
option an aggregate of up to 450,000 additional shares of the Company's Common
Stock (the "Option Shares") as set forth below.

As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule A, plus their pro rata portion of the Option
Shares if you elect to exercise the over-allotment option in whole or in part
for the accounts of the several Underwriters. The Firm Shares and the Option
Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."

<PAGE> 2

In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:

1. Representations and Warranties of the Company. The Company represents
and warrants as follows:

(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and may have
filed an amendment or amendments thereto, on Form S-1 (No. 333-13813),
for the registration of the Shares under the Securities Act of 1933, as
amended (the "Act"). Such registration statement, including the
prospectus, financial statements and schedules, exhibits and all other
documents filed as a part thereof, as amended at the time of
effectiveness of the registration statement, including any information
deemed to be a part thereof as of the time of effectiveness pursuant to
paragraph (b) of Rule 430A of the rules and regulations of the Commission
under the Act (the "Rules and Regulations"), as well as any registration
statement filed by the Company pursuant to Rule 462(b) of the Rules and
Regulations, is herein called the "Registration Statement" and the
prospectus, in the form first filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations or filed as part of the Registration
Statement at the time of effectiveness if no Rule 424(b) filing is
required, is herein called the "Prospectus." The term "Preliminary
Prospectus" as used herein means a preliminary prospectus as described in
Rule 430 of the Rules and Regulations. Copies of the Registration
Statement, including any amendments thereto, any Preliminary Prospectuses
contained therein and the exhibits, financial statements and schedules,
as finally amended and revised, have heretofore been delivered by the
Company to you.

(b) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement; the
Company is duly qualified to transact business in all jurisdictions in
which the conduct of its business requires such qualification, except
where the failure to so qualify would not have a material adverse effect
on the financial condition, results of operations or business of the
Company and the Subsidiaries (as defined herein) taken as a whole.

(c) All of the Company's current subsidiaries are listed on Exhibit
21.1 to the Registration Statement (hereinafter collectively referred to
as the "Subsidiaries"). Each Subsidiary has been duly incorporated, and
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with power or authority to own or
lease its properties and conduct its business as described in the
Registration

<PAGE> 3

Statement. Each Subsidiary is duly qualified to transact business in all
jurisdictions in which the conduct of its business requires such
qualification. The outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, and are fully
paid and non-assessable. Such shares of capital stock in each Subsidiary
are wholly owned by the Company free and clear of all liens, encumbrances
and security interests, except as disclosed in the Registration
Statement. No options, warrants or other rights to purchase, agreements
or other obligations to issue or other rights to convert any obligations
into shares of capital stock or ownership interests in the Subsidiaries
are outstanding, except to the extent set forth in the Registration
Statement, including the exhibits thereto.

(d) The outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable; the
Shares to be issued and sold by the Company have been duly authorized and
when issued and paid for as contemplated herein will be validly issued,
fully paid and non-assessable. No person or entity holds a right to
require or participate in the registration under the Act of shares of
Common Stock of the Company which right has not been waived by the holder
thereof as to the offering contemplated hereby and by the Registration
Statement, or satisfied by participation by such holder in the offering.
No person or entity has any preemptive or other right of participation or
first refusal with respect to any of the Shares or the issue or sale
thereof by the Company, which rights have not been waived.

(e) The Shares conform with the statements concerning them set
forth in the Registration Statement.

(f) The Commission has not issued an order preventing or suspending
the use of any Preliminary Prospectus or Prospectus relating to the
proposed offering of the Shares nor instituted proceedings for that
purpose. The Registration Statement and the Prospectus and any
amendments or supplements thereto, as of their respective effective or
issue dates, in all material respects conform or will conform, as the
case may be, to the requirements of the Act and the Rules and
Regulations. Neither the Registration Statement nor any amendment
thereto, as of its effective date, nor any Preliminary Prospectus,
Prospectus or any supplement thereto, as of its issue date, contains or
will contain, as the case may be, any untrue statement of a material fact
or omits or will omit to state any material fact required to be stated
therein or necessary to make the statements therein (as to the
Prospectus, in light of the circumstances under which they were made) not
misleading; provided, however, that the Company makes no representations
or warranties as to information contained in or omitted from the
Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof.

<PAGE> 4

(g) The historical financial statements of the Company and the
Founding Companies (as defined in the Registration Statement),
together with related notes and schedules as set forth in the
Registration Statement, present fairly in all material respects the
combined financial position and the results of operations and cash flows
of the Company and the Founding Companies, as the case may be, at the
indicated dates and for the indicated periods. Such financial statements
have been prepared in accordance with generally accepted principles of
accounting, consistently applied throughout the periods involved, and all
adjustments necessary for a fair presentation of results for such periods
have been made. The pro forma combining financial statements set forth
in the Registration Statement fairly present in all material respects the
information required to be presented therein, and such statements meet
the requirements of the Act. No other financial statements or schedules
of the Company or the Founding Companies are required by the Act or the
Rules and Regulations to be included in the Registration Statement or the
Prospectus. The summary financial and statistical data included in the
Registration Statement present fairly in all material respects the
information shown therein and, as to the financial data, have been
compiled on a basis consistent with the financial statements presented
therein.

(h) There is no litigation or governmental or third-party payor
audit, investigation or other proceeding ("Proceeding") pending or, to
the best knowledge of the Company, threatened against the Company or any
of the Subsidiaries which the Company has reason to believe is likely to
result in any material adverse change in the business or condition of the
Company and of the Subsidiaries taken as a whole, except as set forth in
the Registration Statement, including, without limitation, any such
Proceeding pursuant to federal or state laws or regulations (i)
prohibiting the payment or receipt of remuneration for patient referrals,
(ii) prohibiting the filing of false claims, (iii) prescribing conditions
of participation for certification by the Medicare and Medicaid programs
and state kidney fund programs or standards for licensure or health
planning approval or (iv) providing for coverage and reimbursement under
the Medicare and Medicaid and state kidney fund programs.

(i) The Company and the Subsidiaries have good and marketable title
to all of the properties and assets reflected in the financial statements
included in the Registration Statement (or as described in the
Registration Statement) hereinabove described, subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as disclosed in the
Registration Statement) or which are not material in amount. The Company
and the Subsidiaries occupy leased properties under valid and binding
leases

<PAGE> 5

except where the failure to have such leases or agreements would not
have a material adverse effect on the Company and its Subsidiaries taken
as a whole.

(j) The Company and the Subsidiaries have filed all federal, state
and foreign income tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments
received by them or any of them to the extent that such taxes have become
due, except where the failure to do so would not have a material adverse
effect on the Company and its Subsidiaries taken as a whole.

(k) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there
has not been any material adverse change or, to the knowledge of the
Company, any development involving a prospective material adverse change
in or affecting the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the earnings, business affairs,
management, or business prospects of the Company and its Subsidiaries
taken as a whole, whether or not occurring in the ordinary course of
business, and there has not been any material transaction entered into by
the Company or the Subsidiaries, other than transactions in the ordinary
course of business or changes and transactions contemplated by the
Registration Statement, as it may be amended or supplemented. The
Company and the Subsidiaries taken as a whole have no material contingent
obligations which are not disclosed in the Registration Statement, as it
may be amended or supplemented.

(l) Neither the Company nor any of the Subsidiaries is, or with the
giving of notice or lapse of time or both, will be, in violation of or in
default under its Articles of Incorporation or Bylaws or under any
agreement, lease, contract, indenture or other instrument or obligation
to which it is a party or by which it or any of its properties is bound
except for such defaults as do not have a material adverse effect on the
business or financial condition of the Company and the Subsidiaries taken
as a whole. The consummation of the transactions contemplated herein and
the fulfillment of the terms hereof will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default
under, (A) any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or any Subsidiary is a party, except for
any such breach or default which would not have a material adverse effect
on the Company and the Subsidiaries, taken as a whole, or (B) the
Articles of Incorporation or Bylaws of the Company or any Subsidiary or
any order, rule or regulation applicable to the Company or any Subsidiary
of any court or of any regulatory body or administrative agency or other
governmental body having jurisdiction over the Company or any Subsidiary
or any of their respective properties or assets.

<PAGE> 6

(m) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and the consummation of the transactions
contemplated herein (except (i) such additional steps as may be required
by the NASD or may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws and (ii) such
approvals, consents, orders, authorizations, designations, declarations
and filings the absence of which does not and will not have a material
adverse effect on the business or financial condition of the Company and
the Subsidiaries taken as a whole) has been obtained or made as of the
Closing Date (as hereinafter defined), or the Option Closing Date (as
hereinafter defined), as the case may be, and is in full force and effect
as of the Closing Date, or Option Closing Date, as the case may be. All
consents and waivers from all other persons required in connection with
the execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated herein have been obtained
or made and are in full force and effect as of the Closing Date (except
such consents and waivers the absence of which do not and will not have a
material adverse effect on the business or financial condition of the
Company and the Subsidiaries taken as a whole).

(n) To the best knowledge of the Company, the Company and each of
the Subsidiaries has conducted its business in material compliance with
all the laws, rules and regulations of the jurisdictions in which each
such entity is conducting business. Without limiting the foregoing, the
Company and each of the Subsidiaries, and each of the professional
employees of the Company and each Subsidiary, owns or possesses and is in
compliance with the terms, provisions and conditions of all permits,
licenses, franchises, operating certificates, orders, authorizations,
registrations, qualifications, consents or approvals (including
certificates of need, licenses, pharmacy licenses, Medicare and Medicaid
provider agreements, accreditations and other similar documentation, or
approvals of any local health departments of any Authority (as
hereinafter defined)), of any court, arbitrator or arbitral body, or any
federal, state, local or foreign governmental agency or self-regulatory
authority, department or commission, or any other board, bureau, review
board, instrumentality or similar organization, domestic or foreign, or
any applicable private accrediting organizations (collectively,
"Authority") (hereinafter collectively, "Permits") necessary to own and
use the properties and assets of the Company and each of the
Subsidiaries, respectively, and to conduct their respective businesses,
except where the failure to comply, individually or in the aggregate,
would not have a material adverse effect on the Company and the
Subsidiaries, taken as a whole; as to the Company and each Subsidiary,
each such Permit of and from such Authorities is valid and in full force
and effect and there is no Proceeding pending or, to the Company's
knowledge, threatened (or any reasonable basis therefor) which may cause
any such Permit of and from all Authorities to be revoked, withdrawn,
canceled, suspended or not renewed.

<PAGE> 7

(o) The Company and its officers and directors, and, to the best
knowledge of the Company, persons who provide professional services
under agreements with the Company and the employees of the Subsidiaries
have not, on behalf of the Company:

(i) knowingly and willfully made or caused to be made a false
statement or representation of a material fact in any application for any
benefit or payment;

(ii) knowingly and willfully made or caused to be made any false
statement or representation of a material fact for use in determining
rights to any benefit or payment;

(iii) presented or caused to be presented a claim for reimbursement
under CHAMPUS, Medicare, Medicaid or other state health care program that
is (A) for an item or service that the person presenting or causing to be
presented knows or should know was not provided as claimed, or (B) for an
item or service and the person presenting knows or should know that the
claim is false or fraudulent;

(iv) failed to disclose knowledge of the occurrence of any event
affecting the initial or continued right of a claimant to any benefit or
payment on its own behalf or on behalf of another, with intent to
fraudulently secure such benefit or payment in a greater amount or
quantity than is due or when no such benefit or payment is authorized if
such event results in an improper benefit to the Company; or

(v) knowingly and willfully made or caused to be made or induced or
sought to induce the making of any false statement or representation (or
knowingly and willfully omitted to state a fact required to be stated
therein or necessary to make the statements contained therein not
misleading) of a material fact with respect to (i) the conditions or
operations of a facility in order that the facility may qualify for
CHAMPUS, Medicare, Medicaid or other state health care program
certification, or (ii) information required to be provided under Section
1124A of the Social Security Act (42 U.S.C. Section 1320a-3a).

(p) No person who immediately following the Closing Date will have a
direct or indirect ownership interest (as those terms are defined in 42
C.F.R. Section 1001.1001) in the Company of 5% or more (a "Major
Investor"), (1) has had a civil monetary penalty

<PAGE> 8

assessed against it under 42 U.S.C. Section 1320a-7a; (2) has been
excluded from participation in the Medicare program or a State health
care program as defined in 42 U.S.C. Section 1320a-7(h) ("State Health
Care Program"); or (3) has been convicted (as that term is defined in 42
C.F.R. Section 1001.2) of any of the following categories of offenses as
described in 42 U.S.C. Section 1320a-7(a) or (b)(1), (2), (3):

(A) criminal offenses relating to the delivery of an item or service
under Medicare or any State Health Care Program;

(B) criminal offenses under federal or state law relating to patient
neglect or abuse in connection with the delivery of a health care item or
service;

(C) criminal offenses under federal or state law relating to fraud,
theft, embezzlement, breach of fiduciary responsibility, or other
financial misconduct in connection with the delivery of a health care
item or service or with respect to any act or omission in a program
operated by or financed in whole or in part by any federal, state or
local government agency;

(D) criminal offenses under federal or state laws relating to the
interference with or obstruction of any investigation into any criminal
offense described in (A) through (C) above; or

(E) criminal offenses under federal or state law relating to the
unlawful manufacture, distribution, prescription or dispensing of a
controlled substance.

(q) To the best knowledge of the Company and except as disclosed in
the Prospectus, there are no Medicare, Medicaid or CHAMPUS recoupment or
recoupments of any other third-party payor being sought, threatened,
requested or claimed against the Company or any Subsidiary.

(r) Ernst & Young LLP, Henry & Peters, P.C. and Allen, Gibbs &
Houlik, L.C., who have certified the financial statements filed with the
Commission as part of the Registration Statement, are independent public
accountants as required by the Act and the Rules and Regulations.

(s) Neither the Company nor, to the Company's knowledge, any of its
affiliates or subsidiaries, has taken or may take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of stock to facilitate the
sale or resale of the Shares.

<PAGE> 9

(t) The Company is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, and the Company is
not, nor will be, subject to regulation under said act.

(u) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of Doing Business with Cuba, and
the Company further agrees that if it commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba
after the date the Registration Statement becomes or has become effective
with the Commission or with the Florida Department of Banking and Finance
(the "Department"), whichever date is later, or if the information
reported in the Prospectus, if any, concerning the Company's business
with Cuba or with any person or affiliate located in Cuba changes in any
material way, the Company will, if required by Florida law, provide the
Department notice of such business or change, as appropriate, in a form
acceptable to the Department.

(v) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the best knowledge of the Company, is threatened
or imminent that could result in a material adverse change in or
affecting the condition, financial or otherwise, of the Company and the
Subsidiaries taken as a whole, except as described in or contemplated by
the Prospectus.

(w) The Company and, to the best knowledge of the Company, each
of the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which they are engaged;
neither the Company nor, to the best knowledge of the Company, any
Subsidiary has been refused any insurance coverage sought or applied for;
and neither the Company nor, to the best knowledge of the Company, any
Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
change or affect the condition, financial or otherwise, of the Company
and the Subsidiaries taken as a whole, except as disclosed in or
contemplated by the Registration Statement.

(x) No Subsidiary of the Company is currently prohibited, directly
or indirectly, from paying any dividends to the Company, from making any
other distribution on such Subsidiary's capital stock, from repaying to
the Company any loans or advances to such Subsidiary from the Company or
from transferring any of such Subsidiary's property or assets to the
Company or any other Subsidiary of the Company, except as described in or
contemplated by the Prospectus.

<PAGE> 10

(y) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.

(z) The Company and each of the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (A) transactions are executed in accordance with management's
general or specific authorizations; (B) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain assets
accountability; (C) access to assets is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

(aa) This Agreement and the transactions contemplated herein have
been duly and validly authorized by the Company and this Agreement has
been duly and validly executed and delivered by the Company.

(bb) The Company has obtained from each of the persons listed on
Schedule C their agreement, in customary form, that for a period of 180
days from the date of this Agreement they will not, without the prior
consent of Equitable Securities Corporation, offer, sell or dispose of
any shares of Common Stock of the Company, or any securities convertible
into, exercisable for, or exchangeable for any shares of Common Stock or
derivative therefrom owned by them.

(cc) All offers and sales of shares of the Company's capital stock
(including securities convertible into, or exercisable or exchangeable
for, shares of the Company's capital stock) made by the Company after the
date of closing of its initial public offering (the "IPO") were, unless
registered under the Act, exempt from the registration requirements of
the Act, and were the subject of an available exemption from the
requirements of all applicable state securities or Blue Sky laws.

2. Representations, Warranties and Agreements of the Selling
Stockholders. Each Selling Stockholder severally represents, warrants
and agrees that:

(a) The Selling Stockholder has, and immediately prior to the
Closing Date (as defined in Section 3 hereof) the Selling Stockholder
will have, good and valid title to the shares of Common Stock to be sold
by the Selling Stockholder hereunder on such Closing Date, free and clear
of all liens, encumbrances, equities, claims, security interests

<PAGE> 11

or other restrictions whatsoever (including any restrictions on
transfer); and upon delivery of such shares and payment therefor pursuant
hereto, good and valid title to such shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several Underwriters
who have purchased such shares in good faith and without notice of any
such lien, encumbrance, equity or claim or any other adverse claim within
the meaning of the Uniform Commercial Code. Except for this Agreement,
there are no outstanding options, warrants, rights, or other agreements
or arrangements requiring the Selling Stockholder at any time to
transfer any Shares to be sold hereunder by the Selling Stockholder.

(b) The Selling Stockholder has placed in custody under a custody
agreement (the "Custody Agreement" and, together with all other similar
agreements executed by the other Selling Stockholders, the "Custody
Agreements") with First Union National Bank of North Carolina, as
custodian (the "Custodian"), for delivery under this Agreement,
certificates in negotiable form (with signature guaranteed by a
commercial bank or trust company having an office or correspondent in the
United States or a member firm of the New York or American Stock
Exchanges) representing the Shares to be sold by the Selling Stockholder
hereunder.

(c) The Selling Stockholder has duly and irrevocably executed and
delivered a power of attorney (the "Power of Attorney" and, together with
all other similar agreements executed by the other Selling Stockholders,
the "Powers of Attorney") appointing one or more other persons as
attorneys-in-fact, with full power of substitution, and with full
authority (exercisable by any one or more of them) to execute and deliver
this Agreement on behalf of such Selling Stockholder and to take such
other action as may be necessary or desirable to carry out the provisions
hereof on behalf of the Selling Stockholder.

(d) The Selling Stockholder has, and at all times through the
Closing Date will have, full legal right and power and all authorizations
and approvals required by law to execute, deliver and perform this
Agreement, the Power of Attorney and the Custody Agreement. This
Agreement, the Power of Attorney and the Custody Agreement have been duly
authorized (if applicable), executed and delivered by or on behalf of
such Selling Stockholder and are and at all times through the Closing
Date will be the legal, valid and binding agreements of such Selling
Stockholder, enforceable against such Selling Stockholder in accordance
with their terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, or other similar laws
relating to creditors' rights generally, and general equitable principles
relating to the availability of remedies, and as rights to indemnity or
contribution may be limited by state or federal securities laws and the
public policy underlying such laws).

<PAGE> 12

(e) The execution, delivery and performance of this Agreement, the
Power of Attorney and the Custody Agreement by the Selling Stockholder
and the consummation by the Selling Stockholder of the transactions
contemplated hereby and thereby will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default (or result in acceleration of any obligation, termination of any
right or creation of any lien or encumbrance) under, any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Selling Stockholder is a party or by which the
Selling Stockholder is bound or to which any of the property or assets of
the Selling Stockholder is subject, nor will such actions result in any
violation of the provisions of the organizational documents of the
Selling Stockholder (if applicable) or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Selling Stockholder or the property or assets of
the Selling Stockholder; and, except for the registration of the Shares
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required by the NASD or under
the Exchange Act and applicable state securities laws in connection with
the purchase and distribution of the Shares by the Underwriters, no
consent, approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement, the Power of
Attorney or the Custody Agreement by the Selling Stockholder and the
consummation by the Selling Stockholder of the transactions contemplated
hereby and thereby.

(f) The Registration Statement, each Preliminary Prospectus, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein do not, and the Prospectus and any
amendments or supplements to or documents incorporated by reference in
the Registration Statement or the Prospectus, when they become effective
or are filed with the Commission or were first used to confirm sales of
the Firm Shares, as the case may be, will not, contain any untrue
statement of a material fact regarding the Selling Stockholder or omit to
state any material fact regarding the Selling Stockholder required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that no representation or warranty is made
as to information contained in or omitted from the Registration Statement
or the Prospectus in reliance upon and in conformity with written
information furnished to the Company through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein.

(g) The representations and warranties of such Selling Stockholder
in the Custody Agreement and the Power of Attorney, are, and on the
Closing Date will be, true and correct.

<PAGE> 13

(h) There is not pending or, to the knowledge of such Selling
Stockholder, threatened against the Selling Stockholder any action, suit
or proceeding which (i) questions the validity of this Agreement or of
any action taken or to be taken by the Selling Stockholder pursuant to or
in connection with this Agreement or (ii) is required to be disclosed in
or incorporated by reference in the Registration Statement which is not
so disclosed or incorporated.

(i) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to stabilize or manipulate
the price of any security of the Company, or which might in the future
reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company, to facilitate
the sale or resale of the Shares pursuant to the distribution
contemplated by this Agreement.

3. Purchase, Sale and Delivery of the Firm Shares. On the basis of the
representations, warranties and covenants herein contained, and subject to the
conditions herein set forth, the Company agrees to sell 1,500,000 shares of the
Firm Shares and each Selling Stockholder agrees to sell the number of Firm
Shares set opposite its name in Schedule B hereto, severally and not jointly,
to the Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase, at a price of $__________ per share, the number of Firm Shares set
forth opposite the name of each Underwriter in Schedule A hereof, subject to
adjustments in accordance with Section 11 hereof. Each Underwriter shall be
obligated to purchase from the Company, and from each Selling Stockholder, that
number of shares of the Firm Shares which represents the same proportion of the
number of shares of the Firm Shares to be sold by the Company, and by each
Selling Stockholder, as the number of shares of the Firm Shares set forth
opposite the name of such Underwriter in Schedule A represents of the total
number of shares of the Firm Shares to be purchased by all of the Underwriters
pursuant to this Agreement. The respective purchase obligations of the
Underwriters with respect to the Firm Shares shall be rounded among the
Underwriters to avoid fractional shares, as the Representatives may determine.

Payment for the Firm Shares to be sold hereunder is to be made in New York
Clearing House (next day) funds by wire transfer to an account specified by the
Company and by certified or bank cashier's checks drawn to the order of the
Company (at the Company's discretion) and the Selling Stockholders, as
applicable, against delivery of certificates therefor to the Representatives
for the several accounts of the Underwriters. Such payment and delivery are to
be made at the offices of Equitable Securities Corporation, Nashville City
Center, Suite 800, 511 Union Street, Nashville, Tennessee, at 10:00 a.m.,
Nashville time, on the third business day after the date of this Agreement,
unless otherwise required by the Commission pursuant to Rule 15c6-1 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or at such
other time and date not later than five business days thereafter as you and the
Company shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York

<PAGE> 14

Stock Exchange is open for trading and on which banks in New York are open for
business and not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and
registered in such manner as the Representatives request in writing not later
than the second full business day prior to the Closing Date, and will be made
available for inspection by the Representatives at least one business day prior
to the Closing Date.

In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase the Option
Shares at the price per share as set forth in the first paragraph of this
Section 3. The maximum number of Option Shares to be sold by the Company is
450,000. The option granted hereby may be exercised in whole or in part but
only once and at any time upon written notice given within 30 days after the
date of this Agreement, by you, as Representatives of the several Underwriters,
to the Company setting forth the number of Option Shares as to which the
several Underwriters are exercising the option, the names and denominations in
which the Option Shares are to be registered and the time and date at which
such certificates are to be delivered. The time and date at which certificates
for Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option
Closing Date"). If the date of exercise of the option is three or more days
before the Closing Date, the notice of exercise shall set the Closing Date as
the Option Closing Date. The number of Option Shares to be purchased by each
Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares to be sold hereunder,
adjusted by you in such manner as to avoid fractional shares. The option with
respect to the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any time
prior to its expiration by giving written notice of such cancellation to the
Company. To the extent, if any, that the option is exercised, payment for the
Option Shares shall be made on the Option Closing Date in New York Clearing
House (next day) funds by wire transfer to an account specified by the Company
for the Option Shares to be sold by it against delivery of certificates
therefor at the offices of Equitable Securities Corporation, Nashville City
Center, Suite 800, 511 Union Street, Nashville, Tennessee.

4. Offering by the Underwriters. It is understood that the several
Underwriters are to make a public offering of the Firm Shares as soon as the
Representatives deem it advisable to do so. The Firm Shares are to be offered
to the public at the public offering price set forth in the Prospectus. To the
extent, if at all, that any Option Shares are purchased pursuant to Section 3
hereof, the Underwriters will offer them to the public on the foregoing terms.

<PAGE> 15

It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with an
Agreement Among Underwriters entered into by you and the several other
Underwriters.

5. Covenants of the Company. The Company covenants and agrees with the
several Underwriters that:

(a) If the Registration Statement has not yet been declared
effective, the Company will use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as possible, and if Rule 430A is used or the filing of the
Prospectus is otherwise required under Rule 424(b), the Company will file
the Prospectus (properly completed if Rule 430A has been used) pursuant
to Rule 424(b) within the prescribed time period and will provide
evidence reasonably satisfactory to you of such timely filing. In
addition, the Company will (A) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives
shall not previously have been advised and furnished with a copy or to
which the Representatives shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations, and (B) file
on a timely basis all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission prior
to the termination of the offering of the Shares by the Underwriters.

(b) The Company will advise the Representatives promptly when the
Registration Statement or any post-effective amendment thereto shall have
become effective; of the receipt of any comments from the Commission; of
any request of the Commission for amendment of the Registration Statement
or for supplement to the Prospectus or for any additional information, or
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the use of the Prospectus
or of the institution of any proceedings for that purpose, and the
Company will use its best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to
obtain as soon as possible the lifting thereof, if issued.

(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have designated
in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a
consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be

<PAGE> 16

required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the
Shares.

(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as many
copies of the Prospectus in final form, or as thereafter amended or
supplemented, as the Representatives may reasonably request. The Company
will deliver to the Representatives at or before the Closing Date, three
signed copies of the Registration Statement and all amendments thereto
including all exhibits filed therewith, and will deliver to the
Representatives such number of copies of the Registration Statement, but
without exhibits, and of all amendments thereto, as the Representatives
may reasonably request.

(e) The Company will comply to the best of its ability with the Act
and the Rules and Regulations, and the Exchange Act and the rules and
regulations of the Commission thereunder, so as to permit the completion
of the distribution of the Shares as contemplated in this Agreement and
the Prospectus. If during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event shall occur
as a result of which, in the judgment of the Company or in the opinion of
counsel for the Underwriters, it becomes necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of
the circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly
will prepare and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus, so that the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with applicable law.

(f) The Company will make generally available to its security
holders, not later than 18 months after the effective date of the
Registration Statement, an earnings statement (which need not be audited)
covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement, which earnings statement
shall satisfy the requirements of Section 11(a) of the Act and Rule 158
of the Rules and Regulations.

(g) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies
of all other documents, reports and information (including similar
documents, reports and information with respect to significant
subsidiaries, as that term is defined in the Rules and Regulations, which
are not consolidated in the Company's financial statements) furnished by
the Company to its

<PAGE> 17

stockholders generally or filed with any securities exchange pursuant to
the requirements of such exchange or with the Commission pursuant to the
Act or the Exchange Act.

(h) No offering, sale, short sale or other disposition of any Common
Stock of the Company or other securities convertible into or exchangeable
or exercisable for Common Stock or derivative of Common Stock will be
made for a period of 180 days after the date of this Agreement, directly
or indirectly, by the Company otherwise than hereunder or with the prior
written consent of Equitable Securities Corporation except that the
Company may, without such consent, issue shares of Common Stock (or other
securities convertible into or exchangeable or exercisable for Common
Stock or derivatives therefrom) in connection with the acquisition of
another business (whether in an asset purchase, stock purchase, merger,
joint venture or other type of transaction), issue shares or options to
directors pursuant to the Company's director stock option plan, issue
shares or options pursuant to its stock purchase and option plans
described in the Prospectus, and issue shares upon the exercise of
options and warrants or the conversion of securities outstanding on the
date of this Agreement and described in the Prospectus.

(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the Nasdaq Stock Market's National Market (the
"Nasdaq National Market").

(j) The Company will apply the net proceeds from the sale of the
Shares for the purposes set forth in the Prospectus.

(k) The Company will file with the Commission such reports on Form
SR as may be required pursuant to Rule 463 of the Rules and Regulations.

6. Further Agreements of the Selling Stockholders. Each Selling
Stockholder agrees:

(a) To execute and deliver a written lockup agreement pursuant to
which such Selling Stockholder agrees not to, directly or indirectly,
offer for sale, sell or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the future of)
any shares of Common Stock (other than the Shares), without the prior
written consent of Equitable Securities Corporation for a period of 180
days after the Closing Date;

(b) That the Shares to be sold by the Selling Stockholder hereunder,
which are represented by the certificates held in custody for the Selling
Stockholder, are subject to the interest of the Underwriters in such
Shares pursuant to this Agreement, that the arrangements made by the
Selling Stockholder for such custody are to that extent irrevocable, and
that the obligations of the Selling Stockholder hereunder shall not be
terminated by any act of the Selling Stockholder, by operation of law, by
the death or

<PAGE> 18

incapacity of any individual Selling Stockholder or, in the case of a
trust, by the death or incapacity of any executor or trustee or the
termination of such trust, or the occurrence of any other event; and

(c) To deliver to the Representatives prior to the Closing Date a
properly completed and executed United States Treasury Department Form
W-8 (if the Selling Stockholder is a non-United States person) or Form
W-9 (if the Selling Stockholder is a United States person).

Each Selling Stockholder consents to the use, in accordance with the
provisions of the Act and with the securities laws of the jurisdictions
in which the Shares are offered by the Underwriters and by all dealers to
whom the Shares may be sold, of each Preliminary Prospectus furnished by
the Company, the Prospectus and any amendment or supplement thereto, both
in connection with the offering and sale of the Shares and for such
period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer.

7. Cost and Expenses. The Company will pay all costs, expenses and fees
incident to the performance of the obligations of the Company and the Selling
Stockholders under this Agreement, including, without limiting the generality
of the foregoing, the following: accounting fees of the Company; the fees and
disbursements of counsel for the Company; the cost of printing and delivering
to, or as requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, and any supplements or amendments
thereto; the filing fees of the Commission; NASD filing fees; the listing fee
of the Nasdaq National Market and the expenses, including the reasonable fees
and disbursements (not to exceed $25,000) of counsel for the Underwriters,
incurred in connection with the qualification of the Shares under state
securities or Blue Sky laws. Any transfer taxes imposed on the sale of the
Shares to the several Underwriters will be paid by the Company or by the
Selling Stockholders, in accordance with the respective sales of their Shares
to the Underwriters. The Selling Stockholders shall also pay the fees and
expenses of their respective counsel and their respective share of underwriting
discounts and commissions. The Company shall not be required to pay for any of
the Underwriters' expenses (other than those related to qualification under
state securities or Blue Sky laws and NASD review) except that, if this
Agreement shall not be consummated because the conditions in Section 8 hereof
are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 8 hereof, or by reason of any failure,
refusal or inability on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms results from the act or omission of
any Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing
to market the Shares or in contemplation of performing their obligations
hereunder; but the Company shall not in any event be liable to any of the
several

<PAGE> 19

Underwriters for damages on account of loss of anticipated profits from the
sale by them of the Shares.

8. Conditions of Obligations of the Underwriters. The several obligations
of the Underwriters to purchase the Firm Shares on the Closing Date and the
Option Shares, if any, on the Option Closing Date are subject to the accuracy,
as of the Closing Date or the Option Closing Date, as the case may be, of the
representations and warranties of the Company and Selling Stockholders
contained herein, and to the performance by the Company and Selling
Stockholders of their respective covenants and obligations hereunder and to the
following additional conditions:

(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by
Rule 424 and Rule 430A of the Rules and Regulations shall have been made,
and any request of the Commission for additional information (to be
included in the Registration Statement or otherwise) shall have been
disclosed to the Representatives and complied with to their reasonable
request. No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued, and no
proceedings for that purpose shall have been taken or, to the best
knowledge of the Company, shall be contemplated by the Commission.

(b) The respective counsel for the Selling Stockholders shall have
furnished to the Representatives their written opinions, as counsel to
the Selling Stockholder(s) for whom they are acting as counsel, addressed
to the Underwriters and dated the Closing Date, in form and substance
satisfactory to the Representatives, to the effect that:

(i) The Selling Stockholder (if an entity) has full right, power and
authority to execute, deliver and perform this Agreement, the Power of
Attorney and the Custody Agreement. This Agreement, the Power of
Attorney and the Custody Agreement have been duly authorized (if the
Selling Stockholder is an entity), executed and delivered by or on behalf
of such Selling Stockholder and are the legal, valid and binding
agreements of such Selling Stockholder, enforceable against such Selling
Stockholder in accordance with their terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, or
other similar laws relating to creditors' rights generally, and general
equitable principles relating to the availability of remedies, and as
rights to indemnity or contribution may be limited by state or federal
securities laws and the public policy underlying such laws).

<PAGE> 20

(ii) The execution, delivery and performance of this Agreement, the
Power of Attorney and the Custody Agreement by the Selling Stockholder
and the consummation by the Selling Stockholder of the transactions
contemplated hereby and thereby will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument known to such counsel to which the Selling
Stockholder is a party or by which the Selling Stockholder is bound, nor
will such actions result in any violation of the provisions of the
organizational documents of the Selling Stockholder (if an entity) or any
statute or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over the Selling
Stockholder; and, except for such consents, approvals, authorizations,
registrations or qualifications as may be required under the Act or
applicable state securities laws in connection with the purchase and
distribution of the Shares by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such court
or governmental agency or body is required for the execution, delivery
and performance of this Agreement, the Power of Attorney or the Custody
Agreement by the Selling Stockholder and the consummation by the Selling
Stockholder of the transactions contemplated hereby and thereby; and

(iii) Assuming that each of the Underwriters at the Closing Time is
a "bona fide purchaser" (as defined in Article 8 of the Uniform
Commercial Code in the applicable jurisdiction), upon delivery of a
certificate or certificates therefor and payment of the purchase price
therefor by the Underwriters in accordance with this Agreement, the
Selling Stockholder will transfer to the Underwriters all of the Selling
Stockholder's interest in and to the shares (or warrants) free and clear
of any adverse claim (within the meaning of Section 8-302 of the
Uniform Commercial Code in the applicable jurisdiction).

In rendering such opinions, such counsel may (i) state that their
opinions are limited to matters governed by the Federal laws of the
United States of America, the jurisdiction in which the Selling
Stockholder is organized or resident and (ii) in rendering the opinion in
Section 8(b)(ii) above, rely upon a certificate of such Selling
Stockholder in respect of matters of fact as to the existence of any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Selling Stockholder is a party or by which the
Selling Stockholder is bound, provided, however, that such counsel shall
furnish copies thereof to the Representatives and state that they believe
that both the Underwriters and they are justified in relying upon such
certificate. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and
dated the Closing Date, in form and substance

<PAGE> 21

satisfactory to the Representatives, to the effect that (x) such counsel
has acted as counsel to such Selling Stockholder in connection with the
preparation of the Registration Statement, and (y) based on the
foregoing, no facts have come to the attention of such counsel which lead
them to believe that the Registration Statement, as of the effective
date, contained any untrue statement of a material fact relating to such
Selling Stockholder or omitted to state a material fact regarding the
Selling Stockholder required to be stated therein or necessary in order
to make the statements therein not misleading.

(c) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Alston &
Bird, counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters to the
effect that:

(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own its properties and conduct its
business as described in the Prospectus. The Company is duly qualified
to transact business in all jurisdictions in which the conduct of its
business as described in the Prospectus and based on inquiry of officers
of the Company requires such qualification, or in which the failure to
qualify would have a material adverse effect upon the business of the
Company and the Subsidiaries taken as a whole, based, as to matters of
fact, upon a certificate of officers of the Company.

(ii) Each of the Subsidiaries was incorporated, and is validly
existing and in good standing under the laws of its jurisdiction of
incorporation as of the respective dates specified in such opinion letter
and has the corporate power and corporate authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus. Each such Subsidiary is authorized to transact business as a
foreign corporation in each jurisdiction identified on a Schedule to such
opinion letter, as of the respective dates of the certificates specified
therein. All of the outstanding shares of capital stock of each such
Subsidiary (a) have been duly authorized and are validly issued, fully
paid and nonassessable, and (b) to such counsel's knowledge, were not
issued in violation of any preemptive rights under such Subsidiary's
charter or under the laws of the jurisdiction of its incorporation
or in violation of any similar contractual rights. [SUBJECT TO
NEGOTIATION.]

(iii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of its

<PAGE> 22

Common Stock have been duly authorized; the outstanding shares of its
Common Stock have been duly authorized and validly issued and are fully
paid and non-assessable; all of the Shares conform to the description
thereof contained in the Prospectus; the certificates for the Shares are
in due and proper form; the shares of Common Stock, including the Option
Shares, if any, to be sold by the Company pursuant to this Agreement have
been duly authorized and will be validly issued, fully paid and
non-assessable when issued and paid for as contemplated by this
Agreement; and no preemptive rights of shareholders exist with respect to
any of the Shares or the issue and sale thereof.

(iv) The Registration Statement has become effective under the Act
and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.

(v) The Registration Statement, all Preliminary Prospectuses, the
Prospectus and each amendment or supplement thereto comply as to form in
all material respects with the requirements of the Act and the applicable
rules and regulations thereunder (except that such counsel need express
no opinion as to the financial statements and schedules and other
financial and statistical information included therein).

<PAGE> 23

(vi) The execution and delivery by the Company of this Agreement and
the consummation of the transactions herein and therein contemplated do
not and will not conflict with or result in a breach of any of the terms
or provisions of, or constitute a default under, the Articles of
Incorporation or Bylaws, as amended, of the Company or any Subsidiary, or
any agreement, lease, contract, indenture, instrument or obligation to
which the Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries may be bound, and which is filed as
an exhibit to the Registration Statement.

(vii) [RESERVED for provision re permits and licenses]

(viii) This Agreement has been duly authorized, executed and
delivered by the Company.

(ix) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions contemplated herein (other than as may be required by the
NASD or as required by state securities and Blue Sky laws as to which
such counsel need express no opinion) except such as have been obtained
or made. No consents or waivers

<PAGE> 24

from any other person are required in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein and therein, except such as have been obtained or
made.

(x) The Shares to be sold under this Agreement to the Underwriters
have been duly approved for listing on the Nasdaq National Market.

(xi) To the best knowledge of such counsel, no person or entity
holds a right to require or participate in the registration under the Act
of shares of Common Stock of the Company which right has not been waived
by the holder thereof as to the offering contemplated hereby and by the
Registration Statement, or satisfied by participation by such holder
in the offering.

(xii) The Company is not and, upon consummation of the transactions
contemplated hereby, will not be an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.

(xiii) To the best knowledge of such counsel, all offers and sales
of shares of the Company's capital stock (including securities
convertible into, or exchangeable or exercisable for, shares of the
Company's capital stock) made by the Company in connection with its
acquisition of Main Line Suburban Dialysis, Inc. and RenalWest, L.C.,
were exempt from the registration requirements of the Act, and were the
subject of an available exemption from the requirements of all applicable
state securities or Blue Sky laws. Nothing has come to the attention of
such counsel that would cause it to believe that the Company has made
any other offers or sales of shares of the Company's capital stock
(including securities convertible into, or exchangeable or exercisable
for, shares of the Company's capital stock) which were subject to the
registration requirements of the Act or of applicable State Securities
or Blue Sky laws and which were not so registered.

(xiv) Except as described in or contemplated by the Prospectus, to
the best knowledge of such counsel, there are no outstanding securities
of the Company convertible or exchangeable into or evidencing the right
to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of
any character obligating the Company to issue any shares of its capital
stock or any securities convertible or exchangeable into or evidencing
the right to purchase or subscribe for any shares of such stock; and
except as described in the Prospectus, to the best knowledge of such
counsel, there is no holder of any securities of the Company or any other
person who has the right, contractual or otherwise, to cause the Company
to sell or otherwise issue to them, or to permit them to underwrite the
sale of, any of the Shares or the right to have any Common Stock or other
securities of the Company included in the Registration Statement or the
right, as a result of the filing of the Registration Statement, to
require registration under the Act of any Common Stock or other
securities of the Company.

In rendering such opinion, Alston & Bird may rely as to matters governed
by the laws of states other than Delaware or federal laws solely on local
counsel in such jurisdictions, provided that in each case Alston & Bird
shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In addition to the matters
set

<PAGE> 25

forth above, such opinion shall also include a statement to the effect
that, although such counsel has not independently verified and is not
passing upon the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, nothing has
come to the attention of such counsel which leads them to believe that
(i) the Registration Statement, as of the time it became effective under
the Act (but after giving effect to the changes incorporated pursuant to
Rule 430A under the Act), or as of the Closing Date or the Option Closing
Date contained (or contains) an untrue statement of a material fact or
omitted (or omits) to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus or any amendment or supplement thereto, on the date it was
filed pursuant to Rule 424(b), or as of the Closing Date and the Option
Closing Date, as the case may be, contained (or contains), an untrue
statement of a material fact or omitted (or omits) to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading (except that such counsel need express no view as to
financial statements, notes and schedules included therein and other
financial and statistical information included therein), or (ii) there
are any contracts or documents of a character required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits
to the Registration Statement that are not described or referred to
therein or so filed).

(d) The Representatives shall have received from Hogan & Hartson
L.L.P., counsel for the Underwriters, an opinion dated the Closing Date
or the Option Closing Date, as the case may be, with respect to the
incorporation of the Company, the validity of the Shares being delivered
to the Underwriters, the Registration Statement, the Prospectus and any
other related matters as you may reasonably request. Such counsel shall
have received such documents and information as they may reasonably
request to enable them to pass upon such matters. In rendering such
opinion, counsel for the Underwriters may rely as to all matters governed
other than by Delaware or federal laws on the opinions of counsel
referred to in Paragraphs (b) and (c) of this Section 8.

(e) The Representatives shall have received at or prior to the
Closing Date from counsel for the Underwriters a memorandum or summary,
in form and substance satisfactory to the Representatives, with respect
to the qualification for offering and sale by the Underwriters of the
Shares under the state securities or Blue Sky laws of such jurisdictions
as the Representatives may reasonably have designated to the Company.

(f) The Representatives shall have received, on the Closing Date or
the Option Closing Date, as the case may be, a signed letter from Ernst &
Young LLP, Henry & Peters, P.C. and Allen, Gibbs & Houlik, L.C.,
independent public accountants for the Company, dated the Closing Date or
the Option Closing Date, as the case may be, which

<PAGE> 26

shall confirm, on the basis of a review in accordance with the procedures
set forth in the letter signed by such firm and dated and delivered to
the Representatives on the date hereof, that nothing has come to their
attention during the period from the date five days prior to the date
hereof, to a date not more than five days prior to the Closing Date or
the Option Closing Date, as the case may be, which would require any
change in their letter dated the date hereof if it were required to be
dated and delivered on the Closing Date or the Option Closing Date, as
the case may be. All such letters shall be in form and substance
satisfactory to the Representatives.

(g) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or
certificates on behalf of the Company of the chief executive officer and
the principal financial and accounting officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the
case may be:

(i) The Registration Statement has become effective under
the Act, and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such
purpose have been taken or are, to such person's knowledge, contemplated
by the Commission.

(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing
Date or the Option Closing Date, as the case may be.

(iii) Such person has carefully examined the Registration
Statement and the Prospectus and, in such person's opinion, as of the
effective date of the Registration Statement, the statements contained in
the Registration Statement were true and correct in all material respects,
and the Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein (as to the Prospectus, in light of the
circumstances under which they were made) not misleading and, to his
knowledge, since the effective date of the Registration Statement, no
event has occurred which should have been set forth in a supplement to or
an amendment of the Prospectus which has not been so set forth in such
supplement or amendment.

(h) Each Selling Stockholder (or the attorneys-in-fact on behalf of
the Selling Stockholders) shall have furnished to the Representatives on
the Closing Date, a certificate, dated the Closing Date, signed by, or
on behalf of, the Selling Stockholder (or attorneys-in-fact) stating
that the representations, warranties and agreements of the Selling
Stockholder contained herein are true and correct as of the Closing Date,
and that the Selling

<PAGE> 27

Stockholder has complied with all agreements contained herein to be
performed by the Selling Stockholder at or prior to the Closing Date.

(i) The Company and the Selling Stockholders shall have furnished to
the Representatives such further certificates and documents confirming
the representations and warranties contained herein and related matters
as the Representatives may reasonably have requested.

(j) The Firm Shares and Option Shares, if any, shall have been
approved for listing upon notice of issuance on the Nasdaq National
Market.

(k) All filings required to have been made pursuant to Rules 424 or
430A under the Act shall have been made.

(l) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there shall not have been any
material adverse change or any development involving a prospective
adverse change in or affecting the condition, financial or otherwise, of
the Company or the earnings, business affairs, management or business
prospects of the Company whether or not arising in the ordinary course of
business.

(m) The Company shall have delivered to you written lock-up
agreements from the officers, directors and shareholders of the Company
listed on Schedule C pursuant to which such persons agree with you not to
offer, sell or dispose of any Common Stock of the Company, or any
securities convertible into or exercisable or exchangeable therefor or
derivative therefrom, for a period of 180 days after the date of this
Agreement, directly or indirectly, except with the prior consent of
Equitable Securities Corporation.

The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all
material respects reasonably satisfactory to the Representatives and to
Hogan & Hartson L.L.P., counsel for the Underwriters.

If any of the conditions hereinabove provided for in this Section 8 shall
not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be
terminated by the Representatives by notifying the Company and Selling
Stockholders of such termination in writing or by telegram at or prior

<PAGE> 28

to the Closing Date or Option Closing Date (but only the Option Shares
with respect to the Option Closing Date), as the case may be.

In such event, the Company, the Selling Stockholders and the Underwriters
shall not be under any obligation to each other (except to the extent
provided in Sections 7 and 10 hereof).

9. Conditions of the Obligations of the Company. The obligations of the
Company and the Selling Stockholders to sell and deliver the Shares required to
be delivered as and when specified in this Agreement are subject to the
conditions that at the Closing Date or the Option Closing Date, as the case may
be, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and in effect and no proceedings therefor shall have
been initiated or threatened.

10. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities to which such Underwriter or such controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (as to the Prospectus, in light of
the circumstances under which they were made) not misleading, and will
reimburse each Underwriter and each such controlling person upon demand for any
legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding and expenses reasonably incurred
in responding to a subpoena or governmental inquiry whether or not such
underwriter or controlling person is a party to the related action or
proceeding; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement, or omission
or alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Company by or
through the Representatives specifically for use in the preparation thereof.
The Company shall not be liable to any Underwriter pursuant to this subsection
(a) with respect to any Prospectus to the extent that such loss, claim, damage
or liability of such Underwriter results from the fact that such Underwriter
sold securities in any case where delivery of a Prospectus is required by the
Act if the Company has previously furnished copies of the Prospectus or any
amendment or supplement thereto to such Underwriter and the loss, claim, damage
or liability of such Underwriter results from an untrue statement or omission
of a material fact contained in, or the omission of a material

<PAGE> 29

fact from, the Preliminary Prospectus or an earlier Prospectus which was
corrected in the Prospectus or any amendment or supplement thereto and such
Underwriter failed to deliver such corrected Prospectus to a purchaser of
Shares as required by the Act. This indemnity agreement will be in addition to
any liability which the Company may otherwise have.

(b) Each Selling Stockholder, severally and not jointly with other Selling
Stockholders, shall indemnify and hold harmless each Underwriter, its officers
and employees, and each person, if any, who controls any Underwriter within the
meaning of the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including, but
not limited to, any loss, claim, damage, liability or action relating to
purchases and sales of Shares), to which that Underwriter, officer, employee or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon (i) any untrue statement or alleged untrue statement of a material
fact regarding such Selling Stockholder contained in the Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state in the
Preliminary Prospectus, Registration Statement or the Prospectus, or in any
amendment or supplement thereto, any material fact regarding such Selling
Stockholder required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse each Underwriter, its officers and
employees and each such controlling person for any legal or other expenses
reasonably incurred by that Underwriter, its officers and employees or
controlling person in connection with investigating or defending or preparing
to defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Selling Stockholder shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or in any
such amendment or supplement in reliance upon and in conformity with written
information concerning such Underwriter furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for inclusion
therein; provided, further, that as to any Preliminary Prospectus or the
Prospectus, this indemnity agreement shall not inure to the benefit of any
Underwriter, its officers, employees or any person controlling that Underwriter
on account of any loss, claim, damage, liability or action arising from the
sale of Shares to any person by that Underwriter if that Underwriter failed to
send or give a copy of the Prospectus, or an amendment or supplement thereto,
to that person within the time required by the Securities Act, and the untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact in such Preliminary Prospectus or the
Prospectus was corrected in the Prospectus or the amendment or supplement
thereto and provided, further, that the liability of each Selling Stockholder
shall be limited to the net proceeds received by such Selling Stockholder upon
the sale of the Shares. The foregoing indemnity agreement is in addition to
any liability which the Selling Stockholders may otherwise have to any
Underwriter or any officer, employee or controlling person of that Underwriter.

<PAGE> 30

(c) Each Underwriter will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the Registration Statement,
each Selling Stockholder and each person, if any, who controls the Company or
Selling Stockholder within the meaning of the Act, against any losses, claims,
damages or liabilities to which the Company or any such director, officer,
Selling Stockholder or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, Selling Stockholder or controlling person in connection
with investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that each Underwriter will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.

(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 10, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in this
Section 10 shall be available to any party who shall fail to give notice as
provided in this Section 10(d) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the failure to give such
notice shall not relieve the indemnifying party or parties from any liability
which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of this Section 10. In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party
(approval of such counsel shall not be unreasonably withheld or delayed by the
indemnified party) and shall pay as incurred the reasonable fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred the reasonable fees and expenses of the counsel
retained by the indemnified party in the event (i) the indemnifying party and
the indemnified party shall have

<PAGE> 31

mutually agreed to the retention of such counsel, or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or reasonably
potential conflicts of interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 10(a) and 10(b) and by the Company in the case of parties
indemnified pursuant to Section 10(c). The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment. In addition, the indemnifying party will not, without the prior
written consent of the indemnified party, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action or
proceeding, of which indemnification may be sought hereunder (whether or not
any indemnified party is an actual potential party to such claim, action or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of the indemnified party from all liability arising out
of such claim, action or proceeding.

(e) If the indemnification provided for in this Section 10 is unavailable
to or insufficient to hold harmless an indemnified party under Section 10(a),
10(b) or 10(c) above in respect of any losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
Selling Stockholder on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under Section 10(d) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on
the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
and the Selling Stockholders bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or

<PAGE> 32

alleged omission to state a material fact relates to information supplied by
the Company and the Selling Stockholders on the one hand or the Underwriters on
the other and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.

The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 10(e)
were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 10(e). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to above in this Section 10(e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts
and commissions applicable to the Shares purchased by such Underwriter, and
(ii) no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this Section 10(e) to contribute are several in proportion to
their respective underwriting obligations and not joint.

(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 10 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.

11. Default by Underwriters. If on the Closing Date or the Option Closing
Date, as the case may be, any Underwriter shall fail to purchase and pay for
the portion of the Shares which such Underwriter has agreed to purchase and pay
for on such date (otherwise than by reason of any default on the part of the
Company), you, as Representatives of the Underwriters, shall use your best
efforts to procure within 24 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company and the Selling
Stockholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 24
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such

<PAGE> 33

default shall occur does not exceed 10% of the Firm Shares or Option Shares, as
the case may be, covered hereby, the other Underwriters shall be obligated,
severally, in proportion to the respective numbers of Firm Shares or Option
Shares, as the case may be, which they are obligated to purchase hereunder, to
purchase the Firm Shares or Option Shares, as the case may be, which such
defaulting Underwriter or Underwriters failed to purchase, or (b) if the
aggregate number of shares of Firm Shares or Option Shares, as the case may be,
with respect to which such default shall occur exceeds 10% of the Firm Shares
or Option Shares, as the case may be, covered hereby, the Company or you as the
Representatives of the Underwriters will have the right, by written notice
given within the next 24-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the nondefaulting
Underwriters or of the Company except to the extent provided in Section 10
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 11, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section
11 shall not relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.

12. Notices. All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered or telegraphed and
confirmed as follows: if to the Underwriters, to Equitable Securities
Corporation, Nashville City Center, Suite 800, 511 Union Street, Nashville,
Tennessee 37219, Attention: R. Riley Sweat, with a copy to Hogan & Hartson
L.L.P., Columbia Square, 555 Thirteenth Street, N.W., Washington, D.C. 20004,
Attention: Peter J. Romeo, Esq.; if to the Company, to Renal Care Group, Inc.,
1801 West End Avenue, Suite 1100, Nashville, Tennessee 37203, Attention: Sam A.
Brooks, Jr., with a copy to Alston & Bird, 1201 West Peachtree Street, Atlanta,
Georgia 30309-3424, Attention: Steven L. Pottle, Esq.; if to any Selling
Stockholder, to such Selling Stockholder at the address set forth on Schedule B
hereto.

13. Termination. This Agreement may be terminated by you by notice to the
Company as follows:

(a) At any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change, or
any development, to the reasonable belief of the Representatives, involving a
prospective material adverse change, in or affecting the condition, financial
or otherwise, of the Company and its Subsidiaries taken as a whole or the
earnings, business affairs, management or business prospects of the Company and
its Subsidiaries taken as a whole, whether or not arising in the ordinary
course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency after the date hereof or other
national or international calamity or crisis or change in economic or political
conditions if the effect of such

<PAGE> 34

outbreak, escalation, declaration, emergency, calamity, crisis or change on the
financial markets of the United States would, in your reasonable judgment, make
the offering or delivery of the Shares impracticable or inadvisable, (iii)
suspension of trading in securities on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq Stock Market or limitation on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such Exchange or the Nasdaq Stock Market, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other governmental authority which in
your reasonable opinion materially and adversely affects or will materially and
adversely affect the business or operations of the Company, or (v) declaration
of a banking moratorium by either federal or New York State authorities.

(b) As provided in Sections 8 and 9 of this Agreement.

This Agreement also may be terminated by you, by notice to the Company, as
to any obligation of the Underwriters to purchase the Option Shares, upon the
occurrence at any time prior to the Option Closing Date of any of the events
described in subparagraph (a) above or as provided in Sections 8 and 11 of this
Agreement.

14. Successors. This Agreement has been and is made solely for the
benefit of the Underwriters, the Company and the Selling Stockholders and their
respective successors, executors, administrators, heirs and assigns, and the
officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Shares merely because of such purchase.
No purchaser of Shares from any Underwriter shall be deemed a successor or
assign merely because of such purchase.

15. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors or officers, or the Selling Stockholders and (c)
delivery of and payment for the Shares under this Agreement.

The Company, the Selling Stockholders and the Underwriters acknowledge and
agree that the only information furnished or to be furnished by any Underwriter
to the Company for inclusion in any Prospectus or the Registration Statement
consists of the information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), information
provided in connection with Item 502(d) of Regulation S-K under the Act and
information under the caption "Underwriting" in the Prospectus.

<PAGE> 35

This Agreement may be executed 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.

This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Tennessee, without giving effect to its principles of
conflicts of law.

If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholders and the several Underwriters in accordance with its terms.

It is understood that your acceptance of this letter on behalf of each of
the Underwriters is pursuant to the authority set forth in a form of Agreement
Among Underwriters, the form of which shall be submitted to the Company for
examination, upon request.

<PAGE> 36

Very truly yours,

RENAL CARE GROUP, INC.

By: _______________________________
Sam A. Brooks, Jr.
President and Chief Executive Officer

The Selling Stockholders named in
Schedule B to this Agreement

By: _______________________________
Attorney-in-fact

The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date
first above written.

Equitable Securities Corporation
Hambrecht & Quist, LLC
Morgan Keegan & Company, Inc.
Needham & Company, Inc.

As Representatives of the several
Underwriters listed on Schedule A

By: Equitable Securities Corporation

By: ______________________________
Authorized Officer

<PAGE> 37

SCHEDULE A

SCHEDULE OF UNDERWRITERS

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF FIRM SHARES
- -----------
TO BE PURCHASED
---------------------

<S> <C>
Equitable Securities Corporation ...........................
Hambrecht & Quist LLC ......................................
Morgan Keegan & Company, Inc................................
Needham & Company, Inc......................................

Total ..................................... 3,000,000
</TABLE> ---------

<PAGE> 38

SCHEDULE B

NAME AND ADDRESS NUMBER OF SHARES
OF SELLING STOCKHOLDER OF FIRM STOCK
- ---------------------- ------------------

<PAGE> 39

SCHEDULE C

SCHEDULE OF PERSONS SUBJECT TO LOCK-UP AGREEMENTS

C.R.A. Adams
Douglas Anderson
Rob Benz
Gary Birnbaum
William Boit
Kenneth Boren
John D. Bower, M.D.
W. J. Brooks
Gary Brukardt
Joseph A. Cashia
James R. Cotton, M.D.
Robert W. Dettmer, M.D.
John K. Dyer, M.D.
Gar Gilgore
Raymond Hakim, M.D., Ph.D.
Rob Harris
Ronald Hinds
Joseph C. Hutts
Harry R. Jacobson, M.D.
Kenneth Johnson & family
Kidney Care, Inc. Foundation
James Leininger
Thomas A. Lowery, M.D.
Stephen D. McMurray, M.D.
W. Tom Meredith, M.D.
Richard Nielsen, M.D.
Jeffrey Packer
David Riechert
Dennis L. Ross, M.D.
Cha Schleifer
Kei Shearlock
Mil Sigler
William Smith
Bre Teehan
Vanderbilt University
Hugo P. Weber, M.D.
Berne Yee

<PAGE> 1
EXHIBIT 5.1
ALSTON & BIRD

One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424

404-881-7000
Fax: 404-881-7777 Telex: 54-2996

October 30, 1996

Renal Care Group, Inc.
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203

Ladies and Gentlemen:

This opinion is given in connection with the filing by Renal Care Group,
Inc., a corporation organized and existing under the laws of the State of
Delaware (the "Company"), of a Registration Statement on Form S-1 (the
"Registration Statement") with the Securities and Exchange Commission with
respect to the registration under the Securities Act of 1933, as amended, of
1,276,318 shares of the Company's common stock, $.01 par value ("Common
Stock"), being sold by the Company (the "Company Shares") and 1,723,682 shares
of Common Stock (the "Selling Stockholder Shares" and, together with the
Company Shares, the "Offering Shares") being sold by certain selling
stockholders of the Company named therein (the "Selling Stockholders").

In the capacity described above, we have considered such matters of law and
of fact, including the examination of originals or copies, certified or
otherwise identified to our satisfaction, of such records and documents of the
Company, certificates of public officials and such other documents as we have
deemed appropriate as a basis for the opinions hereinafter set forth. In
conducting our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such documents. The opinions set forth herein
are limited to the laws of the State of Delaware as expressed in the Delaware
General Corporation Law, in reliance solely on published general compilations
thereof as of the date hereof.

This opinion is limited by, and is in accordance with, the January 1, 1992
edition of the Interpretive Standards Applicable to Legal Opinions to Third
Parties in Corporate Transactions adopted by the Legal Opinion Committee of the
Corporate and Banking Law Section of the State Bar of Georgia (the
"Interpretive Standards"), which Interpretative Standards are incorporated in
this opinion by this reference. Capitalized terms used in this opinion and not
otherwise defined herein shall have the meanings assigned to such terms in
the Registration Statement.

Based upon the foregoing, it is our opinion that the Offering Shares have
been duly authorized and, when issued and sold, as applicable, to the several
underwriters as provided in the Underwriting Agreement between the Company, the
Selling Stockholders and Equitable Securities Corporation, Hambrecht & Quist,
Morgan Keegan & Company, Inc. and Needham & Company, Inc., as Representatives
of the several underwriters named in Schedule A thereto, the Offering Shares
will be validly issued, fully paid, and non-assessable by the Company under the
General Corporation Law of the State of Delaware as in effect on the date
hereof.

601 Pennsylvania Avenue, N.W.
North Building, Suite 250
Washington, D.C. 20004-2601

<PAGE> 2
Renal Care Group, Inc.
October 30, 1996
Page 2

This opinion is provided to you for your benefit and for the benefit of
the Commission, in each case, soley with regard to the Registration Statement,
may be relied upon by you and the Commission only in connection with the
Registration Statement, and may not be relied upon by any other person or for
any other purpose without our prior written consent.

We consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference made to our firm under the caption "Legal
Matters" in the Prospectus constituting part of the Registration Statement.

ALSTON & BIRD

By: /s/ Steven L. Pottle
------------------------------
A Partner

<PAGE> 1

EXHIBIT 10.25

================================================================================

RENAL CARE GROUP, INC. (DELAWARE)
RCG MISSISSIPPI, INC.
RENAL CARE GROUP, INC. (TENNESSEE)
KANSAS NEPHROLOGY ASSOCIATION
RENAL CARE GROUP TEXAS, INC.
D.M.N. OF INDIANA CORPORATION

Borrowers

---------------------------------------

LOAN AGREEMENT

$35,000,000 REVOLVING/TERM LOAN

Dated as of May 30, 1996

----------------------------------------

NATIONSBANK OF TENNESSEE, N.A.,
Lender

================================================================================
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Terms Defined in This Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Terms Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

II. REVOLVING/TERM LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.1 Amount of Revolving/Term Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.2 Use of Proceeds of Revolving/Term Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.3 Revolving/Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.4 Advances of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.5 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.6 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.7 Alternate Rate of Interest if LIBOR Unavailable . . . . . . . . . . . . . . . . . . . . . . 23
2.8 Change in Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.9 Change in Legality of LIBOR Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.10 Principal Repayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.11 Prepayment of LIBOR Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.12 Prepayment of Prime Rate Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.13 Initial Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.14 Periodic Commitment Fee Based on Use of Facility . . . . . . . . . . . . . . . . . . . . . 27

III. RELATIONSHIP OF BORROWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1 Joint and Several Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2 Funding Requests and Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.3 Unconditional Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.4 Contribution and Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.5 Savings Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

IV. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1 Conditions to Initial Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.2 Conditions to Subsequent Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

V. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.1 Capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.3 Binding Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.4 No Conflicting Law or Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>

ii
<PAGE> 3

<TABLE>
<S> <C> <C>
5.5 No Consent Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.7 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.8 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.9 Taxes; Governmental Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.10 Title to Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.11 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.12 Casualties; Taking of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.13 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.14 Compliance with Fraud and Abuse Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.15 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.16 Full Disclosure of Material Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.17 Investment Company Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.18 Personal Holding Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.19 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.20 Chief Executive Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.21 Corporate Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.22 Ownership of Patents, Licenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.23 Environmental Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.24 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.25 OSHA Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.26 Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.27 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

VI. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.1 Payment of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.2 Maintenance of Existence and Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.3 Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.4 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.5 Certain Additional Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.6 Taxes and Other Encumbrances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.7 Payment of Debts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.8 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.9 Maintenance of Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.10 Compliance with Contractual Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.11 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.12 Security Interest; Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.13 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.14 Accounts and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.15 Official Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.16 Banking Relationships. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.17 Right of Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.18 ERISA Information and Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.19 Indemnity; Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>

iii
<PAGE> 4

<TABLE>
<S> <C> <C>
6.20 Assistance in Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.21 Name Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.22 Estoppel Letters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.23 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.24 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.25 Grant of Additional Collateral Upon Certain Events . . . . . . . . . . . . . . . . . . . . 42

VII. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.1 Debts, Guaranties, and Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.2 Change of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.3 Encumbrances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.4 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.5 Sales and Leasebacks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.6 Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.7 Nature of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.8 Further Acquisitions, Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.9 Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.10 Disposition of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.11 Inconsistent Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.12 Subsidiaries and Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.13 Place of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.14 Adverse Action With Respect to Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.15 Transactions With Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.16 Constituent Document Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.17 Margin Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.18 Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.19 Action Outside Ordinary Course. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

VIII. FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.1 Current Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.2 Total Funded Debt to Consolidated EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.3 Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.4 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.5 Fixed Charge Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.6 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.7 Total Funded Debt to Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
8.8 Net Income Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

IX. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
9.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

X. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
10.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>

iv
<PAGE> 5

<TABLE>
<S> <C> <C>
10.2 Renewal, Extension, or Rearrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10.3 Application of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10.5 Negotiated Document. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
10.6 Consent to Jurisdiction; Exclusive Venue. . . . . . . . . . . . . . . . . . . . . . . . . . 51
10.7 Not Partners; No Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . 51
10.8 No Reliance on Lender's Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.9 No Marshaling of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.10 Impairment of Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.11 Business Days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.12 Participations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.13 Standard of Care; Limitation of Damages . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.14 Incorporation of Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.15 Indulgence Not Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.16 Cumulative Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.17 Amendment and Waiver in Writing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.18 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.19 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.20 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.21 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.22 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.23 Captions Not Controlling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.24 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>

v
<PAGE> 6

LOAN AGREEMENT

This Loan Agreement is entered into as of the 30th day of May,
1996, by and between RENAL CARE GROUP, INC., a Delaware corporation, RCG
MISSISSIPPI, INC., a Delaware corporation, RENAL CARE GROUP, INC., a Tennessee
corporation, KANSAS NEPHROLOGY ASSOCIATION, a Kansas corporation, RENAL CARE
GROUP TEXAS, INC., a Texas corporation, and D.M.N. OF INDIANA CORPORATION, an
Indiana corporation (collectively "Borrowers") and NATIONSBANK OF TENNESSEE,
N.A. ("Lender"), a national banking association.

RECITALS

WHEREAS, Lender has agreed to extend a revolving/term credit
facility to Borrowers, on certain terms and conditions, as set forth in detail
in this Agreement;

NOW, THEREFORE, as an inducement to cause Lender to extend
credit to Borrowers, and for other valuable consideration, the receipt and
sufficiency of which are acknowledged, it is agreed as follows:

I. DEFINITIONS

1.1 Terms Defined in This Agreement. As used below in
this Agreement, the following capitalized terms shall have the following
meanings, unless the context expressly requires otherwise:

"ACCOUNT AGREEMENTS" has the meaning assigned in Section
2.4.3 hereof.

"AFFILIATE" means, with respect to any Person, another Person
that, directly or indirectly through one or more intermediaries, Controls, or
is Controlled by, or is under common Control with, such Person.

"AGREEMENT" means this Loan Agreement (including all schedules
and exhibits hereto), as the same may be amended from time to time.

"APPLICABLE COMMITMENT FEE" means thirty-five (35) basis
points; provided, however, that during any Effective Period, the Applicable
Commitment Fee shall be the percentage rate per annum set forth opposite the
appropriate test in the table below (ratio values shall be rounded to the
nearest one-hundredth, with any value of .005 rounded upward):

Total Funded Debt to Consolidated Applicable Commitment Fee (in basis
EBITDA points

Greater than or equal to 3.01 35

<PAGE> 7

TOTAL FUNDED DEBT TO CONSOLIDATED APPLICABLE COMMITMENT FEE (IN BASIS
EBITDA POINTS

Greater than or equal to 2.01 and less than 25
or equal to 3.00

Greater than or equal to 1.01 and less than 25
or equal to to 2.00

Less than or equal to 1.00 12

The Total Funded Debt to Consolidated EBITDA ratio shall be established by
Lender on the basis of the consolidated quarterly financial statements of
Borrowers delivered to Lender pursuant to this Agreement and shall be
calculated as set forth in Section 8.2 hereof. At the end of any Effective
Period, the Applicable Letter of Credit Fee shall automatically become 35 basis
points (.35%) per annum pending commencement of the next Effective Period.

"APPLICABLE LIBO RATE MARGIN" means two and 7/10ths percent
(2.70%) per annum; provided, however, that during any Effective Period, then
the Applicable LIBO Rate Margin shall be the percentage rate per annum set
forth opposite the appropriate test in the table below (ratio values shall be
rounded to the nearest one-hundredth, with any value of .005 rounded upward):

TOTAL FUNDED DEBT TO CONSOLIDATED APPLICABLE LIBO RATE MARGIN
EBITDA

Greater than or equal to 3.01 2.70% per annum

Greater than or equal to 2.01 and less than 2.00% per annum
or equal to 3.00

Greater than or equal to 1.01 and less than 1.35% per annum
or equal to 2.00

Less than or equal to 1.00 .95% per annum

The Total Funded Debt to Consolidated EBITDA ratio shall be established by
Lender on the basis of the consolidated quarterly financial statements of
Borrowers delivered to Lender pursuant to this Agreement and shall be
calculated as set forth in Section 8.2 hereof. At the end of any Effective
Period, the Applicable LIBO Rate Margin shall automatically become two and
7/10ths percent (2.70%) per annum pending commencement of the next Effective
Period.

"APPLICABLE PRIME RATE MARGIN" means one percent (1.00%) per
annum; provided, however, during any Effective Period, then the Applicable
Prime Rate Margin shall

2
<PAGE> 8

be the percentage rate per annum set forth opposite the appropriate test in the
table below (ratio values shall be rounded to the nearest one-hundredth, with
any value of .005 rounded upward):

Total Funded Debt to Consolidated Applicable Prime Rate Margin
EBITDA
Greater than or equal to 3.01 1.00% per annum

Greater than or equal to 2.01 and less than .30% per annum
or equal to 3.00

Greater than or equal to 1.01 and less than 0.0% per annum
or equal to 2.00

Less than or equal to 1.00 0.0% per annum

The Total Funded Debt to Consolidated EBITDA ratio shall be established by
Lender on the basis of the consolidated quarterly financial statements of
Borrowers delivered to Lender pursuant to this Agreement and shall be
calculated as set forth in Section 8.2 hereof. At the end of any Effective
Period, the Applicable Prime Rate Margin shall automatically become one percent
(1.00%) per annum pending commencement of the next Effective Period.

"BANKING DAY" means a Business Day, subject to the following
additional convention. As to notices or payments received on a Business Day at
or before 12:00 p.m. (noon) Nashville time, the Banking Day shall correspond to
the Business Day of receipt. As to notices or payments received on a Business
Day after 12:00 p.m. (noon) Nashville time, the Banking Day of receipt shall be
deemed to be the next following Business Day.

"BANKRUPTCY CODE" means Title I of the Bankruptcy Reform Act
of 1978, as it may be amended from time to time.

"BORROWERS" means Renal Care Group, Inc., a Delaware
corporation, RCG Mississippi, Inc., a Delaware corporation, Renal Care Group,
Inc., a Tennessee corporation, Kansas Nephrology Association, a Kansas
corporation, Renal Care Group Texas, Inc., a Texas corporation, and D.M.N. of
Indiana Corporation, an Indiana corporation, and their successors and assigns.
This definition does not abrogate the requirement set forth below restricting
Borrowers' ability to assign any rights under this Agreement.

"BORROWING BASE" means (i) Borrowers' Consolidated EBITDA for
the most recent four fiscal quarters, as determined by the quarterly financial
statements delivered to Lender from time to time pursuant to this Agreement,
(ii) multiplied by 2.5.

"BORROWING NOTICE" has the meaning assigned in Section
2.4.1(b) hereof.

3
<PAGE> 9

"BUSINESS DAY" means any day on which Lender is open for the
conduct of ordinary business; provided however, that when used in connection
with determining the LIBO Rate, the term "Business Day" shall exclude any day
on which banks are not open for dealings in U.S. Dollar deposits in the London
Interbank Market.

"CAPITAL EXPENDITURES" means expenditures, determined
according to GAAP on a consolidated basis, that would be capitalized and
depreciated over more than one period.

"CAPITAL LEASE" means a lease that would be characterized as a
financed sale or purchase under GAAP.

"CHANGE OF CONTROL" means the occurrence, after the date of
this Agreement, of (i) any Person or two or more Persons acting in concert
acquiring beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended), directly or indirectly, of securities of Borrowers (or other
securities convertible into such securities) representing 51% or more of the
combined voting power of all securities thereof entitled to vote in the
election of directors; or (ii) during any period of up to 24 consecutive
months, commencing after the date of this Agreement, individuals who at the
beginning of such 24-month period were directors of Borrowers ceasing for any
reason to constitute a majority of the Board of Directors thereof unless the
Persons replacing such individuals were nominated by the Board of Directors of
Borrower; or (iii) any Person or two or more Persons acting in concert
acquiring by contract or otherwise, or entering into a contract or arrangement
which upon consummation will result in its or their acquisition of, or control
over, securities of Borrowers (or other securities convertible into such
securities) representing 51% or more of the combined voting power of all
securities of Borrowers entitled to vote in the election of directors.

"CLOSING DATE" means the date of this Agreement.

"CMLTD" means maturities of long-term Debt arising for the 12
months following the date of determination.

"COLLATERAL" means all Property now or hereafter securing the
Obligations.

"CONSOLIDATED EBITDA" means the sum of (i) net income of RCG
and all other Borrowers that are Wholly- Owned Subsidiaries, calculated on a
consolidated basis before extraordinary items, excluding from the consolidation
all Subsidiaries of Borrowers that are not Wholly-Owned Subsidiaries, and
further excluding from all consolidating entities' income all income from
Permitted Equity Investments, and (ii) provided that (x) Borrowers have the
right to cause distributions of earnings of the Subsidiaries without requiring
the consent of any other Person, (y) the foreclosure of Lender's security
interest in the equity held by Borrowers in the Subsidiaries would convey the
right the cause such distributions of earnings, and (z) Borrower can otherwise
freely alienate the right to receive their proportionate shares of cash flow,
as determined by Lender, then further including Borrowers' ownership percentage
of net

4
<PAGE> 10

income from Majority-Owned Participating Subsidiaries, in each case (i) and
(ii) increased by the amounts represented by Borrowers' ownership interest of
Interest Expense and of expenses for taxes, depreciation and non-cash
amortization, and decreased by extraordinary losses. The positive EBITDA of
acquired entities for pre-acquisition periods, decreased by extraordinary gains
or gains on sale and by extraordinary losses (or the amount of such EBITDA
multiplied by the applicable fee percentage, in the case of acquisitions of the
assets of nephrology practices resulting in Service Agreements) may be included
in Consolidated EBITDA if Lender is satisfied, in its reasonable discretion, as
to the accuracy and reliability of the financial information related thereto.
In assessing the accuracy and reliability of such financial information, (i)
unqualified audited financial statements prepared by a regional or national
accounting firm shall be acceptable, (ii) financial statements reviewed (but
not audited) by such a firm shall also be acceptable unless Lender in good
faith determines that reviewed statements for a particular enterprise are
subject to material doubt as to their accuracy, and (iii) financial statements
compiled for the target entity by a local, regional or national accounting firm
which have been subjected to formal review by Borrowers' usual outside
accountants in doing acquisition diligence on the target entity shall be
acceptable, unless Lender in good faith determines that reviewed statements for
a particular enterprise are subject to material doubt as to their accuracy.
Notwithstanding the foregoing, financial statements for target entities shall
be sufficient for inclusion of those entities' earnings in Consolidated EBITDA
based upon the best information available at all times that the outstanding
principal balance of the Revolving/Term Loan is less than Ten Million and
No/100 Dollars ($10,000,000.00). Any negative EBITDA of an acquired entity for
pre- acquisition periods shall be included in the Consolidated EBITDA
calculation, based upon the best information available.

"CONSOLIDATED CURRENT RATIO" means current assets, determined
on a consolidated basis according to GAAP, divided by current liabilities,
determined on a consolidated basis according to GAAP.

"CONSOLIDATED NET INCOME" means net income, determined on a
consolidated basis according to GAAP.

"CONSOLIDATED NET WORTH" means shareholders' equity,
determined on a consolidated basis according to GAAP.

"CONSOLIDATED TANGIBLE NET WORTH" means Consolidated Net Worth
less Intangible Assets.

"CONTROL" or "CONTROLLED" means that a Person has the direct
or indirect power to conduct or govern the policies of another Person, whether
this power exists as a matter of right or through economic compulsion.

"CONVERSION DATE" means the date two (2) years from the date
of this Agreement.

5
<PAGE> 11

"DEBT" means, with respect to any Person, all obligations,
contingent or otherwise, that would be classified under GAAP as a liability of
that Person including, but not limited to, any nonrecourse obligations secured
by Property of that Person.

"DEFAULT RATE" means the lesser of (i) three percent (3%) over
the rate otherwise applicable to a Loan or a Letter of Credit, or (ii) the
Maximum Lawful Amount of interest that can be charged.

"EBITDA" means the sum of net income before extraordinary
items, less extraordinary losses, plus Interest Expense and expenses for taxes,
depreciation and amortization, determined according to GAAP.

"EFFECTIVE PERIOD" means a period of up to one calendar
quarter, determined as follows. Pursuant to other provisions of this Agreement,
Borrowers' financial information for each quarter-end is to be submitted during
the succeeding quarter, except that year-end financial statements are not due
until May 1 of the following year. The performance pricing provisions of this
Agreement reevaluate pricing quarterly, based upon those quarterly financial
results. An Effective Period imposing pricing based upon a quarter other than
the quarter ending December 31 shall begin on the later of (i) the first day of
the third month of the following fiscal quarter, or (ii) if financial
statements are submitted later than required under this Agreement and are
nonetheless accepted by Lender, five (5) Business Days after the submission of
required financial statements. An Effective Period imposing pricing based upon
the quarter ending December 31 shall begin "as of" the first day of the third
month of the following fiscal quarter, with a retroactive adjustment of
interest to be made when the year-end financial statements are timely
submitted, if necessary to reflect an increase or decrease of the interest
rates or fees based upon performance for the period ending December 31. If
year-end financial statements are not timely submitted, but are nonetheless
accepted by Lender, the Effective Period imposing pricing based upon the
quarter ending December 31 shall begin "as of" five (5) Business Days after the
submission of the required annual financial statements. The Effective Period
shall end on the last day of the second month of each fiscal quarter following
the quarter in which the Effective Period was scheduled to begin. Therefore,
assuming the timely delivery of all required financial statements, the
Effective Periods will be determined as follows:

Financial Statements Due By Effective Period

May 15 June 1 - August 31
August 15 September 1 - November 30
November 15 December 1 - February 28/29
April 29 March 1 (retroactive) - May 31

An initial Effective Period shall commence on the Closing Date and continue
through the last day of May, 1996, and margins and rates shall be determined
during this initial Effective Period based upon the financial reports for the
quarter ended December 31, 1995.

6
<PAGE> 12

"ENCUMBRANCE" means any interest in Property in favor of one
not the owner thereof, whether voluntary or involuntary, including, but not
limited to, (i) the lien or security interest arising from a deed of trust,
mortgage, pledge, security agreement, conditional sale, Capital Lease,
consignment, or bailment for security purposes, and (ii) reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other such title encumbrances.

"ENVIRONMENTAL LAWS" means the Environmental Protection Act,
the Resource Conservation and Recovery Act of 1976, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Hazardous
Materials Transportation Act and any other federal, state or municipal law,
rule or regulation relating to air emissions, water discharge, noise emissions,
solid or liquid waste disposal, hazardous or toxic waste or materials, or other
environmental or health matters.

"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, including (unless the context otherwise
requires) any rules or regulations promulgated thereunder.

"ERISA AFFILIATE" means any Person who for purposes of Title
IV of ERISA is a member of Borrowers' controlled group, or under common control
with Borrowers, within the meaning of Section 414 of the IRC, the regulations
promulgated pursuant thereto and the rulings issued thereunder.

"ERISA EVENT" means (i) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, unless the 30-day notice
requirement with respect thereto has been waived by the PBGC; (ii) the
provision by the administrator of any Plan of a notice of intent to terminate
such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice
with respect to a plan amendment referred to in Section 4041(e) of ERISA);
(iii) the cessation of operations at a facility in the circumstances described
in Section 4068(f) of ERISA; (iv) the withdrawal by Borrowers or an ERISA
Affiliate from a Multiple Employer Plan during a plan year for which it was a
substantial employer, as defined in 4001(a)(2) of ERISA; (v) the failure by
Borrowers or any ERISA Affiliate to make a material payment to a Plan required
under Section 302(f)(1) of ERISA; (vi) the adoption of an amendment to a Plan
requiring the provision of initial or additional security to such Plan,
pursuant to Section 307 of ERISA; or (vii) the institution by the PBGC of
proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, a Plan.

"EVENT OF DEFAULT" means the occurrence of any of the events
specified in Section 9.1 hereof, as to which any requirement for notice or
lapse of time has been satisfied.

7
<PAGE> 13

"FINANCIAL STATEMENTS" means the pro forma combined balance
sheet, income statement, and statement of cash flows for Borrowers dated March
31, 1996 delivered by Borrowers to Lender, and all notes thereto.

"FIXED CHARGE COVERAGE RATIO" means (i) Consolidated EBITDA
plus expenses incurred under Operating Leases less a charge of Two Thousand and
No/100 Dollars ($2,000.00) per dialysis station to allow for maintenance
Capital Expenditures, divided by (ii) the sum of Interest Expense plus CMLTD
(including implied amortization during the revolving period calculated as
one-seventh of the outstanding principal amount of the Revolving/Term Loan
(including the amount of Letters of Credit) as of the end of the applicable
period), plus the current portion of Capital Leases, plus expenses incurred
under Operating Leases. The values for the fixed charges used in the
calculation of this ratio will be determined on a pro forma basis as though the
acquisitions occurring during the relevant period had occurred as of the
beginning of that period, with such calculations to take into account, along
with other adjustments that Lender may approve, in its reasonable discretion,
(i) the exclusion of Interest Expense, CMLTD, Capital Lease expense and
Operating Lease Expense of the target arising from obligations that were
liquidated in connection with the acquisition, (ii) the inclusion of Interest
Expense, CMLTD, Capital Lease expense and Operating Lease Expense obligations
of the target that survived the acquisition, and (iii) the inclusion of
Interest Expense, CMLTD, Capital Lease expense and Operating Lease Expense
arising from obligations incurred in connection with the acquisition
(including, but not limited to, added Interest Expense arising from Seller Debt
or from Loans advanced under this Agreement incidental to the acquisition).

"FOUNDING COMPANIES" means RCG Mississippi, Inc., a Delaware
corporation, Renal Care Group, Inc., a Tennessee corporation, Kansas Nephrology
Association, a Kansas corporation, Renal Care Group Texas, Inc., a Texas
corporation, and D.M.N. of Indiana Corporation, an Indiana corporation.

"FRAUD AND ABUSE LAWS" means Section 1128B(b) of the Social
Security Act, 42 U.S.C. Section 1320a-7b(b) and Section 1877 of the Social
Security Act, 42 U.S.C. Section 1877, as from time to time amended; any
successor statute(s) thereto; all rules and regulations promulgated thereunder;
and any other Law relating to the ownership of medical facilities by providers
of medical services or the referral of patients to medical facilities owned by
providers of medical services.

"GAAP" means generally accepted accounting principles
pronounced by the Financial Accounting Standards Board or any successor
thereto, as in effect from time to time.

"GOVERNMENTAL AUTHORITY" means any governmental or
quasi-governmental entity, court or tribunal including, without limitation, any
department, commission, board, bureau, agency, administration, service or other
instrumentality of any foreign or domestic governmental entity.

"HAZARDOUS SUBSTANCES" means those substances included from
time to time

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<PAGE> 14

within the definition of hazardous substances, hazardous materials, toxic
substances, or solid waste under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended, 42 U.S.C. Section 9601 et
seq.; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section
6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801 et seq.; the Clean Water Act, 33 U.S.C. Section 1251 et. seq.; the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et. seq., and in the regulations
promulgated pursuant to such acts and laws; and such other substances that are
or become regulated under any applicable local, state, or federal law or
regulation addressing environmental hazards.

"INTANGIBLE ASSETS" means goodwill, patents, copyrights,
franchises, trademarks, research and development costs, organizational costs
and other intangible assets as determined under GAAP.

"INTEREST EXPENSE" means expenses for interest (including
current charges on Capital Leases) and expenses for any interest rate swaps or
similar derivative contracts used for the management of interest expense.

"INTEREST PAYMENT DATE" means, (i) as to Prime Rate Loans, the
first day of each January, April, July and October, and (ii) as to any LIBOR
Loan, the last day of the Interest Period applicable to such Loan and, in
addition, in the case of a LIBOR Loan with an Interest Period of six (6) or
twelve (12) months' duration, the numerically corresponding day (or, if there
is no numerically corresponding day, on the last day) in the calendar month
that is 3 months after the commencement of the Interest Period.

"INTEREST PERIOD" means, as to any LIBOR Loan, the period
commencing on the date of such LIBOR Loan and ending on the numerically
corresponding day (or, if there is no numerically corresponding day, on the
last day) in the calendar month that is 1, 2, 3, 6 or 12 months thereafter, as
Borrowers may elect; provided, however, that (x) if any Interest Period would
end on a day that is not a Business Day, such Interest Period shall be extended
to the next succeeding Business Day unless, with respect to LIBOR Loans, such
next succeeding Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day and (y)
no Interest Period with respect to any Loan shall end later than the Maturity
Date. Interest shall accrue from and including the first day of an Interest
Period to but excluding the last day of such Interest Period.

"IRC" means the Internal Revenue Code of 1986, as amended
from time to time.

"LAW" or "LAWS" means all applicable constitutional
provisions, statutes, codes, acts, ordinances, orders, judgments, decrees,
injunctions, rules, regulations, and requirements of all Governmental
Authorities.

"LENDER" means NationsBank of Tennessee, N.A., its successors
and assigns.

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<PAGE> 15

"LETTERS OF CREDIT" means standby letters of credit and/or
commercial letters of credit issued for the account of a Borrower with respect
to obligations incurred by a Borrower in the ordinary course of business.

"LIBO RATE" means, for any given Interest Period with respect
to a given LIBOR Loan, the rate per annum appearing on Telerate Page 3750 (or
any successor page) as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to
the first day of such Interest Period for a term comparable to such Interest
Period. If for any reason such rate is not available, the term LIBO Rate shall
mean, for any given Interest Period with respect to a given LIBOR Loan, the
rate per annum appearing on Reuters Screen LIBO Page as the London interbank
offered rate for deposits in Dollars at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, however, if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates.

"LIBO RATE RESERVE PERCENTAGE" means the reserve percentage
applicable during any Interest Period (or if more than one such percentage
shall be so applicable, the daily average of such percentages for those days in
such Interest Period during which any such percentage shall be so applicable)
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency, supplemental or
other marginal reserve requirement) for Lender with respect to liabilities or
assets consisting of or including LIBOR Liabilities having a term equal to such
Interest Period.

"LIBOR LIABILITIES" means deposit liabilities incurred through
the London Interbank Market.

"LIBOR LOAN" means a Loan for which Borrowers have elected
application of an interest rate based on the LIBO Rate.

"LOAN" means a loan advanced under the Revolving/Term Loan.

"LOAN DOCUMENTS" means, collectively, each writing delivered
by Borrowers to Lender relating to the Revolving/Term Loan and described in
Section 4.1.1 hereof.

"MAJORITY-OWNED NONPARTICIPATING SUBSIDIARY" means a Permitted
Subsidiary that is not a Borrower hereunder.

"MAJORITY-OWNED PARTICIPATING SUBSIDIARY" means a Permitted
Subsidiary that is or becomes a Borrower hereunder.

"MATERIAL ADVERSE CHANGE" means any material and adverse
change in the business, Properties, or operations of the Borrowers, considered
collectively.

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<PAGE> 16

"MATERIAL ADVERSE EFFECT" means any event or condition which,
singly or in the aggregate with other events or conditions, materially and
adversely affects the business, Properties, or operations of the Borrowers,
considered collectively.

"MATURITY DATE" means May 30, 2001.

"MAXIMUM LAWFUL AMOUNT" means the maximum lawful amount of
interest, loan charges, commitment fees or other charges that may be assessed
under Tennessee law or, if higher, under applicable federal law.

"NET PROCEEDS" means gross proceeds of a transaction less
reasonable and customary underwriter and brokerage fees and commissions, the
fees and expenses of trustees and attorneys, and other such reasonable and
customary closing fees and expenses.

"OBLIGATIONS" means all present and future debts and other
obligations of Borrowers (or any of them) to Lender, whether arising by
contract, tort, guaranty, overdraft, or otherwise; whether or not the advances
or events creating such debts or other obligations are presently foreseen;
whether such obligations were originally payable to Lender or are acquired by
Lender from another Person; and regardless of the class of the debts or other
obligations, be they otherwise secured or unsecured. Without limiting the
foregoing, the "Obligations" specifically includes the obligations of Borrowers
under this Agreement and the other Loan Documents.

"OPERATING LEASES" means leases that are not Capital Leases.

"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.

"PERMITTED ACQUISITION" means the purchase (by asset purchase,
stock purchase, merger or otherwise, subject to the other requirements of this
definition set forth below) by a Borrower of the assets of a Practice in the
ordinary course of business (it being acknowledged that medical records and
certain other professional assets that are required by Law to be owned by a
physician Provider are not acquired in these transactions), which purchase
meets all of the following criteria:

(a) The form of the acquisition shall have been
of the assets of a Practice or, if for
stock or other equity interest, the target
acquired shall become a Permitted
Subsidiary or a Permitted Equity Investment
concurrently with the closing of the
acquisition.

(b) If Borrowers will be requesting a Loan to
fund the acquisition or if Lender's consent
is required under subsection (c) hereof,
Borrowers shall have delivered to Lender,
prior to closing the

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<PAGE> 17

acquisition, unaudited pro forma financial
statements or certificates demonstrating
continued compliance with all covenants in
this Agreement following the acquisition.

(c) If Total Funded Debt will exceed Fifteen
Million and No/100 Dollars ($15,000,000.00)
after the proposed acquisition, and/or if
the outstanding principal balance of the
Revolving/Term Loan will exceed Twelve
Million and No/100 Dollars ($12,000,000.00)
after the proposed acquisition, then Lender
shall have given its written consent to the
acquisition prior to the closing thereof,
in the cases of those acquisitions for
which (i) the total consideration is
greater than seven (7) times the total
EBITDA of the target (or seven (7) times
Borrowers' proposed percentage interest
thereof, in the case of acquisitions of
less than 100% of the target) for the most
recent four quarters for which Borrowers
have obtained financial statements (based
on audited financial statements or the best
information otherwise available), as
adjusted to calculate such EBITDA on a pro
forma basis consistent with Borrowers'
operations as though the target had been
owned by a Borrower throughout the relevant
pre-acquisition period (with such
adjustments to include, without limitation,
adjustments for any owner's compensation
and for cost savings in the expense
categories of salaries, employee benefits,
medical specialist fees, management fees,
purchased services and supplies that
Borrowers will initiate immediately
following the transaction), or (ii) the
portion of the purchase price consisting of
cash, Debt assumed and Seller Debt exceeds
sixty percent (60%) of the total purchase
price (for the purpose of this calculation
only, Subordinated Seller Debt shall not be
regarded as Debt or Seller Debt).

"PERMITTED CORPORATE CHANGE" means the conversion of a
Borrower (other than RCG) or of another Permitted Subsidiary from a corporation
to a limited liability company or limited partnership, which conversion (i)
occurs upon at least thirty (30) days prior written notice to Lender, (ii) is
accomplished so that the successor entity expressly remains a Borrower
hereunder, if applicable, (iii) is accomplished so that the successor entity
maintains the status as a Permitted Subsidiary hereunder, if applicable, (iv)
in Lender's judgment has no detrimental effect on the position of Lender as the
senior creditor of Borrowers, and (v) is accomplished pursuant to documentation
in form and substance approved by Lender and its counsel and supported by such
opinions of Borrowers' counsel as Lender may reasonably require, with all
related filing fees and taxes and all reasonable fees and expenses of counsel
for Lender and Borrowers to be paid by Borrowers. Notwithstanding the
foregoing, opinions of counsel shall not be required as long as the outstanding
principal

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<PAGE> 18

balance of the Revolving/Term Loan does not exceed Five Million and No/100
Dollars ($5,000,000.00), but as a condition to any advance that would cause the
outstanding principal balance to exceed that amount, Borrowers must provide the
required opinions not previously delivered for all Permitted Corporate Changes
occurring before the draw above Five Million and No/100 Dollars ($5,000,000.00)
and must thereafter continue providing such opinions as to future Permitted
Corporate Changes as long as the outstanding principal balance of the
Revolving/Term Loan remains above Five Million and No/100 Dollars
($5,000,000.00).

"PERMITTED ENCUMBRANCES" means all of the following:

(a) Encumbrances securing the payment of any
of the Obligations.

(b) Encumbrances securing taxes, assessments,
or other governmental charges not yet due
or which are being contested in good faith
by appropriate action promptly initiated
and diligently conducted, if Borrowers have
made reserve therefor as required by GAAP.

(c) Mechanics', repairmen's, materialmen's,
warehousemen's, landlords' and other like
liens arising by operation of law securing
accounts that are not delinquent.

(d) Encumbrances on real property used by
Borrowers not securing monetary
obligations, provided that the Encumbrances
are of a type customarily placed on real
property and do not materially impair the
value of the affected property.

(e) Pledges or deposits in the ordinary course
of business to secure nondelinquent
obligations under workman's compensation or
unemployment laws or similar legislation or
to secure the performance of leases or
contracts entered into in the ordinary
course of business.

"PERMITTED EQUITY INVESTMENT" means an equity investment in a
corporation, limited liability company, limited liability partnership, limited
partnership or general partnership, the acquisition of which would be a
Permitted Acquisition of a Permitted Subsidiary (including, but not limited to,
the satisfaction of all approval requirements therefor), excepting only that
(i) the acquisition is of fifty percent (50%) or less of the total outstanding
economic interest, and (ii) Lender's security interest in any such equity
interests of a type that would require the filing of a financing statement to
perfect need not be perfected in the absence of an Event of Default.

"PERMITTED SUBSIDIARY" means a corporate Subsidiary, limited
liability company, general partnership or limited liability partnership
Subsidiary that (i) is owned, in

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<PAGE> 19

both economic interest and voting rights, by a Borrower in an amount exceeding
50%, (ii) if owned by one or more Borrowers as to 100% of its economic interest
and voting rights, is also a Borrower hereunder, and (iii) as to which a
Borrower has granted to Lender a first priority perfected security interest in
its stock or other equity interest in the Subsidiary pursuant to documentation
in form and substance acceptable to Lender and its counsel, with the validity
and perfection of the security interest and other matters as Lender may
reasonably require confirmed to Lender by an opinion of Borrowers' outside
counsel satisfactory to Lender in all respects, and with all expenses related
to such documentation (including, but not limited to, filing fees and taxes and
the reasonable fees and expenses of Lender's attorneys) to be paid by Borrower.
Notwithstanding the foregoing, opinions of counsel shall not be required as
long as the outstanding principal balance of the Revolving/Term Loan does not
exceed Five Million and No/100 Dollars ($5,000,000.00), but as a condition to
any advance that would cause the outstanding principal balance to exceed that
amount, Borrowers must provide the required opinions not yet delivered for all
Permitted Subsidiaries acquired before the draw above Five Million and No/100
Dollars ($5,000,000.00) and must thereafter continue providing such opinions as
to future Permitted Subsidiaries as long as the outstanding principal balance
of the Revolving/Term Loan remains above Five Million and No/100 Dollars
($5,000,000.00).

"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government, governmental agency or political subdivision thereof, or any other
form of entity.

"PLAN" means any employee benefit or other plan established or
maintained, or to which contributions have been made, by a Borrower or any
Subsidiary and covered by Title IV of ERISA or to which Section 412 of the IRC
applies.

"PRACTICE" means a dialysis clinic or laboratory or a
nephrology medical practice. Whenever in this Agreement "Practice" is used in
describing an acquisition by a Borrower, and if the reference relates to a
medical practice, such reference is to the acquisition of the assets used in
the operation of the Practice that can lawfully be acquired by such Borrower or
to the acquisition of the stock of a corporation that owns, as of the time of
purchase, only those assets that can be lawfully acquired by such Borrower.

"PRIME RATE" shall be that rate announced by Lender from time
to time as its Prime Rate and is one of several interest rate bases used by
Lender. Lender lends at rates both above and below Lender's Prime Rate and
Borrowers acknowledge that Lender's Prime Rate is not represented or intended
to be the lowest or most favorable rate of interest offered by Lender.

"PRIME RATE LOAN" means a Loan for which Borrowers have
elected application of an interest rate based on the Prime Rate.

"PROPERTY" or "PROPERTIES" means any interest in any kind of
property, whether real, personal, or mixed, or tangible or intangible.

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<PAGE> 20

"PROVIDER" means a nephrologist who performs professional
services respecting a Practice that is either managed by a Borrower or the
assets of which are owned by a Borrower.

"PROSPECTUS" means that Prospectus of RCG filed with the
Securities and Exchange Commission and dated February 6, 1996.

"RCG" means Renal Care Group, Inc., a Delaware corporation,
its successors and assigns.

"REVOLVING/TERM LOAN" has the meaning assigned in Article II
hereof.

"SELLER" means the owner of a Practice that is acquired by a
Borrower.

"SELLER DEBT" means Debt incurred in favor of one or more
Sellers representing part of the purchase price of a Practice.

"SERVICE AGREEMENT" means one of those service or management
agreements now in effect or hereafter entered into by a Borrower and Sellers in
connection with the management of nephrology practices.

"SOLVENT" shall mean, as to any Person, that as of any date of
determination, (i) the then fair value of the assets of such Person is (a)
greater than the then total amount of liabilities (including subordinated
liabilities) of such Person and (b) greater than the amount that will be
required to pay such Person's probable liability on such Person's then existing
debts as they become absolute and matured, (ii) such Person's capital is not
unreasonably small in relation to its business, and (iii) such Person has not
incurred and does not intend to incur, or believe or reasonably should believe
that it will incur, debts beyond its ability to pay such debts as they become
due.

"SUBORDINATED SELLER DEBT" means unsecured Seller Debt that
is subordinated as to payment, liquidation, collection and collection in
bankruptcy to the obligations of Borrowers to Lender pursuant to subordination
documentation in form and substance acceptable to Lender and which has a
maturity of no earlier than six (6) months following the Maturity Date.

"SUBSIDIARY" means any present or future corporation, or other
entity at least a majority of whose outstanding voting stock or other voting
securities shall at the time be owned directly or indirectly by a Borrower.

"TAXES" means all taxes and assessments, whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, which at any
time may be assessed, levied, confirmed or imposed on Borrowers or on any of
their properties or assets or any part thereof or in respect of any of their
franchises, businesses, income or profits.

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<PAGE> 21

"TOTAL FUNDED DEBT" means all obligations for borrowed money,
including, but not limited to, advances under the Revolving/Term Loan, all
Seller Debt and all Capitalized Leases, whether short-term or long-term. The
obligations of a Permitted Equity Investment or a Majority-Owned
Nonparticipating Subsidiary shall be included in Total Funded Debt only to the
extent a Borrower has directly or indirectly guaranteed or otherwise become
liable for (such as through the status of general partner) such obligations.
Borrowed money that is expressly subordinated to the Obligations to Lender's
satisfaction, including all Subordinated Seller Debt, will not be included in
this definition.

"UCC" means the Uniform Commercial Code as adopted in
Tennessee, as it may be amended from time to time.

"UNMATURED DEFAULT" means any event or condition that, but for
the giving of any required notice by Lender and/or the passing of time, would
be an Event of Default hereunder.

"WHOLLY-OWNED SUBSIDIARY" means a Permitted Subsidiary that is
owned as to its entire economic and voting interests by a Borrower.

1.2 Terms Generally.

1.2.1 Computations; Accounting Principles. Where
the character or amount of any asset or liability or item of
income or expense is required to be determined, or any
consolidation or other accounting computation is required to
be made for the purposes of this Agreement, such determination
or calculation, to the extent applicable and except as
otherwise specified in this Agreement, shall be made in
accordance with GAAP. If a change in GAAP after the date of
this Agreement would require a change affecting the
calculation of any requirement under this Agreement, then
Lender and Borrowers shall negotiate in good faith for the
amendment of the affected requirements; provided, however,
until and unless such an amendment is agreed upon, the
requirements of this Agreement shall remain as written and
compliance therewith shall be determined according to GAAP as
in effect prior to the change.

1.2.2 Gender and Number. Words used herein
indicating gender or number shall be read as context may
require.

1.2.3 References Include Successors. References
herein to specific Laws, regulatory bodies, parties or
agreements also refer to any successor Laws, regulatory
bodies, and parties, and to all modifications, extensions,
renewals and restatements of agreements.

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<PAGE> 22

1.2.4 References to This Agreement. "Herein,"
"hereof" and words of similar import refer to this Agreement
as a whole and not to any particular provision hereof, unless
otherwise expressly stated.

II. REVOLVING/TERM LOAN

Concurrently with the execution of this Agreement, Lender
shall make a Revolving/Term Loan (the "Revolving/Term Loan") available to
Borrowers under the following terms:

2.1 Amount of Revolving/Term Loan. The principal
indebtedness of Borrowers to Lender under the Revolving/Term Loan shall not
exceed the lesser of (i) Thirty-Five Million and No/100 Dollars
($35,000,000.00), or (ii) the Borrowing Base in effect from time to time.

2.2 Use of Proceeds of Revolving/Term Loan. The proceeds
of Loans advanced under the Revolving/Term Loan shall be used by Borrowers (i)
in any amount, for the acquisition of Practices through Permitted Acquisitions
and Permitted Equity Investments, (ii) in any amount not exceeding Five Million
and No/100 Dollars ($5,000,000.00), for the start-up of new Practices and the
expansion of existing Practices, and (iii) in any amount not exceeding Five
Million and No/100 Dollars ($5,000,000.00), for working capital needs
(including Letters of Credit).

2.3 Revolving/Term Note. Borrowers' obligations under the
Revolving/Term Loan shall be evidenced by a single Revolving/Term Note in the
form included in Exhibit 2.3.

2.4 Advances of Loans. Subject to the terms and
conditions of this Agreement, during the period from the date hereof until the
Conversion Date, Borrowers may borrow, repay and reborrow Loans under the
Revolving/Term Loan, provided that the outstanding principal balance shall not
at any time exceed the amount permitted under Section 2.1 above. Upon the
Conversion Date, the Revolving/Term Loan shall no longer revolve and the
remaining principal balance of the Revolving/Term Loan shall be amortized as
set forth below. Amounts outstanding under the Revolving/Term Loan following
the Conversion Date may be Prime Rate Loans or LIBOR Loans from time to time,
just as Loans advanced prior to the Conversion Date may be either Prime Rate
Loans or LIBOR Loans. Prior to the Conversion Date, Loans shall be disbursed as
follows:

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<PAGE> 23

2.4.1 Loans Advanced Pursuant to Borrowing
Notices.

2.4.1(a) Applicability. Except for
Loans made pursuant to Account Agreements as provided
in Section 2.4.3 hereof, which shall be Prime Rate
Loans, advances hereunder may be LIBOR Loans, Prime
Rate Loans, or a combination thereof and the funding
thereof shall be subject to this Section 2.4.1.

2.4.1(b) Borrowing Notices. As long as
Borrowers meet the conditions for funding stated in
this Agreement, Borrowers may submit requests for
Loans ("Borrowing Notices") to Lender. All requests
shall be made in writing (or by telephone, subject to
such security procedures as Lender may require from
time to time, provided that all telephonic notices
shall be confirmed by written Borrowing Notices
within one (1) Business Day) and shall specify the
proposed date of the requested disbursement; the
aggregate amount of such disbursement; the purpose of
the Loan (characterized in accordance with Section
2.2 above); the type of Loan, i.e., LIBOR Loan or
Prime Rate Loan; and if a LIBOR Loan, the designated
Interest Period. Each Borrowing Notice shall
irrevocably obligate Borrowers to accept the Loan
requested thereby. Borrowing Notices shall be in the
form of Exhibit 2.4.1(b) hereto or such other form as
Lender may from time to time require.

2.4.1(c) Funding of Loans. Lender shall
fund on the same Banking Day of Lender's receipt of
the Borrowing Notice in the case of Prime Rate Loans,
and on the second (2nd) Banking Day following the
Banking Day of Lender's receipt of the Borrowing
Notice in the case of LIBOR Loans. All funds shall be
disbursed directly into an account maintained by one
or more Borrowers with Lender. Borrowers agree that
if Lender elects to fund any requested Loan(s) sooner
after requested than is required of Lender hereunder,
Lender may nevertheless use the entire response
period allowed hereunder upon receipt of any
subsequent request, at Lender's sole option.

2.4.1(d) Prime Rate Loan Limitations.
Individual Prime Rate Loans shall be in the minimum
amount of One Hundred Thousand and No/100 Dollars
($100,000.00) each. Any number of Prime Rate Loans
may be outstanding at any one time.

2.4.1(e) LIBOR Loan Limitations.
Individual LIBOR Loans shall be in the minimum amount
of Five Hundred Thousand and No/100 Dollars
($500,000.00) each. No more than ten (10) LIBOR Loans
may be outstanding at any one time.

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<PAGE> 24

2.4.1(f) Additional Limitation on LIBOR
Interest Periods. Notwithstanding anything to the
contrary in this Agreement, if an Event of Default
shall have occurred and be continuing, no additional
LIBOR Loans may be created or continued and no Prime
Rate Loan may be converted into a LIBOR Loan.

2.4.2 Conversion of Loans. Borrowers shall have
the right at any time, on prior irrevocable written notice to
Lender given two (2) Banking Days prior to the date of any
requested conversion, to convert any Prime Rate Loan or LIBOR
Loan into a Loan of another type, or to continue any LIBOR
Loan for another Interest Period, subject in each case to the
following:

2.4.2(a) Application of Loans. Each
conversion shall be effected by applying the proceeds
of the new LIBOR Loan and/or Prime Rate Loan, as the
case may be, to the Loan (or portion thereof) being
converted.

2.4.2(b) Notices of Conversions. Each
notice pursuant to this Section 2.4.2(b) shall be
irrevocable and shall refer to this Agreement and
specify the identity and principal amount of the
particular Loan that Borrowers request be converted
or continued; if such notice requests conversion, the
date of such conversion (which shall be a Business
Day); and if a Loan is to be converted to a LIBOR
Loan or a LIBOR Loan is to be continued, the Interest
Period with respect thereto. No LIBOR Loan shall be
converted at any time other than at the end of the
Interest Period applicable thereto, except in
accordance with Section 2.9 hereof. Conversion
notices shall be in the form attached as Exhibit
2.4.1(b) hereto.

2.4.3 Loans Advanced Pursuant to Cash Management
Accounts. Borrowers may have in effect from time to time
separate agreements with Lender or its affiliates establishing
cash management procedures ("Account Agreements") that may
involve the automatic disbursement of amounts available under
the Revolving/Term Loan. If Lender or its Affiliates serve as
depository institutions under Account Agreements, they may use
standardized forms for Account Agreements that do not address
the specific circumstances of the Revolving/Term Loan. To
resolve potential inconsistencies between this Agreement and
Account Agreements, the terms of this Agreement and of Account
Agreements shall relate to one another as follows:

2.4.3(a) Funding and Payment Procedures
Controlled by Account Agreements. The Account
Agreements shall control this Agreement as to (i)
Section 2.4.1 hereof regarding funding procedures,
and (ii) Interest Payment Dates, to the extent that
an Account Agreement

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<PAGE> 25

may provide for such payment more frequently than
otherwise required under this Agreement.

2.4.3(b) Certain Provisions Controlled
by this Agreement. Notwithstanding any provision of
an Account Agreement to the contrary, except as
provided above in Section 2.4.3(a) hereof, the
provisions of this Agreement shall control any
Account Agreement to the extent that an Account
Agreement may be inconsistent with this Agreement.

2.4.3(c) Continuing Warranty Under
Account Agreements. Because Account Agreements may
provide for the making of Loans without formal draw
requests from Borrowers, Borrowers agree that
Borrowers' warranty under Section 2.4.5 hereof as to
the satisfaction of all conditions to the right to
receive Loans shall be a continuing one during any
period that an Account Agreement may be in effect.
Therefore, any Loans funded by Lender pursuant to an
Account Agreement after the failure of a condition
stated in Article IV hereof shall be deemed made upon
the affirmative misrepresentation of Borrowers unless
Lender has received written notice of and waived the
failed condition in writing.

2.4.3(d) Prime Rate Loans. All Loans
made as advances pursuant to Account Agreements shall
be Prime Rate Loans and, notwithstanding any other
provision of this Agreement, may be advanced in any
amount permitted under the applicable Account
Agreement.

2.4.4 Absence of Election. If Borrowers fail to
give Lender notice to continue any LIBOR Loan for a subsequent
period, such LIBOR Loan (unless repaid) shall automatically be
converted into a Prime Rate Loan. If Borrowers fail to specify
in any Borrowing Notice the type of borrowing or, in the case
of a LIBOR Loan, the applicable Interest Period, Borrowers
will be deemed to have requested a Prime Rate Loan.

2.4.5 Implied Representations Upon Request for
Loan. Upon making any request for any Loan, Borrowers shall be
deemed to have warranted to Lender that all conditions to
funding set forth in Section 4.2 hereof are satisfied.

2.4.6 Advance Not Waiver. Lender's making of any
Loan that it is not obligated to make under any provision of
Article IV hereof or any other provision hereof shall not be
construed as a waiver of Lender's right to withhold future
Loans, declare an Event of Default, or otherwise demand strict
compliance with this Agreement.

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2.4.7 Draws by Debit Memorandum. Lender may draw
amounts available under the Revolving/Term Loan to pay any
Obligation that is not otherwise timely paid.

2.5 Letters of Credit. Upon reasonable advance request
from Borrowers, which request Lender may require to be in writing, Lender shall
issue Letters of Credit prior to the Conversion Date for the account of
Borrowers up to the aggregate amount permitted and available for working
capital as stated above in this Agreement. The stated and undrawn amount of all
Letters of Credit shall be treated as though they were draws under the
Revolving/Term Loan for the purpose of determining the available borrowing
capacity thereunder and in calculating the commitment fee based on unused
borrowing capacity as set forth in Section 2.14 hereof. All draws under Letters
of Credit shall be funded through draws against the availability under the
Revolving/Term Loan reserved therefor upon the issuance of such Letters of
Credit. The fee for Letters of Credit shall be equal to the Applicable LIBO
Rate Margin (calculated on a 360-day basis) for the periods during which they
are outstanding, which rate shall be applied to the outstanding principal
amount of each Letter of Credit as of the date of calculation of the fee and
shall be payable (i) upon issuance, for the term thereof, up to one (1) year,
and (ii) thereafter as to Letters of Credit with a term of greater than one (1)
year, similarly determined and payable annually in advance on the anniversary
of the date of issuance of the relevant Letter of Credit. Lender's charges for
amendments and other administrative actions shall be determined by Lender's
usual rates in effect from time to time. All documentation of Letters of Credit
and of the reimbursement obligations of Borrowers with respect thereto (the
"Letter of Credit Documentation") shall be in form and substance acceptable to
Lender, in its reasonable discretion, and in accordance with its usual
procedures applicable to letters of credit from time to time; provided,
however, (i) any provision of this Agreement that conflicts with such Letter of
Credit Documentation shall control over the Letter of Credit Documentation, and
(ii) the Default Rate shall apply to any Letter of Credit fees payable after
and during the continuation of an Event of Default. No Letter of Credit may
have an expiration date later than the Maturity Date.

2.6 Interest. Interest shall be charged and paid on each
Loan as follows:

2.6.1 Prime Rate Loans. Interest shall accrue on
each Prime Rate Loan at an annual rate equal to the Prime Rate
plus the Applicable Prime Rate Margin, said rate to change
contemporaneously with any change in the Prime Rate.

2.6.2 LIBOR Loans. Interest shall accrue on each
LIBOR Loan at a rate equal to the LIBO Rate for the selected
Interest Period plus the Applicable LIBO Rate Margin.

2.6.3 Additional Interest on LIBOR Loans. In
addition to the interest described above, Borrowers shall pay
to Lender, if and so long as Lender shall be required under
regulations of the Board of Governors of the Federal Reserve

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<PAGE> 27

System to maintain reserves with respect to liabilities or
assets consisting of or including LIBOR Liabilities,
additional interest on the unpaid principal amount of each
LIBOR Loan, from the date of such advance until said principal
amount is paid in full, at an interest rate per annum equal at
all times to the remainder obtained by subtracting (i) the
LIBO Rate for the Interest Period from (ii) the rate obtained
by dividing the LIBO Rate by a percentage equal to 100% minus
the LIBO Rate Reserve Percentage for such Interest Period.
This additional interest shall be payable on each date on
which interest is payable. The amount of additional interest
shall be determined by Lender, who shall notify Borrowers
thereof within one hundred eighty (180) days of the incurrence
of such additional costs and whose determination shall be
conclusive, absent manifest error.

2.6.4 Calculation of Interest. Interest for both
Prime Rate Loans and LIBOR Loans shall be computed on the
basis of a 360-day year counting the actual number of days
elapsed.

2.6.5 Default Rate. Notwithstanding the
foregoing, upon the occurrence of an Event of Default and
during the continuation of such Event of Default until it is
cured or waived, interest shall be charged at the Default
Rate, regardless of whether Lender has elected to exercise any
other remedies available to Lender, including, without
limitation, acceleration of the maturity of the outstanding
principal of the Revolving/Term Loan. All such interest shall
be paid at the time on demand.

2.6.6 Payment of Interest. Interest for Prime
Rate Loans and LIBOR Loans shall be due and payable in arrears
without notice on each Interest Payment Date.

2.6.7 Usury Savings Provision. It is the
intention of the parties that all charges under or in
connection with this Agreement and the Obligations, however
denominated, and including (without limitation) all interest,
commitment fees, late charges and loan charges, be limited to
the Maximum Lawful Amount. Such charges hereunder shall be
characterized and all provisions of the Loan Documents shall
be construed as to uphold the validity of charges provided for
therein to the fullest possible extent. Additionally, all
charges hereunder shall be spread over the full permitted term
of the Obligations for the purpose of determining the
effective rate thereof to the fullest possible extent, without
regard to prepayment of or the right to prepay the
Obligations. If for any reason whatsoever, however, any
charges paid or contracted to be paid in respect of the
Obligations shall exceed the Maximum

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<PAGE> 28

Lawful Amount, then, ipso facto, the obligation to pay such
interest and/or other charges shall be reduced to the Maximum
Lawful Amount in effect from time to time, and any amounts
collected by Lender that exceed the Maximum Lawful Amount
shall be applied to the reduction of the principal balance of
the Obligations and/or refunded to Borrowers so that at no
time shall the interest or loan charges paid or payable in
respect of the Obligations exceed the Maximum Lawful Amount.
This provision shall control every other provision herein and
in any and all other agreements and instruments now existing
or hereafter arising between Borrowers and Lender with respect
to the Obligations.

2.7 Alternate Rate of Interest if LIBOR Unavailable. In
the event, and on each occasion, that on the date of commencement of any
Interest Period for a LIBOR Loan, Lender shall have determined (i) that dollar
deposits in the amount of the requested principal amount of such LIBOR Loan are
not generally available in the London Interbank Market; (ii) that the rate at
which such dollar deposits are being offered will not adequately and fairly
reflect the cost to Lender of making or maintaining such LIBOR Loan during such
Interest Period; or (iii) that reasonable means do not exist for ascertaining
the LIBO Rate, Lender shall, as soon as practicable thereafter, give written or
telephonic notice of such determination to Borrower. In the event of any such
determination, any request by Borrowers for a LIBOR Loan under this Agreement
shall, until the circumstances giving rise to such notice no longer exist, be
deemed to be a request for a Prime Rate Loan. Each determination by Lender
hereunder shall be conclusive absent manifest error.

2.8 Change in Circumstances.

2.8.1 Imposition of Requirements. Notwithstanding
any other provision herein, if after the date of this
Agreement any change in applicable Laws or in the
interpretation or administration thereof by any governmental
authority charged with the interpretation or administration
thereof (whether or not having the force of Law) shall change
the basis of taxation of payments to Lender under any LIBOR
Loan made by Lender or any other fees or amounts payable
hereunder (other than taxes imposed on the overall net income
of Lender by the country in which Lender is located, or by the
jurisdiction in which Lender has its principal office, or by
any political subdivision or taxing authority therein), or
shall impose, modify or deem applicable any reserve
requirement, special deposit, insurance charge (including FDIC
insurance on LIBOR Liabilities) or similar requirement against
assets of, deposits with or for the account of, or credit
extended by, Lender or shall impose on Lender or the London
Interbank Market any other condition affecting this Agreement
or LIBOR Loans made by Lender, and the result of any of the
foregoing shall be to increase the cost to Lender of making or
maintaining its LIBOR Loan or to reduce the amount of any sum
received or receivable by Lender hereunder (whether of
principal, interest or otherwise) in respect thereof by an
amount deemed by Lender to be material, then Borrowers will
pay to Lender such additional amount or amounts as will
compensate Lender for such additional costs of reduction.

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<PAGE> 29

2.8.2 Other Changes. If either (i) the
introduction of, or any change in, or in the interpretation
of, any United States or foreign Law; or (ii) compliance with
any directive, guidelines or request from any central bank or
other United States or foreign governmental authority (whether
or not having the force of law) promulgated or made after the
date hereof, affects or would affect the amount of capital
required or expected to be maintained by Lender (or any
lending office of Lender) or any corporation directly or
indirectly owning or controlling Lender (or any lending office
of Lender) based upon the existence of this Agreement, and
Lender shall have determined that such introduction, change or
compliance has or would have the effect of reducing the rate
of return on Lender's capital or on the capital of such owning
or controlling corporation as a consequence of its obligations
hereunder (including its commitment) to a level below that
which Lender or such owning or controlling corporation could
have achieved but for such introduction, change or compliance
(after taking into account that Lender's policies or the
policies of such owning or controlling corporation, as the
case may be, regarding capital adequacy) by an amount deemed
by Lender (in its sole discretion) to be material, then, from
time to time, Borrowers shall pay to Lender such additional
amount or amounts as will compensate Lender for such reduction
attributable to making, funding and maintaining its commitment
and Loans hereunder.

2.8.3 Computation of Amounts. A certificate of
Lender setting forth the basis and method of computation of
such amount or amounts specified in Sections 2.8.1 and 2.8.2
hereof as shall be necessary to compensate Lender (or its
participating banks) as specified above, as the case may be,
shall be delivered to Borrowers and shall be conclusive absent
manifest error; provided however, that Borrowers shall be
responsible for compliance herewith and the payment of
increased costs only to the extent that (i) any change in Laws
giving rise to increased costs occurs after the date of this
Agreement; and (ii) Lender gives notice of the change giving
rise to increased costs within one hundred eighty (180)
Business Days after Lender has, or with reasonable diligence
should have had, knowledge of the change, or else Lender can
only collect costs from and after the date of the notice.
Subject to the foregoing, Borrowers shall pay the affected
Lender the amount shown as due on any such certificate within
ten (10) Business Days after its receipt of such certificate.

2.8.4 No Duty to Contest. The protection of this
Section 2.8 shall be available to Lender regardless of any
possible contention of invalidity or inapplicability of the
Law or condition that shall have been imposed. Should Lender
assess any charge to Borrowers under this Section 2.8, and
provided that Borrowers pay the assessment to Lender,
Borrowers may thereafter undertake, at Borrowers own expense,
any contest of the matters giving rise to the charge that may,
in the opinion of Borrowers independent counsel issued to
Lender, and concurred in by counsel to Lender, have a
reasonable chance of

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<PAGE> 30

success, provided further that the contest would not require
the assertion of any position contrary to a position taken by
Lender generally with taxing authorities or any other involved
parties and that there does not exist any other circumstance
that would disadvantage Lender in the event of such contest,
as Lender may determine in its discretion. Lender shall offer
reasonable participation to Borrowers for the purpose of
enabling Borrowers to pursue the contest of such issue, with
all expenses, including fees and expenses of Lender's counsel,
to be paid by Borrowers.

2.9 Change in Legality of LIBOR Loans. Notwithstanding
anything to the contrary herein contained, if any change in any Law or in
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for Lender to
make or maintain any LIBOR Loan or to give effect to its obligations as
contemplated hereby, then, by written notice to Borrowers, Lender may (i)
declare that LIBOR Loans will not thereafter be made by Lender hereunder,
whereupon Borrowers shall be prohibited from requesting LIBOR Loans from Lender
hereunder unless such declaration is subsequently withdrawn; and (ii) require
that all outstanding LIBOR Loans made by it be converted to Prime Rate Loans,
in which event (a) all such LIBOR Loans shall be automatically converted to
Prime Rate Loans (but without imposition of any additional charge that would
normally become due under Section 2.11 hereof) as of the effective date of such
notice, and (b) all payments and prepayments of principal that would otherwise
have been applied to repay the converted LIBOR Loans shall instead be applied
to repay the Prime Rate Loans resulting from the conversion of such LIBOR
Loans. For purposes of this Section 2.9, a notice to Borrowers by Lender
pursuant to (a) above shall be effective, if lawful, on the last day of the
then current Interest Period; in all other cases, such notice shall be
effective on the date of receipt by Borrowers.

2.10 Principal Repayment. Principal payments under the
Revolving/Term Loan shall become due immediately and without notice at such
time that the outstanding principal balance of the Revolving/Term Loan may
exceed the Borrowing Base, in an amount sufficient to reduce the outstanding
principal balance to an amount no greater than the Borrowing Base. Following
the Conversion Date, principal payments on the Revolving/Term Loan shall
further become due on the first day of each April, July, October and January in
the amount of 1/28th of the principal balance of the Revolving/Term Loan as of
the Conversion Date. All remaining principal outstanding under the
Revolving/Term Loan shall become due on the Maturity Date or the earlier
acceleration of the Revolving/Term Loan in accordance with the terms of this
Agreement.

2.11 Prepayment of LIBOR Loans.

2.11.1 Notice of LIBOR Loan Prepayment. Borrowers
may, upon two (2) Banking Days' prior written notice to
Lender, and upon payment of all applicable premiums set forth
in Section 2.11.3 hereof, prepay any outstanding LIBOR Loans
prior to any Interest Payment Date for such LIBOR Loans, in

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<PAGE> 31

whole or in part. Each notice of prepayment of any LIBOR Loan
shall specify the date and amount of such prepayment and the
type of Loan to which it relates and shall be irrevocable.

2.11.2 Amount of LIBOR Loan Prepayment. Each
partial prepayment of any LIBOR Loan shall be in an aggregate
principal amount which is the lesser of (i) the then
outstanding principal balance of the one or more LIBOR Loans
to be prepaid, or (ii) Five Hundred Thousand and No/100
Dollars ($500,000.00) or an integral multiple thereof.
Interest on the amount prepaid accrued to the prepayment date
shall be paid on such date.

2.11.3 LIBOR Loan Prepayment Premium. Upon
prepayment of any LIBOR Loan on a date other than the relevant
Interest Payment Date for such borrowing, Borrowers shall pay
to Lender for the account of Lender, in addition to all other
payments then due and owing Lender, premiums which shall be
equal to an amount, if any, reasonably determined by Lender's
Funds Management Area to be the difference between the rate of
interest then applicable to the relevant LIBOR Loan and the
yield Lender receives upon reinvestment of so much of the
relevant LIBOR Loans as is prepaid for the remainder of the
term of the relevant LIBOR Loan or Loans. Anything in this
Section 2.11.3 to the contrary notwithstanding, the premiums
payable upon any such prepayment shall not exceed the amount,
if any, reasonably determined by Lender to be the difference
between the rate of interest then applicable to the relevant
LIBOR Loan and the yield that Lender could receive upon
reinvestment in the "Floor Reinvestment" of so much of the
relevant LIBOR Loan as is prepaid for the remainder of the
term of the relevant LIBOR Loan. For purposes hereof, "Floor
Reinvestment" shall mean an investment for the time period
from the date of such prepayment to the end of the relevant
Interest Period applicable to such LIBOR Loan at an interest
rate per annum equal to the federal funds "offered" rate as
published in the Wall Street Journal on the date of such
prepayment. All determinations, estimates, assumptions,
allocations and the like required for the determination of
such premiums shall be made by Lender in good faith and shall
be presumed correct absent manifest error.

2.12 Prepayment of Prime Rate Loans. Borrowers may at any
time prepay any outstanding Prime Rate Loans prior to the Conversion Date in
whole or in part without premium or penalty.

2.13 Initial Commitment Fee. Borrowers shall pay a
commitment fee to Lender in the amount of Seventy Thousand and No/100 Dollars
($70,000.00) upon the execution of this Agreement. This amount is in addition
to the like amount of commitment fee paid upon acceptance of Lender's
commitment letter issued February 16, 1996. These commitment fees are not
refundable or proratable; provided, however, should the Revolving/Term Loan not
close due to a material and unresolved adverse difference in the

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<PAGE> 32

terms of the Revolving/Term Loan as presented in the proposed final Loan
Documents when compared to the terms of Lender's commitment letter, then this
additional fee shall not become due and the initial fee shall be refunded less
all out-of-pocket expenses incurred by Lender including, but not limited to,
the fees and expenses of Lender's attorneys and expenses of due diligence by
Lender.

2.14 Periodic Commitment Fee Based on Use of Facility.
Borrowers shall pay an additional commitment fee for the unused portion of the
Revolving/Term Loan until the Conversion Date. This fee shall be determined by
applying the Applicable Commitment Fee to the average daily unused balance of
the Revolving/Term Loan. The commitment fee shall be paid in arrears on each
Interest Payment Date applicable to Prime Rate Loans. This commitment fee is
not refundable or proratable.

III. RELATIONSHIP OF BORROWERS

3.1 Joint and Several Liability. Borrowers are
interdependent for their operational and financial needs, and they and Lender
intend that each Borrower be jointly and severally liable for each monetary
obligation, warranty and covenant obligation arising under this Agreement. The
delivery of funds to any Borrower under this Agreement shall constitute
valuable consideration and reasonably equivalent value to all Borrowers for the
purpose of binding them and their assets on a joint and several basis for the
Obligations hereunder. Lender may enforce this Agreement against any Borrower
without first making demand upon or instituting collection proceedings against
any other Borrower.

3.2 Funding Requests and Administration. Any Borrower may
request or receive Loans or otherwise act on behalf of all Borrowers for the
purpose of giving and receiving notices and otherwise acting in the
administration of this Agreement. Any dealing of any Borrower with Lender under
this Agreement shall be deemed for the benefit of, and on behalf of, all
Borrowers.

3.3 Unconditional Obligation. The unconditional liability
of each Borrower for the entire Obligations shall not be impaired by any event
whatsoever, including, but not limited to, the merger, consolidation,
dissolution, cessation of business or liquidation of any Borrower; the
financial decline or bankruptcy of any Borrower; the failure of any other party
to guarantee the Obligations or to provide collateral therefor; Lender's
compromise or settlement with or without release of any Borrower; Lender's
release of any Collateral for the Obligations, with or without notice to
Borrowers; Lender's failure to file suit against any Borrower (regardless of
whether Borrower is becoming insolvent, is believed to be about to leave the
state or jurisdiction or any other circumstance); Lender's failure to give any
Borrower notice of default; the unenforceability of the Obligations against any
Borrower due to bankruptcy discharge, counterclaim or for any other reason;
Lender's acceleration of the Obligations at any time; the extension,
modification or renewal of the Obligations; Lender's failure to undertake or
exercise diligence in collection efforts against any party or property; the
termination of any relationship of any Borrower with any other Borrower,
including, but

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<PAGE> 33

not limited to, any relationship of commerce or ownership; any Borrower's
change of name or use of any name other than the name used to identify such
Borrower in this Agreement; or any Borrower's use of the credit extended for
any purpose whatsoever.

3.4 Contribution and Subrogation. Borrowers' respective
rights of contribution and any other such rights among themselves are not
impaired by this Agreement, except that each Borrower agrees not to seek
payment directly or indirectly from another Borrower through a claim of
indemnity, contribution, or otherwise with respect to the Obligations, until
the Obligations have been repaid in full.

3.5 Savings Provision. Should the liability of any
Borrower hereunder for the entire amount of the Obligations be subject to
avoidance or limitation, notwithstanding the contrary agreement and intention
of the parties hereto, under any state or federal fraudulent conveyance law or
other similar law that may be determined to be applicable, then the liability
of such Borrower shall be limited to the maximum amount for which the Borrower
may be liable without legal impairment.

IV. CONDITIONS PRECEDENT

4.1 Conditions to Initial Advance. Lender shall not be
obligated to make its initial Loan pursuant to this Agreement unless and until
Borrowers satisfy the following conditions:

4.1.1 Loan Documents. Borrowers shall have
delivered to Lender the following documents, fully executed
and in form and substance acceptable to Lender:

4.1.1(a) Loan Agreement. This
Agreement.

4.1.1(b) Revolving/Term Note.
Revolving/Term Note made by Borrowers payable to the order of
Lender in the maximum principal amount of Thirty-Five Million
and No/100 Dollars ($35,000,000.00).

4.1.1(c) Pledge of Stock of
Subsidiaries. Stock Pledge Agreement, Irrevocable
Proxies and Blank Stock Powers evidencing a first
priority perfected security interest in all of the
stock of Borrowers (other than RCG) and all
dividends, dividends and other property related
thereto, together with the original certificates
evidencing the pledged stock.

4.1.1(d) Charters. Certified Copies of
each Borrower's corporate charter and all amendments
thereto, issued by the Secretaries of State for their
states of domicile.

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<PAGE> 34

4.1.1(e) Bylaws. Certified Copies of
each Borrower's Bylaws.

4.1.1(f) Certificates of Good Standing.
Certificates of each Borrower's good standing or
existence, as applicable, issued by the Secretaries
of State for the states of their domicile.

4.1.1(g) Foreign Qualification.
Certificates of Qualification issued by the
Secretaries of State for each state in which any
Borrower is required to qualify as a foreign
corporation.

4.1.1(h) Resolutions. Certified Copies
of Resolutions authorizing the execution of all
applicable Loan Documents on behalf of all Borrowers.

4.1.1(i) Opinions of Borrowers'
Counsel. Opinions of counsel to Borrowers addressed
to Lender, addressing matters reasonably required by
Lender and its counsel.

4.1.1(j) UCC Searches. UCC search
reports on Borrowers from such jurisdictions and
filing offices as Lender may require.

4.1.1(k) Closing Statement. Loan
Closing Statement authorizing the payment of expenses
due in connection with the closing of the
Revolving/Term Loan.

4.1.1(l) Other Documents. Such other
documents as Lender may reasonably require.

4.1.2 Additional Conditions. Borrowers shall have
satisfied the following additional conditions, to Lender's
satisfaction:

4.1.2(a) Warranties. All warranties
made in the Loan Documents must be true in all
material respects and shall be true taking into
account the funding of the requested Loan.

4.1.2(b) Covenants. All covenants made
in the Loan Documents must have been complied with
and shall have been complied with taking into account
the funding of the requested Loan.

4.1.2(c) Absence of Unmatured Default.
No Event of Default or Unmatured Default shall exist
under this Agreement.

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<PAGE> 35

4.1.2(d) No Adverse Change. There must
be no Material Adverse Change since the date of the
Financial Statements.

4.1.2(e) Cash on Hand. Borrowers must
provide evidence satisfactory to Lender that
Borrowers had unrestricted cash on hand after
settlement of RCG's initial public offering in an
amount exceeding by at least Twenty-five Million and
No/100 Dollars ($25,000,000.00) the amount of Total
Funded Debt then outstanding.

4.1.2(f) Financial Information.
Borrowers must have delivered to Lender additional
financial information on the Founding Companies,
including, but not limited to, audited balance sheets
and profit and loss statements for the past three (3)
years and the most recent interim financial
statements.

4.2 Conditions to Subsequent Loans. Lender shall not be
obligated to make any Loan unless all of the following conditions are satisfied
as of the time of the request and of funding:

4.2.1 Conditions to Initial Advance. All of the
conditions in Section 4.1 hereof must have been satisfied.

4.2.2 Warranties. All warranties made in the Loan
Documents must be true in all material respects and shall be
true taking into account the funding of the requested Loan.

4.2.3 Covenants. All covenants made in the Loan
Documents must have been complied and shall have been complied
with taking into account the funding of the requested Loan.

4.2.4 Absence of Unmatured Default. No Event of
Default or Unmatured Default shall exist under this Agreement.

4.2.5 Material Adverse Change. There shall not
have occurred a Material Adverse Change.

V. REPRESENTATIONS AND WARRANTIES

Borrowers represent and warrant to Lender that (as used below
in this Article V, "Borrowers" means Borrowers as defined in Article I hereof,
together with all Majority-Owned Nonparticipating Subsidiaries):

5.1 Capacity. All Borrowers are corporations or other
entities permitted under this Agreement, duly organized, validly existing and
in good standing under the laws of

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<PAGE> 36

the states of their domicile. Each Borrower is qualified or authorized to do
business in all jurisdictions in which its ownership of property or conduct of
business requires such qualification or authorization. Each Borrower has the
power and authority to own its Properties and to carry on its business as now
being conducted and as proposed to be conducted after the execution hereof, to
execute and deliver this Agreement and the other Loan Documents, and to perform
its obligations hereunder and under the other Loan Documents.

5.2 Authorization. The execution, delivery and
performance of this Agreement and the other Loan Documents by Borrowers
executing such documents has been duly authorized by all requisite action.

5.3 Binding Obligations. This Agreement is and the other
Loan Documents, when executed and delivered to Lender, will be, legal, valid
and binding upon the respective Borrowers who are parties thereto, enforceable
in accordance with their respective terms, subject only to principles of equity
and laws applicable to creditors generally, including bankruptcy laws.

5.4 No Conflicting Law or Agreement. The execution,
delivery and performance of this Agreement and the other Loan Documents by any
Borrower do not constitute a breach of or default under, and will not violate
or conflict with, any provisions of the corporate charter or other constituent
documents of any Borrower; any contract, financing agreement, lease, or other
agreement to which any Borrower is a party or by which its Properties may be
affected, the violation of which could have a Material Adverse Effect; or any
Law to which any Borrower is subject or by which its Properties may be
affected, the violation of which could have a Material Adverse Effect; nor will
the same result in the creation or imposition of any Encumbrance upon any
Properties of any Borrower, other than those contemplated by the Loan
Documents.

5.5 No Consent Required. The execution, delivery, and
performance of this Agreement and the other Loan Documents by Borrowers do not
require the consent or approval of or the giving of notice to any Person except
for those consents which have been duly obtained and are in full force and
effect on the date hereof and others, if any, which by their omission could not
result in a Material Adverse Effect.

5.6 Financial Statements. The Financial Statements are
complete and correct, have been prepared in accordance with GAAP, and present
fairly the financial condition and results of operations of each Borrower as of
the date and for the period stated therein, subject to year-end adjustments. No
Material Adverse Change has occurred since the date of the Financial
Statements. Borrowers acknowledge that Lender shall advance the Revolving/Term
Loan in reliance upon the Financial Statements.

5.7 Fiscal Year. Each Borrower's fiscal year ends on
December 31 of each year.

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5.8 Litigation. There is no litigation, arbitration,
legal or administrative proceeding, tax audit, investigation, or other action
or proceeding of any nature pending against any Borrower or any of its
Properties, and there is no litigation, arbitration, legal or administrative
proceeding, tax audit, investigation, or other action or proceeding of any
nature threatened in writing against a Borrower which, if adversely determined,
could have a Material Adverse Effect. As of the date of this Agreement, no
Borrower is subject to any outstanding court, arbitral or administrative order,
writ or injunction. To the best of Borrowers' knowledge, information and
belief, no facts exist under which third parties have unasserted claims against
any Borrower which, if adversely determined, could have a Material Adverse
Effect.

5.9 Taxes; Governmental Charges. Each Borrower has filed
or caused to be filed all tax returns and reports required to be filed. Each
Borrower has paid, or made adequate provision for the payment of, all Taxes
that have or may have become due pursuant to such returns or otherwise, or
pursuant to any assessment received by it, except such Taxes, if any, as are
being contested in good faith by appropriate proceedings and for which adequate
reserves have been provided. Each Borrower knows of no proposed material tax
assessment against it. No extension of time for the assessment of federal,
state or local taxes of any Borrower is in effect or has been requested, except
as disclosed in the Financial Statements. Each Borrower has timely made all
required remittances of withholding deposits and other assessments against
payroll expenditures.

5.10 Title to Properties. Each Borrower has good and
marketable title to its Properties, free and clear of all Encumbrances except
for Permitted Encumbrances.

5.11 No Default. No Borrower is in default in any respect
that affects its business, Properties, operations, or condition, financial or
otherwise, under any indenture, mortgage, deed of trust, obligation to equity
holders, credit agreement, note, agreement, lease, sale agreement or other
instrument to which any Borrower is a party or by which its Properties are
bound, the violation of which could have a Material Adverse Effect. To the best
of Borrowers' knowledge, information and belief, no other party to any contract
with any Borrower under which a default by the other party could have a
Material Adverse Effect is in default or breach thereof and no circumstances
exist which, with the giving of notice and/or the passing of time would
constitute such default or breach. No Event of Default or Unmatured Default
exists under this Agreement.

5.12 Casualties; Taking of Properties. Neither the
business nor the Property of any Borrower is presently impaired as a result of
any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or
other labor disturbance, embargo, requisition or taking of property,
cancellation of contracts, permits, concessions by any domestic or foreign
government or any agency thereof, riot, activities of armed forces or acts of
God or of any public enemy, in any case as could have a Material Adverse
Effect.

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5.13 Compliance with Laws. No Borrower is in violation of
any Law to which it, its business or any of its Properties are subject, the
violation of which would likely have a Material Adverse Effect, and there are
no outstanding citations, notices or orders of noncompliance issued to any
Borrower under any such Law, the violation of which would likely have a
Material Adverse Effect. Each Borrower has obtained all licenses, permits,
franchises, or other governmental authorizations necessary to the ownership of
its Properties or to the conduct of its business, except for those which, if
not obtained, could not have a Material Adverse Effect.

5.14 Compliance with Fraud and Abuse Laws. Without
limiting any other provision of this Agreement, no Borrower and, to the best of
Borrower's knowledge, information and belief, no Provider is in violation of
any Fraud and Abuse Law, the violation of which could have a Material Adverse
Effect.

5.15 ERISA. No ERISA Event has occurred with respect to
any Plan or is reasonably expected to occur with respect to any Plan.

5.16 Full Disclosure of Material Facts. Borrowers have
fully advised Lender in writing of all matters involving the financial
condition, business, operations and Properties that would be reasonably
expected to have a Material Adverse Effect, such matters being listed in
Schedule 5.16 hereto. No information, exhibit, or report furnished or to be
furnished by Borrowers to Lender in connection with this Agreement contains, as
of the date thereof, any misrepresentation of fact or failed or will fail to
state any material fact, the omission of which would render the statements
therein materially false or misleading.

5.17 Investment Company Act. No Borrower is an "investment
company" under the Investment Company Act of 1940, as amended.

5.18 Personal Holding Company. No Borrower is a "personal
holding company" as defined in Section 542 of the IRC.

5.19 Solvency. Each Borrower is Solvent as of the Closing
Date and will remain Solvent upon the consummation of the transactions
contemplated hereby.

5.20 Chief Executive Office. The address designated herein
to which notices are to be sent under this Agreement is Borrowers' chief
executive office within the meaning of Tennessee Code Annotated Section 47-9-
103(3)(d).

5.21 Corporate Structure. The corporate structure of all
Borrowers is set forth on Schedule 5.21 hereto.

5.22 Ownership of Patents, Licenses, Etc. Borrowers own
all licenses, permits, franchises, registrations, patents, copyrights,
trademarks, trade names or service marks, or the rights to use the foregoing,
that are necessary for the continued operation of

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their business except for such licenses, etc., which, if not held or owned,
would not have a Material Adverse Effect.

5.23 Environmental Compliance. Each Borrower has duly
complied with, and their Properties are owned and operated in compliance with,
all Environmental Laws, the violation of which could have a Material Adverse
Effect. There have been no citations, notices or orders of non-compliance
issued to any Borrower or, to Borrowers' knowledge, relating to their business
or Properties pursuant to any Environmental Law. Each Borrower has obtained all
required federal, state and local licenses, certificates or permits relating to
them and their Properties as required by applicable Environmental Laws.

5.24 Labor Matters. No Borrower is subject to any
collective bargaining agreements or any decrees or orders requiring them to
recognize, deal with or employ any Person. No demand for collective bargaining
has been asserted against any Borrower by any union or organization. No
Borrower has experienced any strike, labor dispute, slowdown or work stoppage
due to labor dispute and, to the best knowledge of Borrower, there is no such
strike, dispute, slowdown or work stoppage threatened against any Borrower. All
Borrowers are in compliance in all material respects with the Fair Labor
Standards Act of 1938, as amended.

5.25 OSHA Compliance. All Borrowers are in compliance in
all material respects with the Federal Occupational Safety and Health Act, as
amended, and all regulations under the foregoing.

5.26 Regulation U. No Borrower is engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System). No proceeds of any Loan will be used to purchase or
carry any margin stock (within the meaning of Regulation U issued by the Board
of Governors of the Federal Reserve System) in violation of applicable law,
including, without limitation, Regulation U issued by the Board of Governors of
the Federal Reserve System.

5.27 Affiliate Transactions. No Borrower is a party to any
transaction, contract or agreement with any Affiliate, except for Service
Agreements, lease agreements and other agreements among Borrowers and those
other agreements described in the Prospectus.

VI. AFFIRMATIVE COVENANTS

Borrowers covenant that, during the term of this Agreement
(and thereafter where expressly stated herein), Borrowers shall observe and
comply with covenants set forth below and, in addition, shall further cause all
Majority-Owned Nonparticipating Subsidiaries to observe and comply with
Sections 6.2, 6.4, 6.5.6, 6.6, 6.7, 6.8, 6.9, 6.10, 6.13, 6.14, 6.15, 6.16,
6.17, 6.18 and 6.23.1 set forth below to the same extent as though the
Majority-Owned Nonparticipating Subsidiaries were also Borrowers hereunder:

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6.1 Payment of Obligations. Borrowers shall pay all
amounts owed under the Obligations when due.

6.2 Maintenance of Existence and Business. Except for
transactions permitted under this Agreement, each Borrower shall maintain its
fundamental legal existence, rights, and franchises, and shall maintain its
qualification and good standing in all states in which such qualification is
necessary, and shall continue to operate in the same type of business as such
Borrower engages in as of the date hereof.

6.3 Financial Statements and Reports. Borrowers shall
furnish to Lender or cause Lender to receive all of the following, all of which
must be in form and substance satisfactory to Lender:

6.3.1 Quarterly Financial Reports. As soon as
available, and in any event by the forty- fifth (45th) day of
each fiscal quarter (except that no quarterly financial
statements need to be delivered for the fiscal quarter ending
December 31), Borrowers shall deliver to Lender a balance
sheet, income statement and statement of cash flows of
Borrowers for and as of the end of the preceding fiscal
quarter, all prepared by Borrowers on a consolidated basis and
certified by RCG's President or Chief Financial Officer to be
complete and correct and to present fairly, in accordance with
GAAP (excluding year-end adjustments and required footnote
disclosures), the financial condition of Borrowers as of the
date of such statements and the results of its operations for
such period. Subsidiary-level consolidating income statements
and balance sheets, similarly certified, shall also be
provided with the other quarterly financial reports. The
quarterly financial information shall include calculations
showing compliance or non-compliance with all financial
ratios.

6.3.2 Annual Financial Reports. As soon as
available, and in any event no later than May 1 following the
end of each fiscal year, Borrowers shall deliver to Lender
audited balance sheets of Borrowers as of the end of such year
and the related audited statements of income, retained
earnings and cash flows for such year, together with
supporting schedules and management letters or similar
communications from the accountants (as such schedules,
letters and other communications become available), all such
statements prepared in accordance with GAAP on a consolidated
and consolidating basis and accompanied by an unqualified
audit report prepared by an independent certified public
accountant acceptable to Lender (such firm must be one of the
"big 6" accounting firms) showing the financial condition of
Borrowers at the close of such year and the results of its
operations during such year. The annual financial information
shall include calculations of all financial ratios as
determined based upon the audited financial statements.

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6.3.3 Compliance and Borrowing Base Certificates.
Concurrently with the delivery of quarterly and annual
financial reports, Borrowers shall deliver to Lender the
certificate of RCG's President or Chief Financial Officer in
form and substance acceptable to Lender stating that there are
no Events of Default or Unmatured Defaults then outstanding
under the Loan Documents and including a current calculation
of the Borrowing Base.

6.3.4 Other Information. Borrowers shall provide
Lender with such additional information regarding the
financial condition, properties, operations and prospects of
Borrowers as Lender may reasonably require.

6.4 Additional Information. Borrowers shall provide such
other information respecting the condition or operations, financial or
otherwise, of Borrowers as Lender may from time to time reasonably request.

6.5 Certain Additional Reporting Requirements.

6.5.1 Owner Mailings. Promptly upon the sending
thereof, Borrowers shall deliver to Lender a copy of each
statement, report or notice sent to their shareholders.

6.5.2 SEC Filings. Borrowers shall deliver to
Lender copies of all regular, periodic and special reports
that any Borrower files with the United States Securities and
Exchange Commission or any successor thereto, or any
securities exchanges.

6.5.3 Change in Accounting Policies. Borrowers
shall promptly notify Lender in writing upon any material
change in accounting policies or financial reporting practices
on the part of any Borrower.

6.5.4 Notice to Lender Upon Perceived Breach.
Borrowers agree to give Lender prompt written notice of any
action or inaction by or on behalf of Lender in connection
with this Agreement or the Obligations that Borrowers believe
may be actionable against Lender or a defense to payment of
any or all Obligations for any reason, including, but not
limited to, commission of a tort or violation of any
contractual duty or duty implied by law. Borrowers' failure to
timely give such a notice shall result in Borrowers' waiver of
all damages accruing after the date upon which notice should
have been given, to the extent that Lender could have
mitigated those damages if it had received such notice.

6.5.5 Changes in Constituent Documents. Borrowers
shall promptly notify Lender in writing of any change in the
corporate charter or bylaws of any Borrower or any other
fundamental constituent documents following the encumbrance of
the stock or other equity interest thereof in favor of Lender
as

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required under this Agreement, and shall provide Lender with a
copy of such change (Borrowers are restricted in the adoption
of such amendments as provided elsewhere in the Loan
Documents, and nothing contained in this Section shall be
deemed a waiver of such restrictions).

6.5.6 Notice of Litigation. Borrowers shall give
Lender prompt written notice of any litigation, arbitration,
tax audit, administrative proceeding or investigation that may
hereafter be instituted or threatened in writing in which a
Borrower would be a party or which otherwise may affect any
Borrower or any of their business, operations or Properties,
except for (i) actions seeking only monetary damages in an
amount of less than Two Hundred Fifty Thousand and No/100
Dollars ($250,000.00), and (ii) matters arising from premises
or vehicular liability seeking only monetary damages and which
are fully covered by insurance, subject only to any applicable
deductible.

6.5.7 Other Notices. Borrowers shall promptly
notify Lender in writing if any Borrower learns of the
occurrence of (i) any event that constitutes an Event of
Default or an Unmatured Default, together with a detailed
statement of the steps being taken as a result thereof, or
(ii) any Material Adverse Change.

6.6 Taxes and Other Encumbrances. Each Borrower shall
make due and timely payment or deposit of all federal, state and local taxes,
assessments or contributions required of it by law, and execute and deliver to
Lender, on demand, appropriate certificates attesting to the payment or deposit
thereof; provided, however, that Borrowers shall not be required to pay or
discharge any such tax, assessment, charge or claim for as long as it is being
diligently contested in good faith by proper proceedings and for which
appropriate reserves are being maintained.

6.7 Payment of Debts. Each Borrower shall pay all of its
Debts as and when the same become due in accordance with their terms, except
for such Debts being contested in good faith by appropriate proceedings and for
which adequate reserves have been established on the books of such Borrower in
accordance with GAAP.

6.8 Compliance with Laws. Each Borrower shall observe and
comply with all Laws (including, but not limited to, Fraud and Abuse Laws), and
shall maintain all certificates, franchises, permits, licenses, and
authorizations necessary to the conduct of its business or the operation of its
Properties, except for such Laws, certificates, etc., which, if violated or not
obtained and full penalties were imposed for such violation, could not cause a
Material Adverse Effect. Each Borrower shall further use commercially
reasonable efforts to assure the compliance by all Providers with all
applicable Laws, including, but not limited to, medical licensure and Fraud and
Abuse Laws, relating to their providing of professional services, except for
those which, if violated and full penalties were imposed for such violation,
could not cause a Material Adverse Effect.

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6.9 Maintenance of Property. All Borrowers shall maintain
their Property (and any Property leased by or consigned or held under title
retention or conditional sales contracts) in good and workable condition at all
times, subject to normal discards and replacements due to functional and
useful-life obsolescence, and shall make all repairs, replacements, additions,
and improvements to their Property reasonably necessary and proper to ensure
that the business carried on in connection with their Property may be conducted
properly and efficiently at all times.

6.10 Compliance with Contractual Obligations. Each
Borrower will perform all of its obligations in respect of all material
contracts to which it is a party and will use its best efforts to keep, and to
take all action to keep, such contracts in full force and effect and not allow
any such contract to lapse or be terminated or any rights to renew such to be
forfeited or canceled, if such lapse, etc. could have a Material Adverse
Effect; provided, however, that any such contract may lapse or be terminated or
such renewal rights may be forfeited or canceled if in the reasonable business
judgment of Borrowers it is in their best interests to allow or cause such
lapse, termination, forfeiture or cancellation.

6.11 Further Assurances. Borrowers shall promptly cure any
defects in the creation, issuance, or delivery of the Loan Documents. Borrowers
at their expense will execute (or cause to be executed) and deliver to Lender
upon request all such other and further documents, agreements, and instruments
in compliance with or accomplishment of the covenants and agreements applicable
to them in the Loan Documents, or to evidence further and to describe more
fully any Collateral intended as security for the Obligations, or to correct
any omissions in the Loan Documents, or to state more fully the Obligations and
agreements set out in any of the Loan Documents, or to perfect, protect, or
preserve any Encumbrances created pursuant to any of the Loan Documents, or to
make any recordings, to file any notices, or to obtain any consents, all as may
be reasonably necessary or appropriate in connection therewith. Each Borrower
appoints Lender as its attorney-in-fact to execute any financing statements or
other instruments of perfection with respect to the Collateral.

6.12 Security Interest; Setoff. In order to further secure
the payment of the Obligations, Borrowers hereby jointly and severally grant to
Lender a security interest and right of setoff against all of Borrowers'
presently owned or hereafter acquired monies, items, credits, deposits and
instruments (including certificates of deposit) presently or hereafter in the
possession of Lender. By maintaining any such accounts or other Property with
Lender, Borrowers acknowledge that Borrowers voluntarily subject the property
to Lender's rights hereunder. Lender may exercise its rights under this Section
without prior notice (but with prompt notice following the setoff) following an
Event of Default. Borrowers agree that Lender shall not be liable for the
dishonor of any instrument resulting from Lender's exercise of its rights under
this Section.

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6.13 Insurance.

6.13.1 General Insurance Requirements. In addition
to any other specific requirements set forth in this Agreement
and in other Loan Documents, Borrowers shall maintain
insurance on all insurable Properties now or hereafter owned
by them against such risks and to the extent customary in
their industry, and shall maintain or cause to be maintained
public liability and worker's compensation insurance to the
extent customary in the industry.

6.13.2 Practice-Related Insurance Requirements.
Borrowers shall maintain insurance for claims, however
characterized, against them in connection with the provision
of medical services by Providers and/or ancillary services
provided by them, in an amount of at least One Million and
No/100 Dollars ($1,000,000.00) per occurrence. Borrowers shall
further cause each Provider to maintain medical malpractice
insurance of at least One Million and No/100 Dollars
($1,000,000.00) per occurrence.

6.14 Accounts and Records. Borrowers shall maintain
current books of record and account, in which full, true, and correct entries
will be made of all transactions.

6.15 Official Records. Borrowers shall maintain current
corporate records, minute books and stock ledgers.

6.16 Banking Relationships. Borrowers shall maintain their
deposit accounts with Lender or with other FDIC-insured depository
institutions.

6.17 Right of Inspection. Borrowers shall permit any
officer, employee, or agent of Lender to visit and inspect any of the their
Property, to examine their books of record and accounts and corporate records,
to take copies and extracts from such books of record and accounts, and to
discuss the affairs, finances, and accounts of Borrowers with their respective
officers, accountants, and auditors, all at such reasonable times and as often
as Lender may reasonably desire and upon reasonable advance notice absent an
Event of Default. Without limiting Lender's right to obtain equitable relief as
to any other appropriate right in this Agreement or in other Loan Documents,
Borrowers agree that the rights in this Section may be enforced by affirmative
injunction and, to the extent the right to review records may be denied, the
right may be enforced by a restraining order prohibiting the interference by
Borrowers with Lender's exercise of its rights to review of the records. Absent
an Event of Default or Unmatured Default, all expenses of such inspections,
etc. shall be paid by Lender, and in the presence thereof, all expenses shall
be paid by Borrowers.

6.18 ERISA Information and Compliance. Borrowers shall
comply with ERISA and all other applicable laws governing any pension or profit
sharing plan or arrangement to which they are a party. Borrowers shall (i)
promptly upon request, provide

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<PAGE> 45

Lender with copies of any annual report required to be filed pursuant to ERISA
with respect to any Plan or any other employee benefit plan; (ii) notify Lender
upon the occurrence of any ERISA Event or of any additional act or condition
arising in connection with any Plan which they believe might constitute grounds
for termination thereof by the PBGC or for the appointment of a trustee to
administer the Plan; and (iii) furnish to Lender, promptly upon request, such
additional information concerning any Plan or any other employee benefit plan
as Lender may request.

6.19 Indemnity; Expenses. Borrowers jointly and severally
agree to indemnify, defend (with counsel selected by Borrowers in matters
involving claims of third parties or other claims in which Borrowers are not
adverse to Lender, which counsel shall be reasonably satisfactory to Lender,
and with counsel selected by Lender in all matters in which Borrowers and
Lender are adverse) and hold harmless Lender against any loss, liability, claim
or expense, including reasonable attorneys' fees, that Lender may incur in
connection with the Loan Documents or the Obligations, except those losses,
etc. that may result from Lender's gross negligence or willful misconduct.
Without limiting the foregoing, upon demand by Lender, Borrowers will reimburse
Lender for the following expenses:

6.19.1 Taxes. All taxes that Lender may be
required to pay because of the Obligations or because of
Lender's interest in any property securing the payment of the
Obligations, excepting taxes based upon the net income of
Lender.

6.19.2 Administration. All "out-of-pocket" costs
of the preparation of this Agreement and any other related
documents and the administration of the Obligations (except
for Lender's usual overhead incurred in the acceptance and
processing of payments, the routine review of financial
statements, certifications and reports, routine communications
with Borrowers, and other ordinary activities of Lender that
are not occasioned by an Unmatured Default, Event of Default
or by a request of Borrowers to vary the terms of this
Agreement); provided, however, the fees and incidental
administrative expenses (copies, federal express charges,
transcripts, phone charges, etc. but excluding any
non-administrative third-party expenses) of Lender's counsel
for the closing of the Revolving/Term Loan and usual follow-up
(but not including any work incidental to acquisitions other
than of the Founding Companies) will be Twenty-Five Thousand
and No/100 Dollars ($25,000.00); and provided further,
however, should material unforseen events arise, such as
unusually protracted negotiations, negotiations with third
parties (such as subordinated debt holders) or other
unexpected diligence issues, Lender's counsel will timely
notify Borrowers and a higher fee may be charged.

6.19.3 Protection of Collateral. All costs of
preserving, insuring, preparing for sale (whether by
improvement, repair or otherwise) or selling any Collateral.

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6.19.4 Costs of Collection. All court costs and
other costs of collecting any of the Obligations.

6.19.5 Litigation. All reasonable costs arising
from any litigation, investigation, or administrative
proceeding (whether or not Lender is a party thereto) that
Lender may incur as a result of the Obligations or as a result
of Lender's association with any of Borrowers, including, but
not limited to, expenses incurred by Lender in connection with
a case or proceeding involving any Borrower under any chapter
of the Bankruptcy Code or any successor statute thereto.

6.19.6 Attorneys' Fees. Reasonable attorneys' fees
and expenses incurred in connection with any of the foregoing
(subject to the limitation in Section 6.19.12 above in
connection with the initial closing).

If Lender pays any of the foregoing expenses, they shall become a part of the
Obligations and shall bear interest at the Default Rate. This Section shall
remain in full effect regardless of the full payment of the Obligations, the
purported termination of this Agreement, the delivery of the executed original
of this Agreement to Borrowers, or the content or accuracy of any
representation made by Borrowers to Lender; provided, however, Lender may
terminate this Section by executing and delivering to Borrowers a written
instrument of termination specifically referring to this Section.

6.20 Assistance in Litigation. Borrowers covenant to, upon
request, cooperatively participate in any proceeding in which Borrowers are not
adverse to Lender and which concerns Lender's rights regarding the Obligations
or any Collateral.

6.21 Name Changes. Borrowers shall give Lender at least
thirty (30) days prior written notice before any Borrower changes its name or
begins doing business under any trade name.

6.22 Estoppel Letters. Borrowers covenant to provide
Lender, within ten (10) days after request, an estoppel letter stating (i) the
balance of the Obligations, (ii) whether any Borrower has any defenses to
payment of the Obligations, and (iii) the nature of any defenses to payment of
the Obligations. Such balance as presented for confirmation and the
nonexistence of defenses shall be presumed if Borrowers fail to respond to such
a request within the required period.

6.23 Environmental Matters.

6.23.1 Compliance With Environmental Laws. All
Borrowers will (i) employ in connection with their operations,
appropriate technology and compliance procedures to maintain
compliance with all applicable Environmental Laws, (ii) obtain
and maintain any and all materials permits or

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other permits required by applicable Environmental Laws in
connection with its operations, and (iii) dispose of all
Hazardous Substances only at facilities and with carriers
reasonably believed to possess valid permits under any
applicable state and local Environmental Laws, in each case
where the failure to do so could have a Material Adverse
Effect. All Borrowers shall obtain all certificates required
by law to be obtained by them from all contractors employed by
them in connection with the transport or disposal of any
Hazardous Substances.

6.23.2 Remedial Work. If any investigation, site
monitoring, containment, clean-up, removal, restoration or
other remedial work of any kind or nature with respect to any
Borrower's Properties is required to be performed by them
under any applicable local, state or federal law or
regulation, any judicial order, or by any governmental or
non-governmental entity or Person because of, or in connection
with, the current or future presence, suspected presence,
release or suspected release of a Hazardous Substance in or
into the air, soil, groundwater, surface water or soil vapor
Borrowers shall within 30 days after written demand for
performance thereof (or such shorter period of time as may be
required under applicable law, regulation, order or agreement)
commence and thereafter diligently prosecute to completion,
all such remedial work.

6.23.3 Indemnification of Lender. Borrowers
jointly and severally agree to indemnify, defend (with counsel
selected by Borrowers in matters involving claims of third
parties or other claims in which Borrowers are not adverse to
Lender, which counsel shall be reasonably satisfactory to
Lender, and with counsel selected by Lender in all matters in
which Borrowers and Lender are adverse) and hold harmless
Lender against any loss, liability claim or expense, including
attorneys' fees, that Lender may incur as a result of the
violation or alleged violation of any Environmental Law by any
Borrower or with respect to any other violation of
Environmental Laws with respect to any Borrower's activities
or Properties. This covenant shall survive the repayment of
the Revolving/Term Loan.

6.24 Opinions of Counsel. Borrowers agree that Lender may
from time to time, but not more frequently than once every calendar year absent
an Unmatured Default or an Event of Default, request in writing a copy of the
most recent letter of in-house counsel and/or outside healthcare counsel issued
to Borrowers' auditors addressing any material loss contingencies as to which
such counsel have devoted substantive attention. Copies of such letters shall
be delivered to Lender within ten (10) days after request. Additionally,
Borrowers shall, within twenty (20) days after written request, respond to such
questions that may be raised by Lender from time to time regarding Borrowers'
compliance with Fraud and Abuse Laws, and shall engage the assistance of
Borrowers' healthcare counsel for the purpose of responding to such questions
if Lender so requests.

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6.25 Grant of Additional Collateral Upon Certain Events.
Upon the occurrence and continuation of an Event of Default, Borrowers shall
grant or cause to be granted to Lender, at Lender's option, a first priority
perfected security interest in all presently owned and hereafter acquired
personal property and fixtures of Borrowers, including, but not limited to, all
of their accounts, general intangibles, instruments, documents, equipment,
inventory, securities, fixtures and other personal property, and all proceeds
thereof. All costs of granting and perfecting such security interest, including
the fees and expenses of Lender's attorneys and all filing fees and taxes,
shall be paid by Borrowers. Additionally, upon the occurrence and continuation
of an Event of Default, Borrowers shall grant or cause to be granted to Lender,
at Lender's option, a first priority deed of trust or mortgage lien upon all
presently owned and hereafter acquired real property of Borrowers, together
with such title insurance opinions or other evidence of title acceptable to
Lender, phase one environmental audits and other supporting diligence items as
Lender may then require, all at Borrowers' sole expense.

VII. NEGATIVE COVENANTS

Borrowers covenant and agree that, without Lender's prior
written consent:

7.1 Debts, Guaranties, and Other Obligations. No Borrower
shall incur, create, assume, or in any manner become or be liable with respect
to any Debt, except the following:

7.1.1 Obligations to Lender. Obligations to
Lender.

7.1.2 Existing Liabilities. Liabilities of
Borrowers that are included in Total Funded Debt on the date
of this Agreement, all of which are listed in Schedule 7.1.2
to this Agreement.

7.1.3 Endorsements. Endorsements of negotiable or
similar instruments for collection or deposit in the ordinary
course of business.

7.1.4 Trade Debt. Trade payables and accruals
from time to time incurred in the ordinary course of business.

7.1.5 Taxes. Taxes, assessments, or other
governmental charges that are not delinquent or are being
contested in good faith by appropriate action promptly
initiated and diligently conducted, if any Borrower has made
the reserve therefor required by GAAP.

7.1.6 Seller Debt. Seller Debt, which must be
unsecured Debt.

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7.1.7 Accounting Accruals. Liabilities arising
from reserves and accruals required by GAAP that do not
reflect liquidated and mature obligations to third parties,
including, but not limited to, current deferred income taxes.

7.1.8 Debt Among Borrowers. Debt to other
Borrowers incurred in the ordinary course of business.

7.1.9 Assumed Acquisition Debt. Unsecured Debt
other than Seller Debt that is assumed in connection with a
Permitted Acquisition.

7.1.10 Certain Guaranties. Debt resulting from the
guaranty by a Borrower of Debt (i) owing by officers and
employees of such Borrower incurred by such Persons in the
ordinary course of business; provided, however, that the
aggregate principal amount of such Debt permitted to be so
guaranteed pursuant to this Section 7.1.10 shall not exceed
Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) at
any one time outstanding, (ii) with respect to customary
indemnifications and purchase price adjustment obligations
incurred in connection with transactions permitted under this
Agreement, and (iii) incurred in the ordinary course of
business with respect to surety and appeal bonds, performance
and return-of-money bonds and other similar obligations of
Borrowers or Permitted Subsidiaries.

7.2 Change of Management. RCG shall not allow or suffer
any change of management effecting a material change in the duties or change in
the personnel presently staffing the positions of chief executive officer,
president or chief financial officer, as set forth in Schedule 7.2 hereto.
Notwithstanding the foregoing, should any of the named managers cease such
active participation in management due to their death or disability, Lender
shall allow RCG a period of sixty (60) days thereafter in which a management
succession plan may be presented to Lender so that Lender may, in its
discretion, elect to accept new management in lieu of prior management, subject
to such revisions of this Agreement as Lender may require. All Borrowers other
than RCG shall give Lender written notice promptly following the change of any
such position in their respective organizations.

7.3 Encumbrances. No Borrower shall create, incur,
assume, or permit to exist any Encumbrance on any of its Property (now owned or
hereafter acquired) except for Permitted Encumbrances, and shall not undertake
a commitment of any kind in favor of any Person (other than Lender) (i)
requiring that any or all of such Borrower's Property be or remain
unencumbered, or (ii) requiring that a Borrower grant an Encumbrance (other
than a Permitted Encumbrance) in favor of any Person (other than Lender) on a
Borrower's Property under any circumstances whatsoever. No Borrower shall sign
or file under the Uniform Commercial Code a financing statement that names such
Borrower as debtor or the equivalent or sign any security agreement authorizing
any secured party thereunder to file any such financing statement, except to
secure Permitted Encumbrances.

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<PAGE> 50

7.4 Investments. No Borrower shall make investments
(including but not limited to acquisitions or purchases of the obligations or
stock of, or any other or additional interest) in any person, firm,
partnership, joint venture or corporation except: (i) those investments in
existence as of the Closing Date, (ii) general obligations of, or obligations
unconditionally guaranteed as to principal and interest by, the United States
of America maturing within fifteen (15) months of the date of purchase, (iii)
commercial paper having a rating of not less than "A2" or "P2" from Moody's or
S & P, respectively, (iv) Permitted Acquisitions, (v) Permitted Equity
Investments, (vi) Permitted Subsidiaries, (vii) as may be specifically
permitted or required by Account Agreements, (viii) certificates of deposit and
bankers acceptances issued by a Lender or another banking institution with a
minimum net worth of Five Hundred Million and No/100 Dollars ($500,000,000.00)
and having a letter of credit rating of not less than "A" from Moody's or S &
P, respectively, and (ix) such other investments as Lender may approve.

7.5 Sales and Leasebacks. No Borrower shall enter into
any arrangement, directly or indirectly, with any Person other than another
Borrower by which such Borrower shall sell or transfer any of its Property,
whether now owned or hereafter acquired, and by which a Borrower shall then or
thereafter rent or lease as lessee such Property or any part thereof or other
Property that it intends to use for substantially the same purpose or purposes
as the Property sold or transferred.

7.6 Change of Control. No Borrower shall suffer or permit
the occurrence of a Change of Control.

7.7 Nature of Business. No Borrower shall suffer or
permit any material changes to be made in the character of its business as
carried on at the Closing Date.

7.8 Further Acquisitions, Mergers, Etc. Except for
transactions involving only Borrowers or other Permitted Subsidiaries, no
Borrower shall enter into any agreement to merge, consolidate, or otherwise
reorganize or recapitalize, or sell, assign, lease, or otherwise dispose of
(whether in one transaction or in a series of transactions) all or
substantially all of their Property (whether now owned or hereafter acquired),
except for Permitted Acquisitions.

7.9 Advances. Borrowers shall not extend any loans to any
other Persons, except for loans in the ordinary course of business not to
exceed Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in the
aggregate at any one time.

7.10 Disposition of Assets. No Borrower shall dispose of
any of its assets other than in the ordinary course of its present business
upon terms standard in its industry.

7.11 Inconsistent Agreements. No Borrower shall enter into
any agreement containing any provision which would be violated or breached by
the performance by Borrowers of the Obligations.

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<PAGE> 51

7.12 Subsidiaries and Affiliates. No Borrower shall create
or acquire any direct or indirect Subsidiary or Affiliate or divest itself of
any material assets by transferring them to any existing Subsidiary or
Affiliate other than Permitted Subsidiaries; nor shall any Borrower enter into
any partnership, joint venture, or similar arrangement, or otherwise make any
material change in its fundamental legal structure, except that (i) a Borrower
may acquire and create Permitted Subsidiaries from time to time in the ordinary
course of business, and (ii) Borrowers and Permitted Subsidiaries may engage in
Permitted Corporate Changes.

7.13 Place of Business. No Borrower shall transfer their
executive offices, or maintain records with respect to accounts at any
locations other than at the address for notices specified herein and at the
locations of Practices affiliated with any Borrower, except as Lender may
approve, in its reasonable discretion. Borrowers have advised Lender that
Borrowers anticipate moving their chief executive offices at a time following
the date of this Agreement to another location in the middle Tennessee area.
Borrowers will give Lender at least thirty (30) days prior written notice
before this move, which shall not require any further notice to or approval
from Lender.

7.14 Adverse Action With Respect to Plans. No Borrower
shall take any action to terminate any Plan which could reasonably result in a
material liability of a Borrower to any Person.

7.15 Transactions With Affiliates. No Borrower shall enter
into any transaction with any Affiliate that is not a Borrower or a Permitted
Subsidiary except in the ordinary course of business and on fair and reasonable
terms no less favorable to such Borrower than they would obtain in a comparable
arms length transaction with a Person not an Affiliate.

7.16 Constituent Document Amendments. No Borrower shall
amend its corporate charter or bylaws or other fundamental constituent
documents, except as necessary to accomplish transactions that do not require
Lender's specific approval or transactions for which such approval is necessary
and has been granted.

7.17 Margin Securities. No Borrower shall own, purchase or
acquire (or enter into any contract to purchase or acquire) any "margin
security" as defined by any regulation of the Federal Reserve Board as now in
effect or as the same may hereafter be in effect.

7.18 Accounting Changes. No Borrower shall change its
fiscal year or make any other significant change in consolidated or
consolidating accounting treatment and reporting practices, except as required
or permitted by GAAP. Any change in fiscal year shall be subject to Lender's
prior written approval.

7.19 Action Outside Ordinary Course. No Borrower shall
take any other action outside the ordinary course of their business.

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<PAGE> 52

VIII. FINANCIAL COVENANTS

8.1 Current Ratio. Borrowers shall maintain a
Consolidated Current Ratio of not less than 1.40:1.00, tested as of the end of
each fiscal quarter.

8.2 Total Funded Debt to Consolidated EBITDA. Borrowers
shall maintain a ratio of Total Funded Debt divided by Consolidated EBITDA,
measured as of the end of each fiscal quarter for the previous four consecutive
fiscal quarters, of no greater than 3.50:1.00.

8.3 Net Worth. Borrowers shall maintain a Consolidated
Net Worth as of the end of each fiscal quarter in an amount at least equal to
the sum of Forty-Eight Million and No/100 ($48,000,000.00), plus the Net
Proceeds of all equity issued after February 29, 1996, plus seventy-five
percent (75%) of the amount of net income for the fiscal quarter ending June
30, 1996 and for each fiscal quarter thereafter, without adjustment for net
losses.

8.4 Tangible Net Worth. Borrowers shall maintain a
positive Consolidated Tangible Net Worth at all times.

8.5 Fixed Charge Coverage. Borrowers shall maintain a
Fixed Charge Coverage Ratio of at least 2.00:1.00 for each fiscal quarter.

8.6 Capital Expenditures. Lender approval shall be
required for Borrowers to expend Capital Expenditures in excess of 115% of an
annual budget to be approved by Lender, unless Total Funded Debt/Consolidated
EBITDA is then equal to or less than 1.5:1 for the most recently reported
fiscal quarter as of the time of the proposed expenditure, in which case no
approval shall be required. The proposed budget for each year shall be
delivered to Lender no later than sixty (60) days after the end of the previous
fiscal year.

8.7 Total Funded Debt to Net Worth. Borrowers shall
maintain a ratio of Total Funded Debt divided by Net Worth, measured as of the
end of each fiscal quarter, of no greater than .45:1.00.

8.8 Net Income Maintenance. Net income calculated on a
rolling four-quarter basis must be greater than zero as of the end of each
fiscal quarter.

IX. EVENTS OF DEFAULT

9.1 Events of Default. Any of the following events shall
be considered an Event of Default under this Agreement:

9.1.1 Payments. Borrowers' failure to make
payment of any amount of the Obligations within ten (10) days
of when due.

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<PAGE> 53

9.1.2 Representations and Warranties. Any
representation or warranty made by Borrowers or any other
party in any Loan Document having been incorrect in any
material respect as of the date thereof.

9.1.3 Negative Covenants. The failure of any
Borrower to comply with any of the requirements of Article VII
hereof.

9.1.4 Financial Covenants. The failure of any
Borrower to comply with any of the requirements of Article
VIII hereof.

9.1.5 Reporting Requirements. The failure of any
Borrower or any other party to timely perform any covenant in
the Loan Documents requiring the furnishing of notices,
financial reports or other information to Lender.

9.1.6 Other Covenants. The failure of any
Borrower to observe or perform any covenant contained in any
Loan Document, which covenant is not subject to any specific
provision in this Article IX; provided, however, as to any
such breach that is reasonably susceptible to being cured, the
occurrence of such breach shall not constitute an Event of
Default hereunder if such breach is fully cured within twenty
(20) days after the earlier of the Borrower's knowledge of the
facts giving rise thereto or Lender's written notice thereof
to Borrowers given in accordance with the provisions hereof.

9.1.7 Involuntary Bankruptcy or Receivership
Proceedings. The appointment of a receiver, custodian,
liquidator, or trustee for any Borrower, or for any of their
Property, by the order or decree of any court or agency or
supervisory authority having jurisdiction; or any Borrower's
adjudication as being bankrupt or insolvent; or the
sequestering of any of the Property of any Borrower by court
order or the filing of a petition against any Borrower under
any state or federal bankruptcy, reorganization, debt
arrangement, insolvency, readjustment of debt, dissolution,
liquidation, or receivership law of any jurisdiction, whether
now or hereafter in effect, and in each case without the
acquiescence of the affected Borrower, unless dismissed within
sixty (60) days.

9.1.8 Voluntary Petitions. Any Borrower's filing
of a petition in voluntary bankruptcy or to seek relief under
any provision of any bankruptcy, reorganization, debt
arrangement, insolvency, receivership, readjustment of debt,
dissolution, or liquidation law of any jurisdiction, whether
now or hereafter in effect, or their acquiescence in the
filing of any petition against them under any such law.

9.1.9 Discontinuance of Business. Any Borrower's
discontinuance of its usual business or its dissolution,
except pursuant to transactions permitted under this
Agreement.

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<PAGE> 54

9.1.10 Default on Other Debt. Any Borrower's
failure to make any payment when due on any Debt in excess of
Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00),
unless the obligation is disputed and adequate reserves
therefor have been established in accordance with GAAP.

9.1.11 Undischarged Judgments. Existence of a
final judgment or judgments for the payment of money in excess
of One Hundred Thousand and No/100 Dollars ($100,000.00) by
any court or other governmental authority against any
Borrower, which is not paid, discharged, stayed, dismissed
through appropriate appellate proceedings or bonded within
thirty (30) days after entry.

9.1.12 Insolvency. Any Borrower's no longer being
Solvent.

9.1.13 Attachment. The issuance of an attachment
or other process against any Property of any Borrower, unless
removed (by bond or otherwise) within twenty (20) days.

9.1.14 Insurance. Any Borrower's failure to
maintain any insurance required herein or in any other Loan
Document.

9.1.15 Contest. Any Borrower's challenge or
contest of the validity or enforceability of this Agreement or
any other Loan Document or the validity, priority or
perfection of any security interest created hereunder or under
any other Loan Document in any action, suit or proceeding.

9.1.16 Fraud and Abuse Laws. Receipt by a Borrower
of a notice from a governmental authority that it (i) intends
to disallow requested reimbursements, demand adjustment or
repayment of past reimbursements in excess of five percent
(5%) of the gross revenues of Borrowers for the previous four
(4) fiscal quarters in the aggregate respecting amounts
submitted for reimbursement or collected by a Borrower or a
Provider, or (ii) intends to impose civil money penalties or
to seek to exclude any Borrower or a Provider from
participation in the Medicare or Medicaid programs due to a
failure to comply with Fraud and Abuse Laws, if the gross
revenues to Borrowers arising from the affected Borrowers or
Provider exceed five percent (5%) of the gross revenues of
Borrowers for the previous four (4) fiscal quarters in the
aggregate.

9.2 Remedies. Upon the happening of any Event of Default:

9.2.1 Default Rate. Lender may declare the
Obligations to thereafter bear interest at the Default Rate.

9.2.2 Acceleration. Lender may declare the entire
principal amount of all Obligations then outstanding,
including interest accrued thereon, to be

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<PAGE> 55

immediately due and payable without presentment, demand,
protest, notice of protest, or dishonor or other notice of
default of any kind, all of which are hereby expressly waived.

9.2.3 Setoff. Lender may exercise its lien upon
and right of setoff against any monies, items, credits,
deposits or instruments that Lender may have in its possession
and which belong to Borrowers or to any other person or entity
liable for the payment of any or all of the Obligations.

9.2.4 Other Remedies. Lender may exercise any
right that it may have under any other document evidencing or
securing the Obligations or otherwise available to Lender at
law or equity.

9.2.5 Attorney-in-Fact. Borrowers hereby
irrevocably appoints Lender as Borrowers' attorney-in-fact to
take any action to facilitate Lender's exercise of its
remedies hereunder.

X. GENERAL PROVISIONS

10.1 Notices. All communications relating to this
Agreement or any of the other Loan Documents shall be in writing and shall
effective when be delivered by mail, overnight courier, special courier,
telecopier or otherwise to the following addresses:

if to Borrowers:

Renal Care Group, Inc.
Attn: Ron Hinds
1801 West End Avenue, Suite 1100
Nashville, Tennessee 37203
Telecopier: (615) 321-5491

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<PAGE> 56

With a Copy To:

Alston & Bird
Attn: Steven L. Pottle
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopier: (404) 881-7777

If to Lender:

NationsBank of Tennessee, N.A.
Healthcare Group
Attn: Roy H. Haisley
1 NationsBank Plaza
Nashville, Tennessee 37239-1697
Telecopier: (615) 749-4951

With a Copy To:

Boult, Cummings, Conners & Berry
Attn: John E. Murdock III, Esq.
414 Union Street, Suite 1600
Nashville, Tennessee 37219
Telecopier: (615) 252-6359

Any party may change its address for receipt of notice by
written direction to the other parties hereto.

10.2 Renewal, Extension, or Rearrangement. All provisions
of this Agreement relating to Obligations shall apply with equal force and
effect to each and all promissory notes executed hereafter which in whole or in
part represent a renewal, extension for any period, increase, or rearrangement
of any part of the Obligations originally represented by any part of such other
Obligations.

10.3 Application of Payments. Amounts received with
respect to the Obligations shall be applied (i) first, to any expenses due
Lender, (ii) second, to accrued and unpaid interest under any of the
Obligations, and (iii) third, to reduce the unpaid principal portion of the
Obligations, in such manner as determined by Lender.

10.4 Counterparts. This Agreement may be executed in
counterparts with all signatures or by counterpart signature pages, and it
shall not be necessary that the signatures

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<PAGE> 57

of all parties be contained on any one counterpart. Each counterpart shall be
deemed an original, but all of them together shall constitute one and the same
instrument.

10.5 Negotiated Document. This Agreement and the other
Loan Documents have been negotiated by the parties with full benefit of counsel
and should not be construed against any party as author.

10.6 Consent to Jurisdiction; Exclusive Venue. Borrowers
hereby irrevocably consent to the jurisdiction of the United States District
Court for the Middle District of Tennessee and of all Tennessee state courts
sitting in Davidson County, Tennessee, for the purpose of any litigation to
which Lender may be a party and which concerns this Agreement or the
Obligations. It is further agreed that venue for any such action shall lie
exclusively with courts sitting in Davidson County, Tennessee, unless Lender
agrees to the contrary in writing. This election applies only for the limited
judicial proceedings that may apply as set forth in the provision of this
Agreement electing binding arbitration for the resolution of disputes and does
not impair the effect of that provision in any way.

10.7 Not Partners; No Third Party Beneficiaries. The
relationship of Lender and Borrowers is that of lender and borrowers only, and
neither is a fiduciary, partner or joint venturer of the other for any purpose.
This Agreement has been executed for the sole benefit of Lender, and no third
party is authorized to rely upon Lender's rights or duties hereunder.

10.8 No Reliance on Lender's Analysis. Borrowers
acknowledge and represent that, in connection with the Obligations, Borrowers
have not relied upon any financial projection, budget, assessment or other
analysis by Lender or upon any representation by Lender as to the risks,
benefits or prospects of Borrowers' business activities or present or future
capital needs incidental thereto, all such considerations having been examined
fully and independently by Borrowers.

10.9 No Marshaling of Assets. Lender may proceed against
collateral securing the Obligations and against parties liable therefor in such
order as it may elect, and neither Borrowers nor any surety or guarantor for
Borrowers nor any creditor of Borrowers shall be entitled to require Lender to
marshal assets. The benefit of any rule of law or equity to the contrary is
hereby expressly waived.

10.10 Impairment of Collateral. Lender may, in its sole
discretion, release any Collateral securing the Obligations or release any
party liable therefor. The defenses of impairment of collateral and impairment
of recourse and any requirement of diligence on Lender's part in collecting the
Obligations are hereby waived.

10.11 Business Days. If any payment date under the
Obligations falls on a day that is not a Business Day, or if the last day of
any notice period falls on such a day, the payment shall be due and the notice
period shall end on the next following Business Day.

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<PAGE> 58

10.12 Participations. Lender may, from time to time, in its
sole discretion, and with concurrent notice to Borrowers, sell participations
in any credit subject hereto to such other investors or financial institutions
as it may elect. Lender may from time to time disclose to any participant or
prospective participant such information as Lender may have regarding the
financial condition, operations, and prospects of Borrowers.

10.13 Standard of Care; Limitation of Damages. Lender shall
be liable to Borrowers only for matters arising from this Agreement or
otherwise related to the Obligations resulting from Lender's gross negligence
or willful misconduct, and liability for all other matters is hereby waived.
Lender shall not in any event be liable to Borrowers for special or
consequential damages arising from this Agreement or otherwise related to the
Obligations.

10.14 Incorporation of Schedules. All Schedules and
Exhibits referred to in this Agreement are incorporated herein by this
reference.

10.15 Indulgence Not Waiver. Lender's indulgence in the
existence of a default hereunder or any other departure from the terms of this
Agreement shall not prejudice Lender's rights to declare a default or otherwise
demand strict compliance with this Agreement.

10.16 Cumulative Remedies. The remedies provided Lender in
this Agreement are not exclusive of any other remedies that may be available to
Lender under any other document or at law or equity.

10.17 Amendment and Waiver in Writing. No provision of this
Agreement can be amended or waived, except by a statement in writing signed by
the party against whom enforcement of the amendment or waiver is sought.

10.18 Assignment. This Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of Borrowers and
Lender, except that no Borrower shall assign any rights or delegate any
obligations arising hereunder without the prior written consent of Lender. Any
attempted assignment or delegation by any Borrower without the required prior
consent shall be void.

10.19 Entire Agreement. This Agreement and the other
written agreements between Borrowers and Lender represent the entire agreement
between the parties concerning the subject matter hereof, and all oral
discussions and prior agreements are merged herein. Provided, if there is a
conflict between this Agreement and any other document executed
contemporaneously herewith with respect to the Obligations, the provision in
this Agreement shall control.

10.20 Severability. Should any provision of this Agreement
be declared invalid or unenforceable for any reason, the remaining provisions
hereof shall remain in full effect.

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<PAGE> 59

10.21 Time of Essence. Time is of the essence of this
Agreement, and all dates and time periods specified herein shall be strictly
observed.

10.22 Applicable Law. The validity, construction and
enforcement of this Agreement and all other documents executed with respect to
the Obligations shall be determined according to the laws of Tennessee
applicable to contracts executed and performed entirely within that state.

10.23 Captions Not Controlling. Captions and headings have
been included in this Agreement for the convenience of the parties, and shall
not be construed as affecting the content of the respective Sections.

10.24 Arbitration. Any controversy or claim between or
among the parties hereto including but not limited to those arising out of or
relating to this instrument, agreement or document or any related instruments,
agreements or documents, including any claim based on or arising from an
alleged tort, shall be determined by binding arbitration in accordance with the
Federal Arbitration Act (or if not applicable, the applicable state law), the
Rules of Practice and Procedure for the Arbitration of Commercial Disputes of
J.A.M.S./Endispute or any successor thereof ("J.A.M.S."), and the "Special
Rules" set forth below. In the event of any inconsistency, the Special Rules
shall control. Judgment upon any arbitration award may be entered in any court
having jurisdiction. Any party to this Agreement may bring an action, including
a summary or expedited proceeding, to compel arbitration of any controversy or
claim to which this Agreement applies in any court having jurisdiction over
such action.

10.24.1 Special Rules. The arbitration shall be
conducted in Nashville, Tennessee and administered by J.A.M.S
who will appoint an arbitrator; if J.A.M.S. is unable or
legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration
hearings will be commenced within 90 days of the demand for
arbitration; further, the arbitrator shall only, upon a
showing of cause, be permitted to extend the commencement of
such hearing for up to an additional 60 days.

10.24.2 Reservation of Rights. Nothing in this
arbitration provision shall be deemed to (i) limit the
applicability of any otherwise applicable statutes of
limitation or repose and any waivers contained in this
arbitration provision; or (ii) be a waiver by Lender of the
protection afforded to it by 12 U.S.C. Sec. 91 or any
substantially equivalent state law; or (iii) limit the right
of Lender (a) to exercise self help remedies such as (but not
limited to) setoff, or (b) to foreclose against any real or
personal property collateral, or (c) to obtain from a court
provisional or ancillary remedies such as (but not limited to)
injunctive relief, writ of possession or the appointment of a
receiver. Lender may exercise such self help rights,
foreclose upon such property, or obtain such provisional or
ancillary remedies before, during or after the pendency of any
arbitration proceeding brought pursuant to this instrument,
agreement or document.

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<PAGE> 60

Neither this exercise of self help remedies nor the
institution or maintenance of an action for foreclosure or
provisional or ancillary remedies shall constitute a waiver of
the right of any party, including the claimant in such action,
to arbitrate the merits of the controversy or claim
occasioning resort to such remedies.

Executed as of the date first written above.

RENAL CARE GROUP, INC. (Delaware)

By: /s/ Ronald Hinds
-------------------------------------
Title: EVP
----------------------------------

RENAL CARE GROUP, INC. (Tennessee)

By: /s/ Ronald Hinds
-------------------------------------
Title: EVP
----------------------------------

KANSAS NEPHROLOGY
ASSOCIATION

By: /s/ Ronald Hinds
-------------------------------------
Title: EVP
----------------------------------

RENAL CARE GROUP TEXAS, INC.

By: /s/ Ronald Hinds
-------------------------------------
Title: EVP
----------------------------------

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<PAGE> 61

RCG MISSISSIPPI, INC.

By: /s/ Ronald Hinds
-------------------------------------
Title: EVP
----------------------------------

D.M.N. OF INDIANA CORPORATION

By: /s/ Ronald Hinds
-------------------------------------
Title: EVP
----------------------------------

NATIONSBANK OF TENNESSEE, N.A.

By: /s/ Roy Haisley
-------------------------------------
Title: VP
----------------------------------

EXHIBIT 2.4.1(B)
BORROWING/CONVERSION NOTICE

Lender: NationsBank of Tennessee, N.A. Date: __________, 199

Borrowers: Renal Care Group, Inc. (Delaware), RCG Mississippi, Inc.,
Renal Care Group, Inc. (Tennessee), Kansas Nephrology Association, Renal Care
Group Texas, Inc., D.M.N. of Indiana Corporation

This notice is delivered under the Loan Agreement (as renewed,
extended and amended, the "Loan Agreement") dated as of May 30, 1996, between
Borrowers and Lender. Terms defined in the Loan Agreement have the same
meanings when used -- unless otherwise defined -- in this request.

Borrowers request a Loan under the Loan Agreement as follows:

Borrowing Date1 ___________, 199_
Amount of Borrowing $________________
Type of Borrowing2 _________________
For LIBOR Loans, the Interest Period3 __________ months

Select one:
____ The proceeds of the requested Loan shall be disbursed
to Borrowers as provided in the Loan Agreement. The
purpose of the requested Loan is:

___________________________________
(1)Same Banking Day for Prime Rate Loans, second following Banking Day for
LIBOR Loans.

(2)LIBOR or Prime Rate Loan.

(3)1, 2, 3, 6 or 12 months.

<PAGE> 62

_____ New advance for acquisition under Section 2.2(i).

_____ New advance for start-up or expansion under
Section 2.2(ii).

_____ New advance for working capital under Section 2.2
(iii).

_____ The proceeds of the requested LIBOR Loan shall be
applied to the payment of Borrowers' existing Prime
Rate Loan, this new Loan being a conversion of Prime
Rate Loan to a LIBOR Loan

_____ The proceeds of the requested LIBOR Loan shall be
applied to the payment of the following LIBOR Loan,
subject to all requirements of the Loan Agreement,
this new Loan being a conversion of a LIBOR Loan to a
different LIBOR Loan:

Date:____________________________
Amount:__________________________
Interest Period:_________________

_____ The proceeds of the requested Prime Rate Loan shall
be applied to the payment of the following LIBOR
Loan, subject to all requirements of the Loan
Agreement, this new Loan being a conversion of a
LIBOR Loan to a Prime Rate Loan:

Date:____________________________
Amount:__________________________
Interest Period:_________________

Borrowers certify that on the date hereof and on the date of
the above Borrowing Date -- after giving effect to the requested Loan -- (a)
all of the representations and warranties in the Loan Documents will be true
and correct in all material respects unless they speak to a specific date or
the facts on which they are based have been changed by transactions
contemplated or permitted by the Loan Agreement, (b) no Event of Default or
Unmatured Default will exist, and (c) all conditions to Borrowers' right to
receive the requested Loan under the Loan Agreement have been and will have
been satisfied.

RENAL CARE GROUP, INC., on behalf of all Borrowers

By:___________________________________
(Name)________________________________
(Title)_______________________________

<PAGE> 1
EXHIBIT 10.26

REVOLVING/TERM NOTE

$35,000,000.00 Nashville, Tennessee May 30, 1996

FOR VALUE RECEIVED, RENAL CARE GROUP, INC., a Delaware corporation,
RCG MISSISSIPPI, INC., a Delaware corporation, RENAL CARE GROUP, INC., a
Tennessee corporation, KANSAS NEPHROLOGY ASSOCIATION, a Kansas corporation,
RENAL CARE GROUP TEXAS, INC., a Texas corporation, and D.M.N. OF INDIANA
CORPORATION, an Indiana corporation (collectively "Makers") jointly and
severally promise to pay to the order of NationsBank of Tennessee, N.A.
("Payee"), a national banking association, the sum of Thirty-five Million and
No/100 Dollars ($35,000,000.00), or as much thereof as may be outstanding from
time to time, together with interest thereon as provided in that Loan Agreement
of even date herewith between Makers and Payee (the "Loan Agreement").

Reference is made to the Loan Agreement for the terms of payment of
principal and interest hereunder and for other provisions regarding additional
payments, prepayment, draws and other terms and conditions applicable to the
indebtedness evidenced by this Note. As provided in the Loan Agreement, all
remaining principal, interest and expenses outstanding hereunder or under the
Loan Agreement shall become finally due on May 30, 2001.

As provided in the Loan Agreement, interest hereunder shall be
calculated based upon a 360-day year and actual days elapsed. As provided in
greater detail in the Loan Agreement, the interest rate required hereby shall
not exceed the maximum rate permissible under applicable law, and any amounts
paid in excess of such rate shall be applied to reduce the principal amount
hereof or shall be refunded to Makers, at the option of the holder of this
Note.

Subject to the provisions of the Loan Agreement, Makers may borrow,
repay and reborrow amounts hereunder from time to time, provided that Makers
are not in default hereunder or under the Loan Agreement and provided that all
conditions to Payee's obligation to fund advances as set forth in the Loan
Agreement are satisfied. Payee shall have no liability for its refusal to
advance funds hereunder following a determination that any condition precedent
to the making of an advance has not been satisfied.

Payee's records of the amounts advanced hereunder shall be conclusive
proof thereof, absent manifest error.

Page 1 of 5

<PAGE> 2

All amounts due under this Note are payable at par in lawful money of
the United States of America, at the principal place of business of Payee in
Nashville, Tennessee, or at such other address as the Payee or other holder
hereof (herein "Holder") may direct.

The occurrence of an Event of Default under the Loan Agreement shall
constitute an Event of Default under this Note.

Upon the occurrence of an Event of Default, as defined above, Holder
may, at its option and without notice (except as provided in the Loan
Agreement), declare all principal and interest provided for under this Note,
and any other obligations of any Maker to Holder, to be presently due and
payable, and Holder may enforce any remedies available to Holder under any
documents securing or evidencing debts of Makers to Holder. Holder may waive
any default before or after it occurs and may restore this Note in full effect
without impairing the right to declare it due for a subsequent default, this
right being a continuing one. Upon default, the remaining unpaid principal
balance of the indebtedness evidenced hereby and all expenses due Holder shall
bear interest at the "Default Rate," as defined in the Loan Agreement.

All amounts received for payment of this Note shall be applied in
accordance with the Loan Agreement.

Makers and all sureties, guarantors, endorsers and other parties to
this instrument hereby consent to any and all renewals, waivers, modifications,
or extensions of time (of any duration) that may be granted by Holder with
respect to this Note and severally waive demand, presentment, protest, notice
of dishonor, and all other notices that might otherwise be required by law,
except as set forth in the Loan Agreement. All parties hereto waive the defense
of impairment of collateral and all other defenses of suretyship, if
applicable.

Makers' performance under this Note is secured by various property, as
described in the Loan Agreement.

Makers and all sureties, guarantors, endorsers and other parties
hereto agree to pay reasonable attorneys' fees and all court and other costs
that Holder may incur in the course of efforts to collect the debt evidenced
hereby or to protect Holder's interest in any collateral securing the same.

The validity and construction of this Note shall be determined
according to the laws of Tennessee applicable to contracts executed and
performed within that state and applicable federal law. If any provision of
this Note should for any reason be invalid or unenforceable, the remaining
provisions hereof shall remain in full effect. This Note may be amended, and
provisions hereof may be waived, only by written instrument signed by Holder
and the Makers.

Page 2 of 5
<PAGE> 3

Any controversy or claim between or among the parties hereto including
but not limited to those arising out of or relating to this Note or any related
instruments, agreements or documents, including any claim based on or arising
from an alleged tort, shall be determined by binding arbitration in accordance
with the Federal Arbitration Act (or if not applicable, the applicable state
law), the Rules of Practice and Procedure for the Arbitration of Commercial
Disputes of J.A.M.S./Endispute or any successor thereof ("J.A.M.S."), and the
"Special Rules" set forth below. In the event of any inconsistency, the Special
Rules shall control. Judgment upon any arbitration award may be entered in any
court having jurisdiction. Any party to this Note may bring an action,
including a summary or expedited proceeding, to compel arbitration of any
controversy or claim to which this Note applies in any court having
jurisdiction over such action.

(i) Special Rules. The arbitration shall be conducted in
Nashville, Tennessee and shall be administered by J.A.M.S who will appoint an
arbitrator; if J.A.M.S. is unable or legally precluded from administering the
arbitration, then the American Arbitration Association will serve. All
arbitration hearings will be commenced within 90 days of the demand for
arbitration; further, the arbitrator shall only, upon a showing of cause, be
permitted to extend the commencement of such hearing for up to an additional 60
days.

(ii) Reservation of Rights. Nothing in this arbitration provision
shall be deemed to (i) limit the applicability of any otherwise applicable
statutes of limitation or repose and any waivers contained in this arbitration
provision; or (ii) be a waiver by the Holder of the protection afforded to it
by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or (iii) limit
the right of the Holder hereto (a) to exercise self help remedies such as (but
not limited to) setoff, or (b) to foreclose against any real or personal
property collateral, or (c) to obtain from a court provisional or ancillary
remedies such as (but not limited to) injunctive relief, writ of possession or
the appointment of a receiver. The Holder may exercise such self help rights,
foreclose upon such property, or obtain such provisional or ancillary remedies
before, during or after the pendency of any arbitration proceeding brought
pursuant to this instrument, agreement or document. Neither this exercise of
self help remedies nor the institution or maintenance of an action for
foreclosure or provisional or ancillary remedies shall constitute a waiver of
the right of any party, including the claimant in such action, to arbitrate the
merits of the controversy or claim occasioning resort to such remedies.

Page 3 of 5
<PAGE> 4

Words used herein indicating gender or number shall be read as context
may require.

RENAL CARE GROUP, INC.,
a Delaware corporation, Maker

By: /s/ Ronald Hinds
---------------------------------
Title: EVP
------------------------------

RCG MISSISSIPPI, INC.,
a Delaware corporation, Maker

By: /s/ Ronald Hinds
---------------------------------
Title: EVP
------------------------------

RENAL CARE GROUP, INC.,
a Tennessee corporation, Maker

By: /s/ Ronald Hinds
---------------------------------
Title: EVP
------------------------------

KANSAS NEPHROLOGY ASSOCIATION,
a Kansas corporation, Maker

By: /s/ Ronald Hinds
---------------------------------
Title: EVP
------------------------------

RENAL CARE GROUP TEXAS, INC.,
a Texas corporation, Maker

By: /s/ Ronald Hinds
---------------------------------
Title: EVP
------------------------------

Page 4 of 5
<PAGE> 5

D.M.N. OF INDIANA CORPORATION,
an Indiana corporation, Maker

By: /s/ Ronald Hinds
---------------------------------
Title: EVP
------------------------------

Page 5 of 5

<PAGE> 1
Exhibit 10.27

STOCK PLEDGE AGREEMENT

This Stock Pledge Agreement ("Agreement") is entered into as of the
30th day of May, 1996, by and between RENAL CARE GROUP, INC. ("Borrower"), a
Delaware corporation, and NATIONSBANK OF TENNESSEE, N.A. ("Lender"), a national
banking association.

W I T N E S S E T H

WHEREAS, Lender has agreed to extend credit to Borrower and to
Borrower's subsidiaries, RCG Mississippi, Inc., a Delaware Corporation, Renal
Care Group, Inc., a Tennessee corporation, Kansas Nephrology Association, a
Kansas corporation, Renal Care Group Texas, Inc., a Texas corporation, and
D.M.N. of Indiana Corporation, an Indiana corporation (these subsidiaries of
Borrower are referred to herein as the "Subsidiaries"), on certain terms and
conditions; and

WHEREAS, one condition to Lender's agreement to extend credit to
Borrower and the Subsidiaries is that Lender must be provided a first priority
perfected pledge of certain stock owned by Borrower;

NOW, THEREFORE, as an inducement to cause Lender to extend credit to
Borrower and the Subsidiaries, and for other valuable consideration, the
receipt and sufficiency of which are acknowledged, it is agreed as follows:

1. Definition of Secured Indebtedness. As used herein, "Secured
Indebtedness" shall mean the obligations of Borrower under this Agreement and
the indebtedness and obligations evidenced by that Revolving/Term Note (the
"Note") of even date herewith made by Borrower and the Subsidiaries in the
maximum principal amount of Thirty-five Million and No/100 Dollars
($35,000,000.00) payable to the order of Lender; that Loan Agreement (the "Loan
Agreement") of this date executed by Borrower, the Subsidiaries and Lender in
connection with the indebtedness evidenced by the Note; the other "Loan
Documents," as defined in the Loan Agreement; and all modifications, extensions
and renewals of the foregoing.

2. Pledge of Stock. To secure the payment of the Secured
Indebtedness, Borrower hereby pledges to Lender and grants Lender a security
interest in shares of the common stock of the corporations listed in Exhibit A
hereto (each an "Issuer"), as evidenced by the certificates described in
Exhibit A attached hereto, together with all dividends, distributions and other
rights of payment and property interests arising therefrom or with respect
thereto and proceeds thereof (collectively the "Pledged Stock").
<PAGE> 2

3. Perfection. Lender's security interest in the Pledged Stock
shall be perfected by Lender's possession of the certificates evidencing the
same. Lender shall also be provided with stock powers covering the Pledged
Stock executed in blank by Borrower.

4. Warranties. Borrower warrants to Lender that the following
warranties are presently true and covenants that they shall remain true at and
"as of" all times hereafter until Lender releases the Pledged Stock:

(a) Title. Borrower is the sole legal and equitable owner
of the Pledged Stock, and Borrower's absolute title thereto is not the subject
of any claim or challenge threatened or asserted by any third party.

(b) Valid Stock. The Pledged Stock has been validly
issued and is fully paid for and non-assessable.

(c) No Liens or Restrictions. The Pledged Stock is not
and will not be subject to any security interest, lien, restriction of
transfer, "buy-sell" agreement, voting agreement, redemption agreement, option
or other agreements, except for any applicable Permitted Encumbrances (as
defined in the Loan Agreement).

(d) Valid Security Interest. This Agreement and the
delivery to Lender of the certificates evidencing the Pledged Stock provide
Lender with a valid pledge of, and a valid first priority perfected security
interest in, the Pledged Stock.

(e) Percentage of Ownership of Issuer. The Pledged Stock
represents the percentage of each Issuer's total outstanding stock set forth in
Exhibit A hereto.

(f) No Other Classes of Stock. Each Issuer has only one
class of stock authorized, except as may be noted in Exhibit A hereto.

(g) No Options. No Issuer has any options, warrants or
convertible debt instruments outstanding that could require the issuance of
additional stock.

(h) All Subsidiaries. The Pledged Stock includes all
stock of all Subsidiaries of Borrower which, under the Loan Agreement, is to be
pledged to Lender.

5. Covenants. Borrower covenants with Lender as follows:

(a) Additional Stock. Borrower shall receive any stock
issued or delivered as a result of ownership of the Pledged Stock as Lender's
agent and shall deliver the same

-2-
<PAGE> 3

immediately to Lender upon receipt. Such additional stock shall become part of
the Pledged Stock hereunder upon issuance.

(b) No Further Encumbrance. Borrower shall not sell or
transfer any or all of the Pledged Stock or grant or suffer the attachment of
any Encumbrance other than Permitted Encumbrances (as defined in the Loan
Agreement) to any or all of the Pledged Stock.

(c) Notices. If Lender so requests, Borrower shall
forward promptly to Lender after issuance, copies of all proxy solicitations,
meeting notices, and other writings pertaining to the Pledged Stock.

6. Voting Rights. As long as no Event of Default has occurred and
is continuing under this Agreement, Borrower shall be entitled to exercise all
voting rights arising from ownership of the Pledged Stock, except that prior
written approval of Lender shall be required for Borrower to vote the Pledged
Stock to authorize any Issuer to liquidate, reorganize, sell substantially all
of its assets, merge or engage in any other business transaction for which
shareholder approval is required by law or by Issuer's Charter or its By-Laws
(except that such approval shall not be required for (x) transactions for which
Lender's approval is not required under the Loan Agreement, and (y) those
transactions for which Lender's approval, if required, has been obtained).
Borrower hereby irrevocably appoints Lender the proxy and attorney-in-fact of
Borrower to cast the votes arising from the Pledged Stock against any
transaction for which Lender's consent is required under this Section 6 and
which Lender has not approved, in its discretion. Lender's rights to so vote
the Pledged Stock are further evidenced by a separate Irrevocable Proxy in
favor of Lender.

7. Right to Distributions. As long as no Event of Default has
occurred and is continuing under this Agreement, Borrower shall have the
exclusive right to receive all distributions of cash made with respect to the
Pledged Stock.

8. Return of Pledged Stock. The Pledged Stock shall be returned
to Borrower when (i) the Secured Indebtedness has been paid in full and (ii)
Lender has no further obligation to extend credit to be included in the Secured
Indebtedness. The return of the Pledged Stock shall be without recourse against
Lender and shall be effected without any representation or warranty on Lender's
part, notwithstanding any provision of the Uniform Commercial Code or other law
that might otherwise imply or require representations or warranties as to title
or other matters.

9. Recitals. Borrower warrants and agrees that the recitals set
forth at the beginning of this Agreement are true.

-3-
<PAGE> 4

10. No Burdensome Agreements. Borrower warrants that Borrower is
not a party to any contract or agreement and is not subject to any contingent
liability that does or may impair Borrower's ability to perform under the terms
of this Agreement. Borrower further warrants that the execution and performance
of this Agreement will not cause a default, acceleration or other event under
any other contract or agreement to which Borrower or any property of Borrower
is subject, and will not result in the imposition of any charge, penalty, lien
or other encumbrance against any of Borrower's property except in favor of
Lender.

11. Legal and Binding Agreement. Borrower warrants that, as of the
date hereof, the execution and performance of this Agreement will not violate
any judicial or administrative order or governmental law or regulation, and
that this Agreement is valid, binding and enforceable in every respect
according to its terms.

12. No Consent Required. Borrower warrants that, as of the date
hereof, Borrower's execution, delivery and performance of this Agreement do not
require the consent of or the giving of notice to any third party including,
but not limited to, any other lender, governmental body or regulatory
authority.

13. No Event of Default. Borrower warrants that, as of the date
hereof, no Event of Default exists hereunder and no condition exists which,
with the giving of notice, the passing of time, or both, would constitute an
Event of Default.

14. Default Defined. The occurrence of an Event of Default under
the Loan Agreement shall constitute an Event of Default under this Agreement.

15. Remedies Upon Default. Upon the occurrence and during the
continuation of an Event of Default hereunder, Lender may exercise any of the
following remedies:

(a) Power to Vote Pledged Stock. If Lender so elects in
writing, Lender shall have the exclusive right to exercise voting powers and
give consents, waivers, ratifications and notices relating to the Pledged
Stock. Borrower hereby irrevocably appoints Lender as Borrower's proxy and
attorney-in-fact to so act with respect to the Pledged Stock. Lender may
exercise its power to vote the Pledged Stock pursuant to the power granted in
this subparagraph or pursuant to the Irrevocable Proxy executed in favor of
Lender in connection with the execution of this Agreement. Each Issuer and the
secretary and transfer agent (if any) of each Issuer are hereby irrevocably
authorized and directed to honor the Irrevocable Proxy in favor of Lender
without any inquiry whatsoever on their part, and Borrower hereby agrees that
each Issuer, the secretary and transfer agent (if any) of each Issuer and all
employees and agents of any of them shall not be liable to Borrower for
honoring the Irrevocable Proxy upon Lender's demand. Lender's exercise of any
rights under the Irrevocable Proxy pending disposition of the Pledged Stock at
a private or public sale shall not be considered a disposition

-4-
<PAGE> 5

of any or all of the Pledged Stock and shall not be considered an acceptance of
the Pledged Stock in satisfaction of any or all of the Secured Indebtedness.

(b) Record Ownership. Lender may cause any or all of the
Pledged Stock to be transferred of record into Lender's name. Borrower hereby
appoints Lender as Borrower's attorney-in-fact for the purpose of so
transferring record ownership of the Pledged Stock. The mere transfer of record
ownership shall be for preservation of Lender's rights only and shall not be
considered a sale or disposition of the Pledged Stock or an acquisition thereof
in full or partial satisfaction of the Secured Indebtedness, unless Lender
specifically so provides in writing and in accordance with applicable law.

(c) Receipt of Distributions. Lender shall have the
exclusive right to receive all distributions made with respect to the Pledged
Stock. Lender shall apply cash distributions to payment of the Secured
Indebtedness and hold all other types of property distributed for sale pursuant
to the Uniform Commercial Code as adopted in Tennessee as proceeds of the
Pledged Stock. Lender's right to receive such distributions shall be further
evidenced by the Irrevocable Proxy executed in connection with this Agreement.

(d) Sale of Pledged Stock. Lender may sell the Pledged
Stock or any part thereof at public or private sale or at any appropriate
broker's board or securities exchange, for cash, on credit, or for future
delivery.

(i) If notice of the disposition is required by law to be
given, such notice shall be sufficient and commercially
reasonable if given at least ten (10) days prior to the
proposed disposition.

(ii) Lender may purchase any or all of the Pledged Stock
sold at any public sale or, to the extent permitted by law, at
any private sale.

(iii) Borrower acknowledges that the Pledged Stock has not
been registered pursuant to applicable securities laws and
that compliance with applicable laws upon any disposition by
Lender may bring a lower price than would otherwise be
obtained for the Pledged Stock. Without limiting the authority
of Lender to take all other measures deemed necessary by
Lender to comply with any applicable securities laws, Borrower
agrees that, or prior to any sale of the Pledged Stock, Lender
may, in its sole discretion, restrict prospective purchasers
to persons who will represent that they will purchase for
their own account for investment and not with view to the
distribution or sale of any of the Pledged Stock and who will
agree that the Pledged Stock so purchased may bear an
appropriate restrictive legend.

-5-
<PAGE> 6

(iv) At or prior to any sale, Lender may, in its sole
discretion, require that prospective purchasers establish, to
Lender's satisfaction, that they are investors of sufficient
financial means and/or business acumen to qualify as
"accredited investors" or that they meet any other appropriate
standard of investor suitability under federal and/or state
securities laws.

(v) At any sale, Lender shall have the right to transfer
to the purchaser thereof the Pledged Stock sold. Lender is
hereby appointed Borrower's attorney-in-fact for the purpose
of supplying any endorsements necessary to effect such
transfer. Each purchaser at any such sale (including, without
limitation, Lender) shall hold the property sold free from any
claim or right of any kind, including any equity or rights of
redemption of Borrower. Borrower hereby specifically waives
all rights of redemption, stay or appraisal which Borrower has
or may have under any rule of law or statute now existing or
hereafter adopted.

(vi) At any sale, the Pledged Stock may be sold in one lot
as an entirety or in separate portions, as Lender may
determine.

(vii) If any of the Issuer's securities are then registered
for public sale, then, prior to any sale hereunder, Lender
may, but shall not be obligated to, seek to have all or part
of the Pledged Stock registered for public distribution
pursuant to any applicable state or federal law or seek
assurances from any state or federal authority that the
intended disposition of Pledged Stock will qualify under an
exception to laws that otherwise require registration for the
sale of stock.

(viii) In addition to other costs of sale, all expenses
incurred by Lender in addressing securities law matters
relating to the sale of the Pledged Stock, including, but not
limited to, reasonable attorney's fees, shall become part of
the Secured Indebtedness.

(ix) Lender shall not be obligated to make any sale
pursuant to any notice given and may, without notice or
publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the
time and place fixed for the sale, and such sale may be
resumed at any time and place to which the same may be so
adjourned.

(x) In the case of any sale of all or any part of the
Pledged Stock on credit or for future delivery, payments made
by the purchaser shall reduce the outstanding balance of the
Secured Indebtedness as payments are received, and

-6-
<PAGE> 7

the outstanding principal balance of the Secured Indebtedness
shall continue to accrue interest over the time that such
payments are made, until the entire Secured Indebtedness has
been paid in full. Lender shall not incur any liability in
case of the failure of such purchaser to completely pay for
the Pledged Stock so sold and, in the case of any such
failure, the Pledged Stock may again be sold pursuant to the
provisions hereof.

16. Application of Proceeds. All amounts received by Lender by
exercise of its remedies hereunder shall be applied as provided in the Loan
Agreement.

17. Incorporation of Exhibits. All Exhibits referred to in this
Agreement are incorporated herein by this reference.

18. Indulgence Not Waiver. Lender's indulgence in the existence of
an event of Default hereunder or any other departure from the terms of this
Agreement shall not prejudice Lender's rights to declare an Event of Default or
otherwise demand strict compliance with this Agreement.

19. Cumulative Remedies. The remedies provided Lender in this
Agreement are not exclusive of any other remedies that may be available to
Lender under any other document or at law or equity.

20. Amendment and Waiver in Writing. No provision of this
Agreement can be amended or waived, except by a statement in writing signed by
the party against which enforcement of the amendment or waiver is sought.

21. Assignment. This Agreement shall be binding upon and inure to
the benefit of the heirs, successors and assigns of Borrower and the successors
and assigns of Lender, except that Borrower shall not assign any rights or
delegate any obligations arising hereunder without the prior written consent of
Lender. Any attempted assignment or delegation by Borrower without the required
prior consent shall be void.

22. Entire Agreement. This Agreement and the other written
agreements between Borrower and Lender represent the entire agreement between
the parties concerning the subject matter hereof, and all oral discussions and
prior agreements are merged herein.

23. Severability. Should any provision of this Agreement be
invalid or unenforceable for any reason, the remaining provisions hereof shall
remain in full effect.

-7-
<PAGE> 8

24. Time of Essence. Time is of the essence of this Agreement, and
all dates and time periods specified herein shall be strictly observed, except
that Lender may permit specific deviations therefrom by its written consent.

25. Applicable Law. The validity, construction and enforcement of
this Agreement and all other documents executed with respect to the Secured
Indebtedness shall be determined according to the laws of Tennessee applicable
to contracts executed and performed entirely within that state.

26. Jurisdiction, Venue, Arbitration. Disputes arising under this
Agreement shall be governed as to matters of jurisdiction, venue and
arbitration by the provisions of the Loan Agreement.

27. Gender and Number. Words used herein indicating gender or
number shall be read as context may require.

28. Captions Not Controlling. Captions and headings have been
included in this Agreement for the convenience of the parties, and shall not be
construed as affecting the content of the respective paragraphs.

Dated as of the date first written above.

THE UNDERSIGNED ACKNOWLEDGE A THOROUGH
UNDERSTANDING OF THE TERMS OF THIS AGREEMENT
AND AGREE TO BE BOUND THEREBY:

RENAL CARE GROUP, INC.

By: /s/ Ronald Hinds
------------------------------------------
Title: EVP
---------------------------------------

NATIONSBANK OF TENNESSEE, N.A.

By: /s/ Roy Haisley
------------------------------------------
Title: VP
---------------------------------------

-8-
<PAGE> 9

EXHIBIT A

DESCRIPTION OF PLEDGED STOCK

<TABLE>
<CAPTION>
Issuer Domicile of Issuer Certificate # # of Shares % of Shares
- ------ ------------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
D.M.N. of Indiana Indiana 7 430 100%
Corporation

Renal Care Group Texas 9 8,000 100%
Texas, Inc.

RCG Mississippi, Inc. Delaware 2 1,000 100%

Renal Care Group, Inc. Tennessee 7 100 100%

Kansas Nephrology Kansas 6 3,499.98 100%
Association
</TABLE>

Additional Note Regarding Issuer

Renal Care Group, Inc., a Tennessee corporation, has authorized (i) 666,667
shares of Series A Preferred Stock, $0.01 par value and (ii) 333,333 shares of
additional undesignated preferred stock. No shares of either additional class
are outstanding.

-9-

<PAGE> 1

EXHIBIT 11.1

RENAL CARE GROUP, INC. (OF DELAWARE)

STATEMENT RE PRO FORMA COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED PRO FORMA)

<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Common Stock issued to Founders............................ 4,834,000 4,834,000
Common Stock issued to Public.............................. 3,329,000(1) 4,389,000
Common Stock issued to acquired entities................... 2,928,000 3,003,000
---------- ----------
Common Stock outstanding..................................... 11,091,000 12,226,000
Treasury Stock Method of Options and Warrants................ -- 981,000
---------- ----------
Average weighted shares outstanding.......................... 11,091,000 13,207,000
========== ==========
ProForma Net Income.......................................... $ 7,129,000 $7,838,000
========== ==========
ProForma Earnings per Share.................................. $ 0.64 $ 0.59
========== ==========
</TABLE>

- ---------------

(1) Excludes 1,156,000 shares the proceeds of which will be used for general
corporate purposes.

<PAGE> 1
Exhibit 21.1

RCG Mississippi, Inc.
D.M.N. of Indiana Corporation
Renal Care Group Texas, Inc.
Kansas Nephrology Association
Renal Care Group, Inc. a Tennessee Corporation
Main Line Suburban Dialysis Centers, Inc.
RCG Three Corp.
RCG Four Corp.
RCG Nine Corp.
RenalWest, L.C.
The Nephrology Centers, Inc.
Northeast Alabama Kidney Center, Inc.

<PAGE> 1

EXHIBIT 23.2

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated October 28, 1996 with respect to the consolidated
financial statements of Renal Care Group, Inc., the use of our reports dated
September 30, 1996 with respect to the combined financial statements of Renal
Care Group, Inc. (of Tennessee) and Three Unrelated Businesses to be Acquired
and the use of our reports dated May 15, 1996 with respect to the combined
financial statements of Kidney Care, Inc. et al. in the Registration Statement
(Form S-1) and the related Prospectus of Renal Care Group, Inc. for the
Registration of 3,000,000 shares of its common stock.

/s/ Ernst & Young LLP

Nashville, Tennessee

October 28, 1996

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Tyler Nephrology Associates, P.A.

We consent to the reference to our firm under the caption "Experts", and to
the use of our reports on the financial statements of Tyler Nephrology
Associates, P.A. to be included in the Form S-1 Registration Statement of Renal
Care Group, Inc.

/s/ Henry & Peters, P.C.

Tyler, Texas

October 28, 1996

<PAGE> 1

EXHIBIT 23.4

CONSENT OF ALLEN, GIBBS & HOULIK, L.C., INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and
"Selected Combined Financial Data" and to the use of our report dated July 15,
1995, relating to the combined financial statements of Kansas Nephrology
Associates, P.A. and Kansas Dialysis Supply, Inc. and to the inclusion of those
financial statements audited by our firm in the combined financial statements
referred to in the audit report of Ernst & Young LLP, dated September 30, 1996
in the Registration Statement (Form S-1) and the related Prospectus of Renal
Care Group, Inc.

/s/ Allen, Gibbs & Houlik, L.C.

Wichita, Kansas

October 28, 1996