RENAL CARE GROUP INC, DEFM14A, 1996-09-10

RENAL CARE GROUP INC
DEFM14A, 1996-09-10
MISC HEALTH & ALLIED SERVICES, NEC

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<PAGE> 1

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant /X/

Filed by a Party other than the Registrant / /

Check the appropriate box:

<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>

RENAL CARE GROUP, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

/X/ Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
<PAGE> 2

RENAL CARE GROUP, INC.
2100 West End Avenue
Suite 800
Nashville, Tennessee 37203

September 9, 1996

To the Stockholders of Renal Care Group, Inc.:

You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of Renal Care Group, Inc. ("RCG") to be held on September 27,
1996, at 9:30 a.m., local time, at 2100 West End Avenue, Suite 800, Nashville,
Tennessee, 37203.

At this important meeting, you will be asked to consider proposals to (i)
approve and adopt an Agreement and Plan of Merger (the "Merger Agreement") which
provides for the acquisition of RENALWEST, L.C., an Arizona limited liability
company ("RenalWest"), by means of the merger (the "Merger") of three wholly
owned subsidiaries of RCG into the three corporate members ("Members") of
RenalWest, and the issuance of an aggregate of 2,400,000 shares of RCG's common
stock to the stockholders of the Members upon consummation of the Merger and
(ii) amend the Renal Care Group, Inc. 1996 Stock Option Plan to, among other
things, increase the number of shares available for issuance thereunder (the
"Amendment").

If the proposed Merger is consummated, each outstanding share of common
stock of the Members (excluding shares held by stockholders who perfect their
dissenters' rights) will cease to be outstanding and will be converted into
shares of RCG's common stock and RenalWest will become a wholly owned
second-tier subsidiary of RCG. After the Merger, the former stockholders of the
Members of RenalWest are expected to own approximately 19% of the then issued
and outstanding shares of RCG Common Stock. In addition, certain persons
affiliated with RenalWest will be granted options to purchase an aggregate of
270,000 shares of RCG's common stock.

Enclosed are the (i) Notice of Special Meeting, (ii) Proxy Statement and
(iii) Proxy for the Special Meeting. The Proxy Statement describes in more
detail the terms of the Merger and the Amendment and provides certain financial
and other information pertaining to RCG, RenalWest and the Members. Attached as
Appendices to the Proxy Statement are copies of (i) the Merger Agreement, (ii) a
fairness opinion received by the Board of Directors in connection with the
Merger and (iii) the Option Plan, as amended. Please give this information your
careful attention.

THE BOARD OF DIRECTORS IS UNANIMOUSLY OF THE VIEW THAT THE PROPOSED MERGER
AND THE AMENDMENT ARE IN THE BEST INTERESTS OF RCG AND ITS STOCKHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT AND THE ISSUANCE OF RCG'S COMMON STOCK PURSUANT THERETO AND FOR
APPROVAL OF THE AMENDMENT.

We urge you to complete, sign, and date the enclosed Proxy and to return it
promptly in the enclosed envelope, whether or not you plan to attend the Special
Meeting. If you attend the Special Meeting, you may revoke your Proxy and vote
in person if you wish.

We look forward to seeing you at the Special Meeting.

Sincerely yours,

HARRY R. JACOBSON, M.D., Ph.D.
Chairman
<PAGE> 3

RENAL CARE GROUP
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
---------------------

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AT 9:30 A.M. ON SEPTEMBER 27, 1996

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

To the Stockholders of Renal Care Group, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special
Meeting") of Renal Care Group, Inc. ("RCG") will be held on September 27, 1996,
at 9:30 a.m., local time, at 2100 West End Avenue, Suite 800, Nashville,
Tennessee 37203, for the following purposes:

1. Proposed Merger. To consider a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of August 7, 1996, (the "Merger
Agreement"), among RCG, three of its wholly owned subsidiaries (the "Merger
Corps"), RenalWest, L.C. ("RenalWest"), and 3-CO., Inc., 4-CO., Inc. and
9-CO., Inc., the three members of RenalWest (the "Members"), and the
stockholders of the Members, providing for the merger of the Merger Corps
into the Members, pursuant to which RenalWest will become a wholly owned
second-tier subsidiary of RCG, and the issuance of an aggregate of
2,400,000 shares of RCG's common stock to the stockholders of the Members
upon consummation of the Merger, all as described more fully in the
accompanying Proxy Statement.

2. Option Plan. To consider a proposal to approve an amendment to the
Renal Care Group, Inc. 1996 Stock Option Plan (the "Option Plan") to, among
other things, increase the number of shares available for issuance
thereunder (the "Amendment").

3. Other Business. To transact such other business incidental to the
conduct of the Special Meeting as may properly come before the Special
Meeting or any adjournments or postponements of the Special Meeting.

The Board of Directors has fixed August 26, 1996, as the record date for
the determination of stockholders entitled to notice of and to vote at the
Special Meeting. Approval of the Merger Agreement and the Amendment requires the
presence, by proxy or in person, of the holders of a majority of all shares
entitled to vote and the affirmative vote of the holders of a majority of the
shares present.

THE BOARD OF DIRECTORS OF RCG UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL OF THE MERGER AGREEMENT AND THE ISSUANCE OF SHARES OF RCG COMMON
STOCK PURSUANT TO THE MERGER AGREEMENT AND FOR APPROVAL OF THE PROPOSED
AMENDMENT TO THE OPTION PLAN.

BY ORDER OF THE BOARD OF DIRECTORS

Ronald Hinds
Secretary

September 9, 1996

PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY
TO RCG IN THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH,
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
<PAGE> 4

RENAL CARE GROUP, INC.
---------------------

PROXY STATEMENT

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

SPECIAL MEETING OF STOCKHOLDERS TO BE HELD
ON SEPTEMBER 27, 1996

INTRODUCTION

This Proxy Statement is being furnished to holders of common stock, $.01
par value per share ("RCG Common Stock"), of Renal Care Group, Inc., a Delaware
corporation ("RCG"), in connection with the solicitation of proxies by RCG's
Board of Directors for use at a Special Meeting of Stockholders to be held on
September 27, 1996, at 9:30 a.m., local time, at 2100 West End Avenue, Suite
800, Nashville, Tennessee 37203, and at any adjournment or adjournments thereof
(the "Special Meeting").

At the Special Meeting, holders of RCG Common Stock will be asked to
consider a proposal to approve and adopt the terms of an Agreement and Plan of
Merger, dated as of August 7, 1996 (the "Merger Agreement"), by and among RCG,
three of its wholly owned subsidiaries, RCG Three Corp., RCG Four Corp. and RCG
Nine Corp., all Arizona corporations (the "Merger Corps"), RenalWest, L.C., an
Arizona limited liability company ("RenalWest"), the three members of RenalWest,
3-CO., Inc., 4-CO., Inc. and 9-CO., Inc., all Arizona corporations (the
"Members") and the stockholders of the Members (the "Owners"), providing for the
merger of the Merger Corps with and into the Members (the "Merger"). Upon
consummation of the Merger, each outstanding share of common stock of each
Member will cease to be outstanding and will be converted into shares of RCG
Common Stock as provided in the Merger Agreement. An aggregate of 2,400,000
shares of RCG Common Stock will be issued to the Owners upon consummation of the
Merger. See "The Merger."

Holders of RCG Common Stock will also be asked at the Special Meeting to
approve an amendment to the Renal Care Group 1996 Stock Option Plan (the "Option
Plan"). The proposed amendment to the Option Plan would (i) increase the number
of shares of RCG Common Stock reserved for issuance under the Option Plan from
488,448 shares to 1,000,000 shares and (ii) effect certain technical changes in
light of recent amendments to the rules of the Securities and Exchange
Commission promulgated under Section 16 of the Exchange Act (the "Amendment").

The Board of Directors of RCG knows of no other business that will be
presented for consideration at the Special Meeting other than the matters
described in this Proxy Statement.

RCG Common Stock is quoted on the Nasdaq National Market System ("Nasdaq
NMS"). On August 6, 1996, the last trading day prior to the public announcement
of the Merger, the last reported sale price per share of RCG Common Stock on
Nasdaq NMS was $33.50. On September 5, 1996, the last reported sale price per
share of RCG Common Stock on Nasdaq NMS was $34.38.

This Proxy Statement and the accompanying Notice of Special Meeting and
Proxy enclosed herewith, are first being mailed to stockholders of RCG on or
about September 9, 1996.

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

The date of this Proxy Statement is September 9, 1996

<PAGE> 5

AVAILABLE INFORMATION

RCG is subject to the reporting and informational requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by RCG with the Commission may be inspected and copied at the
principal office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at 7 World Trade Center, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.

Statements contained in this Proxy Statement concerning the provisions of
certain documents filed with the Commission are necessarily brief descriptions
thereof, and are not necessarily complete, and each such statement is qualified
in its entirety by reference to the full text of such document.
---------------------

All information contained herein with respect to RCG and its subsidiaries
has been supplied by RCG, and all information with respect to RenalWest and the
Members (collectively, the "RenalWest Parties") and the Owners has been supplied
by the RenalWest Parties.
---------------------

No person has been authorized to give any information or to make any
representation other than those contained in this Proxy Statement and, if given
or made, such information or representation should not be relied upon as having
been authorized. Neither the delivery of this Proxy Statement nor any
distribution of the securities to which this Proxy Statement relates shall,
under any circumstances, create any implication that there has been no change in
the affairs of RCG and its subsidiaries or any of the RenalWest Parties since
the date hereof or that the information contained herein is correct as of any
time subsequent to its date. This Proxy Statement does not constitute an offer
to sell, or a solicitation of an offer to purchase, any securities.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. 2
SUMMARY............................................................................... 3
GENERAL INFORMATION................................................................... 11
RCG SELECTED HISTORICAL COMBINED FINANCIAL DATA....................................... 30
RCG MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 34
BUSINESS OF RCG....................................................................... 39
EXECUTIVE COMPENSATION OF RCG......................................................... 48
RENALWEST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 52
BUSINESS OF RENALWEST................................................................. 55
OWNERSHIP OF RCG EQUITY SECURITIES.................................................... 58
LEGAL MATTERS......................................................................... 59
PROPOSALS BY RCG STOCKHOLDERS......................................................... 60
OTHER MATTERS......................................................................... 60
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>

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SUMMARY

The following is a summary of certain information contained elsewhere in
this Proxy Statement. This summary is not intended to be a complete description
of the matters covered in this Proxy Statement and is subject to and qualified
in its entirety by reference to the more detailed information contained
elsewhere in this Proxy Statement, including the Appendices hereto, and in the
documents incorporated by reference in this Proxy Statement. A copy of the
Merger Agreement is attached as Appendix A to this Proxy Statement and reference
is made thereto for a complete description of the terms of the Merger. A copy of
the Amendment is attached as Appendix C to this Proxy Statement. RCG's
stockholders are urged to read carefully the entire Proxy Statement, including
the Appendices. Where the context requires, the term RCG refers to RCG and its
subsidiaries.

Certain statements in this Proxy Statement, in particular under the
captions "The Merger -- Reasons for the Merger" and "RCG Management's Discussion
and Analysis of Financial Condition and Results of Operations," constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of RCG to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, RCG's
ability to (i) integrate successfully the acquisition of the RenalWest Parties,
(ii) implement successfully its growth strategy, (iii) continue to satisfy the
participation requirements of Medicare and Medicaid, (iv) attract and retain key
employees and qualified physician Medical Directors, (v) maintain acceptable
government and private reimbursement rates, and (vi) other factors referenced in
this Proxy Statement.

RCG SPECIAL MEETING

The Special Meeting of holders of RCG Common Stock is scheduled to be held
on September 27, 1996, at 9:30 a.m., local time, at 2100 West End Avenue, Suite
800, Nashville, Tennessee 37203. The purpose of the Special Meeting is to
consider proposals to (i) approve and adopt the Merger Agreement and (ii)
approve and adopt the Amendment to the Option Plan (each of (i) and (ii)
referred to herein as a "Proposal" and collectively as the "Proposals"). Only
holders of record of shares of RCG Common Stock at the close of business on
August 26, 1996 (the "Record Date") are entitled to notice of and to vote at the
Special Meeting. As of such date, 10,146,136 shares of RCG Common Stock were
outstanding and entitled to vote, beneficially held by approximately 1,800
persons, with each such share entitled to one vote.

VOTE REQUIRED

Approval of the Merger by the stockholders of RCG is not required by state
law, but is required pursuant to the rules of the National Association of
Securities Dealers, Inc. ("NASD"). Such approved is being sought solely to
comply with such rules of the NASD. Approval of the Amendment is required by the
terms of the Option Plan as currently in effect and by the rules of the NASD.
Approval of each Proposal by the stockholders of RCG requires the presence, by
proxy or in person, of the holders of a majority of all shares entitled to vote
and the affirmative vote of the holders of a majority of the shares present, in
person or by proxy, and entitled to vote on each Proposal.

If fewer shares are voted in favor of a Proposal than required for its
approval, it is expected that the Special Meeting will be postponed or adjourned
with respect to such Proposal for the purpose of allowing additional time for
obtaining additional proxies or votes. At any subsequent reconvening of the
Special Meeting, all proxies will be voted on the matter(s) to be considered at
the reconvened Special Meeting in the same manner as such proxies would have
been voted on the matter(s) at the original convening of the Special Meeting
(except for any proxies which have theretofore effectively been revoked or
changed), notwithstanding that they may have been effectively voted on the same
or any other matter at a previous meeting. Any such adjournment will require the
affirmative vote of a majority of the shares present at the session of the
Special Meeting to be adjourned. A proxy granting authority to vote upon such
other business incidental to the

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conduct of the Special Meeting as may properly come before the Special Meeting
will constitute authority to vote in favor of one or more adjournments of the
Special Meeting.

As of the Record Date, the executive officers and directors of RCG owned
1,692,231 shares of RCG Common Stock. The executive officers and directors of
RCG have indicated that they intend to vote such shares in favor of the
Proposals. See "General Information -- The Special Meeting"; "-- Record Date,
Solicitation and Revocability of Proxies," "-- Vote Required" and "Ownership of
Equity Securities."

THE MERGER

General

RCG plans to effect the merger (the "Merger") of three wholly owned
subsidiaries, RCG Three Corp., RCG Four Corp. and RCG Nine Corp., all Arizona
corporations (the "Merger Corps"), into 3-CO., Inc., 4-CO., Inc. and 9-CO., Inc.
(the "Members"), respectively, each an Arizona corporation and member of
RenalWest, L.C., an Arizona limited liability company ("RenalWest"), pursuant to
the terms of an Agreement and Plan of Merger (the "Merger Agreement"), dated as
of August 7, 1996, between RCG, the Merger Corps, RenalWest, the Members, and
the stockholders of the Members (the "Owners"). Pursuant thereto, each share of
common stock of the Members ("Member Common Stock") outstanding immediately
prior to the Merger shall cease to be outstanding and shall be converted into
shares of common stock of RCG, $.01 par value per share ("RCG Common Stock"). An
aggregate of 2,400,000 shares of RCG Common Stock will be issued to the Owners
upon consummation of the Merger. See "The Merger."

Parties to the Merger

RCG. RCG 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, RCG
acquired Kidney Care, Inc. and Medical Enterprises Ltd. (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," and together with Kidney Care, DMN, Tyler
and Kansas, the "Founding Companies"). In April 1996 and July 1996, RCG acquired
Main Line Suburban Dialysis Centers, Inc. ("Main Line") and The Nephrology
Center, Inc. ("TNC"), respectively, in mergers accounted for as
poolings-of-interest. The mailing address of the principal executive offices of
RCG is 2100 West End Avenue, Suite 800, Nashville, Tennessee 37203, and its
telephone number is (615) 321-2333. Where the context requires, the term "RCG"
as used herein includes RCG and its operating subsidiaries.

RenalWest Parties. RenalWest, L.C. is a provider of nephrology services
that was formed in September 1993 when 13 subchapter S corporations owning
dialysis centers were merged together into an Arizona limited liability company.
RenalWest provides care to patients with chronic kidney failure and currently
operates 22 outpatient centers in the State of Arizona that provide dialysis
services to approximately 1,200 patients. The Members are each Arizona
corporations that have elected subchapter S status for federal income tax
purposes. The Members collectively own 100% of the equity of RenalWest and have
no material operations other than their ownership of RenalWest. The mailing
address of the principal executive offices of the RenalWest Parties is 1750 S.
Mesa Drive, Suite 110, Mesa, Arizona 85210, and their telephone number is (602)
926-0790.

RCG Three Corp, RCG Four Corp. and RCG Nine Corp. The Merger Corps are
wholly owned subsidiaries of RCG formed for the purpose of effecting the Merger.
The mailing address of their principal executive offices is 2100 West End
Avenue, Suite 800, Nashville, Tennessee 37203, and their telephone number is
(615) 321-2333.

Issuance of Shares in the Merger

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Common Stock. An aggregate of 2,400,000 shares of RCG Common Stock will be
issued to the Owners upon consummation of the Merger. The number of shares to be
issued to the Owners was determined based upon the negotiation of an aggregate
purchase price of $72,000,000 divided by $30.00, the average trading price of
the RCG Common Stock for the twenty trading days prior to the date of execution
of the Merger Agreement. The following table shows the aggregate dollar value of
the Merger at various assumed trading prices of the RCG Common Stock:

<TABLE>
<CAPTION>
ASSUMED PRICE OF AGGREGATE DOLLAR
RCG COMMON STOCK VALUE OF MERGER
- - ---------------- ----------------
<S> <C>
$20.00 $ 48,000,000
25.00 60,000,000
30.00 72,000,000
35.00 84,000,000
40.00 96,000,000
</TABLE>

In the event RCG changes the number of shares of RCG Common Stock issued
and outstanding prior to the Effective Time as a result of a stock split, stock
dividend, combination of shares or similar recapitalization with respect to such
stock and the record date therefor or, if there is no record date, the effective
date thereof, shall be prior to the Effective Time, then the number of shares to
be issued in the Merger shall be adjusted to appropriately and proportionately
adjust the number of shares of RCG Common Stock into which the shares of Member
Common Stock will be converted.

The Merger Agreement provides that at closing of the Merger, RCG shall
grant options to purchase an aggregate of 270,000 Shares of RCG Common Stock to
certain persons affiliated with the RenalWest Parties. Such options shall be
nonqualified stock options for tax purposes, shall have an exercise price equal
to the closing price of RCG Common Stock on the Nasdaq NMS on the closing date
and shall vest over a five-year period. The additional terms of said options
shall be commensurate with similar stock options granted generally by RCG to
similarly situated employees and affiliates of RCG.

Recommendation of RCG's Board of Directors

RCG's Board of Directors is unanimously of the view that the Merger is in
the best interests of RCG and its stockholders. RCG's Board of Directors has
recommended that RCG's stockholders vote FOR the Merger. The Board of Directors'
recommendation is based upon a number of factors discussed in this Proxy
Statement. See "The Merger -- Reasons for the Merger."

Opinion of Financial Advisor

Equitable Securities Corporation ("Equitable") has acted as financial
advisor to RCG in connection with the Merger and has delivered a written
opinion, dated the date of this Proxy Statement, to the Board of Directors of
RCG to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the consideration to be received by
RCG in exchange for the shares of RCG Common Stock to be issued in the Merger
was fair, from a financial point of view, to RCG and its stockholders. A copy of
such opinion is attached as Appendix B to this Proxy Statement and should be
read carefully in its entirety. See "The Merger -- Opinion of Financial
Advisor."

Fractional Shares

No fractional shares of RCG Common Stock will be issued in the Merger. Any
fractional share interest which an Owner would otherwise be entitled to receive
shall be rounded up to the nearest whole share if such fraction is .5 or greater
and shall be rounded down to the nearest whole share if such fraction is less
than .5. See "The Merger -- Issuance of Shares in the Merger."

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Effective Time of the Merger

If the Merger is approved by the requisite vote of RCG stockholders and the
other conditions of the Merger are satisfied or waived, the Merger will be
consummated and become effective on the date and at the time the Articles of
Merger become effective with the Secretary of State of the State of Arizona (the
"Effective Time"). Assuming all other conditions of the Merger are satisfied or
waived, the Merger is expected to become effective promptly after obtaining the
necessary approval of RCG stockholders. See "The Merger -- Effective Time of the
Merger."

Operations after the Merger

Following the Merger, RenalWest will be operated as a wholly owned
second-tier subsidiary of RCG and will retain its status as a limited liability
company governed by the laws of the State of Arizona. The Merger Agreement
provides that the main office of RenalWest in Mesa, Arizona will serve as the
executive headquarters of RCG's southwest region, which will include the
existing operations of the RenalWest Parties in Arizona plus all centers newly
developed or acquired in the states of Arizona, New Mexico, Colorado, Utah,
Nevada and California (the "Southwest Region"). John Greksa, the current Chief
Executive Officer of RenalWest, will serve as the Chief Operating Officer of the
Southwest Region while he is employed with RCG. The foregoing covenant expires
upon the later to occur of the fifth anniversary of the closing date or the date
on which Sam A. Brooks, Jr. ceases to serve as the Chief Executive Officer of
RCG.

The Merger Agreement provides that RenalWest and each affiliated physician
practice that has a physician member or employee involved with the use,
operation of or referral of patients to RenalWest's dialysis facilities (the
"Practices"), shall enter into Medical Director Agreements at Closing under
which the Practices shall provide medical director services to RenalWest for the
dialysis facilities operated by RenalWest. Such Medical Director Agreements
shall have an initial term of serve (7) years with renewal terms for additional
three year periods and shall provide for (i) an aggregate annual fee to be paid
by RCG to the Practices of $840,000 (subject to agreed upon modifications) to be
divided among the Practices at their discretion, (ii) certain restrictive
covenants, including but not limited to a covenant not to compete with a
duration of the term of the Medical Director Agreement and three (3) years after
termination of the Medical Director Agreement, and (iii) other customary terms
and conditions.

Interests of Certain Persons in the Merger

Pursuant to the Merger Agreement, RCG shall at the Closing increase the
number of members of its Board of Directors by one and add an individual
specified by the RenalWest Parties as a director, the identity of whom is
subject to the reasonable approval of RCG, to serve an initial term ending on
the date of RCG's 1999 Annual Meeting of its stockholders. Further, RCG's
management will recommend to its stockholders at such 1999 Annual Meeting that
such designee, or such other designee reasonably approved by RCG, serve for an
additional three (3) year term as a member of the Board of Directors of RCG. In
addition, RCG will name a physician specified by the RenalWest Parties to RCG's
Medical Advisory Board, the identity of whom is subject to the reasonable
approval of RCG.

Conditions of Merger; Termination

Consummation of the Merger is conditioned upon the fulfillment or waiver of
certain conditions set forth in the Merger Agreement, including, among other
matters: (i) approval of the Merger by RCG's stockholders; (ii) receipt of a
letter from Ernst & Young LLP to the effect that the Merger may be accounted for
under the pooling-of-interests basis of accounting; (iii) the continued accuracy
of all representations and warranties made in the Merger Agreement, (iv)
obtaining all necessary licenses, consents and permits, (v) the absence of any
material adverse change in the business, assets, liabilities or conditions of
RCG or the RenalWest Companies, (vi) the requisite consent of those stockholders
of RCG who presently have registration rights for the grant of the registration
rights to the Owners, and (vii) no Owner shall have exercised dissenter's
rights. The Merger Agreement may be terminated (i) by mutual written consent of
RCG and the RenalWest Parties, (ii) by either RCG or the RenalWest Parties if
their conditions to the Merger have not been satisfied on or

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before October 31, 1996 (provided the satisfaction of such conditions has not
been frustrated or made impossible by the terminating party), and (iii) by RCG
or RenalWest if the Merger has not been completed by November 30, 1996. See "The
Merger -- Conditions to Consummation of the Merger" and "-- Amendments;
Termination."

Accounting Treatment

It is anticipated that the Merger will qualify as a "pooling of interests"
for financial reporting purposes. It is a condition to the obligation of RCG to
consummate the Merger that it shall have received from Ernst & Young LLP a
letter as of the Closing Date to the effect that the Merger may be accounted for
as a pooling of interests by RCG for financial reporting purposes.

Registration Rights Agreement

Under the Merger Agreement, RCG is obligated to undertake reasonable
commercial efforts to file by November 30, 1996 a registration statement under
the Securities Act ("Secondary Offering"), pursuant to which the Owners may
sell, to the extent permissible under the "pooling of interests" rules, up to
forty percent (40%) of their shares of RCG Common Stock. If RCG has not caused
the Secondary Offering to become effective prior to February 7, 1997, then
Owners holding twenty percent (20%) of the shares of RCG Common Stock issued in
the Merger have the right to require RCG to file a registration statement under
the Securities Act for an offering of up to twenty percent (20%) of the RCG
Common Stock originally held by each Owner making such request. In addition, in
the event RCG proposes to register under the Securities Act any RCG Common Stock
for its own account or for the account of others at any time prior to the second
anniversary of the date the shares of RCG Common Stock are issued to the Owners
in the Merger, subject to certain exceptions, the Owners have the right to
require RCG to include up to forty percent (40%) of their shares of RCG Common
Stock in such registration.

THE OPTION PLAN

The Option Plan was approved by the sole stockholder of RCG on January 15,
1996. The proposed Amendment to the Option Plan would (i) increase the number of
shares of RCG Common Stock reserved for issuance under the Option Plan from
488,448 shares to 1,000,000 shares and (ii) effect certain technical changes in
light of recent amendments to the rules of the Commission promulgated under
Section 16 of the Exchange Act. A primary reason additional shares are needed
under the Option Plan is to enable RCG to grant options to key employees who
have been or will be employed by RCG in connection with its acquisitions.
Approval of the Amendment by the stockholders of RCG is required pursuant to the
provisions of the Option Plan and the rules of the NASD. In addition,
stockholder approval of the Option Plan is being sought in order to preserve
RCG's federal income tax deduction for compensation that may be earned under the
Option Plan, in accordance with the requirements of the Omnibus Budget
Reconciliation Act of 1993 ("OBRA") and Section 162(m) of the Internal Revenue
Code ("Code"). While no RCG executive's annual compensation has ever approached
$1.0 million, the Board of Directors of RCG has determined to seek stockholder
approval of the Option Plan since it may provide performance based compensation
to senior executives.

MARKET AND MARKET PRICE

RCG Common Stock has been traded on Nasdaq NMS under the symbol "RCGI"
since February 7, 1996. Set forth below are the closing prices per share of RCG
Common Stock on Nasdaq NMS on (i) August 6, 1996, the last business day
preceding public announcement of the Merger, and (ii) September 5, 1996:

<TABLE>
<CAPTION>
CLOSING PRICE PER SHARE
DATE OF RCG COMMON STOCK
---------------------------------------------------------------- ------------------------
<S> <C>
August 6, 1996.................................................. $33.50
September 5, 1996............................................... 34.38
</TABLE>

7
<PAGE> 11

The table below sets forth the high and low sales prices per share of RCG
Common Stock, as reported on Nasdaq NMS, for the periods indicated.

<TABLE>
<CAPTION>
CLOSING PRICE PER
SHARE
OF RCG COMMON STOCK
-------------------
QUARTER ENDED FISCAL 1996: HIGH LOW
- - ------------------------------------------------------------------------- ------ ------
<S> <C> <C>
First Quarter(1)......................................................... $28.25 $23.50
Second Quarter........................................................... 35.75 29.25
Third Quarter(2)......................................................... 38.00 26.25
</TABLE>

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

(1) Reflects the high and low sales prices of RCG Common Stock for the period
beginning February 7, 1996 and ending March 31, 1996.

(2) Reflects the high and low sales prices of RCG Common Stock for the period
beginning July 1, 1996 and ending September 5, 1996.

STOCKHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR RCG COMMON
STOCK. No assurance can be given as to the market price of RCG Common Stock at
the Effective Time or at any other time. As of August 26, 1996, there were
approximately 1,800 beneficial holders of RCG Common Stock.

There is no established public trading market for the Member Common Stock.
As of August 26, 1996, there were approximately 28 holders of record of Member
Common Stock.

DIVIDEND POLICY

RCG has never paid any cash dividends on its capital stock. RCG 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 RCG Common Stock in the foreseeable
future. Any future declarations of dividends will be subject to the discretion
of RCG's Board of Directors and its review of operations, financial condition,
capital requirements and surplus, contractual restrictions to pay such dividends
and other factors it deems relevant.

RenalWest has from time to time made cash distributions to its Members in
an amount approximating the taxable income of RenalWest. The Members, in turn,
have paid cash dividends to the stockholders of the Members. Under the terms of
the Merger Agreement, the income of RenalWest earned prior to the closing is to
be distributed to the Members in a manner consistent with past practices, and
the Members will distribute such income to the Owners.

COMPARATIVE PER SHARE INFORMATION

The following summary presents selected comparative per share information
(i) on a pro forma combined basis for RCG and its subsidiaries for the year
ended December 31, 1995 and the six months ended June 30, 1996 and (ii) on a pro
forma combined basis giving effect to the Merger of RenalWest on a
pooling-of-interest basis for the same periods.

RCG has not paid cash dividends since inception. RenalWest paid cash
dividends to members each year based on the amount of cash available and such
amounts were $4,031,000, $5,094,000 and $2,597,000 for the years ended December
31, 1994 and 1995 and the six months ended June 30, 1996, respectively. It is
anticipated that RCG will retain all earnings for use in the expansion of the
business and therefore does not anticipate paying any cash dividends in the
foreseeable future.

The information shown below is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Merger been consummated at the beginning of the periods indicated, nor
is it necessarily indicative of the combined results of operations in the future
periods or future combined financial position. This information should be read
in conjunction with the historical consolidated financial statements of RCG and
RenalWest, including the respective notes thereto, and the pro

8
<PAGE> 12

forma financial information appearing elsewhere in this Proxy Statement. See
"Unaudited Pro Forma Condensed Combined Financial Statements."

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
PRO FORMA NET INCOME PER COMMON SHARE:
RCG and its Subsidiaries Combined(1)................................ $ .57 $ .36
========== ==========
RenalWest, RCG and its Subsidiaries Combined(2)..................... .62 .40
========== ==========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
PRO FORMA STOCKHOLDERS' EQUITY PER COMMON SHARE:
RCG and its Subsidiaries Combined(1)................................ $ 2.52 $ 5.34
========== ==========
RenalWest and RCG and its Subsidiaries Combined(2).................. 2.25 4.53
========== ==========
</TABLE>

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

(1) Pro forma information about RCG and its subsidiaries combined includes
information about RCG, Kidney Care, DMN, Tyler, Kansas, Tennessee and Main
Line as if such entities had been operating together for the periods or as
of the dates indicated.
(2) Pro forma information about RenalWest and RCG and its subsidiaries combined
includes information about RenalWest and RCG, including Kidney Care, DMN,
Tyler, Kansas, Tennessee and Main Line as if such entities had been
operating together for the periods and as of the dates indicated.

9
<PAGE> 13

RENAL CARE GROUP, INC.

SUMMARY COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
------------------------------------------- -------------------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
COMBINED RCG(2) RENALWEST(3) COMBINED COMBINED RCG(2) RENALWEST(3) COMBINED
--------------- ------------ ---------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Net Revenue..................... $82,594 $ 32,037 $114,631 $45,350 $ 17,386 $ 62,736
Patient care costs.............. 59,694 18,984 78,678 33,120 10,763 43,883
General and administrative
expenses...................... 10,677 6,104 16,781 3,631 2,785 6,416
Provision for doubtful
accounts...................... 1,804 2,134 3,938 883 313 1,196
Depreciation and amortization... 2,334 1,400 3,734 1,203 955 2,158
Merger expenses................. -- -- -- 680 -- 680
------- ------- -------- ------- ------- -------
Total operating costs and
expenses...................... 74,509 28,622 103,131 39,517 14,816 54,333
Income from operations.......... 8,085 3,415 11,500 5,833 2,570 8,403
Interest expense, net........... 97 409 506 (408) 262 (146)
------- ------- -------- ------- ------- -------
Income before income taxes...... $ 7,988 $ 3,006 $ 10,994 $ 6,241 $ 2,308 $ 8,549
------- ======= -------- ------- ======= -------
Pro Forma provision for income
taxes(4)...................... 3,035 4,178 2,342 3,249
------- -------- ------- -------
Pro Forma Net Income............ $ 4,953 $ 6,816 $ 3,899 $ 5,300
======= ======== ======= =======
Pro Forma Earnings Per Share.... $ .57 $ .62 $ .36 $ .40
======= ======== ======= =======
Pro Forma Weighted Average
Shares Outstanding............ 8,680 11,080 10,687 13,087
======= ======== ======= =======
BALANCE SHEET DATA:
Working Capital................. $13,910 $ (1,886) $ 11,575 $35,370 $ (3,351) $ 32,019
Total Assets.................... 44,356 16,234 56,335 70,306 15,337 85,643
Long-Term Debt.................. 11,538 5,720 17,258 -- 5,425 5,425
Shareholders' Equity............ 21,783 3,099 24,882 52,625 2,806 55,431
</TABLE>

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

(1) All pro forma amounts exclude the one-time costs associated with the Merger
of Renal West, et al. See Note 5 to "Unaudited Pro Forma Condensed Combined
Financial Statements".

(2) Amounts include the historical operations of RCG giving effect to the
acquisition of Main Line combined with the historical operation of the
Founding Companies.

(3) Amounts include the historical operations of RenalWest L.C., et al.

(4) Pro forma provision for income taxes has been provided at 38% of income
before taxes.

10
<PAGE> 14

GENERAL INFORMATION

THE SPECIAL MEETING

This Proxy Statement is being furnished by RCG to its stockholders in
connection with the solicitation of proxies by the Board of Directors of RCG
from holders of the outstanding shares of RCG Common Stock for use at the
Special Meeting to be held at 2100 West End Avenue, Suite 800, Nashville,
Tennessee 37203, at 9:30 a.m., local time, on September 27, 1996, and at any
adjournments and postponements thereof, to (i) consider and vote upon the
Merger, (ii) consider and vote upon the Amendment to the Option Plan, and (iii)
to transact such other business incidental to the conduct of the Special Meeting
as may properly come before the Special Meeting.

The Merger Agreement provides for the merger of the Merger Corps with and
into the Members, pursuant to which RenalWest will become a wholly owned
second-tier subsidiary of RCG and will continue as a limited liability company
governed by the laws of the State of Arizona. At the Effective Time, each share
of issued and outstanding Member Common Stock shall cease to be outstanding and
shall be converted into RCG Common Stock. An aggregate of 2,400,000 shares of
RCG Common Stock will be issued upon consummation of the Merger. If the Merger
is approved at the Special Meeting, all required consents and approvals are
obtained, and all of the other conditions to the obligations of the parties to
consummate the Merger are either satisfied or waived, the Merger will be
consummated. See "The Merger -- Issuance of Shares in the Merger" and
"-- Effective Time of the Merger."

The proposed Amendment to the Option Plan would (i) increase the number of
shares of RCG Common Stock reserved under the Option Plan from 488,448 shares to
1,000,000 shares and (ii) effect certain technical changes in light of recent
amendments to the rules of the Commission promulgated under Section 16 of the
Exchange Act. Stockholder approval of the Option Plan is being sought in order
to satisfy NASD requirements and preserve RCG's federal income tax deduction for
compensation that may be earned under the Option Plan, in accordance with the
requirements of the Omnibus Budget Reconciliation Act of 1993 ("OBRA") and
Section 162(m) of the Internal Revenue Code ("Code").

RECORD DATE AND QUORUM

RCG's Board of Directors has fixed the close of business on August 26,
1996, as the record date for determining RCG stockholders entitled to receive
notice of and to vote at the Special Meeting (the "Record Date"). Only holders
of record of RCG Common Stock as of the Record Date are entitled to vote at the
Special Meeting. At the close of business on the Record Date, there were
10,146,136 shares of RCG Common Stock issued and outstanding and held by
approximately 1,800 beneficial holders. Holders of RCG Common Stock are entitled
to one vote on each matter considered and voted on at the Special Meeting for
each share of RCG Common Stock held of record at the close of business on the
Record Date. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of RCG Common Stock entitled to
vote at the Special Meeting is necessary to constitute a quorum at the Special
Meeting. Abstentions and "broker non-votes" (which occur when shares held by
brokers or nominees for beneficial owners are voted on some matters but not on
others) will be counted as shares present for purposes of determining the
presence of a quorum. Broker non-votes will not be counted as votes cast for
purposes of determining whether a proposal has received sufficient votes for
adoption, and as a result will have no effect on the outcome of the vote on the
Proposals. For purposes of determining whether a Proposal has received
sufficient votes for adoption, abstentions will be counted as votes cast and, as
a result, an abstention will have the effect of a vote against the Proposals.

SOLICITATION AND REVOCABILITY OF PROXIES

The enclosed proxies are solicited by RCG's Board of Directors. Shares of
RCG Common Stock represented by properly executed proxies, if such proxies are
received in time and are not revoked, will be voted in accordance with the
instructions indicated on the proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH

11
<PAGE> 15

PROXIES WILL BE VOTED FOR APPROVAL OF THE PROPOSALS AND AS DETERMINED BY THE
PROXIES AS TO ANY OTHER MATTER INCIDENTAL TO THE CONDUCT OF THE SPECIAL MEETING
THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING.

An RCG stockholder who has given a proxy may revoke it at any time prior to
its exercise at the Special Meeting by (i) giving written notice of revocation
to the Secretary of RCG, (ii) properly submitting to RCG a duly executed proxy
bearing a later date, or (iii) attending and voting in person at the Special
Meeting. All written notices of revocation and other communications with respect
to revocation of proxies should be addressed to RCG as follows: Renal Care
Group, Inc., 2100 West End Avenue, Suite 800, Nashville, Tennessee 37203,
Attention: Ronald Hinds, Secretary. A proxy appointment will not be revoked by
death or supervening incapacity of the stockholder executing the proxy unless,
before the shares are voted, notice of such death or incapacity is filed with
RCG's Corporate Secretary or other person responsible for tabulating votes on
behalf of RCG.

Any expense of soliciting proxies for the Special Meeting will be paid for
by RCG. RCG will be contacting brokers, dealers, banks or voting trustees or
their nominees who can be identified as record holders of RCG Common Stock. Such
holders, after inquiry by RCG, will provide information concerning the quantity
of proxy and other materials needed to supply such materials to beneficial
owners, and RCG will reimburse them for the expense of mailing the proxy
materials to such persons. RCG does not anticipate retaining a firm to assist in
soliciting proxies for the Special Meeting.

VOTE REQUIRED

Approval of the Merger by the stockholders is not required by state law,
but is required pursuant to the rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such approval is being sought solely to comply with such
rules of the NASD. Approval of the Amendment is required by the terms of the
Option Plan as currently in effect and by the rules of the NASD. Approval of
each of the Proposals by the stockholders of RCG requires the presence, in
person or by proxy, of the holders of a majority of all shares entitled to vote
and the affirmative vote of the holders of a majority of the shares present, in
person or by proxy, and entitled to vote on each Proposal. Each share of RCG
Common Stock is entitled to one vote on each matter that comes before the RCG
Special Meeting. As of the RCG Record Date, there were outstanding and entitled
to vote 10,146,136 shares of RCG Common Stock. Accordingly, approval of each
Proposal will require the presence, in person or by proxy, of holders
representing a minimum of 5,073,069 shares of RCG Common Stock and the
affirmative vote, in person or by proxy, of a minimum of 2,536,535 shares of RCG
Common Stock.

As of the Record Date, the executive officers and directors of RCG
beneficially owned 1,692,231 shares of RCG Common Stock. The executive officers
and directors of RCG have indicated that they intend to vote such shares in
favor of the Proposals. See "-- The Special Meeting," "-- Record Date and
Quorum" and "Ownership of Equity Securities."

RECOMMENDATIONS OF RCG'S BOARD

For the reasons described in this Proxy Statement, RCG's Board has approved
the Merger, is unanimously of the view that the Merger is in the best interests
of RCG and its stockholders, and recommends

12
<PAGE> 16

that RCG stockholders vote FOR approval of the Merger. RCG's Board has also
approved the Amendment and recommends that RCG stockholders vote FOR approval of
the Amendment.

PROPOSAL I

THE MERGER

The following information describes certain information pertaining to the
Merger. This description does not purport to be complete and is qualified in its
entirety by reference to the Appendices hereto, including the Merger Agreement,
a copy of which is set forth in Appendix A to this Proxy Statement and is
incorporated herein by reference. All stockholders are urged to read the
Appendices in their entirety.

GENERAL

Holders of RCG Common Stock are being asked to consider the Merger. The
Merger Agreement provides that the Merger Corps, wholly owned subsidiaries of
RCG, shall merge with and into the Members. The Members shall be the surviving
corporations of the Merger and as a result RenalWest shall become a wholly owned
second-tier subsidiary of RCG and shall continue as a limited liability company
governed by the laws of the State of Arizona. At the time the Merger becomes
effective, each share of issued and outstanding Member Common Stock shall cease
to be outstanding and shall be converted into shares of RCG Common Stock. If the
Merger is approved at the Special Meeting, all required governmental and other
consents and approvals are obtained, and all other conditions to the obligations
of the parties to consummate the Merger are either satisfied or waived, the
Merger will be consummated. A copy of the Merger Agreement is set forth in
Appendix A of this Proxy Statement.

BACKGROUND OF THE MERGER

On January 9, 1995, representatives of several privately-owned dialysis
companies met to pursue the concept of combining their respective companies
together in a roll-up transaction. These representatives included, among others,
the Founding Companies of RCG, and representatives of RenalWest. Subsequent
meetings of these companies were held during early 1995, that were attended by
representatives of RenalWest, but RenalWest decided not to participate in the
RCG roll-up transaction. The RCG roll-up transaction proceeded during the latter
part of 1995 and on February 12, 1996, RCG's rollup and initial public offering
were completed. Thereafter Sam A. Brooks, President of RCG, met with several
Board members of RenalWest in Mesa, Arizona, to discuss a possible merger
between RenalWest and RCG. Various telephone conversations ensued between
executive officers of the two companies in which the financial terms of the
potential transaction were discussed, but no terms were agreed upon. On February
22 and 23, Mr. Brooks and Ronald Hinds, Chief Financial Officer of RCG, met with
RenalWest Board members and executive officers at the company's executive
headquarters in Mesa, Arizona to discuss further a possible merger and to obtain
additional financial, operational, and other information relating to RenalWest.

At a regular meeting on February 27, 1996 the RCG Board of Directors
discussed a potential merger transaction with RenalWest. Discussions continued
throughout February and early March, and on March 15, 1996, RCG submitted a
draft letter of intent to RenalWest for its review. Discussions continued but on
March 22, 1996, progress toward a merger stopped when the parties failed to
agree on certain terms. Further conversations were held after this date through
April 9, but no meaningful resolutions of issues occurred during these
discussions. Dr. Harry Jacobson, the Chairman of RCG, called Dr. Kenneth
Johnson, the Chairman of RenalWest, to resume potential merger talks and on May
14, 1996, a draft letter of intent was delivered to RenalWest. The proposed
transaction was discussed and approved by the RCG Board of Directors on June 4,
1996. On June 11, 1996 Dr. Jacobson, Messrs. Brooks and Hinds, and counsel for
RCG, met with the Board members, executives, and counsel for RenalWest in Mesa,
Arizona and discussed the proposed merger arrangements. On June 20, 1996 a
letter of intent, executed by RCG, and approved by the RCG Board of Directors,
was delivered to RenalWest. On August 7, 1996, a definitive merger agreement was
signed by all parties.

13
<PAGE> 17

REASONS FOR THE MERGER

RCG. In reaching its decision to approve the Merger Agreement and the
transactions contemplated thereby, the Board of Directors of RCG consulted with
its management team and advisors and independently considered a number of
factors. In view of the variety of factors considered in its evaluation of the
merger, the RCG Board of Directors did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific factors
considered in reaching its determination. Factors considered include the
following:

(i) RCG would obtain a presence in the Southwest from which it can
acquire and operate additional nephrology businesses in the Western part of
the United States.

(ii) The merger provides RCG an opportunity to combine with a company
with a large number of quality, well-managed dialysis centers and hospital
contracts.

(iii) The opportunities for economies of scale and operating
efficiencies that should result from the Merger including integration of
information systems, support functions, and greater purchasing power of the
two companies.

(iv) RenalWest's significant market position and competitive strength
in metropolitan Phoenix and the state of Arizona and the favorable
demographics that exist in its marketplace.

(v) The Merger should better position RCG to deal with Medicare
capitation which may face the industry in the future.

(vi) RenalWest's business, management team, operational prospects, and
managed care experience.

(vii) The Merger should enhance RCG's future relationships with
managed care plans because of broader geographic coverage.

(viii) Based on the relative earnings of both companies and the
exchange ratio, RCG believes that the Merger will be immediately accretive
to its current stockholders, and more so in the future assuming certain
synergies are achieved.

(ix) The condition to the Merger Agreement that the Merger will be
accounted for under the pooling-of-interests method.

(x) The market capitalization of the combined company will be
considerably larger than RCG's current market capitalization, which should
ultimately provide RCG's stockholders with enhanced liquidity.

In addition to the perceived benefits of the proposed Merger, RCG's Board
also considered certain risks, including the risk that RCG would not
successfully integrate the operations of the two businesses in order to
recognize potential cost savings and enhance future earnings prospects. Although
there can be no assurance that such adverse consequences would not occur, RCG's
Board, after consideration, believed that the potential benefits outweighed the
potential risks of the Merger. RCG's Board also considered that after the
proposed transaction the Owners would hold approximately 19% of the outstanding
shares of the Common Stock of RCG. RCG's Board concluded that the significant
post-transaction ownership position of the Owners should not prevent RCG from
proceeding with the transaction.

FOR THE FOREGOING REASONS, AMONG OTHERS, RCG'S BOARD UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR THE MERGER.

The RenalWest Parties. The Boards of Directors of the Members, after
consideration of relevant business, financial, legal and market factors,
including the compatibility of the operations and management of RCG and
RenalWest, and the financial condition and results of operations of RenalWest
and RCG, has concluded that the Merger is in the best interests of the Members
and its stockholders. In reaching their

14
<PAGE> 18

decision to enter into the Merger Agreement, the Boards of Directors considered
a number of factors, including, without limitation and without assigning
relative weights thereto, the following:

(i) the terms and conditions of the proposed Merger, including the
value of the consideration to be received by the Owners, the fact that as
holders of RCG Common Stock, the Owners will have more liquidity, and the
fact that the Merger is expected to be treated as a tax-free
reorganization;

(ii) the opportunity for the Owners to continue to share in the
potential for long-term growth of RenalWest through the ownership of RCG
Common Stock following the Merger;

(iii) the business reputation and capabilities of RCG and its
management, the financial strength, prospects, market position and
strategic objectives of RCG and the historical performance of RCG Common
Stock; and

(iv) the perceived strengths of RCG and RenalWest combined and the
belief that RCG and RenalWest are strategically complementary.

The Boards of Directors of the Members also considered certain risks of the
Merger, including the risk that RCG Common Stock has been publicly traded for a
relatively short period of time and that the trading market for such stock has
experienced and may continue to experience some price volatility.

ISSUANCE OF SHARES IN THE MERGER

Subject to the terms and conditions set forth in the Merger Agreement, as
of the Effective Time (as defined herein), each of the Merger Corps will be
merged into one of the Members and each share of Members' Common Stock issued
and outstanding (excluding treasury shares) immediately prior to the Merger will
be converted into shares of RCG Common Stock. An aggregate of 2,400,000 shares
of RCG Common Stock will be issued upon consummation of the Merger. The number
of shares to be issued to the former stockholders of the Members was determined
based upon the negotiation of an aggregate purchase price of $72,000,000 divided
by $30.00, the average trading price of the RCG Common Stock for the twenty
trading days prior to the date of execution of the Merger Agreement. The
following table shows the aggregate dollar value of the Merger at various
assumed trading prices of the RCG Common Stock:

<TABLE>
<CAPTION>
ASSUMED PRICE OF AGGREGATE DOLLAR
RCG COMMON STOCK VALUE OF MERGER
- - ---------------- -----------------
<S> <C>
$20.00 $ 48,000,000
25.00 60,000,000
30.00 72,000,000
35.00 84,000,000
40.00 96,000,000
</TABLE>

The Merger Agreement provides that at closing of the Merger, RCG shall
grant options to purchase an aggregate of 270,000 Shares of RCG Common Stock to
certain persons affiliated with the RenalWest Parties. Such options shall be
nonqualified stock options for tax purposes, shall have an exercise price equal
to the closing price of RCG Common Stock on Nasdaq NMS on the closing date and
shall vest over a five-year period. The additional terms of said options shall
be commensurate with similar stock options granted generally by RCG to similarly
situated employees and affiliates of RCG.

15
<PAGE> 19

OPINION OF FINANCIAL ADVISOR

Equitable Securities Corporation ("Equitable") has provided its oral
opinion to the RCG Board, which is confirmed in a written opinion dated the date
of this Proxy Statement, to the effect that, as of such dates, the
consideration, taken as a whole, to be paid by RCG in the Merger is fair to RCG
and its stockholders from a financial point of view. No limitations were imposed
by the RCG Board with respect to the investigations made of the procedures
followed by Equitable in rendering its opinion. Equitable's opinion was
delivered for the information of the RCG Board and is not a recommendation to
any RCG stockholder as to how such stockholder should vote at the RCG Special
Meeting or any other meeting of RCG stockholders called to consider matters
relating to the Merger.

In arriving at its opinion, Equitable reviewed certain publicly available
business and financial information relating to RCG, certain non-public
information relating to RenalWest, and reviewed the Merger Agreement. Equitable
also reviewed certain other information, including financial forecasts provided
to it by RCG and RenalWest, and met with RCG's and RenalWest's management to
discuss the businesses and prospects of RCG and RenalWest.

Equitable also considered certain financial and stock market data of RCG
and compared that data with similar data for other publicly held companies in
businesses similar to those of RCG, as well as the financial terms of certain
other business combinations and other transactions which have recently been
effected and have considered the financial effects of the Merger on RCG. In
addition, Equitable considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which it
deemed relevant.

In connection with its review, Equitable did not assume any responsibility
for independent verification of any of the foregoing information and relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts (including without limitation projected operational benefits
and cost savings arising from the Merger), Equitable assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of RenalWest's and RCG's management as to the future financial
performance of RenalWest and RCG. Equitable expressed no view as to such
forecasts or the assumptions on which they are based and there cannot be any
assurance that actual results of RenalWest or RCG will not differ materially
from those reflected in the forecasts. In addition, Equitable did not make an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of RenalWest or RCG, nor was Equitable furnished with any such
evaluations or appraisals.

The full text of the written opinion of Equitable, dated the date hereof,
which sets forth the assumptions made, procedures followed, matters considered,
limitation on and the scope of the review by Equitable in rendering its opinion,
is attached hereto as Appendix B. RCG stockholders are urged to read Equitable's
opinion in its entirety. The summary of the opinion of Equitable is qualified in
its entirety by reference to the full text of such opinion.

The generally accepted financial analyses Equitable used in reaching its
opinion which it discussed with the RCG Board of Directors included (i)
comparable acquisitions analysis, which consisted of reviewing operating
statistics and purchase price information with respect to selected acquisitions
of businesses similar to those of RenalWest's, (ii) trading analysis of
publicly-traded companies which Equitable considered comparable to the
businesses of RenalWest, (iii) discounted cash flow ("DCF") analysis, which
consisted of discounting to present value the projected cash flows and terminal
values of RenalWest and (iv) an analysis of the pro forma effect of the Merger
on RCG's earnings per share. The material portions of these analyses are
summarized below.

Comparable Acquisitions Analysis

Equitable reviewed acquisitions of companies in the dialysis industry over
the past two years, specifically the acquisition of Caremark Nephrology by Total
Renal Care, the acquisition of REN Corporation -- USA ("REN") by Gambro AB, and
the pending acquisition of W.R. Grace's National Medical Care ("NMC") by
Fresenius AG. For the comparable transactions, Equitable determined the
relationship between the equity

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<PAGE> 20

purchase price and net income and between the enterprise value (the equity
purchase price plus debt minus cash and cash equivalents) and revenue and
earnings before interest, taxes, depreciation and amortization ("EBITDA").
Equitable then derived an average of these multiples of net income (16.8x),
revenue (1.4x) and EBITDA (8.6x) and applied these multiples to the financial
data for RenalWest for fiscal year 1996. The reference range of equity value
derived from this analysis was from approximately $46.1 million to approximately
$85.4 million.

Comparable Company Analysis

Equitable reviewed certain financial results of selected public companies
in the dialysis industry deemed to be comparable to RenalWest. Using publicly
available financial and stock price data, Equitable determined the relationship
for these comparable companies between enterprise value (equity value plus debt
minus cash and cash equivalents) and EBITDA. Equitable also compared equity
values as multiples of calendarized projected net income in 1996 and 1997.
Equitable then derived an average of these multiples of EBITDA (20.3x) and
estimated net income for calendar 1996 (35.4x) and net income for calendar 1997
(27.2x). The reference range of enterprise value and equity value derived from
this analysis ranged from approximately $72.1 million to approximately $124.9
million. The comparable companies examined by Equitable included RCG, Rental
Treatment Centers, Inc., Total Renal Care Holdings, Inc., and Vivra.

No company, transaction or business used in the comparable acquisitions,
and comparable company analyses is identical to RenalWest or the Merger.
Accordingly, an analysis of the results of the foregoing is not entirely
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the acquisition or public trading values of the companies used in
the foregoing analyses or the company to which they are being compared.

Discounted Cash Flow Analyses

Equitable's DCF analyses were based on RenalWest management's financial
forecast and a conservative cash forecast prepared in conjunction with RCG
management for each of the five years ended December 31, from 1996 to 2001. The
forecasted RenalWest revenue growth rates approximate RenalWest's recent
historical growth rates. Equitable derived the unlevered "free cash flow" that
RenalWest was expected to generate in each year from 1996 through 2001.
Equitable discounted these cash flows to present values, applying discount rates
ranging from 10.0% to 14.0%. Equitable arrived at this range of appropriate
discount rates based on its analysis of RenalWest's weighted average cost of
capital. To approximate the terminal value of RenalWest in 2001, Equitable
applied terminal multiples of 10.0x to 12.0x "free cash flow" in 2001.

Based on the foregoing analysis, Equitable derived an overall reference
range of enterprise value for RenalWest, ranging from approximately $66.3
million to approximately $85.6 million. Equitable then deducted outstanding
indebtedness from the enterprise value in order to arrive at a range of equity
value for RenalWest of approximately $61.1 million to approximately $80.5
million.

Pro Forma Effect of RCG's Fully Diluted Earnings Per Share

Equitable analyzed the pro forma effect on RCG's earnings per share from
the Merger based on RenalWest management's financial forecast and the
conservative case forecast noted above in Discounted Cash Flow Analyses. This
analysis, using the conservative case forecast, indicated that the Merger would
be accretive for RCG for the years analyzed (1996 and 1997).

In arriving at its opinions, Equitable performed a variety of financial
analyses, including those summarized above. The summary set forth in this
section does not purport to be a complete description of Equitable's analyses.
Equitable believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses, without
considering all analyses, or of the summary above, without considering all
factors and analyses, could create an incomplete view of the processes
underlying Equitable's opinion, so that the ranges of valuation resulting from
any particular analysis described above should not be taken to be Equitable's
view of the actual value of RenalWest. Equitable's analyses depend on numerous
assumptions with respect to industry performance, general business, economic,
market

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<PAGE> 21

and financial conditions and other matters, many of which are beyond the control
of RenalWest and RCG. Equitable's analyses are not necessarily indicative of
actual values or actual future results that might be achieved and are not and do
not purport to be appraisals or otherwise reflective of prices at which
companies may actually be sold.

Pursuant to an engagement letter with RCG, Equitable will receive a fee of
$125,000 for its opinion. RCG will also reimburse Equitable for its
out-of-pocket expenses, including reasonable fees and disbursements of counsel.
RCG has also agreed to indemnify Equitable and its affiliates, their respective
directors, officers, partners, agents and employees and each person, if any,
controlling Equitable or any of its affiliates against certain liabilities,
including certain liabilities under the federal securities laws, relating to or
arising out of its engagement.

Equitable is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The RCG Board
selected Equitable to act as its financial advisor on the basis of Equitable's
reputation and Equitable's prior work with RCG. In the past, Equitable has
provided investment banking services for RCG for which Equitable received
customary compensation. Equitable holds 30,763 shares of RCG Common Stock and
securities exercisable or convertible into 66,667 shares of RCG Common Stock.
Equitable actively trades the equity securities of RCG for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.

FRACTIONAL SHARES

No certificates representing fractional shares of RCG Common Stock will be
issued as a result of the Merger. Any fractional share interest to which a
Member stockholder would otherwise be entitled to receive shall be rounded up to
the nearest whole share if such fraction is .5 or greater and shall be rounded
down to the nearest whole share if such fraction is less than .5.

EFFECTIVE TIME OF THE MERGER

If the Merger Agreement is approved by the requisite vote of RCG's
stockholders, and all other required consents and approvals are received, and if
the other conditions to the Merger are satisfied or waived (as permitted), the
Merger shall be consummated and effected on the date and at the time properly
executed Articles of Merger become effective with the Secretary of State of the
State of Arizona (the "Effective Time"). See "The Merger -- Conditions to
Consummation."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of certain anticipated federal income tax
consequences of the acquisition of all of the issued and outstanding common
stock of the Members. This summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), regulations and rulings as now in effect or
proposed thereunder, current administrative rulings and practice, and judicial
precedent, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences discussed herein.

It is anticipated that the Merger will constitute a "reorganization" for
federal income tax purposes under Section 368(a) of the Code, with the following
federal income tax consequences:

1. No gain or loss will be recognized by RCG as a result of the
Merger.

2. The aggregate adjusted tax basis of the shares of RCG Common Stock
received by the Owners in the Merger will be the same, in each instance, as
the tax basis of the Member Common Stock surrendered in exchange therefor.

3. No gain or loss will be recognized by the Owners as a result of the
Merger.

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<PAGE> 22

CONDITIONS TO CONSUMMATION OF THE MERGER

Consummation of the Merger is conditioned upon the fulfillment or waiver of
certain conditions set forth in the Merger Agreement. The obligation of RCG to
consummate the Merger is conditioned upon the following, including, among other
matters: (i) the continued accuracy of all representations and warranties of the
RenalWest Parties made in the Merger Agreement and the performance of all
covenants and conditions by the RenalWest Parties, (ii) obtaining all necessary
licenses, consents and permits, (iii) approval of the Merger by RCG's
stockholders; (iv) receipt from Ernst & Young LLP of a letter to the effect that
the Merger may be accounted for under the pooling-of-interests basis of
accounting; (v) the absence of any material adverse change in the business,
assets, liabilities or condition, financial or otherwise, of the RenalWest
Parties, (vi) the delivery of a resignation and release by each of the officers,
directors and Owners, (viii) the execution and delivery of Medical Director
Agreements by the physician practices, (ix) RCG's satisfactory completion of its
due diligence investigation of the RenalWest Parties, (x) receipt by RCG of an
opinion of counsel to the RenalWest Parties, (xi) the execution of employment
agreements by John Greksa, Jeff Weintraub and Ron Fuller and (xii) no Owner
shall have exercised dissenter's rights.

The obligation of the RenalWest Parties to consummate the Merger is
conditioned upon the following, including, among other matters: (i) the
continued accuracy of all representations and warranties of RCG and Merger Corps
made in the Merger Agreement and the performance of all covenants and conditions
by RCG, (ii) obtaining all necessary licenses, consents and permits, (iii) the
absence of any material adverse change in the business, assets, liabilities or
conditions of RCG, (iv) the approval of those stockholders of RCG who presently
have registration rights for the grant of the registration rights to the Owners,
(v) receipt by the RenalWest Parties of an opinion of counsel to RCG, (vi)
RenalWest Parties' satisfactory completion of its due diligence investigation of
RCG, (vii) RCG shall have caused RenalWest to enter into the employment
agreements with Messrs. Greksa, Weintraub and Fuller, and (viii) the execution
and delivery of Medical Director Agreements by RCG.

No assurances can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the appropriate
party. As of the date of this Proxy Statement, the parties know of no reason to
believe that any of the conditions set forth above will not be satisfied.

The conditions to consummation of the Merger may be waived, in whole or in
part, to the extent permissible under applicable law, by the party for whose
benefit the condition has been imposed, without the approval of the Owners or
RCG stockholders.

AMENDMENTS; TERMINATION

The Merger Agreement may be amended by the action of the parties to it, by
action taken by their respective boards of directors, at any time before or
after approval by the stockholders of RCG and the Members. However, after
stockholder approval, the Merger Agreement may not be amended to materially and
adversely affect the rights of the stockholders, without the further approval of
the stockholders. Any amendment to the Merger Agreement must be in writing and
signed by the party against whom or which enforcement of such amendment is
sought.

The Merger Agreement may be terminated (i) by mutual written consent of RCG
and the RenalWest Parties, (ii) by either RCG or the RenalWest Parties if their
conditions to the Merger have not been satisfied on or before October 31, 1996
(provided the satisfaction of such condition has not been frustrated or made
impossible by the terminating party), and (iii) by RCG or RenalWest if the
Merger has not occurred by November 30, 1996. If the Merger Agreement is
terminated, the Merger Agreement will immediately become void, without any
liability on the part of any party thereto, except for liabilities relating to
the confidentiality obligations of such parties or arising from any breach of
the representations, warranties, covenants or agreements in the Merger
Agreement.

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RIGHT OF FIRST REFUSAL

Pursuant to the Merger Agreement, the Owners have granted RCG a right of
first refusal for a period of three years from the Effective Time, with respect
to any contract or other arrangement with a third party for the sale or
management of such Owner's medical practice on the same terms and conditions as
proposed by such third party, provided that such right of first refusal does not
apply to any transaction by which such Owner's medical practice would join the
multispecialty physician group from which such Owner's practice has received
substantially all of its patient referrals.

ACQUISITION PROPOSALS

Until termination of the Merger Agreement pursuant to the terms thereof,
the RenalWest Parties and the Owners have agreed not to (i) solicit any offers
to purchase any equity interest in any of the RenalWest Parties, (ii)
participate in any discussions regarding the sale of any equity securities or a
merger, sale of assets or similar transaction involving any of the RenalWest
Parties or (iii) approve or undertake any such transaction.

CONFIDENTIALITY, NONCOMPETITION AND NONSOLICITATION

Subject to the condition described below, the Owners have agreed for a
period of ten (10) years following the Effective Time, not in any manner to
directly or indirectly compete with the business of the RenalWest Parties or to
acquire, establish or own an interest in, or to render managerial, marketing or
other business advice to, any entity that competes with the RenalWest Parties,
in either case within a seventy-five (75) mile radius of the current locations
of the RenalWest Parties (the "Territory"). Such Owners have also agreed for a
period of ten (10) years following the Effective Time, (i) not to divulge or
otherwise appropriate for his own benefit or the benefit of others, any
confidential knowledge or information with respect to the business of the
RenalWest Parties, RCG or any of their affiliates, except for a disclosure that
is required by law or information that has been made generally available to the
public by the act of a person having the right to disclose such information,
(ii) not to solicit any person that has had a relationship with RCG, the
RenalWest Parties or any of their affiliates, or disrupt any such relationship,
for the purpose of assisting or creating a business relationship for an entity
that is competing within the Territory, and (iii) not to induce or attempt to
induce any employee of RCG, the RenalWest Parties or any of their affiliates, to
terminate their association with any such party (the "Restrictive Covenants").

The foregoing ten (10) year period is subject to RCG obtaining from its
physician stockholders owning at least sixty percent (60%) of the RCG Common
Stock issued to its physician stockholders in connection with the acquisition by
RCG of their dialysis centers (the "Required Physicians"), revisions where
needed to similar Restrictive Covenants with such Required Physicians extending
the period of coverage of their Restrictive Covenants to ten (10) years from
their original starting date. In the event the Required Physicians do not agree
to become subject to such ten (10) year period prior to or at the closing of the
Merger, then the Owners shall be subject to the Restrictive Covenants for five
(5) years.

MANAGEMENT AND OPERATIONS AFTER THE MERGER

The Members will be the surviving corporations of the Merger and as a
result RenalWest will become a wholly owned second-tier subsidiary of RCG.
RenalWest and the Members will continue to be governed by the laws of the State
of Arizona. The executive officers and directors of the Merger Corps immediately
prior to the Effective Time will become the executive officers and directors of
the Members.

The Merger Agreement provides that the main office of RenalWest in Mesa,
Arizona will serve as the executive headquarters of RCG's southwest region,
which will include the existing operations of the RenalWest Parties in Arizona
plus all centers newly developed or acquired in the states of Arizona, New
Mexico, Colorado, Utah, Nevada and California (the "Southwest Region"), and that
John Greksa, the current Chief Executive Officer of RenalWest, will serve as the
Chief Operating Officer of the Southwest Region while he is employed by RCG. The
foregoing covenant shall expire upon the later to occur of the fifth

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<PAGE> 24

anniversary of the closing date or the date on which Sam A. Brooks, Jr. ceases
to serve as the Chief Executive Officer of RCG. See "-- Interests of Certain
Persons in the Merger."

The Merger Agreement provides that RenalWest and each affiliated physician
practice that has a physician member or employee involved with the use,
operation of or referral of patients to RenalWest's dialysis facilities (the
"Practices"), shall enter into Medical Director Agreements at Closing under
which the Practices shall provide medical director services to RenalWest for the
dialysis facilities operated by RenalWest. Such Medical Director Agreements
shall have an initial term of seven (7) years with renewal terms for additional
three year periods and shall provide for (i) an aggregate annual fee to be paid
by RCG to the Practices of $840,000 (subject to agreed upon modifications) to be
divided among the Practices at their discretion, (ii) certain restrictive
covenants, including but not limited to a covenant not to compete with a
duration of the term of the Medical Director Agreement and three (3) years after
termination of the Medical Director Agreement, and (iii) other customary terms
and conditions.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Pursuant to the Merger Agreement, RCG shall at the closing of the Merger
increase the number of members of its Board of Directors by one and add an
individual specified by the RenalWest Parties as a director, the identity of
whom is subject to the reasonable approval of RCG, to serve an initial term
ending on the date of RCG's 1999 Annual Meeting of its stockholders. Further,
RCG's management shall recommend to its stockholders at such 1999 Annual Meeting
that such designee, or such other designee reasonably approved by RCG, serve for
an additional three (3) year term as a member of the Board of Directors of RCG.
Furthermore, RCG agrees to name a physician specified by the RenalWest Parties
to RCG's Medical Advisory Board, the identity of whom is subject to the
reasonable approval of RCG.

Other than as described herein, no director or executive officer of RCG or
RenalWest, and no associate of any such person, has any substantial interest,
direct or indirect, in the Merger, other than an employment interest or an
interest arising from the ownership of RCG Common Stock or Member Common Stock,
in which case the director or officer receives no extra or special benefit not
shared on a pro rata basis by all other holders of RCG Common Stock or Member
Common Stock. For information as to the ownership of RCG Common Stock, see
"Ownership of RCG Equity Securities."

INDEMNIFICATION

The Owners have agreed, jointly and severally to indemnify and hold
harmless RCG, the Members and their respective officers, directors, agents or
affiliates, against any losses and expenses, including reasonable attorney's
fees, arising out of (i) the breach of any representation or warranty of the
RenalWest Parties, and (ii) the nonfulfillment of any covenant or agreement of
the RenalWest Parties. In addition, the Owners have agreed, severally and not
jointly, to indemnify and hold harmless RCG, the Members and their respective
officers, directors, agents or affiliates, against any losses and expenses,
including reasonable attorney's fees, arising out of (i) the breach of any
representation or warranty of such Owner, and (ii) the non-fulfillment of any
covenant or agreement of such Owner. RCG has agreed to indemnify and hold
harmless the Owners, and any of their officers, directors, agents or affiliates,
against any losses and expenses, including reasonable attorney's fees, arising
out of (i) the breach of any representation or warranty of RCG, and (ii) the
non-fulfillment of any covenant or agreement of RCG. No initial claim for
indemnification with respect to any alleged misrepresentation or breach of
warranty may be made by any party after (i) thirty days after first publication
by RCG of audited consolidated financial statements covering an accounting
period after the Closing Date for those items that would be expected to be
encountered in the audit process or (ii) one (1) year after the Closing Date for
all other items. In addition, no claim for indemnification with respect to any
alleged misrepresentation or breach of warranty may be brought by any party
until the aggregate amount of any loss or claim for which indemnification is
sought exceeds $200,000, and then indemnification may only be asserted for
amounts in excess of $200,000. No Owner shall be required to satisfy an
indemnification obligation in excess of one hundred percent (100%) of the
aggregate value of the shares of RCG Common Stock (valued at the Average Trading
Price) to be received by such Owner and RCG shall not be required to satisfy an
indemnification obligation in excess of one hundred percent (100%) of the
aggregate value of all of

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<PAGE> 25

the shares of RCG Common Stock (valued at the Average Trading Price) issued as
consideration in the Merger. The indemnification obligations under the Merger
Agreement are to be satisfied solely and exclusively by means of delivery of
shares of RCG Common Stock which, when multiplied by the Average Trading Price,
equals the amount of the indemnification obligation to be satisfied. Except in
cases of fraud or intentional misrepresentation, the indemnification obligations
constitute the exclusive remedy for any inaccuracy or breach of a representation
or warranty. The Average Trading Price is $30.00.

EXPENSES AND FEES

The Merger Agreement provides that each of the parties to the Merger
Agreement shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the Merger, provided, however, all legal, accounting
and other fees and expenses incurred by the RenalWest Parties and the Owners
concerning the Merger in excess of $150,000 shall be paid by the Owners at the
closing of the Merger or thereafter when due. See "The Merger -- Amendment;
Termination."

ACCOUNTING TREATMENT

Consummation of the Merger is conditioned on the Merger being accounted for
on a pooling-of-interests accounting basis and the receipt by RCG of a letter
from Ernst & Young LLP with respect thereto. See "Conditions to Consummation."
Under this method of accounting, as of the Effective Time, the assets and
liabilities of RenalWest would be added to those of RCG at their recorded book
values and the stockholders' equity accounts of RCG and RenalWest would be
combined on RCG's consolidated balance sheet. Under the pooling-of-interests
accounting method, income and other financial statements of RCG issued after
consummation of the Merger will be restated retroactively to reflect the
combined consolidated financial position and results of operations of RCG and
RenalWest as if the Merger had taken place prior to the periods covered by such
consolidated financial statements and to reflect the accounting policies of RCG.

The unaudited pro forma condensed combined financial statements contained
in this Proxy Statement have been prepared using the pooling-of-interests
accounting basis to account for the Merger. See "Unaudited Pro Forma Condensed
Combined Financial Statements."

RESALES OF THE RCG COMMON STOCK ISSUED IN THE MERGER; REGISTRATION RIGHTS

The RCG Common Stock to be issued to the Owners in connection with the
Merger will be "restricted stock" under the Securities Act. Owners may not sell
their shares of RCG Common Stock acquired in connection with the Merger except
pursuant to an effective registration statement under the Securities Act
covering such shares, or in compliance with Rule 144 promulgated under the
Securities Act or another applicable exemption from the registration
requirements of the Securities Act.

As a condition precedent to the obligations of the RenalWest Parties to
consummate the Merger, RCG shall have obtained the requisite approval of its
stockholders currently holding registration rights for the grant of the
registration rights described below to the Owners. Under the Merger Agreement,
RCG is obligated to undertake reasonable commercial efforts to file by November
30, 1996 a registration statement under the Securities Act ("Secondary
Offering"), pursuant to which the Owners may sell, to the extent permissible
under the "pooling of interests" rules, up to forty percent (40%) of their
shares of RCG Common Stock. If RCG has not caused the Secondary Offering to
become effective prior to February 7, 1997, then Owners holding twenty percent
(20%) of the shares of RCG Common Stock issued in the Merger have the right to
require RCG to file a registration statement under the Securities Act for an
offering of not less than an aggregate of ten percent (10%) of the RCG Common
Stock originally held by all Owners and not more than an aggregate of twenty
percent (20%) of the RCG Common Stock originally held by each such Owners making
such request. RCG is obligated to effect only one such registration pursuant to
such a request, subject to certain exceptions. In addition, in the event RCG
proposes to register under the Securities Act any RCG Common Stock for its own
account or for the account of others at any time prior to the second anniversary
of the date the shares of RCG Common Stock are issued to the Owners in the
Merger, subject to certain exceptions, the Owners have the right to require RCG
to include up to forty percent (40%) of their shares of

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<PAGE> 26

RCG Common Stock 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 RCG Common Stock registered and any counsel for the
selling stockholders) will be borne by RCG. The registration rights granted to
the Owners may be assigned to a permitted transferee or assignee of the RCG
Common Stock from the Owner provided that certain conditions are met.

RCG agrees to undertake reasonable commercial efforts to satisfy its
reporting requirements under the Exchange Act and to take other reasonable and
appropriate actions to enable the Owners to participate in such Secondary
Offering. In the event the Secondary Offering occurs and the Owners are not able
to participate through no fault of them or the RenalWest Parties, RCG has agreed
to provide reasonable assistance to the Owners to aid them in obtaining a loan
or loans from a third party until June 30, 1997 (the "Maturity Date"),
including, if necessary, a guaranty by RCG to such third party lender of up to
an aggregate of $1,500,000 of such loan or loans. Such loans and any guaranty by
RCG are to be secured by an adequate number of the Owners' shares of RCG Common
Stock. If such loan or loans are not available on terms and conditions otherwise
reasonably acceptable to the Owners, RCG has agreed to provide a loan or loans
directly to the Owners of up to an aggregate amount of $1,500,000 (to be
allocated among the Owners at their discretion) which will (i) mature on the
Maturity Date, (ii) contain terms and conditions to the Owners no less favorable
than are available to RCG from its third party lenders, and (iii) be secured by
an adequate number of shares of RCG Common Stock. Any of the foregoing loans
shall be paid prior to the Maturity Date to the extent of first available
proceeds from any resale of the Owner's shares of RCG Common Stock under the
registration rights granted to the Owners.

EFFECT OF THE MERGER ON RIGHTS OF RCG STOCKHOLDERS

Consummation of the Merger and issuance of shares of RCG Common Stock in
connection therewith will not result in any change in the rights of RCG
stockholders under the provisions of the General Corporation law of Delaware or
RCG's Certificate of Incorporation or Bylaws. In connection with the Merger, RCG
will issue an aggregate of 2,400,000 shares of RCG Common Stock to the Owners,
which amount will represent approximately 19% of the outstanding shares of RCG
Common Stock after consummation of the Merger.

CONDUCT OF BUSINESS OF THE RENALWEST PARTIES PENDING THE MERGER

Pursuant to the Merger Agreement, the RenalWest Parties and RCG have agreed
prior to the Effective Time that the RenalWest Parties shall restrict certain of
their activities, except with the prior written consent of RCG and except as
necessary to effect the transactions contemplated in the Merger Agreement. To
this end, the RenalWest Parties shall: (i) operate their businesses in the
usual, regular and ordinary course of business, consistent with past practices;
(ii) use reasonable commercial efforts to preserve intact their business
organization, licenses, permits, government programs, private programs and
customers; (iii) use reasonable commercial efforts to retain the services of its
employees, agents and consultants on terms and conditions not less favorable
than those existing prior to the date of the Merger Agreement and to ensure that
there are no material or adverse changes to employee relations; (iv) keep and
maintain its assets in their present condition, repair and working order, except
for normal depreciation and wear and tear, and maintain its insurance, rights
and licenses; (v) pay all accounts payable of the RenalWest Parties in
accordance with past practice and collect all accounts receivable in accordance
with past practice, but not less than in accordance with prudent business
practices; (vi) consult with RCG prior to undertaking any new business
opportunity outside the ordinary course of business; (vii) confer on a regular
and frequent basis with one or more designated representatives of RCG to report
material operational matters and to report the general status of ongoing
business operations; (viii) make available to RCG true and correct copies of all
internal management and control reports (including aging of accounts receivable,
listings of accounts payable, and inventory control reports) and financial
statements related to the RenalWest Parties and furnished to management of the
RenalWest Parties; (ix) cause all tax returns that have not been filed prior to
the date of the Merger Agreement or which become due prior to the Effective Time
to be prepared and filed on or before the date

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<PAGE> 27

such tax return is required to be filed (taking into account any extensions of
the filing deadlines granted); provided, however, that any such tax return shall
not be filed without a reasonable opportunity for prior review and comment by
RCG; (x) as soon as reasonably practicable after they become available, but in
no event more than thirty (30) days following the end of each calendar month,
deliver to RCG true and complete copies of its monthly financial statements for
each calendar month ending subsequent to the date hereof on the format
historically utilized by the RenalWest Parties; (xi) perform in all material
respects all obligations under agreements relating to or affecting its assets,
properties or rights, except for the failure of which performance would not have
a material adverse effect on the business of the RenalWest Parties taken as a
whole, financial or otherwise; (xii) keep in full force and effect present
insurance policies or other comparable insurance coverage; and (xiii) notify RCG
of (i) any event or circumstance which is reasonably likely to have a material
adverse effect on the RenalWest Parties or would cause or constitute a breach of
any of the RenalWest Parties' representations, warranties or covenants contained
in the Merger Agreement; or (ii) any unexpected change in the normal course of
business or in the operation of the assets of the RenalWest Parties' assets, and
of any governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), adjudicatory proceedings, budget
meetings or submissions involving any material property. The RenalWest Parties
have agreed to keep RCG fully informed of such events and to permit RCG's
representatives prompt access to all materials prepared in connection therewith.

In addition, the RenalWest Parties have covenanted and agreed that they
will not do any of the following without the prior written consent of the RCG:
(i) take any action which would (a) adversely affect the ability of any party to
the Merger Agreement to obtain any consents required for the transactions
contemplated thereby, or (b) adversely affect the ability of any party hereto to
perform its covenants and agreements under the Merger Agreement and related
documents; (ii) amend any of its organizational or governing documents except as
provided in the Merger Agreement or for the purpose of accomplishing the Merger;
(iii) incur any additional debt obligation or other obligation for borrowed
money in excess of an aggregate of $100,000 except in the ordinary course of the
business of the RenalWest Parties consistent with past practices, or impose, or
suffer the imposition, on any asset of the RenalWest Parties of any lien or
permit any such lien to exist; (iv) repurchase, redeem, or otherwise acquire or
exchange, directly or indirectly, any equity securities of any RenalWest Party,
or any securities convertible into any equity securities, or declare or pay any
dividend or make any other distribution in respect of equity securities, other
than such dividends or distributions as are in the ordinary course consistent
with past practice; (v) other than pursuant to the Merger Agreement, issue,
sell, pledge, encumber, authorize the issuance of, enter into any contract to
issue, sell, pledge, encumber, or authorize the issuance of, or otherwise permit
to become outstanding, any additional equity securities or any rights with
respect to any equity securities; (vi) purchase or acquire any assets or
properties, whether real or personal, tangible or intangible, or sell or dispose
of any assets or properties, whether real or personal, tangible or intangible,
except in the ordinary course of business and consistent with past practices;
(vii) adjust, split, combine or reclassify any of its equity securities or issue
or authorize the issuance of any other securities in respect of or in
substitution for its equity securities, or sell, lease, mortgage or otherwise
dispose of or otherwise encumber any asset having a book value in excess of
$50,000 other than in the ordinary course of business for reasonable and
adequate consideration; (viii) purchase any securities or make any material
investment, either by purchase of stock or other securities, contributions to
capital, asset transfers, or purchase of any assets, in any entity, or otherwise
acquire direct or indirect control over any other entity; (ix) grant any
increase in compensation or benefits to the employees or officers of a RenalWest
Party, except in accordance with past practice; pay any severance or termination
pay or any bonus other than pursuant to written policies or written contracts in
effect as of the date thereof and disclosed to RCG; enter into or amend any
severance agreements with officers of the RenalWest Parties; or grant any
material increase in fees or other increases in compensation or other benefits
to directors of the RenalWest Parties except in accordance with past practice;
(x) enter into or amend any employment contract with any person or entity
(unless such amendment is required by law) that the RenalWest Party does not
have the unconditional right to terminate without liability (other than
liability for services already rendered), at any time on or after the Effective
Time; (xi) adopt any new employee benefit plan or make any material change in or
to any existing employee benefit plans other than any such change that is
required by law or that, in the opinion of counsel, is necessary or advisable to
maintain the tax qualified status of any such plan; (xii) make any significant
change in any tax or accounting

24
<PAGE> 28

methods or systems of internal accounting controls, except as may be appropriate
to conform to changes in tax laws or regulatory accounting requirements or
generally accepted accounting principles; (xiii) commence any litigation other
than in accordance with past practice, settle any litigation involving any
liability of a RenalWest Party for material money damages or restrictions upon
the operations of a RenalWest Party; (xiv) except in the ordinary course of
business and which is not material, modify, amend or terminate any material
contract or waive, release, compromise or assign any material rights or claims;
(xv) except in the ordinary course of business and, even if in the ordinary
course of business, then not in an amount to exceed $300,000 in the aggregate,
make or commit to make any capital expenditure, or enter into any lease of
capital equipment as lessee or lessor; (xvi) take any action, or omit to take
any action, which would cause any of the representations and warranties of the
RenalWest Parties in the Merger Agreement to be untrue or incorrect; or (xvii)
make any loan to any person or increase the aggregate amount of any loan
currently outstanding to any person.

OWNERS' REPRESENTATIVE

Pursuant to the Merger Agreement, each of the Owners has appointed Jeff
Weintraub as his attorney-in-fact and agent in connection with the transactions
and agreements contemplated by the Merger Agreement with respect to matters
subsequent to the Effective Time (the "Owners' Representative"). The Owners'
Representative has the authority to take all actions contemplated by the Merger
Agreement on behalf of the Owners and to execute and deliver all instruments,
certificates and other documents incident to the Merger.

Each Owner will be bound by all agreements and determinations made by and
documents executed and delivered by the Owners' Representative. The Owners will
indemnify the Owners' Representative for any and all liability, loss, cost,
damage or expense (including attorneys' fees) incurred without bad faith on the
part of the Owner's Representative in connection with his or her duties as
Owners' Representative.

PROPOSAL II

APPROVAL OF PROPOSED AMENDMENT TO THE
1996 STOCK OPTION PLAN

The Option Plan was adopted by the Board of Directors and approved by the
sole stockholder of RCG effective as of January 15, 1996. The Board of Directors
has adopted, subject to stockholder approval at the Special Meeting, an
amendment to the Option Plan. If approved by the stockholders, the proposed
Amendment will be effective as of the date of the Special Meeting.

The Board of Directors believes that stock ownership is an important
incentive for key employees, consultants and others in a position to influence
the success of RCG. The purpose of the Option Plan is to provide a means by
which selected key employees of, and consultants and advisors to, RCG and its
affiliates may be given an opportunity to purchase RCG Common Stock.

The following is a summary of the Option Plan and the proposed amendments
thereto (i) to increase from 488,448 to 1,000,000 the number of shares of RCG
Common Stock authorized to be issued upon exercise of options granted under the
plan, and (ii) to eliminate certain plan restrictions that are no longer
necessary in light of recent amendments to the rules of the Commission
promulgated under Section 16 of the Exchange Act. A copy of the full text of the
Option Plan, as amended, is attached hereto as Appendix C.

GENERAL

Eligible Participants. Options may be granted under the plan only to
individuals who are officers or other key employees (including employees who
also are directors or officers) of RCG or a subsidiary, or bona fide
consultants, as determined by the Committee (as defined below). Certain
restrictions apply to holders of ten percent or more of the RCG Common Stock.
The number of eligible participants in the plan as of June 30, 1996 was
approximately 175 persons.

25
<PAGE> 29

Administration. The Option Plan is currently is administered by a
committee (the "Committee") appointed by the Board of Directors from time to
time and consisting of at least two members of the Board, each of whom must be a
"disinterested person" as defined in former Rule 16b-3 under the Exchange Act.
No member of the Committee is eligible to participate in the Option Plan while
serving as a member of the Committee. Rule 16b-3 has recently been amended to
delete the requirement that a qualifying plan be administered by "disinterested
persons" and, instead, to introduce the concept of "non-employee directors" who
may approve options that are exempt from the short-swing liability provisions of
Section 16 of the Exchange Act. Consequently, the Amendment would require that
the Committee consist of at least two members of the Board, each of whom is both
(i) a "non-employee director" as such term is defined in new Rule 16b-3, and
(ii) an "outside director" as that term is used in Section 162 of the Code and
the regulations thereunder. Consistent with the recent amendments to Rule 16b-3,
the Amendment would also omit the current prohibition on Committee members being
participants in the Option Plan.

In the absence of an appointment of a Committee, the RCG Board of Directors
shall serve as the Committee. Subject to the terms of the Option Plan, the
Committee has the exclusive power, authority and discretion to designate
participants; determine the type or types of options to be granted to each
participant; determine the number of options to be granted and the number of
shares of RCG Common Stock to which an option will relate; determine the terms
and conditions of any option granted under the Option Plan, including but not
limited to, the exercise price, any restrictions or limitations on the option,
any schedule for lapse of forfeiture restrictions or restrictions on the
exercisability of an option, and accelerations or waivers thereof, based in each
case on such considerations as the Committee in its sole discretion determines;
determine whether, to what extent, and under what circumstances an option may be
settled in, or the exercise price of an option may be paid in, cash, shares of
RCG Common Stock, or other property, or an option may be canceled, forfeited, or
surrendered; prescribe the form of each option agreement, which need not be
identical for each participant; decide all other matters that must be determined
in connection with an option; establish, adopt or revise any rules and
regulations as it may deem necessary or advisable to administer the Option Plan;
and make all other decisions and determinations that may be required under the
Option Plan or as the Committee deems necessary or advisable to administer the
plan.

Number of Shares Available. The maximum number of shares of RCG Common
Stock for which options may be granted under the Option Plan currently is
488,448 and, if the proposed Amendment is approved by the stockholders at the
Special Meeting, will be increased to 1,000,000. A primary reason additional
shares are needed under the Option Plan is to enable RCG to grant options to key
employees who have been or will be employed by RCG in connection with its
acquisitions. To the extent that an option is canceled, terminates, expires or
lapses for any reason, any shares of stock subject to the option will again be
available for the grant of options under the plan. (In this regard, the
Amendment would omit certain re-use restrictions that are no longer applicable
under the recent amendments to Rule 16b-3 under the Exchange Act.) The maximum
number of shares of stock with respect to one or more options that may be
granted to any one participant in any one taxable year is 100,000, subject to
adjustment as set forth in the plan. The number of shares of RCG Common Stock
available under the Option Plan is subject to adjustment in the event of a stock
split, stock dividend, recapitalization or other similar action. The shares of
RCG Common Stock distributed pursuant to an option may consist, in whole or in
part, of authorized and unissued stock, treasury stock or stock purchased on the
open market.

Amendment and Termination. As currently written, the Plan requires
stockholder approval for certain specified plan amendments as required by former
Rule 16b-3 under the Exchange Act. Consistent with the greater flexibility
afforded by recent amendments to such Rule 16b-3, the Amendment would permit the
Committee, at any time with the approval of the Board, to terminate, amend or
modify the Option Plan 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 Option Plan shall adversely affect any option previously
granted under the plan, without the written consent of the option holder.

26
<PAGE> 30

STOCK OPTIONS

Stock Options. The Committee is authorized to grant options, which may be
incentive stock options or nonqualified stock options, to participants. All
options will be evidenced by a written option agreement between RCG and the
participant, which will include such provisions as may be specified by the
Committee. The terms of any incentive stock option must meet the requirements of
Sections 421, 422 and 424 of the Code.

Option Price. The exercise price of each incentive stock option granted
under the Option Plan will not be less than 100% of the fair market value of RCG
Common Stock on the date the option is granted. The Committee may elect to grant
non-qualified stock options with an exercise price of less than the fair market
value of RCG Common Stock on the date such option is granted. The closing price
for RCG's Common Stock on the Nasdaq National Market was $34.38 per share as of
September 5, 1996.

Duration of Options. The Committee may provide in the option agreement for
the termination of all or any portion of the options under certain
circumstances, including, without limitation, termination of a participant's
employment, provided that the Committee may distinguish among various causes of
termination as the Committee deems appropriate. In addition, the Committee may
provide that if a Participant's employment is terminated: (i) such participant's
option(s) may be exercised for specified periods thereafter but no later than
the expiration date of such option; (ii) to the extent not fully exercisable on
the date of termination of employment, such option may continue to become
exercisable within the term of the option; or (iii) some or all of the options
not fully exercisable on the date of termination of employment may be deemed
fully exercisable.

Exercise. Each option may be exercised at such time or times as may be
determined by the Board or the Committee. (In this regard, consistent with
recent amendments to Rule 16b-3 under the Exchange Act, the Amendment would omit
the current plan provision that prohibits certain participants from exercising
an option for six months after grant.) The Committee also shall determine the
performance or other conditions, if any, that must be satisfied before all or
part of an option may be exercised.

Payment. The Committee shall determine the methods by which the exercise
price of an option may be paid, the form of payment, including, without
limitation, cash, shares of RCG Common Stock, or other property (including
"cashless exercise" arrangements), and the methods by which shares of RCG Common
Stock shall be delivered or deemed to be delivered to participants. The
Committee may, in the exercise of its discretion, allow a participant to pay the
exercise price of an option by directing RCG to withhold from the shares of
stock that would otherwise be issued upon exercise of the option that number of
shares of RCG Common Stock having a fair market value on the exercise date equal
to the exercise price, all as determined pursuant to rules and procedures
established by the Committee.

Restrictions on Transfer. No right or interest of a participant in any
option granted under the Option Plan may be pledged, encumbered, or hypothecated
to or in favor of, or be subjected to any lien, obligation, or liability of such
participant to, any party other than RCG or a subsidiary. No such option is
assignable or transferable by a participant other than by will or the laws of
descent and distribution or, except in the case of an Incentive Stock Option,
pursuant to a qualified domestic relations order. However, a participant may, in
the manner determined by the Committee, designate a beneficiary to exercise the
rights of the participant upon the participant's death. Any Incentive Stock
Option shall be exercisable during the lifetime of the person to whom the option
is granted only by such person.

Adjustments. If any change is made in the stock subject to the Option Plan
or subject to any option granted thereunder (through recapitalization,
reclassification, stock split, combination of shares, stock dividend, or
transaction having similar effect), the Option Plan and outstanding options will
be appropriately adjusted.

Acceleration Upon Change in Control. In the event of a Change in Control
(as defined in the Option Plan) followed by a participant's termination of
employment (other than by reason of the participant's death, disability,
resignation without good reason or termination for cause) within twelve months
thereafter, then all of such participant's unexercised options (whether vested
or not vested) shall automatically vest and become unforfeitable and shall be
cashed out at the greater of (i) the highest closing price per share paid for
the purchase of RCG Common Stock in a national securities market during the 90
day period ending on the date

27
<PAGE> 31

of the Change in Control (the "Change in Control Price") or (ii) the fair market
value of the RCG Common Stock on the date of such termination. Upon a Change in
Control that results directly or indirectly in the RCG Common Stock (or the
stock of any successor received in exchange therefor) ceasing to be publicly
traded in a national securities market, all unexercised options (whether vested
or not vested) shall automatically vest and become unforfeitable and shall be
cashed out at the Change in Control Price. Upon a Change in Control, no action
may be taken that would adversely affect the rights of any participant or the
operation of the plan with respect to any option to which a participant may be
entitled on or prior to the date, or as a result, of the Change in Control.
Under certain conditions, the Board of Directors may determine that events
otherwise constituting a change in Control shall not be so considered.
Consistent with recent amendments to Rule 16b-3 under the Exchange Act, the
Amendment would omit the current plan provision that prohibits certain
participants from receiving consideration for an option that has been
outstanding for less than six months.

Modification and Renewal. The Committee may modify, renew or accept the
surrender of outstanding options issued under the Option Plan (or the surrender
of similar grants issued under any other plan of RCG or a subsidiary), including
the acceleration or waiver of any vesting or other restrictions or limitations,
or the conversion of such options (with appropriate adjustments) to be
applicable to the securities of any successor corporation to RCG, and the
Committee may authorize new options pursuant to the Option Plan in substitution
for any outstanding options. Any substituted, modified or converted options may
bear such different or additional terms and conditions as the Committee shall
deem appropriate within the limitations of the Option Plan. The determination of
the Committee as to the terms of any of the foregoing may be made without regard
to whether a Change in Control has or has not occurred (or whether the Board of
Directors has determined that any event shall not be considered to be a Change
in Control) and shall be conclusive and binding notwithstanding the provisions
of the respective option agreements regarding exercisability. No modification of
an option shall, without the consent of the participant, adversely affect the
rights or obligations of such participant with respect to such option.

FEDERAL INCOME TAX CONSEQUENCES

Non-qualified Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either RCG or the
participant upon the grant of a non-discounted non-qualified option. However,
the participant will realize ordinary income on the exercise of a non-qualified
option in an amount equal to the excess of the fair market value of the RCG
Common Stock acquired upon the exercise of such option over the exercise price,
and RCG will receive a corresponding deduction. The gain, if any, realized upon
the subsequent disposition by the participant of the RCG Common Stock will
constitute short- or long-term capital gain, depending on the participant's
holding period. If a non-qualified option is granted with an exercise price
substantially less than the fair market value of the RCG Common Stock on the
date of grant, it is possible that the Internal Revenue Service could take the
position that the participant will realize ordinary income on the date of grant
in an amount equal to the excess of the fair market value of the stock on the
date of grant over the exercise price. If so, RCG should receive a corresponding
deduction.

Incentive Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either RCG or the
participant upon the grant of an incentive stock option or the exercise thereof
by the participant. If the participant holds the shares for the greater of two
years after the date the option was granted or one year after the acquisition of
such shares (the "required holding period"), the difference between the
aggregate option price and the amount realized upon disposition of the shares
will constitute a long-term capital gain or loss, and RCG will not be entitled
to a federal income tax deduction. If the shares are disposed of in a sale,
exchange or other "disqualifying disposition" during the required holding
period, the grantee will realize taxable ordinary income in an amount equal to
the excess of the fair market value of the shares purchased at the time of
exercise over the aggregate option price and RCG will be entitled to a federal
income tax deduction equal to such amount.

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<PAGE> 32

BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS

As of June 30, 1996, stock options had been granted under the Option Plan
to the persons and groups shown in the table below. The Committee has not yet
made any determination as to which eligible participants will be awarded options
under the Option Plan in the future. Consequently, it is not presently possible
to determine, with respect to the persons and groups shown in the table below,
the benefits or amounts that will be received in the future by such persons or
groups pursuant to the Option Plan.

<TABLE>
<CAPTION>
AMENDED AND RESTATED OPTION PLAN
-------------------------------------
NUMBER OF SHARES
UNDERLYING
NAME AND POSITION OPTIONS EXERCISE PRICE
- - --------------------------------------------------------------------- ---------------- --------------
<S> <C> <C>
Sam A. Brooks, Jr.................................................... 250,000 $7.50
President and Chief Executive Officer
Joseph A. Cashia..................................................... -- --
Executive Vice President -- Development
Ronald Hinds......................................................... 85,000 $7.50-$18.00
Executive Vice President, Chief Financial Officer, Treasurer and
Secretary
Raymond Hakim, M.D., Ph.D............................................ 100,000 $7.50
Executive Vice President and Chief Medical Officer
All Executive Officers as a Group.................................... 435,000 $7.50-$18.00
All Non-Executive Directors as a Group............................... 167,500 $7.50-$18.00
All Non-Executive Officer Employees as a Group....................... 691,448 $7.50-$34.50
</TABLE>

THE BOARD OF DIRECTORS IS UNANIMOUSLY OF THE VIEW THAT THE PROPOSED
AMENDMENT TO THE OPTION PLAN IS IN THE BEST INTERESTS OF RCG AND ITS
STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE AMENDMENT TO THE OPTION PLAN.

29
<PAGE> 33

RCG SELECTED HISTORICAL COMBINED FINANCIAL DATA

The Selected Combined Financial Data -- Renal Care Group, Inc. represents
the historical results of operations of the registrant, including the results of
operations of Main Line Suburban Dialysis Centers, Inc. ("Main Line") which was
acquired in April 1996 in a pooling of interests transaction. The registrant in
February 1996 acquired the Founding Companies (Kidney Care, Kansas, DMN, Tyler
and Tennessee) (the "Combination"), when it also completed an initial public
offering of 4,485,000 shares of RCG Common Stock (the "Offering"). Although the
Combination was not a pooling-of-interests transaction, it was accounted for
using historical cost, in accordance with Securities and Exchange Commission
Staff Accounting Bulletin No. 48, as then in effect, because no single owner
group from any of the Founding Companies held more than a 50% equity interest in
RCG as of the closing of the Offering. Accordingly, RCG beginning February 1996
recorded the net assets acquired at the Founding Companies' historical cost
basis, as determined by generally accepted accounting principles.

The Selected Combined Financial Data -- Founding Companies represents the
combined historical operations of Kidney Care, Kansas, DMN, Tyler and Tennessee
as if they had been combined for periods prior to their acquisition by RCG. Most
of the Founding Companies were either subchapter S corporations or not-
for-profit and thus paid no federal or state income taxes.

The Selected Combined Financial Data -- Renal Care Group, Inc. and Founding
Companies Combined represent the results of operations had the Founding
Companies and RCG been combined on January 1, 1991, without giving effect to the
Offering, for periods prior to February 1, 1996.

The selected combined financial data for RCG for the calendar years ended
December 31, 1994 and 1995 and the Founding Companies for the calendar years
ended December 31, 1992, 1993 and 1994 are derived from audited data included
elsewhere in this Proxy Statement. 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 operation for the periods
presented. The following data should be read in conjunction with historical
combined financial statements of the Founding Companies, including the related
Notes thereto, and "RCG Managements Discussion and Analysis of Financial
Condition and Results of Operations" that appear elsewhere in this Proxy
Statement.

30
<PAGE> 34

SELECTED COMBINED FINANCIAL DATA -- RENAL CARE GROUP, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
RCG(1) JUNE 30, (PRO FORMA)
------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995(1) 1996(2)
----------- ----------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)

<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Revenue............ $ 7,367 $ 8,713 $10,305 $10,933 $10,934 $ 5,568 $37,972
------ ------ ------- ------- ------- ------ -------
Patient care costs..... 5,336 6,309 7,403 7,397 7,924 4,009 27,698
General and
administrative
expenses............ 1,725 1,626 1,714 3,954 2,597 1,272 3,036
Provision for doubtful
accounts............ 147 170 203 220 221 109 758
Depreciation and
amortization........ 147 153 154 169 180 45 1,015
Merger expenses........ -- -- -- -- -- -- 680
------ ------ ------- ------- ------- ------ -------
Total operating costs
and expenses........ 7,355 8,258 9,474 11,740 10,922 5,435 33,187
------ ------ ------- ------- ------- ------ -------
Income from
operations.......... 12 455 831 (807) 12 133 4,785
------ ------ ------- ------- ------- ------ -------
Interest income
(expense), net...... (33) (44) (39) (34) (43) (17) 502
------ ------ ------- ------- ------- ------ -------
Income (loss) before
income taxes........... (21) 411 792 (841) (31) 116 5,287
Provision for income
taxes.................. -- -- -- -- -- -- 1,980
------ ------ ------- ------- ------- ------ -------
Net Income (loss)........ $ (21) $ 411 $ 792 $ (841) $ (31) $ 116 $ 3,307
====== ====== ======= ======= ======= ====== =======
Earnings Per Share....... $ .31
=======
Weighted Average Shares
Outstanding............ 10,740
=======
BALANCE SHEET DATA:
Working capital........ $ 303 $ 774 $ 1,622 $ 707 $ 467 $ 621 $35,370
Total assets........... 2,242 2,613 3,605 3,540 4,532 3,454 70,306
Total debt............. 425 367 136 550 1,879 570 --
Stockholders' equity... 1,057 1,468 2,269 1,428 1,467 1,601 52,625
</TABLE>

- - ---------------
(1) The financial information for each of the years ended December 31, and for
the six months ended June 30, 1995, include the results of operations of
Renal Care Group, Inc. and the historical operations of Main Line Suburban
Dialysis Centers, Inc. ("Main Line"). Main Line was merged into Renal Care
Group effective April 26, 1996 and was accounted for as a pooling of
interests.

(2) The financial information for the six months ended June 30, 1996, include
the results of operations for Renal Care Group (of Delaware) since the date
it began business on February 1, 1996. The information includes the results
of Main Line and all Founding Companies for the period from February 1,
1996 to June 30, 1996. All periods prior to January 1, 1996 represent the
operations of Main Line which was a pooling-of-interests transaction. Main
Line was a Subchapter S Corporation for income tax purposes and thus there
is no income tax provision for periods prior to January 1, 1996.

31
<PAGE> 35

RENAL CARE GROUP, INC.

SELECTED COMBINED FINANCIAL DATA -- FOUNDING COMPANIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
FOUNDING COMPANIES(1)(2) JUNE 30,
------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996(3)
----------- ------- ------- ------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Revenue............ $49,208 $55,596 $62,316 $69,043 $71,660 $34,664 $ 7,378
------- ------- ------- ------- ------- ------- ------
Patient care costs..... 35,180 40,443 45,280 50,363 52,238 25,575 5,422
General and
administrative
expenses............ 3,684 2,797 3,150 3,895 5,480 2,237 595
Provision for doubtful
accounts............ 984 1,139 1,426 1,496 1,583 710 125
Depreciation and
amortization........ 1,605 1,742 1,815 1,930 1,901 1,121 188
Merger expenses........ -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------
Total operating costs
and expenses........ 41,453 46,121 51,671 57,684 61,202 29,643 6,330
------- ------- ------- ------- ------- ------- ------
Income from
operations.......... 7,755 9,475 10,645 11,359 10,458 5,021 1,048
------- ------- ------- ------- ------- ------- ------
Interest (expense),
net................. (660) (526) (332) (283) (457) (102) (94)
------- ------- ------- ------- ------- ------- ------
Income before income
taxes............... $ 7,095 $ 8,949 $10,313 $11,076 $10,001 $ 4,919 $ 954
======= ======= ======= ======= ======= ======= ======
BALANCE SHEET DATA:
Working capital........ $ 5,941 $ 8,864 $11,242 $14,986 $13,443 $14,464 $ --
Total assets........... 22,622 26,057 28,377 32,600 39,824 34,084 --
Total debt............. 4,089 3,670 3,017 5,649 9,659 3,709 --
Stockholders' equity... 13,418 17,038 19,310 20,906 20,316 23,410 --
</TABLE>

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

(1) The financial information for each of the years ended December 31 includes
the results of operations of Kidney Care for the fiscal year ended on
January 31 following the year indicated.

(2) 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 will hold
more than a 50% equity interest in RCG as of the closing of the Offering.
Accordingly, RCG beginning February, 1996 recorded the net assets acquired
at the Founding Companies' historical cost basis, as determined by
generally accepted accounting principles.
(3) The financial information for the six months ended June 30, 1996 represent
only the historical results of operations of all the Founding Companies for
the month of January as a result of the Founding Companies being acquired
by RCG effective February 1, 1996.

32
<PAGE> 36

RENAL CARE GROUP, INC.

SELECTED COMBINED FINANCIAL DATA -- RENAL CARE GROUP, INC.
AND FOUNDING COMPANIES COMBINED
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,(1)(2)(3) SIX MONTHS ENDED JUNE 30,
COMBINED COMPANIES (PRO FORMA)
--------------------------------------------------- PRO FORMA -------------------------
1991 1992 1993 1994 1995 1995(4) 1995 1996(5)
------- ------- ------- ------- ----------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Revenue................... $56,575 $64,309 $72,621 $79,976 $82,594 $82,594 $40,232 $45,350
------- ------- ------- ------- ------- ------- ------- -------
Patient care costs............ 40,516 46,752 52,683 57,760 60,162 59,694(a) 29,584 33,120
General and administrative
expenses.................... 5,409 4,423 4,864 7,849 8,077 10,677(b) 3,509 3,631
Provision for doubtful
accounts.................... 1,131 1,309 1,629 1,716 1,804 1,804 819 883
Depreciation and
amortization................ 1,752 1,895 1,969 2,099 2,081 2,334(c) 1,166 1,203
Merger expenses............... -- -- -- -- -- -- -- 680
------- ------- ------- ------- ------- ------- ------- -------
Total operating costs and
expenses.................... 48,808 54,379 61,145 69,424 72,124 74,509 35,078 39,517
------- ------- ------- ------- ------- ------- ------- --------
Income from operations........ 7,767 9,930 11,476 10,552 10,470 8,085 5,154 5,833
------- ------- ------- ------- ------- ------- ------- --------
Interest income (expense),
net......................... (693) (570) (371) (317) (500) 97(d) (119) 408
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes.... $ 7,074 $ 9,360 $11,105 $10,235 $ 9,970 $ 7,988 $ 5,035 $ 6,241
======= ======= ======= ======= ======= ------- ======= -------
Provision for income taxes.... 3,035 2,342
------- -------
Net income.................... $ 4,953 $ 3,899
======= =======
Earnings per share............ $ .57 $ .36
======= =======
Weighted average shares
outstanding................. 8,680 10,687
======= =======
BALANCE SHEET DATA:
Working capital............... $ 6,244 $ 9,638 $12,864 $15,693 $13,910 15,085 $35,370
Total assets.................. 24,864 28,670 31,982 36,140 44,356 37,538 70,306
Total debt.................... 4,514 4,037 3,153 6,199 11,538 4,279 --
Stockholders' equity.......... 14,475 18,506 21,579 22,334 21,783 25,011 52,625
</TABLE>

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

(1) The financial information for each of the years ended December 31, includes
the results of operations of Kidney Care for the fiscal years ended January
31, following the year indicated.
(2) The Combination is 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 RCG as of the closing of the Offering. Accordingly, RCG
has recorded the net assets acquired at the Founding Companies' historical
cost basis, as determined by generally accepted accounting principles.
(3) For all periods presented, the selective combined financial statements are
representative of the financial position and results of operations of the
Founding Companies and RCG and Main Line. Main Line merged with RCG April
26, 1996 and operates five dialysis centers serving approximately 350
patients. The transaction is accounted for as a pooling of interests.

(4) Pro forma information gives effect to (i) the Combination, (ii) the sale of
shares of RCG Common Stock in the offering and the application of the net
proceeds. The pro forma adjustments included in the income statement data
are as follows:

(a) Patient care costs have been decreased due to purchase of facilities
from the owners of Kansas and Kidney Care.

(b) General and administrative expenses have been increased due to
additional corporate shared service costs.

(c) Depreciation and amortization has been increased 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) Interest expense has been reduced to reflect the repayment of both
existing and assumed debt from the net proceeds of the Offering.
(5) Pro forma adjustments are not considered necessary due to the Combination
being effected on February 1, 1996. Adjustments to the January operating
results have been determined to be immaterial.

33
<PAGE> 37

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

The following discussion should be read in conjunction with the information
contained in the Financial Information referenced in the Index to Financial
Statements, including the Notes thereto, and the other financial information
appearing elsewhere in this Proxy Statement.

OVERVIEW

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, and to
provide clinical and practice management services to nephrologists. Simultaneous
with the closing of the Offering, RCG acquired the Founding Companies, which
have been operating outpatient dialysis businesses as separate, independent
entities for an average of approximately 14 years. Because the Founding
Companies are independent entities that have not been operated by RCG's
management prior to the Combination, the historical combined results do not
reflect RCG's actual operations on a consolidated basis and therefore may not be
indicative of future performance. For all periods presented, the Combined
Financial Statements include the information of the Founding Companies and Main
Line Suburban Dialysis Centers, Inc. ("Main Line"), a merger completed in April
1996. Main Line, of Wynnewood, Pennsylvania, operates five dialysis centers
serving approximately 350 patients in the suburban Philadelphia area. The
transaction is accounted for as a pooling of interests. The Combined Financial
Statements include the financial information on a historical basis, as if these
groups had always been members of the same operating entity without giving
effect to the Combination, the Offering, or the realization of any operating
efficiencies that RCG believes typically would be attainable in an integrated
organization.

RCG believes that the Founding Companies and Main Line, on an individual
basis, generally have not had the management, capital and other resources
required to generate sustainable internal growth in the increasingly competitive
dialysis industry. As part of its strategy, RCG assembled an experienced
management team that has become the executive management of RCG and which RCG
believes will enable it to pursue a more progressive growth strategy.
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. A key
component of RCG's strategy is 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 RCG's existing
network of dialysis centers. In the opinion of management, the information
contained herein related to June 30, 1996 interim financial statements reflects
all adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature. Operating results for the interim period are not
necessarily indicative of results which may be expected for the year as a whole.

Since the Combination, RCG has implemented company-wide supply agreements,
insurance contracts and other such arrangements. Other operating efficiencies
that RCG has initiated include consolidation of employee benefits, insurance,
cash management and other functions. Furthermore, RCG intends to focus on
improving operating performance by implementing previously adopted standard
clinical protocols and operating procedures. RCG cannot presently predict the
future effect, if any, on its financial performance from any of these or other
similar opportunities to improve the operations of the group. RCG believes that
it will be able to realize economies of scale in acquired and managed operations
by consolidating corporate and regional management expenses. However, a portion
of the operating efficiencies that may be achieved in these organizations will
be offset by the need for increased general and administrative expenses at RCG's
corporate headquarters.

Subsequent to the Combination, RCG has focused on expansion of its business
through the acquisition, development and management of dialysis centers in
nephrology practices. In April 1996, RCG 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 eleven nephrologists serving approximately 370
patients. In April 1996, RCG completed the merger with Main Line.

34
<PAGE> 38

On July 1, 1996, RCG announced that it had completed a merger with Nephrology
Center, Inc., which currently services approximately 250 patients at locations
in Pensacola and Crestview, Florida.

SOURCES OF NET REVENUE

Net revenue of the Founding Companies and Main Line 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; (v) management contracts with
medical university dialysis programs; and (vi) laboratory services. ESRD
patients typically receive 156 dialysis treatments per year, with reimbursement
for these services provided primarily by the Medicare ESRD program based on
rates that are established by HCFA. For the six months ended June 30, 1996,
approximately 78% of RCG'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 a chronic disease,
utilization is predictable and is not subject to seasonal fluctuations.

RESULTS OF OPERATIONS

The following table sets forth certain income statement items of the
Founding Companies and Main Line, on a combined basis, expressed as a percentage
of net revenue for the years ended December 31, 1993, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996.

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 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 72.2 72.8 73.5 73.0
General and administrative costs........................... 6.7 9.8 9.8 8.7 8.0
Provision for doubtful accounts............................ 2.2 2.2 2.2 2.1 1.9
Depreciation and amortization.............................. 2.7 2.6 2.5 2.9 2.7
Merger expense............................................. -- -- -- -- 1.5
----- ----- ----- ----- -----
Total operating costs and expenses......................... 84.1 86.8 87.3 87.2 87.1
----- ----- ----- ----- -----
Income from operations..................................... 15.9 13.2 12.7 12.8 12.9
Interest expense/(income) net.............................. 0.5 0.4 0.6 0.3 (0.9)
----- ----- ----- ----- -----
Income before income taxes................................. 15.4% 12.8% 12.1% 12.5% 13.8%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995

Net Revenue. Net revenue increased from $40.2 million for the six months
ended June 30, 1995 to $45.4 million for the six months ended June 30, 1996, an
increase of $5.2 million or 12.9%. This increase resulted primarily from a 7.7%
increase in the number of treatments from 227,948 in the 1995 period to 245,446
in the 1996 period and a 2.8% increase in the average revenue per treatment from
$176 in 1995 to $181 in 1996. The remaining revenue increase is a result of
management fee income and higher than expected earnings of certain partnerships
in which RCG has a 50% interest. The revenue per treatment increase is due to an
increase in higher revenue generating acute treatments and greater than expected
Erythropoietin ("EPO") utilization.

35
<PAGE> 39

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
$29.6 million for the six months ended June 30, 1995 to $33.1 million for the
six months ended June 30, 1996, an increase of $3.5 million or 11.8%. This
increase was due to the increase in the number of associated treatments, which
caused a corresponding increase in the use of drugs and supplies. Patient care
costs as a percent of net revenue decreased from 73.5% in the 1995 period to
73.0% in the 1996 period. Average patient care cost per treatment increased from
$130 in 1995 to $135 in 1996 or 3.8%. This increase is due to normal healthcare
inflation, higher than expected EPO cost, and other non-chargeable drug
utilization costs, 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, billing and
information systems. General and administrative expenses increased from $3.5
million for the six months ended June 30, 1995 to $3.6 million for the six
months ended June 30, 1996, an increase of $100,000 or 2.9%. General and
administrative expenses decreased as a percent of revenue in the 1996 period by
0.7% primarily due to the higher revenues for the six month period. The increase
is a result of increased corporate overhead expenses partially offset by reduced
management fees paid by Main Line to its owners.

Provision for Doubtful Accounts. The provision for doubtful accounts
increased from $819,000 for the six months ended June 30, 1995 to $883,000 for
the six months ended June 30, 1996. The provision for doubtful accounts as a
percent of net revenue decreased from 2.1% in the 1995 period to 1.9% in the
1996 period. Provision for doubtful accounts is a function of patient mix,
billing practices and other factors. It is RCG's practice to reserve for
doubtful accounts in the period in which the revenue is recognized based on
management's estimate of the net collectibility of the accounts receivable.

Depreciation and Amortization. Depreciation and amortization remained
unchanged at $1.2 million for the six months ended June 30, 1995 and for the six
months ended June 30, 1996.

Income from Operations. Income from operations increased from $5.2 million
for the six months ended June 30, 1995 to $5.8 million for the six months ended
June 30, 1996, an increase of $600,000, or 11.5%. Income from operations as a
percent of net revenue increased from 12.8% in the 1995 period to 12.9% in the
1996 period. Income from operations increased due to the increase in net revenue
in excess of patient care costs, which was primarily due to an increase in the
growth rate of the number and types of treatments.

Interest Income/Expense. Interest expense decreased from $120,000 for the
six months ended June 30, 1995 to a net interest income of $408,000 for the six
months ended June 30, 1996, a net increase of $528,000. The increase is
primarily due to the investment of the Offering proceeds and the payoff of
substantially all borrowings of the Founding Companies.

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

Net Revenue. Net revenue increased from $80.0 million for the year ended
December 31, 1994 to $82.6 million for the year ended December 31, 1995, an
increase of $2.6 million, or 3.3%. This increase resulted primarily from a 2.8%
increase in the number of treatments from 454,187 in the 1994 period to 466,994
in the 1995 period and a 0.5% increase in the average revenue per treatment from
$176 in 1994 to $177 in 1995. The revenue per treatment increase is due to EPO
utilization.

Patient Care Costs. Patient care costs increased from $57.8 million for
the calendar year ended December 31, 1994 to $60.2 million for the calendar year
ended December 31, 1995, an increase of $2.4 million, or 4.2%. This increase was
due to the increase in the number of associated treatments, which caused a
corresponding increase in the use of drugs and supplies. Patient care costs as a
percentage of net revenue increased from 72.2% in 1994 to 72.8% in 1995. Average
patient care costs per treatment increased from $127 in 1994 to $129 in 1995, or
1.6%. This increase is due to normal health care inflation and higher than
expected EPO and other drug utilization costs.

General and Administrative Expenses. General and administrative expenses
increased from $7.8 million for the calendar year ended December 31, 1994 to
$8.1 million for the calendar year ended December 31,

36
<PAGE> 40

1995, an increase of $300,000, or 3.8%. General and administrative expenses as a
percentage of net revenue remained constant at 9.8% in 1994 and 1995.

Provision for Doubtful Accounts. The provision for doubtful accounts
increased from $1.7 million for the calendar year ended December 31, 1994 to
$1.8 million for the calendar year ended December 31, 1995. Provision for
doubtful accounts as a percentage of net revenue remained constant at 2.2% in
1994 and 1995.

Depreciation and Amortization. Depreciation and amortization remained
unchanged at $2.1 million for the calendar year ended December 31, 1994 and the
calendar year ended December 31, 1995.

Income from Operations. Income from operations decreased from $10.6
million for the calendar year ended December 31, 1994 to $10.5 million for the
calendar year ended December 31, 1995, a decrease of $100,000, or 0.9%. Income
from operations as a percent of net revenue decreased from 13.2% in the 1994
period to 12.7% in the 1995 period. Income from operations decreased due to
increases in patient care costs in excess of net revenue, which was primarily
due to growth in health care inflation in excess of the growth of revenue per
treatment.

Interest Income/Expense. Interest expense increased from $317,000 for the
calendar year ended December 31, 1994 to $500,000 for the calendar year ended
December 31, 1995, a net increase of $183,000. This net increase can be
attributed to D.M.N. Professional Corporation's buy out of its hospital
partner's 50% interest in Northeast Indiana Kidney Center through the use of
commercial borrowings and the increase in working capital loans of the Founding
Companies from 1994 to 1995.

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

Net Revenue. Net revenue increased from $72.6 million for the calendar
year ended December 31, 1993 to $80.0 million for the calendar year ended
December 31, 1994, an increase of $7.4 million, or 10.2%. This increase resulted
primarily from a 6.3% increase in the number of treatments from 427,270 in the
1993 period to 454,187 in the 1994 period and a 3.5% increase in the average
revenue per treatment from $170 in 1993 to $176 in 1994. The revenue per
treatment increase is due to an increase in higher revenue generating acute
treatments and greater than historical usage of EPO utilization.

Patient Care Costs. Patient care costs increased from $52.7 million for
the calendar year ended December 31, 1993 to $57.8 million for the calendar year
ended December 31, 1994, an increase of $5.1 million, or 9.7%. This increase is
due to the increase in the number of associated 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
72.2% in the 1994 period. Average patient care costs per treatment increased
3.3%, from $123 in 1993 to $127 in 1994. This increase is due to normal health
care inflation, higher than expected EPO costs and the increase in higher cost
acute treatments.

General and Administrative Expenses. General and administrative expenses
increased from $4.9 million for the calendar year ended December 31, 1993 to
$7.8 million for the calendar year ended December 31, 1994, an increase of $2.9
million, or 59%. General and administrative expenses increased as a percentage
of revenue by 46.3% in the 1994 period due primarily to management fees paid by
Main Line to its owners.

Provision for Doubtful Accounts. The provision for doubtful accounts
increased from $1.6 million for the calendar year ended December 31, 1993 to
$1.7 million for the calendar year ended December 31, 1994. The provision for
doubtful accounts as a percentage of net revenue remained constant at 2.2% in
1993 and 1994.

Depreciation and Amortization. Depreciation and amortization increased
from $2.0 million for the calendar year ended December 31, 1993 to $2.1 million
for the calendar year ended December 31, 1994, an increase of $100,000, or 5.0%.
This increase was due to the acquisition of patient care facilities in the
normal course of business.

Income from Operations. Income from operations decreased from $11.5
million for the calendar year ended December 31, 1993 to $10.6 million for the
calendar year ended December 31, 1994, a decrease of $900,000 or 7.8%. Income
from operations as a percent of net revenue decreased from 15.9% in the 1993

37
<PAGE> 41

period to 13.2% in the 1994 period. Income from operations decreased due to
increases in general and administrative costs in excess of net revenue, which
was primarily due to the payment of management fees by Main Line to its owners.

Interest Expense. Interest expense decreased from $371,000 for the
calendar year ended December 31, 1993 to $317,000 for the calendar year ended
December 31, 1994, a net decrease of $54,000. This net decrease was due to the
payoff of working capital loans in the normal course of business by the Founding
Companies.

LIQUIDITY AND CAPITAL RESOURCES

In February 1996, RCG completed its Offering of 4,485,000 shares of common
stock at $18.00 per share. The proceeds, net of underwriting discounts and
expenses of the offering were approximately $75,079,000. Concurrent with the
completion of the offering RCG paid approximately $39,699,000 to the
stockholders of the Founding Companies and issued 4,834,000 shares of its common
stock to such stockholders. In April 1996, RCG issued 528,000 shares of RCG
Common Stock as consideration in the acquisition by merger of Main Line and in
July 1996, RCG issued 298,775 shares of RCG Common Stock as consideration in the
acquisition by merger of The Nephrology Centers, Inc. At August 26, 1996,
10,146,136 shares of RCG Common Stock were outstanding.

Working capital at June 30, 1996 was $35,370,000 and cash and cash
equivalents were $31,292,000. Net cash generated from operations during the six
months ended June 30, 1996 was $7,249,000.

Capital expenditures for the six months ended June 30, 1996 were
$3,817,000. RCG repaid $9,021,000 in debt, including, $8,539,000 of debt that
was assumed from the Founding Companies. At June 30, 1996, RCG had $1,380,000 of
outstanding Convertible Senior Subordinated Promissory Notes due in December
1996 that are convertible into RCG Common Stock at $7.50 per share.

RCG has a commitment from a bank to borrow up to $35.0 million to be used
for acquisitions, working capital and capital expenditures. This agreement was
put into place during the second quarter of 1996. Management believes that its
existing cash balances and cash generated from operations will be sufficient to
fund RCG's planned capital expenditures through the remainder of 1996.

IMPACT OF INFLATION

A substantial portion of RCG's net revenue is subject to reimbursement
rates that are regulated by the federal government and do not automatically
adjust for inflation. RCG 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 that are subject to
inflation, such as labor and supply costs, without a compensating increase in
reimbursement rates, may adversely affect RCG's earnings in the future.

38
<PAGE> 42

BUSINESS OF RCG

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. RCG provides
dialysis and ancillary services to approximately 3,280 patients through 51
outpatient dialysis centers in nine states, including five dialysis centers that
are managed but not owned by RCG, one of which is the dialysis program at
Vanderbilt University Medical Center. In addition to its outpatient dialysis
center operations, Renal Care Group provides acute dialysis services through
contractual relationships with 22 hospitals and physician practice management
services to nine of the 41 nephrologists who are affiliated with RCG's
outpatient dialysis centers.

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 a combination of other risk factors. In
order to sustain life, individuals with ESRD require either dialysis for the
remainder of their lives or successful kidney transplantation. 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.

Nephrologists provide ancillary services to ESRD patients, the most
significant of which is the administration of erythropoietin ("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) intra-dialytic 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.

On February 12, 1996, RCG acquired, in separate transactions, the dialysis
and related business and certain related assets of (i) Kidney Care, Inc. ("KCI")
and Medical Enterprises, Ltd. ("MEL") (KCI and MEL collectively "Kidney Care"),
(ii) D.M.N. Professional Corporation ("DMN"), (iii) Tyler Nephrology Associates,
P.A. ("Tyler"), (iv) Kansas Nephrology Association ("Kansas"), and (v) Renal
Care Group, Inc., a Tennessee corporation ("Tennessee") (Kidney Care, DMN,
Tyler, Kansas and Tennessee collectively the "Founding Companies"). RCG acquired
these five dialysis and related businesses and assets in exchange for shares of
RCG Common Stock, cash, notes payable and the assumption of certain debt (the
"Combination").

On February 12, 1996, RCG also successfully completed an initial public
offering of 3,900,000 shares of its RCG Common Stock, all of which were offered
by RCG (the "Offering"). On February 20, 1996, the underwriters completed the
exercise of the overallotment option granted by RCG in the Offering for an
additional 585,000 shares of RCG Common Stock. RCG used approximately $40
million of the approximately $74 million in net proceeds from the Offering to
fund the cash portion of the purchase price for the Founding Companies, to repay
certain assumed indebtedness.

On April 26, 1996, RCG completed a merger with Main Line Suburban Dialysis,
Inc. ("Main Line"), and on July 1, 1996, RCG completed a merger with The
Nephrology Centers, Inc. ("TNC," and together with Main Line and the Founding
Companies, the "Subsidiaries"), each of which will be accounted for as a
pooling-of-interests (the "Recent Mergers"). Main Line, based in Wynnewood,
Pennsylvania, operates five dialysis centers serving approximately 350 patients
in the suburban Philadelphia area. TNC, based in Pensacola, Florida, operates
two dialysis centers, serving approximately 250 patients in the Pensacola and
Crestview, Florida areas. TNC has four additional satellite units under
construction which are scheduled to open by September 1996. RCG acquired these
companies in exchange for shares of RCG Common Stock and the assumption of
certain debt.

39
<PAGE> 43

OPERATIONS

Location, Capacity and Use of Facilities

RCG operates 51 outpatient dialysis centers with 41 affiliated
nephrologists and 826 certified dialysis stations, including four centers
managed by RCG, one of which is at Vanderbilt and has four affiliated
nephrologists and 26 certified dialysis stations. As of June 30, 1996, 30 of the
centers are leased and 17 of the centers are owned by RCG. The centers contain
between four and 46 stations and are located in nine states. RCG also provides
inpatient dialysis services, pursuant to contracts, to 22 acute-care hospitals.

RCG estimates that its centers were operating at approximately 63% of
capacity as of June 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).
Accordingly, RCG believes it may increase the number of dialysis treatments up
to its capacity without making additional capital expenditures.

Operation of Facilities

RCG's dialysis centers are designed to provide outpatient hemodialysis and
related services to ESRD patients in a convenient setting. A majority of RCG's
centers utilize volumetric dialysis equipment that accommodates high flux and
high efficiency dialysis treatments. In addition to dialysis stations, RCG'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 RCG'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 RCG'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 RCG's centers offer various forms of peritoneal and home
hemodialysis, primarily CAPD or CCPD. As of June 30, 1996, approximately 13% of
the patients treated by RCG received home dialysis. RCG'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. RCG intends to expand its home dialysis program,
which RCG believes is important to the development of a fully integrated
nephrology services company.

Hospital Care

Certain of RCG's centers provide dialysis services through contracts with
hospitals located within their respective service areas. Under these contracts,
these 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. Currently, most of RCG's hospital
contracts specify predetermined fees per dialysis treatment, although RCG
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.

40
<PAGE> 44

University Division

RCG currently manages the dialysis programs at Vanderbilt and the Cleveland
Clinic, provides home dialysis services for a group of patients at the
University of Arkansas and provides consulting services to the University of
Michigan Medical Center regarding its dialysis program. RCG intends to expand
its university management program and is currently in various stages of
discussions with a number of university-based dialysis programs. In addition,
RCG also intends to acquire or develop university-based dialysis centers. RCG
believes that its affiliation with leading nephrology groups will enhance its
ability to attract and maintain agreements to manage the dialysis programs of
university medical centers. Furthermore, RCG expects that affiliation with
university medical centers will provide increased patient census, 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, RCG relies on
its ability to attract and to meet the needs of referring nephrologists in order
to receive and gain new referrals.

RCG has engaged qualified physicians to serve as Medical Directors for each
of its centers. Generally, the Medical Director is a practicing, board-eligible
or board-certified nephrologist. Each of RCG's Medical Directors provides
services pursuant to an independent contractor agreement between RCG and the
physician or his or her professional practice group. Medical Directors'
responsibilities primarily consist of the administration and monitoring of RCG'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.

As part of the Combination, the former owners of the Founding Companies
(except Tennessee) who are nephrologists entered into Medical Director
agreements with RCG containing terms of seven years with three-year renewal
options. As part of the Main Line Merger, the former owners of Main Line who are
nephrologists entered into similar Medical Director agreements with RCG. In the
case of Kidney Care, which was not owned by the Medical Directors of its
centers, such Medical Directors continue to serve in that capacity at those
facilities under agreements that were assigned to RCG. RCG'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 RCG for certain periods of time and
in certain geographic areas. In consideration for such non-competition
agreements, RCG has granted options to purchase shares of RCG Common Stock to
the physicians serving as Medical Directors or their professional practice
groups.

Nephrology Practice Management

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

QUALITY ASSURANCE, IMPROVEMENT OF PATIENT CARE

Improvements of Clinical Protocols Through Research

RCG believes that the provision of high quality care to ESRD patients
reduces the aggregate costs associated with ESRD by decreasing the number of
days an ESRD patient spends in the hospital. RCG 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,

41
<PAGE> 45

is crucial to the successful management of ESRD. RCG believes that its
affiliation with university-based 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 1992, the average
number of days spent in a hospital by dialysis patients less than 65 years of
age was 12.2, and for patients older than 65 years was 14.1. 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 26.4% in 1992. 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. RCG 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 for all age groups to less than 10 days a year per
patient. RCG intends to implement its most clinically advanced protocols at all
of its centers, as well as at centers that may be acquired, and believes that
such implementation will optimize clinical management of patients and improve
operating efficiencies.

Quality Assurance

In order to optimize therapy and improve outcomes, RCG monitors patient
outcomes in all of its centers. Regular monitoring of the prescribed dialysis
treatments and the key physiological parameters of patients constitutes part of
the continuous quality improvement that is conducted as a matter of RCG policy.

At the center level, pursuant to Medicare requirements, 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.

At the patient level, RCG attempts to ensure quality care through the
provision of instruction to all ESRD patients before and after the initiation of
dialytic therapy. Patients are encouraged to participate in their own care to
the fullest extent possible. In addition, in some of RCG's centers, "self-care"
units are formed in which self-reliance is fostered through-instruction and
support.

Outcomes Data

RCG 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. RCG has begun the collection of patient
outcomes and cost data which it believes will assist it in implementing clinical
pathways to enhance patient outcomes while reducing the cost of care. Management
believes that the implementation of such clinical pathways will allow it 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

RCG has established a Medical Advisory Board (the "MAB") that will meet
periodically to evaluate RCG's clinical protocols and review patient outcomes.
The MAB is chaired by Raymond Hakim, M.D., Ph.D., RCG's Chief Medical Officer,
and is composed of affiliated nephrologists, and is expected to include in the
future quality control and health care experts from outside RCG. The MAB's
principal tasks will include identifying therapy deficiencies, developing
solutions and reviewing technological changes. In addition, the MAB will be
responsible for establishing, implementing and monitoring RCG's quality
assurance policies and procedures.

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<PAGE> 46

SOURCES OF NET REVENUE

The following table sets forth information regarding the sources of net
revenue for RCG.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
---------------------- -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Medicare.................................................. 73 % 72 % 72 % 72 % 71 %
Medicaid.................................................. 7 6 6 6 7
Private and other payors.................................. 15 17 17 17 17
Hospital inpatient dialysis services...................... 5 5 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 RCG
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. RCG 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
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 RCG's usual and customary

43
<PAGE> 47

rates. Medicare generally pays the difference between what the employer
group health plan paid and the gross amount payable by Medicare.

- 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. On April 24,
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 RCG at a rate that RCG believes is higher than
Medicare. Furthermore, HCFA also announced that the revised interpretation would
apply retroactively to August 10, 1993 and, as a result, amounts collected from
employer-based group health plans as primary payors between August 10, 1993 and
April 24, 1995 were to be refunded if the plan was not already serving as
primary payor. On June 5, 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 10, 1993, although
a final ruling on the issue has not yet been issued by the court. RCG 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 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 1, 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 1995, after conducting a study
on dialysis costs and reimbursement at the request of Congress, the Prospective
Payment Assessment Commission ("PROPAC") recommended no changes be made in the
ESRD composite reimbursement rate. Congress is not required to implement either
of these recommendations and could either raise or lower the reimbursement rate.
Furthermore, as part of the deliberations in Congress over the 1996 federal
budget, there were various proposals for the reform of numerous aspects of
Medicare. RCG is unable to predict what, if any, future

44
<PAGE> 48

changes may occur in the Medicare composite reimbursement rate. Any reductions
in the Medicare composite reimbursement rate could have a material adverse
effect on RCG's revenues and net earnings.

From June 1, 1989 through December 31, 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 1, 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. RCG is a licensed ESRD
Medicaid provider in all states in which it does business.

Private Reimbursement/Acute Care Contracts

RCG 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 RCG for 20% of the
Medicare per treatment rate. RCG has negotiated managed care contracts with
certain payors at rates that are higher than the Medicare rate. RCG also
receives payments from hospitals under 21 acute care contracts at rates
significantly higher than the Medicare composite rate.

GOVERNMENT REGULATION

General

RCG's dialysis center operations are subject to extensive governmental
regulation at the federal, state and local levels. These regulations require RCG
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, RCG's dialysis centers must be certified by HCFA. All of
RCG's dialysis centers are so certified.

Any loss by RCG 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 coverage for dialysis services
would have a material adverse effect on RCG's operations, revenues and net
earnings. To date, the Subsidiaries have maintained their licenses and their
Medicare and Medicaid authorizations. RCG 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 RCG will not be reviewed and
challenged by government regulators or that health care reform will not result
in a material adverse change to RCG.

Furthermore, RCG potentially could be held responsible for actions
previously taken by the RenalWest Parties. As part of its announced regulatory
agenda for 1996, HHS intends to issue a proposed rule that would

45
<PAGE> 49

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 RenalWest Parties will not be reviewed and challenged
by government regulators or that RCG will not be liable for such practices.

Fraud and Abuse

RCG'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. At the closing of the Combination and the Recent
Mergers, shares of Common Stock were issued to certain nephrologist owners of
the Subsidiaries. In addition, pursuant to the terms of RCG's agreements with
its Medical Directors or their professional practice groups, RCG pays fees for
medical director services and has granted options to purchase shares of RCG
Common Stock to individual Medical Directors or their respective practice
groups. Because these physicians refer to RCG's centers, the federal
anti-kickback statute could be found to apply to referrals by nephrologists to
RCG's facilities. However, RCG believes these ownership relationships are in
material compliance with the federal anti-kickback statute. Also, RCG believes
that the value of RCG 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, RCG and there is no intent to
induce referrals to RCG's facilities. There is a safe harbor for certain
investments in large public companies, and RCG 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 RCG to investigation or prosecution by
enforcement agencies. RCG believes that the RenalWest Parties' arrangements and
RCG's current arrangements with nephrologist owners, medical directors,
laboratories, IDPN suppliers, hospitals, and other persons or entities who
either refer patients to RCG's dialysis centers or from whom RCG purchases items
or services generally are, and that comparable future arrangements of RCG will
be, in material compliance with the federal anti-kickback statute.

Stark II

Provisions of the Omnibus Budget Reconciliation Act of 1993 ("Stark II")
prohibits physician referrals for certain "designated health services" to
entities with which a physician or an immediate family member has a "financial
relationship." While dialysis is not a designated health service under Stark II,
the 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 are considered separately rather than collectively
as dialysis. Because of its broad language, Stark II may be interpreted by HHS
to apply to certain of RCG's operations or the Merger. Under the final
regulations for the Omnibus Budget Reconciliation Act of 1989 ("Stark I")
published in August 1995, HCFA provided an exception from Stark I for clinical
laboratory services reimbursed under the Medicare "composite rate" for dialysis.
RCG believes it likely that, when final Stark II regulations are published, they
will contain a similar exception for "designated health services" billed under
the composite rate. However, there can be no assurance that HCFA will adopt such
a position, and if such a position is taken, the Company's provision of, or
arrangement and assumption of financial responsibility for, services and items
that are reimbursed separate from the Medicare composite rate are likely to be
construed to be "designated health services" within the meaning of Stark II.

Consequently, Stark II may require RCG 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, RCG could be required to repay

46
<PAGE> 50

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 RCG's operations, net revenue or earnings. RCG believes that if Stark II is
interpreted to apply to RCG's operations or the Merger, RCG 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 RCG's operations, net revenue or earnings. If Stark II is interpreted
by HHS to apply to RCG or the Merger and RCG is determined to be liable for past
violations of Stark II by itself or one or more of the Subsidiaries or the
RenalWest Parties, the application of Stark II could have a material adverse
effect on RCG.

COMPETITION

The dialysis industry is fragmented and highly competitive. Competition for
qualified physicians to act as Medical Directors is also high. According to the
USRDS, there were in excess of 2,500 dialysis centers in the United States at
the end of 1993. Based on published reports, RCG believes that approximately 35%
were owned by independent physicians, 29% were hospital-based, and 36% were
owned by six major multicenter dialysis providers, the largest of which is
National Medical Care, Inc. ("NMC"), a wholly-owned subsidiary of W.R. Grace &
Co. Certain of RCG's competitors have substantially greater financial resources
than RCG and may compete with RCG for acquisitions, development and/or
management of dialysis centers and nephrology practices. RCG believes that
competition for acquisitions has increased the cost of acquiring dialysis
centers and will likely increase the cost of acquiring nephrology practices. RCG
may also experience competition from centers established by former Medical
Directors or other referring physicians. There can be no assurance that RCG will
be able to compete effectively with any such competitors.

PROPERTIES

Excluding the five managed centers, RCG operates 46 dialysis centers, of
which 30 are located in leased facilities, and 16 are owned. RCG's facilities
are located in Arkansas, Indiana, Kansas, Louisiana, Mississippi, Ohio,
Pennsylvania, Tennessee and Texas. Certain of the leased premises are leased
from former owners of Founding Companies. RCG's leases generally have terms
ranging from one to fifteen years and typically contain renewal options. The
sizes of RCG's centers range from approximately 400 to 17,000 square feet. RCG
leases office space in Nashville, Tennessee for its University division and
corporate headquarters under leases that expire in 1999 and 2002. RCG 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 RCG's dialysis centers would be subject to
compliance with conditions relating to participation in the Medicare ESRD
program. In states that require a CON, approval of an application submitted by
RCG would be necessary for expansion or development of a new dialysis center.

RCG generally owns the equipment used in its outpatient centers. RCG
considers its equipment to generally be in good operating condition and suitable
for the purposes for which it is being used.

LEGAL PROCEEDINGS

RCG is subject to claims and suits in the ordinary course of business,
including those arising from patient treatment, which RCG believes will be
covered by malpractice insurance. RCG is not currently a party to any material
legal actions. However, certain of the Founding Companies are parties to
litigation that RCG did not assume and is indemnified against, subject to
certain limitations, by the Founding Companies and their owners pursuant to the
Combination agreements.

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<PAGE> 51

EXECUTIVE COMPENSATION OF RCG

COMPENSATION OF EXECUTIVE OFFICERS

RCG was organized in June 1995, and its operations from that time until
February 12, 1996 related primarily to the formation of RCG and to the
Combination and Offering. The following table sets forth the annual salaries to
be earned by the Chief Executive Officer and the three other most highly
compensated officers (the "Named Executive Officers") during 1996:

<TABLE>
<CAPTION>
NAME POSITION 1996 ANNUAL SALARY
- - --------------------------------------------- ----------------------------------- ------------------
<S> <C> <C>
Sam A. Brooks, Jr............................ President, Chief Executive Officer $250,000
and Director
Joseph A. Cashia............................. Executive Vice President -- 184,000
Development
Ronald Hinds................................. Executive Vice President, Chief 182,500
Financial Officer, Treasurer and
Secretary
Raymond Hakim, M.D., Ph.D.................... Executive Vice President and Chief 200,000
Medical Officer
</TABLE>

OPTION GRANTS

The following table sets forth certain information concerning the grant of
options to purchase RCG Common Stock to each of the 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 -------------------------
HOLDER GRANTED IN 1995(2) ($/SHARE) EXPIRATION 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)(7) 8.9 $ 7.50 November 4, 2005 283,003 717,184
25,000(4)(7) 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 Offering price of $18.00 per share
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 RCG Common Stock.
(2) The number of options granted to all employees in 1995 includes options to
purchase 673,948 shares of RCG Common Stock, but does not include options
to purchase 115,500 shares of the Common Stock of Tennessee that were
assumed by the Company upon the closing of the Offering 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 RCG on a share-for-share basis but with an exercise price of
$7.50 per share.
(4) In the event of certain changes in control of RCG and the termination of the
employment of the optionee, or in the event of certain changes in control
of RCG that result in the RCG Common Stock or stock of a successor not
being traded on a national securities market, these options may accelerate
and be "cashed

48
<PAGE> 52

out" under the circumstances described under "Executive Compensation of
RCG -- 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 RCG 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) Option was exercisable as to twenty percent (20%) of these shares as of the
grant date, and an additional twenty percent (20%) will vest on each of the
first four anniversaries of the Offering.
(7) Option becomes exercisable as to twenty percent (20%) of these shares on
each of the first five anniversaries of August 4, 1995.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of RCG's Compensation Committee are Joseph C. Hutts, Steven D.
McMurray, M.D., and W. Tom Meredith, M.D. Mr. Brooks, the Chief Executive
Officer, President and a Director of RCG, 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.

EMPLOYMENT AGREEMENTS

RCG has entered into or assumed employment and non-competition agreements
with its principal executive officers, including Mr. Brooks, Mr. Hinds, Dr.
Hakim and Mr. Cashia, and with certain of the principal operating officers of
each Founding Company. RCG has not and does not expect to enter into an
employment agreement with Dr. Jacobson, the Chairman of the Board, because he
does not devote his full time and attention to the affairs of RCG. Each Named
Executive Officer's employment agreement contains restrictive covenants
prohibiting such officer from competing with RCG for a period of one year after
the end of the employment term. The terms of the employment agreements commenced
on February 12, 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
RCG on February 12, 1996 and expires March 31, 1997.

The annual salaries of the Named Executive Officers as set forth in the
employment agreements are $250,000, $182,500, $184,000 and $200,000 for Messrs.
Brooks, Hinds and Cashia, and Dr. Hakim, respectively. Each Named Executive
Officer is eligible under his employment agreement for bonuses at the sole
discretion of RCG (up to a maximum, in Mr. Cashia's agreement, of $50,000).

The employment agreements of Messrs. Brooks and Hinds, and Dr. Hakim, 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 is such officer is terminated within 12 months of certain changes in
control of RCG either (A) without cause, or (B) by resignation of the officer
himself from a decline reassignment of a job that is not the equivalent of his
then current position (in responsibility, compensation or geographic area of
service).

In addition to the above provisions, Mr. Brooks' employment agreement also
provides for (i) life insurance coverage of $2,000,000, (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 RCG meets or exceeds its
earning per share projections as approved by the Compensation Committee, (iv) a
$100,000 payment for efforts related to the Offering, payable out of the
proceeds of the Offering, and (v) severance as provided above but based upon his
salary plus his prior year's bonus instead of just his salary.

RCG assumed the employment agreement between Tennessee and Mr. Cashia dated
April 4, 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 for himself and his family if he is terminated without cause
(as defined in his agreement).

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<PAGE> 53

STOCK OPTION AND STOCK PURCHASE PLANS

1996 Stock Option Plan

In January 1996, RCG adopted the Renal Care Group, Inc. 1996 Stock Option
Plan (the "Option Plan"). See "Proposal II -- Approval of Proposed Amendment to
the 1996 Stock Option Plan" for a description of the terms of the Option Plan
and the proposed Amendment thereto.

1996 Stock Option Plan for Outside Directors

In January 1996, RCG adopted the Director Plan and reserved 100,000 shares
of RCG Common Stock for issuance to non-employee directors of RCG thereunder.
The Director Plan provides for grants of options to purchase 2,500 shares of RCG
Common Stock to "outside directors" who have been directors for at least six
months on the day after each annual meeting of stockholders of RCG, and for
grants of options to purchase 5,000 shares of RCG Common Stock to "outside
directors" on the day such persons first become directors of RCG. 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 RCG. 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 RCG (as defined in the Director Plan) that results in the
RCG Common Stock or the stock of any successor to RCG ceasing to be publicly
traded in a national securities market, the Director Plan requires that RCG 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 RCG Common Stock during the ninety day period ending
on the date of the change in control of RCG, minus the exercise price.

Employee Stock Purchase Plan

The Renal Care Group, Inc. Employee Stock Purchase Plan (the "Purchase
Plan") was adopted in January 1996. A total of 300,000 shares of RCG 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 RCG Common Stock in connection with option periods
commencing July 1 and ending the following June 30 (except the first option
period which commenced the date of the Offering and ended June 30, 1996).

The Purchase Plan permits eligible employees of RCG and certain of its
subsidiaries to purchase RCG 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 RCG Common Stock at the beginning of the option
period or at the end of the option period, whichever is lower (subject to a
minimum price specified in the Purchase Plan).

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

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<PAGE> 54

RENALWEST, L.C., ET AL.

SELECTED COMBINED FINANCIAL DATA

The Selected Combined Financial Data -- RenalWest, L.C., et al., represents
the historical results of operations since the inception on September 1, 1993.
The four month period ended December 31, 1993 is unaudited information. The
information presented for the years ended December 31, 1994 and 1995 have been
audited by Ernst & Young LLP. The Company is organized as a limited liability
company and income from the Company is reported on the owner member's respective
tax returns. RenalWest L.C., et al. consists of RenalWest, its Members and its
wholly owned subsidiary RenalWest Health Supply L.C. The Members are all
organized as S Corporations. Therefore a provision for income taxes has not been
included. The calculation of earnings per share has not been shown as RenalWest
does not have any stock outstanding.

RENALWEST, L.C., ET AL.

SELECTED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------- -------------------------
1991 1992 1993(1) 1994 1995 1995 1996
---- ---- ----------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Revenue..................... $ $ $ 7,821 $30,694 $32,037 $16,274 $17,386
--- --- ------- ------- ------- ------- -------
Patient care costs.............. 5,349 17,606 18,984 9,159 10,763
General and administrative
expenses..................... 2,217 4,767 6,104 3,112 2,785
Provision for doubtful
accounts..................... 381 1,199 2,134 1,640 313
Depreciation and amortization... 447 1,315 1,400 621 955
Merger expenses................. -- -- -- -- --
--- --- ------- ------- ------- ------- -------
Total operating costs
and expenses.......... 8,394 24,887 28,622 14,532 14,816
--- --- ------- ------- ------- ------- -------
Income from operations.......... (573) 5,807 3,415 1,742 2,570
--- --- ------- ------- ------- ------- -------
Interest (expense), net......... (89) (329) (409) (204) (262)
--- --- ------- ------- ------- ------- -------
Income before income taxes...... $ $ $ (662) $ 5,478 $ 3,006 $ 1,538 $ 2,308
=== === ======= ======= ======= ======= =======
BALANCE SHEET DATA:
Working capital................. $ 1,897 $ 2,464 $(1,886) $ 556 $(3,351)
Total assets.................... 10,788 13,776 16,234 13,901 15,337
Total debt...................... 4,957 5,119 5,720 4,425 5,425
Stockholders' equity............ 2,657 4,491 3,099 3,661 2,806
</TABLE>

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

(1) RenalWest, et al. was founded on September 1, 1993 through the combination
of 14 separate dialysis facilities. As such, the 1993 financial data
include results from the date of inception, September 1, through December
31, 1993.

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<PAGE> 55

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

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995

Net Revenue. Net revenue increased $1.1 million to $17.4 million for the
six months ended June 30, 1996 compared to $16.3 million for the six months
ended June 30, 1995, representing a 6.7% increase. The increase is due primarily
to an increase in treatments of 7,422 or 9.4% to 86,172 for the six months ended
June 30, 1996 from 78,750 for the six months ended June 30, 1995. For the six
months ended June 30, 1996, net revenue on a per treatment basis was $202
compared to $207 for the six months ended June 30, 1995. The decrease in net
revenue per treatment is primarily due to a decrease in administration of EPO to
$33 per treatment in 1996 from $38 in 1995.

Patient Care Costs. Patient care costs increased $1.6 million to $10.8
million for the six months ended June 30, 1996 from $9.2 million for the six
months ended June 30, 1995. The increase is due to an increase in treatments of
7,422 or 9.4%, to 86,172 for the six months ended June 30, 1996 from 78,750 for
the six months ended June 30, 1995. On a per treatment basis, patient care costs
increased $9.00 to $125 for the six months ended June 30, 1996 from $116 for the
six months ended June 30, 1995. The increase is due to increased labor costs
resulting from the training involved in computerizing its clinics as well as
general inflationary increases.

General and Administrative Expenses. General and administrative expenses
decreased $300,000 or 10.5% from $3.1 million for the six months ended June 30,
1995 to $2.8 million for the six months ended June 30, 1996. This decrease was
due primarily to a reduction in compensation expense recognized during 1995 for
the admission of new members into RenalWest. General and administrative expenses
as a percentage of net revenue decreased from 19.1% in 1995 to 16.0% in 1996.
General and administrative expenses decreased as a percentage of revenue for the
1996 period because of the increase in revenue without incurring additional
general and administrative expenses.

Provision for Doubtful Accounts. The provision for doubtful accounts
decreased approximately $1.3 million to $313,000 for the six months ended June
30, 1996 from $1.6 million for the six months ended June 30, 1995. As a
percentage of net revenue, the provision for doubtful accounts decreased to 1.8%
for the six months ended June 30, 1996 from 10.1% for the six months ended June
30, 1995. During the six months ended June 30, 1995, management changed its
estimation of the collectability of certain older accounts resulting in an
increase to the provision for doubtful accounts of $1.3 million. No such
increase was necessary for the six months ended June 30, 1996.

Depreciation and Amortization. Depreciation and amortization increased
$334,000 or 53.7% to $955,000 for the six months ended June 30, 1996 from
$621,000 for the six months ended June 30, 1995. This increase was attributable
to depreciation on the clinical computer system purchased in 1996 and
amortization from new center leasehold improvements and routine capital
expenditures.

Income from Operations. Income from operations increased $900,000 to $2.6
million for the six months ended June 30, 1996 from $1.7 million for the six
months ended June 30, 1995 As a percentage of net revenues, income from
operations increased to 14.8% for the six months ended June 30, 1996 from 10.7%
for the six months ended June 30, 1995. The increase in income from operations
is due primarily to the decrease in the provision for doubtful accounts offset
by increased depreciation and amortization.

Interest Expense, net. Interest expense, net increased $58,000 or 28.4% to
$262,000 for the six months ended June 30, 1996 from $204,000 for the six months
ended June 30, 1995. As a percentage of net revenue, interest expense, net
increased to 1.5% for the six months ended June 30, 1996 from 1.3% for the six
months ended June 30, 1995. Interest expense, net increased due to the financing
of the clinical computer system purchased in 1996, leasehold improvements and
routine capital expenditures as well as increased short-term borrowings on the
revolving line of credit.

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<PAGE> 56

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

Net Revenue. Net revenue increased $1,343,000 to $32.0 million for the
year ended December 31, 1995 from $30.7 million for year ended December 31, 1994
representing a 4.2% increase. The increase is due primarily to an increase in
treatments of 13,957 or 9.7%, to 158,044 in the year ended December 31, 1995,
from 144,087 in the year ended December 31, 1994. For the year ended December
31, 1995, net revenue on a per treatment basis was $203 compared to $213 for the
year ended December 31, 1994. The decrease in net revenue per treatment is
primarily due to an increase in the percentage of Medicare patients as Medicare
pays lower rates, a reduction in the number of and average charge for acute
treatments, a reduction in the amount of EPO used per treatment, a shift of
peritoneal dialysis patients to a lower reimbursement and the discontinuation of
a certain diagnostic test.

Patient Care Costs. Patient care costs increased $1.4 million to $19.0
million in the year ended December 31, 1995 from $17.6 million in the year ended
December 31, 1994. The increase is due primarily to an increase in treatments of
13,957 to 158,044 in the year ended December 31, 1995 from 144,087 in the year
ended December 31, 1994. On a per treatment basis, patient care costs decreased
to $121 in the year ended December 31, 1995 from $122 in the year ended December
31, 1994. The decrease in primarily due to a decrease in EPO usage per treatment
and a reduction in labor costs per treatment.

General and Administrative Expenses. General and administrative expenses
increased $1.3 million or 27.1% from $4.8 million for the year ended December
31, 1994 to $6.1 million for the year ended December 31, 1995. General and
administrative expenses as a percentage of net revenue increased from 15.5% in
1994 to 18.6% in 1995. General and administrative expenses increased in 1995 due
to costs related to the remaining rent payments on a dialysis facility that was
vacated, the addition of new management positions to prepare for managed care,
and increases in salary for certain administrative personnel.

Provision for Doubtful Accounts. The provision for doubtful accounts
increased $900,000 to $2.1 million for the year ended December 31, 1995 from
$1.2 million for the year ended December 31, 1994. As a percentage of net
revenue, the provision for doubtful accounts increased to 6.7% for the year
ended December 31, 1995 from 3.9% in the year ended December 31, 1994. This
increase was attributable to a change in management's estimation of the
collectability of certain older accounts.

Depreciation and Amortization. Depreciation and amortization increased
$100,000 or 7.7% to $1.4 million for the year ended December 31, 1995 from $1.3
million for the year ended December 31, 1994. As a percentage of net revenue,
depreciation and amortization increased to 4.4% in the year ended December 31,
1995 from 4.3% in the year ended December 31, 1994. This increase was
attributable to increased amortization from new center leasehold improvements
and routine capital expenditures.

Income from Operations. Income from operations decreased $2.4 million to
$3.4 million for the year ended December 31, 1995 from $5.8 million for the year
ended December 31, 1994. As a percentage of net operating revenues, income from
operations decreased to 10.7% for the year ended December 31, 1995 from 18.9%
for the year ended December 31, 1994. The decrease in income from operations is
due primarily to the increase in general and administrative expenses and the
provision for doubtful accounts.

Interest Expense, net. Interest expense, net increased $80,000 or 24.2% to
409,000 for the year ended December 31, 1995 from $329,000 for the year ended
December 31, 1994. As a percentage of net revenue, interest expense, net
increased to 1.3% in the year ended December 31, 1995 from 1.1% in the year
ended December 31, 1994. Interest expense, net increased due to higher average
interest rates in 1995 over 1994.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $3.5 million for the six
months ended June 30, 1996 and $8.4 million for the year ended December 31,
1995. Cash used for investing activities included capital expenditures of $1.2
million for the six months ended June 30, 1996 and $4.7 million for the year
ended December 31, 1995. Net borrowing from bank loans and lines of credit was
reduced by $588,000 for the six months ended June 30, 1996 compared to the
corresponding period in 1995, and increased by $602,000 for the year ended
December 31, 1995 over the prior year.

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<PAGE> 57

RenalWest has commitments from a commercial bank to lend up to $2,000,000
for equipment financing through May 28, 1997 and to provide a revolving line of
credit of $1,500,000. As of June 30, 1996, RenalWest had borrowed $368,000 under
the equipment line and had $329,000 outstanding under the revolving line of
credit. Management believes that its existing cash balances, available bank
commitments and cash generated from operations will be sufficient to fund
RenalWest's planned capital expenditures and operating expenses through the
remainder of 1996.

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<PAGE> 58

BUSINESS OF RENALWEST

RenalWest, L.C. ("RenalWest") is the largest provider of kidney dialysis
services in the state of Arizona. RenalWest provides dialysis and ancillary
services to approximately 1,200 patients through 19 freestanding outpatient
hemodialysis centers and 3 home peritonealdialysis centers throughout Arizona.
RenalWest also provides acute dialysis services through contractual
relationships with 16 hospitals and staff-assisted dialysis services to 37
skilled nursing facilities. RenalWest was founded in 1993 through the
combination of 14 separate dialysis facilities.

OPERATIONS

Locations, Capacity and Use of Facilities

RenalWest operates 19 freestanding outpatient hemodialysis centers and
three home peritonealdialysis centers with 18 affiliated nephrologists and 285
certified dialysis stations in the state of Arizona. RenalWest's centers contain
between 9 and 21 dialysis stations. RenalWest also provides inpatient dialysis
services, pursuant to contracts, with 16 acute-care hospitals and staff-assisted
dialysis services and 37 skilled nursing facilities.

RenalWest estimates that its centers are operating at approximately 68% of
capacity as of July 1996 (based on the assumption that a dialysis center is able
to provide up to three treatments per day per station, six days a week).
Accordingly, RenalWest believes it may increase the number of dialysis
treatments up to its capacity without making additional capital expenditures in
the existing centers.

Operation of Facilities

RenalWest's dialysis centers are designed to provide outpatient
hemodialysis and related services, and home training and support services to
ESRD patients in a convenient setting and location. All of RenalWest's centers
utilize volumetric dialysis equipment that accommodate high flux and high
efficiency dialysis treatments. In addition to dialysis stations, RenalWest's
centers generally contain a nurses' station, a patient waiting area, examination
room, supply room, water treatment space to purify water used in hemodialysis
treatments, a dialyzer reprocessing room, staff work areas, offices, and a staff
lounge. Three of RenalWest's centers are solely designed for the training,
ongoing support and clinic visits for the home dialysis patients. These centers
also contain a patient waiting area, supply room, staff work areas, offices, a
staff lounge and certain amenities that enhance the learning environment for
patients.

In accordance with conditions for participation in the Medicare ESRD
program, each of RenalWest's centers is supervised by a qualified Medical
Director. Each center is managed by an Clinical Manager (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 nurses, patient care technicians, operations specialists, a social
worker, a dietitian, a unit secretary, and biomedical equipment support. 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

Three of RenalWest's centers offer various forms of peritoneal and home
hemodialysis, primarily CAPD or CCPD. These centers are solely designed for the
training, ongoing support and clinic visits for home dialysis patients. During
the year ended December 31, 1995, approximately 19% of the patients treated by
RenalWest received home dialysis. RenalWest's home dialysis services consist of
providing equipment and supplies, training, patient monitoring and followup
assistance to patients who prefer and are able to receive dialysis treatments in
their homes.

Hospital Care

RenalWest provides inpatient dialysis services, pursuant to contracts, to
16 acute-care hospitals in the Phoenix metropolitan area. Under these contracts,
a central office/warehouse operation dispatches equipment,

55
<PAGE> 59

supplies and personnel required to perform dialysis treatments 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. Currently,
RenalWest's hospital contracts specify predetermined fees per dialysis
treatment, although RenalWest believes that such fees may be subject to
negotiation in the future as provision of health care services becomes
increasingly influenced by managed care and subject to capitated arrangements.

Staff Assisted Dialysis

RenalWest provides staff-assisted dialysis services, pursuant to contracts,
with 37 skilled nursing facilities in the Phoenix metropolitan area. Such
dialysis services are required for patients who have been discharged to skilled
nursing facilities prior to being discharged to home and for other residential
alternative sites. Under these contracts, a central office/warehouse operation
dispatches equipment, supplies and personnel required to perform dialysis
treatments in connection with the skilled nursing facilities inpatient services.
The terms of these contracts are individually negotiated and vary by contract.
Currently, RenalWest staff assisted contracts specify predetermined fees per
dialysis treatment, although RenalWest believes that such fees may be subject to
negotiation in the future as provision of health care services becomes
increasingly influenced by managed care and subject to capitated arrangements.

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, RenalWest
relies on its ability to attract and to meet the needs of referring
nephrologists in order to receive and gain new referrals.

RenalWest has engaged qualified physicians to serve as Medical Directors
for each of its centers. Generally, the Medical Director is a practicing,
board-eligible or board-certified nephrologist. Medical Directors'
responsibilities primarily consist of the administration and monitoring of
RenalWest'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.

QUALITY ASSURANCE, IMPROVEMENT OF PATIENT CARE

Improvements of Clinical Protocols Through Computerized Records

RenalWest believes that the provision of high quality care to ESRD patients
reduces the aggregate costs associated with ESRD, and improves the patient's
quality of life by decreasing the number of days an ESRD patient spends in the
hospital. RenalWest believes that its implementation of a computerized, clinical
records system will provide it with timely access to information about causes
and lengths of hospitalization, resulting gross and standardized mortality
rates, as well as different types of treatment outcomes. This information is
used to assess care in individual centers and identify centers with excellent
outcomes so that standardized clinical protocols can be implemented, based on
those shown to result in positive outcomes and improved operating efficiencies.

Quality Assurance

In order to optimize therapy and improve outcomes, RenalWest monitors
patient outcomes in all of its centers. Regular monitoring of the prescribed
treatments and the key physiological parameters of patients constitutes part of
the continuous quality improvement that is conducted as a matter of RenalWest
policy.

At the center level, pursuant to Medicare requirements, each center has a
quality assurance committee that typically includes the Medical Director,
Program Director, Clinical Manager, Dietitian, Social Worker

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<PAGE> 60

and Operations Specialist. This committee meets regularly to monitor the quality
of care in the center and to assure compliance with applicable regulations.

At the patient level, RenalWest attempts to ensure quality care through the
provision of instruction to all ESRD patients before and after the initiation of
dialytic therapy. Patients are encouraged to participate in their own care to
the fullest extent possible. In addition, in some of RenalWest's centers,
"self-care" units are formed in which self-reliance is fostered through
instruction and support.

Outcomes Data

RenalWest 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. RenalWest has begun the collection
of patient outcomes and cost data which it believes will assist it in
implementing clinical protocols to enhance patient outcomes while reducing the
cost of care. Management believes that the implementation of such protocols will
allow it 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

The role of RenalWest's Medical Advisory Board is filled by the physician
members of the Board of Directors. A portion of the routine monthly Board
meeting is devoted to review of patient outcomes and assessment of clinical
protocols.

COMPETITION

Although RenalWest presently has the largest market share in the
metropolitan Phoenix area and in the state of Arizona, it competes with many of
the nation's largest chain dialysis providers in its markets, several of which
have substantially greater financial and other resources than RenalWest. Its
principal competitors are National Medical Care, Total Renal Care, Vivra and
Ren/Gambro HealthCare.

PROPERTIES

RenalWest operates 19 outpatient and three home dialysis centers, of which
20 are located in leased facilities and two of which are owned. RenalWest's
facilities are located exclusively in Arizona. RenalWest's leases generally have
terms ranging from five to seven years and contain renewal options. The sizes of
RenalWest's centers range from approximately 2,800 to 6,500 square feet, with an
average size of approximately 5,000 square feet. Additionally, RenalWest leases
three sites of approximately 1,100, 1,800 and 2,500 square feet to house its
biomedical repair department, facility maintenance department and acute dialysis
services warehouse. RenalWest leases office space in Mesa, Arizona for its
corporate headquarters under a lease that expires in 1999. RenalWest considers
its physical properties to be in good operating condition and suitable for the
purposes for which they are being used.

MEDICAID REIMBURSEMENT

The Arizona Health Care Cost Containment System ("AHCCCS") is Arizona's
alternative to Medicaid. AHCCCS is funded through federal, state and county
governments. Unlike the traditional Medicaid model which pays a fee for service,
AHCCCS pays a monthly per capita amount to health plans who are responsible for
meeting the medical needs of those enrolled. The program also serves as a
supplement insurance program for the Medicare co-insurance portion and provides
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. RenalWest is a licenses ESRD AHCCCS provider in
Arizona.

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<PAGE> 61

PRIVATE REIMBURSEMENTS/ACUTE CARE CONTRACTS

RenalWest 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 RenalWest
for 20% of the Medicare per treatment rate. RenalWest has negotiated managed
care contracts with certain payors at rates that are equal to or higher than the
Medicare rate. RenalWest also receives payments from hospitals under 16 acute
care contracts at rates higher than the Medicare composite rate.

LEGAL PROCEEDINGS

RenalWest is subject to claims and suits in the ordinary course of
business, including those arising from patient treatment which RenalWest
believes will be covered by malpractice insurance.

OWNERSHIP OF RCG EQUITY SECURITIES

The table below sets forth certain information regarding the beneficial
ownership of the RCG Common Stock of (i) each person known by RCG to own
beneficially 5% or more of the RCG Common Stock, (ii) each Named Executive
Officer and director of RCG, and (iii) all directors and executive officers of
RCG as a group. Each stockholder has certain registration rights with respect to
their shares of RCG Common Stock.

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE PERCENTAGE
SHARES OWNERSHIP OWNERSHIP
BENEFICIALLY BEFORE AFTER
NAME OWNED (1) MERGER MERGER
- - --------------------------------------------------------------- ------------ ---------- ----------
<S> <C> <C> <C>
FIVE PERCENT STOCKHOLDERS(2)
Kidney Care, Inc.(3)........................................... 891,114 9.0% 7.3%
EXECUTIVE OFFICERS AND DIRECTORS
Harry R. Jacobson, M.D.(4)..................................... 237,662 2.4 1.9
Sam A. Brooks, Jr.(5).......................................... 413,831 4.1 3.3
Joseph A. Cashia(6)............................................ 55,000 * *
Ronald Hinds(7)................................................ 29,000 * *
Raymond Hakim, M.D., Ph.D.(8).................................. 49,229 * *
Joseph C. Hutts(9)............................................. 9,000 * *
John D. Bower, M.D.(10)........................................ 829,925 8.4 6.8
Stephen D. McMurray, M.D.(11).................................. 179,214 1.8 1.5
W. Tom Meredith, M.D.(12)...................................... 263,882 2.7 2.2
Thomas A. Lowery, M.D.(13)..................................... 283,991 2.9 2.3
Directors and Executive Officers as a Group (10 persons)(14)... 2,350,734 23.7% 19.2%
</TABLE>

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

* Less than 1% of the outstanding RCG Common Stock.
(1) Information relating to the beneficial ownership of RCG 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) Other than Dr. Bower, who is also a Director of RCG and is listed among the
Executive Officers and Directors.

(3) 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,

58
<PAGE> 62

which are convertible within 60 days. 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 RCG. See Note (10) to this table.

(4) Includes 70,000 shares of RCG Common Stock which may be acquired upon
exercise of immediately exercisable warrants. Includes 20,000 Shares of
Common Stock which may be acquired upon exercise of options exercisable
within 60 days. Does not include 55,000 shares of RCG Common Stock which
may be acquired upon exercise of options not exercisable within 60 days.
(5) Includes 73,831 shares of RCG Common Stock owned of record by the W.J.
Brooks Trust. Mr. Brooks' daughter is the sole beneficiary of the W.J.
Brooks Trust. Also includes 90,000 shares of RCG Common Stock which may be
acquired upon exercise of immediately exercisable warrants and 250,000
shares of RCG Common Stock which may be acquired upon exercise of options
exercisable within 60 days.
(6) Includes 55,000 shares of RCG Common Stock which may be acquired upon
exercise of options. Does not include 30,000 shares of RCG Common Stock
that are not exercisable within 60 days.
(7) Includes 29,000 shares of RCG Common Stock which may be acquired upon
exercise of options exercisable within 60 days. Does not include 56,000
shares of RCG Common Stock which may be acquired upon exercise of options
that will not be exercisable within 60 days.
(8) Includes 40,000 shares of RCG Common Stock which may be acquired upon
exercise of options that will be exercisable within 60 days. Does not
include 60,000 shares of RCG Common Stock which may be acquired upon
exercise of options that will not be exercisable within 60 days.
(9) Includes 9,000 shares of RCG Common Stock which may be acquired upon
exercise of options that will be exercisable within 60 days. Does not
include 6,000 shares of RCG Common Stock which may be acquired upon
exercise of options that will not be exercisable within 60 days.

(10) Dr. Bower's address is 3925 West Northside Drive, Jackson, Mississippi
39209. Includes 13,333 shares of RCG Common Stock that could be acquired
upon the conversion of Convertible Notes, which are convertible within 60
days. Includes 7,500 shares of RCG Common Stock which may be acquired upon
exercise of options exercisable within 60 days. Does not include 30,500
shares of RCG 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.

(11) Includes 2,666 shares of RCG Common Stock that could be acquired upon the
conversion of Convertible Notes, which are convertible within 60 days.
Includes 4,000 shares of RCG Common Stock which may be acquired upon
exercise of options exercisable within 60 days. Does not include 16,000
shares of RCG Common Stock which may be acquired upon exercise of options
that will not be exercisable within 60 days.
(12) Includes 16,000 shares of RCG Common Stock that could be acquired upon the
conversion of Convertible Notes, which are convertible within 60 days.
(13) Includes 13,333 shares of RCG Common Stock that could be acquired upon the
conversion of Convertible Notes, which are convertible within 60 days.
Includes 4,000 shares of RCG Common Stock which may be acquired upon
exercise of options exercisable within 60 days. Does not include 16,000
shares of RCG Common Stock which may be acquired upon exercise of options
that will not be exercisable within 60 days.
(14) Includes 658,503 shares of RCG Common Stock which may be acquired upon
exercise of options and warrants.

LEGAL MATTERS

The legality of RCG Common Stock to be issued in connection with the Merger
is being passed upon for RCG by Alston & Bird, Atlanta, Georgia.

59
<PAGE> 63

PROPOSALS BY RCG STOCKHOLDERS

Management of RCG expects that its 1997 Annual Meeting will be held in May
1997. Proposals that RCG stockholders desire to have included in RCG's proxy
materials for its 1997 Annual Meeting must have been received by RCG on or prior
to January 31, 1997.

OTHER MATTERS

As of the date of this Proxy Statement, RCG's Board of Directors knows of
no matters that will be presented for consideration at the Special Meeting other
than as described in this Proxy Statement. However, if any other matter shall
come before the Special Meeting or any adjournments or postponements thereof and
shall be voted upon, the proposed proxy will be deemed to confer authority to
the individuals named as authorized therein to vote the shares represented by
such proxy as to any such matters that fall within the purposes set forth in the
Notice of Special Meeting in accordance with their best judgment.

Representative(s) of Ernst & Young LLP, independent certified public
accountants, will be present at the Special Meeting to respond to appropriate
questions and to make such statements as they may desire.

60
<PAGE> 64

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF RENAL CARE GROUP, INC.
AND RENALWEST L.C., ET AL........................................................... F-3
Unaudited Pro Forma Condensed Combined Balance Sheet:
As of June 30, 1996................................................................. F-4
Unaudited Pro Forma Condensed Combined Statements of Operations:
Year Ended December 31, 1993, 1994, 1995 and six month periods ended June 30, 1995
and 1996......................................................................... F-5
Year Ended December 31, 1993........................................................ F-6
Year Ended December 31, 1994........................................................ F-7
Year ended December 31, 1995........................................................ F-8
Six Month period Ended June 30, 1995................................................ F-9
Six Month Period ended June 30, 1996................................................ F-10
Notes to Unaudited Pro Forma Condensed Combined Financial Statements.................. F-11
RENAL CARE GROUP, INC. (OF DELAWARE)
Report of Independent Auditors........................................................ F-12
Balance Sheet as of December 31, 1995................................................. F-13
Statement of Operations and Retained Deficit for the period from June 20, 1995 (date
of Inception) through December 31, 1995............................................. F-14
Statement of Cash Flows for the period from June 20, 1995 (date of Inception) through
December 31, 1995................................................................... F-15
Notes to Financial Statements......................................................... F-16
Unaudited Interim Financial Statements and related Notes as of June 30, 1996 and for
the period ended June 30, 1995 and 1996............................................. F-18
MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.
Report of Independent Auditors........................................................ F-24
Balance Sheet as of December 31, 1994................................................. F-25
Statement of Operations and Retained Earnings for the year ended December 31, 1994.... F-26
Statement of Cash Flows for the year ended December 31, 1994.......................... F-27
Notes to Financial Statements......................................................... F-28
Report of Independent Auditors........................................................ F-31
Balance Sheet as of December 31, 1995................................................. F-32
Statement of Operations for the year ended December 31, 1995.......................... F-33
Statement of Changes in Shareholders' Equity for the year ended December 31, 1995..... F-34
Statement of Cash Flows for the year ended December 31, 1995.......................... F-35
Notes to Financial Statements......................................................... F-36
Unaudited Interim Financial Statements and related Notes as of June 30, 1995 and for
the period then ended............................................................... F-41
</TABLE>

F-1
<PAGE> 65

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RENALWEST L.C., ET AL.
Report of Independent Auditors........................................................ F-45
Combined Balance Sheet as of December 31, 1994 and 1995............................... F-46
Combined Income Statements for the year ended December 31, 1994 and 1995.............. F-47
Combined Statement of Change in Owners' Equity for the year ended December 31, 1994
and 1995............................................................................ F-48
Combined Statements of Cash Flows for the year ended December 31, 1994 and 1995....... F-49
Notes to Combined Financial Statements................................................ F-50
Unaudited Interim Financial Statements and related Notes as of June 30, 1996 and for
the period ended June 30, 1995 and 1996............................................. F-54
RENAL CARE GROUP, INC. (OF TENNESSEE) AND THREE UNRELATED BUSINESSES TO BE ACQUIRED
Reports of Independent Auditors....................................................... F-59
Combined Balance Sheets at December 31, 1993 and 1994, June 30, 1995, and December 31,
1995 (unaudited).................................................................... F-60
Combined Statements of Operations for the years ended December 31, 1993 and 1994, June
30, 1995, and December 31, 1995 (unaudited)......................................... F-61
Combined Statements of Owners' Equity for the years ended December 31, 1993, 1994, the
six months ended June 30, 1995 and the year ended December 31, 1995 (unaudited)..... F-62
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994, the six
months ended June 30, 1995 and the year ended December 31, 1995 (unaudited)......... F-63
Notes to Combined Statements.......................................................... F-64
KIDNEY CARE, INC. ET AL. (PREDECESSOR COMPANY)
Report of Independent Auditors........................................................ F-75
Combined Balance Sheets at January 31, 1995 and 1996.................................. F-76
Combined Statements of Revenues, Expenses, and Changes in Unrestricted Net Assets for
the years ended January 31, 1995 and 1996........................................... F-77
Combined Statements of Cash Flows for the years ended January 31, 1995 and 1996....... F-78
Notes to Combined Financial Statements................................................ F-79
Interim Financial Statements and related Notes as of June 30, 1995.................... F-85
</TABLE>

F-2
<PAGE> 66

UNAUDITED PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
OF RENAL CARE GROUP, INC., AND RENALWEST L.C., ET AL.

The following unaudited pro forma condensed combined financial statements
are presented assuming the Merger will be accounted for as a pooling of
interests.

The unaudited pro forma condensed combined balance sheet reflects the
combined historical balance sheets of Renal Care Group, Inc., at June 30, 1996
and RenalWest L.C. et al. ("RenalWest") at June 30, 1996. The unaudited pro
forma condensed combined income statements for the years ended December 31,
1993, 1994, 1995 and for the six months ended June 30, 1995 and 1996 reflect the
historical operating results of Renal Care Group, Inc. for such periods combined
with the historical operating results of RenalWest L.C. for such periods. The
historical operating results of Renal Care Group, Inc. give effect to the merger
with MainLine Suburban Dialysis Centers, Inc. The merger was effective April 26,
1996 and was accounted for as pooling-of-interests. As described more fully in
the notes accompanying the unaudited pro forma condensed combined financial
statements, the historical operations for the year ended December 31, 1993 of
RenalWest L.C. et al. represent operations from September 1, 1993 (date of
inception) through December 31, 1993.

For all applicable periods presented in the pro forma condensed combined
income statements, shares used in the computation of earnings per share give
effect to the shares exchanged in the Merger.

The pro forma financial statements are not necessarily indicative of the
results that would have been obtained had the Merger occurred on the dates
indicated. These pro forma financial statements should be read in conjunction
with the related historical financial statements and notes thereto of Renal Care
Group, Inc. and RenalWest.

F-3
<PAGE> 67

RENAL CARE GROUP, INC. AND RENALWEST

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
PROFORMA PROFORMA
RCG RENALWEST ADJUSTMENTS COMBINED
------- --------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $31,292 $ -- $25,867
Accounts receivable, net.......................... 18,644 5,866 24,510
Inventories....................................... 1,643 545 2,180
Prepaid expenses.................................. 252 126 378
Other............................................. 249 199 448
------- ------- ------- -------
Total current assets...................... 52,080 6,736 53,391
------- ------- ------- -------
Property, plant and equipment, net................ 13,943 8,466 22,409
Intangible assets, net............................ 3,159 43 3,202
Other assets...................................... 1,124 92 1,216
------- ------- ------- -------
Total assets.............................. 70,306 15,337 80,218
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. 5,739 949 6,688
Accrued expenses.................................. 7,611 6,157 13,768
Current portion of long-term debt................. 1,380 2,981 1,380
Income Tax Liability.............................. 1,980 -- 1,980
------- ------- ------- -------
Total current liabilities................. 16,710 10,087 23,816
------- ------- ------- -------
Long Term Debt...................................... -- 2,444 --
Deferred income taxes............................... 971 -- 971
------- ------- ------- -------
Total liabilities......................... 17,681 12,531 24,787
------- ------- ------- -------
Stockholders' equity:
Common stock, $.01 par value, 22,000 shares
authorized, 9,847 shares issued and
outstanding.................................... 98 -- 24(a) 122
Additional paid-in capital........................ 49,226 5,194 (24)(a) 54,396
Retained earnings................................. 3,301 (2,388) 913
------- ------- ------- -------
Total stockholders' equity................ 52,625 2,806 55,431
------- ------- ------- -------
Total liabilities and stockholders'
equity.................................. $70,306 $15,337 $80,218
======= ======= ======= =======
</TABLE>

See notes to Unaudited Pro Forma Condensed Financial Statements.

F-4
<PAGE> 68

RENAL CARE GROUP, INC. AND RENALWEST

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDED MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Revenue...................................... $18,126 $41,627 $42,971 $21,842 $55,358
------- ------- ------- ------- -------
Operating Costs and Expenses:
Patient Care Costs............................. 12,752 25,003 26,908 13,168 38,461
General and Administrative Expenses............ 3,931 8,721 8,701 4,384 5,821
Provision for Doubtful Accounts................ 584 1,419 2,355 1,749 1,071
Depreciation and Amortization.................. 601 1,484 1,580 666 1,970
Merger Expenses................................ -- -- -- -- 680
------- ------- ------- ------- -------
Total Operating Costs and Expenses..... 17,868 36,627 39,544 19,967 48,003
------- ------- ------- ------- -------
Income from Operations........................... 258 5,000 3,427 1,875 7,355
------- ------- ------- ------- -------
Interest Income (Expense), net................... (128) (363) (452) (221) 240
------- ------- ------- ------- -------
Income before Income Taxes....................... 130 4,637 2,975 1,654 7,115
------- ------- ------- ------- -------
Provision for Income Taxes....................... 49 1,762 1,131 629 2,704
------- ------- ------- ------- -------
Net Income....................................... $ 81 $ 2,875 $ 1,844 $ 1,025 $ 4,411
======= ======= ======= ======= =======
Earnings Per Share............................... $ .03 $ .97 $ .63 $ .35 $ .34
======= ======= ======= ======= =======
Weighted Average Shares Outstanding.............. 2,928 2,928 2,928 2,928 13,087
======= ======= ======= ======= =======
</TABLE>

See Notes to Unaudited Pro Forma Condensed Financial Statements.

F-5
<PAGE> 69

RENAL CARE GROUP, INC. AND RENALWEST

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PROFORMA
COMBINED
RCG RENALWEST COMPANIES
------- --------- ---------
<S> <C> <C> <C>
Net Revenue..................................................... $10,305 $ 7,821 $18,126
------- ------ -------
Operating Costs and Expenses:
Patient Care Costs............................................ 7,403 5,349 12,752
General and Administrative Expenses........................... 1,714 2,217 3,931
Provision for Doubtful Accounts............................... 203 381 584
Depreciation and Amortization................................. 154 447 601
Merger Expenses............................................... -- -- --
------- ------ -------
Total Operating Costs and Expenses.................... 9,474 8,394 17,868
------- ------ -------
Income from Operations.......................................... 831 (573) 258
------- ------ -------
Interest Income (Expense), net.................................. (39) (89) (128)
------- ------ -------
Income (Loss) before Income Taxes............................... 792 (662) 130
======= ====== =======
</TABLE>

See Notes to Unaudited Pro Forma Condensed Financial Statements

F-6
<PAGE> 70

RENAL CARE GROUP, INC. AND RENALWEST

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PROFORMA
COMBINED
RCG RENALWEST COMPANIES
------- --------- ---------
<S> <C> <C> <C>
Net Revenue..................................................... $10,933 $30,694 $41,627
------- ------- -------
Operating Costs and Expenses:
Patient Care Costs............................................ 7,397 17,606 25,003
General and Administrative Expenses........................... 3,954 4,767 8,721
Provision for Doubtful Accounts............................... 220 1,199 1,419
Depreciation and Amortization................................. 169 1,315 1,484
Merger Expenses............................................... -- -- --
------- ------- -------
Total Operating Costs and Expenses.................... 11,740 24,887 36,627
------- ------- -------
Income from Operations.......................................... (807) 5,807 5,000
------- ------- -------
Interest Income (Expense), net.................................. (34) (329) (363)
------- ------- -------
Income before Income Taxes...................................... (841) 5,478 4,637
======= ======= =======
</TABLE>

See Notes to Unaudited Pro Forma Condensed Financial Statements

F-7
<PAGE> 71

RENAL CARE GROUP, INC. AND RENALWEST

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PROFORMA
COMBINED
RCG RENALWEST COMPANIES
------- --------- ---------
<S> <C> <C> <C>
Net Revenue..................................................... $10,934 $32,037 $42,971
------- ------- -----
Operating Costs and Expenses:
Patient Care Costs............................................ 7,924 18,984 26,908
General and Administrative Expenses........................... 2,597 6,104 8,701
Provision for Doubtful Accounts............................... 221 2,134 2,355
Depreciation and Amortization................................. 180 1,400 1,580
Merger Expenses............................................... -- -- --
------- ------- -----
Total Operating Costs and Expenses.................... 10,922 28,622 39,544
------- ------- -----
Income from Operations.......................................... 12 3,415 3,427
------- ------- -----
Interest Income (Expense), net.................................. (43) (409) (452)
------- ------- -----
Income before Income Taxes...................................... (31) 3,006 2,975
======= ======= =====
</TABLE>

See Notes to Unaudited Pro Forma Condensed Financial Statements

F-8
<PAGE> 72

RENAL CARE GROUP, INC. AND RENALWEST

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PROFORMA
COMBINED
RCG RENALWEST COMPANIES
------ --------- ---------
<S> <C> <C> <C>
Net Revenue...................................................... $5,568 $16,274 $21,842
------ ------- -------
Operating Costs and Expenses:
Patient Care Costs............................................. 4,009 9,159 13,168
General and Administrative Expenses............................ 1,272 3,112 4,384
Provision for Doubtful Accounts................................ 109 1,640 1,749
Depreciation and Amortization.................................. 45 621 666
Merger Expenses................................................ -- -- --
------ ------- -------
Total Operating Costs and Expenses..................... 5,435 14,532 19,967
------ ------- -------
Income from Operations........................................... 133 1,742 1,875
------ ------- -------
Interest Income (Expense), net................................... (17) (204) (221)
------ ------- -------
Income before Income Taxes....................................... 116 1,538 1,654
====== ======= =======
</TABLE>

See Notes to Unaudited Pro Forma Condensed Financial Statements

F-9
<PAGE> 73

RENAL CARE GROUP, INC. AND RENALWEST

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PROFORMA
COMBINED
RCG RENALWEST COMPANIES
------- ---------- ----------
<S> <C> <C> <C>
Net Revenue................................................... $37,972 $ 17,386 $ 55,358
------- ------- -------
Operating Costs and Expenses:
Patient Care Costs.......................................... 27,698 10,763 38,461
General and Administrative Expenses......................... 3,036 2,785 5,821
Provision for Doubtful Accounts............................. 758 313 1,071
Depreciation and Amortization............................... 1,015 955 1,970
Merger Expenses............................................. 680 -- 680
------- ------- -------
Total Operating Costs and Expenses....................... 33,187 14,816 48,003
------- ------- -------
Income from Operations........................................ 4,785 2,570 7,355
------- ------- -------
Interest Income (Expense), net................................ 502 (262) 240
------- ------- -------
Income before Income Taxes.................................... 5,287 2,308 7,115
======= ======= =======
</TABLE>

See Notes to Unaudited Pro Forma Condensed Financial Statements

F-10
<PAGE> 74

RENAL CARE GROUP, INC. AND RENALWEST

NOTES TO UNAUDITED PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)

NOTE 1 -- BASIS OF PRESENTATION

For accounting purposes, the Merger will be accounted for as a pooling of
interests. Accordingly, the accompanying unaudited pro forma combined financial
statements give retroactive effect to the Merger and include the combined
operations of RCG and RenalWest for all periods presented.

In February 1996, RCG acquired simultaneously with the closing of the
Offering, five companies: Kidney Care, Inc. ("KCI"), and Medical Enterprises,
Ltd. ("MEL"), (KCI and MEL, collectively "Kidney Care"), D.M.N. Professional
Corporation ("DMN"), Tyler Nephrology Associates, P.A. ("TNA"), Kansas
Nephrology Association ("KNA"), and Renal Care Group, Inc., a Tennessee
Corporation ("RCG"). Effective April 26, 1996, the Company merged with MainLine
Suburban Dialysis Centers, Inc. The Company issued 528,000 shares in connection
with the Merger that was accounted for as a pooling-of-interests. The
accompanying statements of operations assume RCG had no operations prior to the
Offering in February 1996.

Certain reclassifications have been made to the audited financial
statements to conform to the Renal Care Group, Inc. presentation.

NOTE 2 -- PRO FORMA ADJUSTMENTS

The adjustment to the pro forma financial statements is as follows:

(a) To reflect the issuance of 2,400,000 shares in connection with the
Merger resulting in an increase in common stock and corresponding
reductions in additional paid-in capital.

NOTE 3 -- INCOME TAXES

Estimated provision for income taxes related to pro forma adjustments are
provided assuming a combined federal and state income tax rate of 38%.

NOTE 4 -- EARNINGS PER SHARE

Earnings per share for the period ended June 30, 1996 is based on the
weighted average number of shares outstanding during the period including the
dilutive effect of options and warrants. For all other periods presented,
weighted average shares outstanding represents the number of shares issued by
Renal Care Group, Inc. and the merger of RenalWest and Main Line Suburban
Dialysis Centers, Inc.

NOTE 5 -- MERGER EXPENSES

No provision has been reflected in the unaudited pro forma condensed
combined financial statements for expenses expected to be incurred by RCG and
RenalWest in connection with the Merger. These expenses, consisting primarily of
investment advisory and professional fees, and expenses for printing and
distributing proxy materials, will be charged to expense upon completion of the
Merger.

F-11
<PAGE> 75

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Renal Care Group, Inc.

We have audited the accompanying balance sheet of Renal Care Group, Inc.
(of Delaware) as of December 31, 1995 and the related statements of operations
and retained deficit and cash flows for the period from June 20, 1995 (date of
inception) through 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Renal Care Group, Inc. (of
Delaware) at December 31, 1995 and the results of its operations and cash flows
for the period from June 20, 1995 (date of inception) through December 31, 1995,
in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Nashville, Tennessee

May 17, 1996

F-12
<PAGE> 76

RENAL CARE GROUP, INC. (OF DELAWARE)

BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.............................................................................. $1,000
Related party receivable.......................................................... 100
------
Total current assets................................................................ 1,100
Other assets........................................................................ 280
------
Total assets.............................................................. $1,380
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible senior subordinated promissory notes.................................. $1,380
Interest payable.................................................................. 6
------
Total current liabilities................................................. 1,386
STOCKHOLDERS' EQUITY
Preferred stock. $.01 par value:
------
Authorized shares -- 10,000; issued and outstanding -- no shares.................. --
Common Stock, $.01 par value:
Authorized shares -- 22,000; issued and outstanding -- 1 share................. --
Additional paid-in capital on Common Stock..................................... --
Retained deficit.................................................................... (6)
------
Total stockholders' equity................................................ (6)
------
Total liabilities and stockholders' equity................................ $1,380
======
</TABLE>

See accompanying notes.

F-13
<PAGE> 77

RENAL CARE GROUP, INC. (OF DELAWARE)

STATEMENT OF OPERATIONS AND RETAINED DEFICIT
FOR THE PERIOD FROM JUNE 20, 1995 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<S> <C>
Interest expense...................................................................... $ 6
----
Net loss.............................................................................. $ 6
====
Retained deficit at June 20, 1995 (date of inception)................................. $ --
----
Retained deficit at December 31, 1995................................................. $ 6
====
</TABLE>

See accompanying notes.

F-14
<PAGE> 78

RENAL CARE GROUP, INC. (OF DELAWARE)

STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 20, 1995 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1995
(IN THOUSANDS)

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss.......................................................................... $ (6)
Interest payable.................................................................. 6
------
Net cash used in operating activities............................................... --
FINANCING ACTIVITIES
Proceeds from issuance of convertible senior subordinated promissory notes.......... 1,280
Changes in other assets............................................................. (280)
------
Net cash provided by financing activities........................................... 1,000
------
Net increase in cash................................................................ 1,000
Cash at June 20, 1995 (date of inception)........................................... --
------
Cash at December 31, 1995........................................................... $1,000
======
SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS
Due from related party for issuance of convertible senior subordinated promissory
notes............................................................................. $ 100
======
</TABLE>

See accompanying notes.

F-15
<PAGE> 79

RENAL CARE GROUP, INC. (OF DELAWARE)

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

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 6, 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"), Northeast Indiana
Kidney Center ("NEI"), 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.

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.

2. OTHER ASSETS

Other assets is comprised 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.

3. CONVERTIBLE SENIOR SUBORDINATED PROMISSORY NOTES

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.

4. STOCK OPTIONS

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); Renal
Care Group, Inc. 1996 Stock Option 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). 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.

5. INCOME TAXES

The Company 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

F-16
<PAGE> 80

RENAL CARE GROUP, INC. (OF DELAWARE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

and liabilities and are measured using the enacted tax and laws that will be in
effect when the differences are expected to reverse.

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

<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards............................................ $ 3
Valuation allowance......................................................... (2)
----
Net deferred tax assets....................................................... $ --
====
</TABLE>

6. SUBSEQUENT EVENTS

Recapitalization and Initial Public Offering (unaudited)

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 4,831 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 and their owners.

Acquisition

In April 1996, the Company acquired Main Line Suburban Dialysis Centers,
Inc. ("Main Line") in a merger to be accounted for as pooling-of-interests
through the exchange 528,000 shares of the Company's common stock. These
financial statements reflect the historical financial statements of the Company
and not the restated consolidated financial statements of the Combined entity.
Reference is made to the separate financial statements of Main Line and other
pro forma information included herein.

F-17
<PAGE> 81

The following financial statements represent the unaudited interim
financial statements of Renal Care Group, Inc. (of Delaware) as of June 30, 1996
and for the six month period then ended.

RENAL CARE GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $31,292
Accounts receivable, net....................................................... 18,644
Inventories.................................................................... 1,643
Prepaid expenses............................................................... 252
Other.......................................................................... 249
-------
Total current assets................................................... 52,080
-------
Property, plant and equipment, net............................................... 13,943
Intangible assets, net........................................................... 3,159
Other assets..................................................................... 1,124
-------
Total assets........................................................... $70,306
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 5,739
Accrued expenses............................................................... 7,611
Senior subordinated convertible notes.......................................... 1,380
Income tax liability........................................................... 1,980
-------
Total current liabilities.............................................. 16,710
-------
Long term debt................................................................... --
Deferred income taxes............................................................ 971
-------
Total liabilities...................................................... 17,681
-------
Stockholders' equity:
Common stock, $.01 par value, 22,000 shares authorized, 9,847 shares issued and
outstanding................................................................. 98
Additional paid-in capital..................................................... 49,226
Retained earnings.............................................................. 3,301
-------
Total stockholders' equity............................................. 52,625
-------
Total liabilities and stockholders' equity............................. $70,306
=======
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-18
<PAGE> 82

RENAL CARE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Net revenue.................................................... $ -- $ 37,972
Operating costs and expenses:
Patient care costs........................................... -- 27,698
General and administrative expenses.......................... -- 3,036
Provision for doubtful accounts.............................. -- 758
Depreciation and amortization................................ -- 1,015
Merger Expenses.............................................. -- 680
----------- -----------
Total operating costs and expenses........................ -- 33,187
----------- -----------
Income from operations......................................... -- 4,785
----------- -----------
Interest income, net........................................... -- 502
----------- -----------
Income before income taxes..................................... -- 5,287
----------- -----------
Provision for income taxes..................................... -- 1,980
----------- -----------
Net Income..................................................... $ -- $ 3,307
=========== ===========
Earnings Per Share............................................. $ -- $ 0.31
=========== ===========
Weighted Average Shares Outstanding............................ -- 10,740,000
=========== ===========
</TABLE>

See accompanying notes to Consolidated Financial Statements

F-19
<PAGE> 83

RENAL CARE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................... $ -- $ 3,307
Adjustments to reconcile net income to net cash provided by
operating activities (net of effect of combination):
Depreciation and Amortization............................. -- 1,015
Provision for Doubtful Accounts........................... -- 758
Equity in Earnings of Subsidiary.......................... -- (129)
Changes in operating assets and liabilities, net of effects of
companies acquired:
Accounts receivable, net..................................... -- (4,080)
Inventories.................................................. -- 202
Prepaid Expenses............................................. -- 299
Other Current Assets......................................... -- 489
Other Assets................................................. -- 1,860
Income Tax Liability......................................... -- 1,980
Accounts Payable............................................. -- 4
Accrued Expenses............................................. -- 1,544
------- --------
Net cash provided by operating activities.................... -- 7,249
------- --------
Cash flows from investing activities:
Cash distributions paid to Founders.......................... -- (39,699)
Additions to property and equipment, net..................... -- (3,817)
Cash Acquired through business combination................... -- 395
Cash distribution paid to acquired entity.................... -- (550)
Founders cash contribution................................... -- 3,893
------- --------
Net cash used in investing activities........................ -- (39,778)
------- --------
Cash flows from financing activities:
Cash paid in connection with organization of the Company and
the initial public offering............................... -- (3,237)
Proceeds from initial public offering, net of underwriting
discounts and commissions................................. -- 75,079
Retirement of long-term borrowings........................... -- (9,021)
------- --------
Net cash provided by financing activities.................... -- 62,821
------- --------
Net increase in cash and cash equivalents...................... $ -- $ 30,292
------- --------
Cash and cash equivalents, beginning of period................. $ -- $ 1,000
------- --------
Cash and cash equivalents, end of period....................... $ -- $ 31,292
------- --------
Supplemental disclosure:
Interest paid................................................ $ -- $ 218
------- --------
Schedule of non-cash investing and financing transactions:
Common stock issued to Founders and acquired entity.......... $ -- $ 17,731
------- --------
Non-cash conversion of redeemable preferred stock to common
stock........................................................ $ -- $ 2,451
======= ========
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-20
<PAGE> 84

RENAL CARE GROUP, INC.

STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED SHAREHOLDERS
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995....................... $ $ $ (6) $ (6)
===== === ======== ====== ========
Issuance of common stock in public offering, net
of underwriting discounts and commissions...... 4,485 45 75,034 75,079
Initial public offering costs.................... (3,237) (3,237)
Cash distributions paid to Founding Companies.... (39,699) (39,699)
Cash distributions to acquired entity............ (550) (550)
Issuance of stock portion of consideration to
Founding Groups................................ 4,834 48 16,100 16,148
Equity acquired in connection with business
combination.................................... 528 5 1,578 1,583
Net Income....................................... 3,307 3,307
----- --- -------- ------ --------
Balance, June 30, 1996........................... 9,847 $ 98 $ 49,226 $3,301 $ 52,625
===== === ======== ====== ========
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-21
<PAGE> 85

RENAL CARE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)

NOTE 1 -- BASIS OF PRESENTATION

Overview

In February 1996, Renal Care Group, Inc., a Delaware Corporation ( the
"Company") acquired simultaneously with the closing of its initial public
offering (the "Offering"), five companies: Kidney Care, Inc. ("KCI"), and
Medical Enterprises, Ltd. ("MEL") (KCI and MEL collectively "Kidney Care"),
D.M.N. Professional Corporation ("DMN"), Tyler Nephrology Associates, P.A.
("TNA"), Kansas Nephrology Associates ("KNA"), and Renal Care Group, Inc. a
Tennessee Corporation ("RCG"). These five businesses are referred to herein as
the "Founding Companies" and the transaction described above is referred to
herein as the "Combination". The Company is a specialized provider of nephrology
services.

Interim Financial Statements

In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statement of such operations. All such adjustments are of a normal
recurring nature. Operating results for interim periods are not necessarily
indicative of results which may be expected for the year as a whole.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements of Renal Care Group, Inc. include the
accounts of the Company and its subsidiaries. All intercompany transactions have
been eliminated in consolidation.

Net income per share has been computed based on the weighted average shares
outstanding of 10,740,000, which consists of 4,834,000 shares issued to owners
of the Founding Companies; 4,485,000 shares issued in connection with the
Company's initial public offering and 528,000 shares issued in the acquisition
of MainLine Suburban Dialysis, and 893,000 shares related to outstanding options
and warrants.

NOTE 3 -- INITIAL PUBLIC OFFERING

In February 1996, the Company completed an initial public offering, which
involved a sale to the public of 4,485,000 shares of Common Stock at $18.00 per
share. The net proceeds to the Company from the Offering, net of underwriting
discounts and commissions, were approximately $75,079,000. Costs incurred in
connection with organization of the Company and the initial public offering were
$3,237,000. Of the net proceeds, $39,699,000 were used to pay the cash portion
of the consideration for the Combined Companies and $8,539,000 was used to repay
indebtedness assumed by the Company.

NOTE 4 -- ACQUISITIONS

On April 26, 1996, the Company completed a merger with MainLine Suburban
Dialysis Centers, Inc. ("MainLine") of Wynnewood, Pennsylvania which operates
five dialysis centers serving 350 patients in the suburban Philadelphia area.
The transaction is accounted for as a pooling of interests. In consideration for
the transaction, the Company issued 528,000 shares of its common stock. Pro
Forma operating results, for the five months ended June 30, 1996, are included
in the accompanying financial statements.

F-22
<PAGE> 86

RENAL CARE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On July 1, 1996, the Company completed a merger with The Nephrology Center,
Inc., of Pensacola, Florida which operates two dialysis centers, serving
approximately 250 patients in the Pensacola and Crestview, Florida areas. The
transaction will be accounted for as a pooling of interests. In consideration
for the transaction, the Company issued 298,775 shares of its common stock. Pro
Forma combined operating information exclusive of non-recurring merger costs had
the Founding Companies, MainLine and this acquisition been consummated at the
beginning of the first quarter of 1996 are as follows:

<TABLE>
<S> <C>
Revenues.................................................................... 48,905
Net income before taxes..................................................... 4,435
Earnings per share.......................................................... .40
Weighted average shares outstanding......................................... 10,986
</TABLE>

On August 7, 1996 the Company executed a definitive merger agreement with
RENALWEST, a Mesa, Arizona based provider of dialysis services. RENALWEST
currently operates 19 out-patient dialysis centers and three centers providing
home dialysis care to patients in the Metro Phoenix area and throughout rural
Arizona. RENALWEST currently serves approximately 1,200 patients. In
consideration for this transaction, the Company plans to issue 2,400,000 shares
of its common stock to the former owners of RENALWEST. While this transaction
has been approved by the Board of Directors of the Company, it is subject to the
satisfaction of several conditions, including the approval of the companies
shareholders and the owners of RENALWEST.

F-23
<PAGE> 87

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Main Line Suburban Dialysis Centers, Inc.

We have audited the accompanying balance sheet of Main Line Suburban
Dialysis Centers, Inc. as of December 31, 1994, and the related statements of
operations and retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of Main Line Suburban Dialysis
Centers, Inc.'s management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Main Line Suburban Dialysis
Centers, Inc. at December 31, 1994 and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

Philadelphia, Pennsylvania

April 14, 1995

F-24
<PAGE> 88

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

BALANCE SHEET
DECEMBER 31, 1994

<TABLE>
<S> <C>
ASSETS
Cash............................................................................ $ 65,011
Patient accounts receivable, less allowance for doubtful accounts of $359,000... 2,154,773
Supplies........................................................................ 290,884
Loans receivable and other current assets....................................... 92,789
-----------
Total current assets............................................................ 2,603,457
Leasehold improvements and equipment:
Leasehold improvements.......................................................... 384,399
Major movable equipment......................................................... 1,728,804
-----------
2,113,203
Less: Accumulated depreciation.................................................. (1,176,592)
-----------
936,611
-----------
Total assets.......................................................... $ 3,540,068
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current installments of long-term debt.......................................... $ 85,536
Accounts payable................................................................ 815,829
Accrued expenses................................................................ 253,923
Accrued vacation, holiday, sick pay............................................. 408,084
Due to third-party payers....................................................... 83,563
Due to Nephrology Associates, Inc............................................... 250,000
-----------
Total current liabilities............................................. 1,896,935
Long-term debt, net of current installments..................................... 214,709
Shareholders' equity:
Common stock ($1 par value, 1,000 shares authorized).......................... 250
Additional paid-in capital.................................................... 15,050
Retained earnings............................................................. 1,413,124
-----------
Total shareholders' equity............................................ 1,428,424
-----------
Total liabilities and shareholders' equity............................ $ 3,540,068
===========
</TABLE>

See accompanying notes.

F-25
<PAGE> 89

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1994

<TABLE>
<S> <C>
Revenue:
Net patient service revenue................................................... $10,799,608
Other revenue................................................................. 63,216
-----------
Total revenue................................................................... 10,862,824
Expenses:
Labor costs................................................................... 3,381,928
Supply costs.................................................................. 3,523,358
In-Center costs............................................................... 859,501
General and administrative.................................................... 3,586,583
Interest...................................................................... 33,506
Depreciation.................................................................. 168,831
Provision for bad debts....................................................... 150,000
-----------
Total expenses.................................................................. 11,703,707
-----------
Net loss........................................................................ (840,883)
Retained earnings at beginning of year.......................................... 2,254,007
-----------
Retained earnings at end of year................................................ $ 1,413,124
===========
</TABLE>

See accompanying notes.

F-26
<PAGE> 90

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss......................................................................... $(840,883)
Adjustments to reconcile net loss to cash flows provided by operating activities:
Depreciation................................................................... 168,831
Provision for bad debts........................................................ 150,000
Due to Nephrology Associates, Inc.............................................. 250,000
Accrued vacation, holiday, sick pay............................................ 21,249
Increase (decrease) from changes in:
Patient accounts receivable................................................. 1,301
Supplies.................................................................... (25,572)
Loans receivable and other current assets................................... 6,201
Accounts payable............................................................ 416,072
Accrued expenses............................................................ 35,419
Due to third-party payers................................................... 33,190
---------
Net cash provided by operating activities........................................ 215,808
INVESTING ACTIVITIES
Loans granted.................................................................... (75,000)
Purchases of major movable equipment............................................. (126,677)
Repayments of loans receivable................................................... 76,000
---------
Net cash used by investing activities............................................ (125,677)
FINANCING ACTIVITIES
Payments on long-term debt....................................................... (71,030)
---------
Net increase in cash............................................................. 19,101
Cash, beginning of year.......................................................... 45,910
---------
Cash, end of year................................................................ $ 65,011
=========
SUPPLEMENTAL DISCLOSURE:
Interest paid.................................................................... $ 33,506
</TABLE>

See accompanying notes.

F-27
<PAGE> 91

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994

1. SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

Main Line Suburban Dialysis Centers, Inc. ("the Company") is a group of
five dialysis centers located in the greater Philadelphia area. Prior to 1994,
these five dialysis centers functioned as individual entities all owned by the
same parties. These companies consisted of Bryn Mawr Dialysis Services, P.C. and
Valley Forge Dialysis Center, P.C. both organized as subchapter-S corporations
and Main Line Dialysis Services, Ltd., Haverford Dialysis Unit, Ltd., and
Dialysis Center of Montgomery, Ltd. which were organized as professional
corporations. Effective January 1, 1994, four of these individual centers were
combined into the remaining center, Haverford Dialysis Unit, Ltd. which was
renamed Main Line Suburban Dialysis Centers, Inc. and converted to subchapter-S
status. The shareholders and partners of the previous five entities dissolved
their respective interests in these individual entities in exchange for shares
of common stock of the Company. The assets and liabilities of the Company,
effective January 1, 1994 are the same as the combined assets and liabilities of
the individual entities.

Net Patient Service Revenue

Net patient service revenue is reported on the accrual basis in the period
in which services are provided at established rates, net of contractual
adjustments and other discounts. The majority of patient services are rendered
through Medicare under which reimbursement is based on specific rates for
services rendered.

Leasehold Improvements and Equipment

Leasehold improvements and equipment are recorded at cost. When an asset is
sold, retired or otherwise disposed of, the cost of the asset and related
accumulated depreciation is removed from the respective accounts, and any
resulting gains or losses are reflected as other revenue.

Depreciation is provided over the estimated useful lives of fixed assets on
the straight-line method.

Supplies

Supplies are carried at the lower of cost or market based on the first-in,
first-out method.

2. PENSION PLAN

The Company has a 401(k) plan covering substantially all employees.
Annually, the Company contributes to the plan three percent of the gross
compensation of each eligible participant. Participants in the plan may also
elect to contribute between five and fifteen percent of their gross annual
compensation. For those participants who elect to contribute, the Company will
fund up to an additional three percent of these participants' gross annual
compensation. During 1994, the Company contributed $246,000 to the 401(k) plan.

3. RELATED PARTY TRANSACTIONS

Physician services are provided to the Company by Nephrology Associates,
Inc. a physician group whose shareholders are also shareholders of Main Line
Suburban Dialysis Centers, Inc. This group provides management, training,
billing, and medical services for the Company under a management agreement which
is renewable annually. Nephrology Associates, Inc. maintains professional
malpractice liability insurance for each of its physicians. During 1994 the
Company paid Nephrology Associates, Inc. $2,332,000 for physician services and
executive management fees pursuant to a management agreement with Nephrology
Associates, Inc. The Company also paid Nephrology Associates, Inc. $221,250 for
administrative services during 1994.

F-28
<PAGE> 92

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company is dependent upon the relationship with Nephrology Associates,
Inc. to continue as a going concern. Substantially all of the dialysis
treatments performed by the Company are referred by the physicians of Nephrology
Associates, Inc.

The shareholders of the Company have also established an organization named
Main Line Medical Leasing from which the Company has borrowed amounts to
purchase equipment. At December 31, 1994 the Company had $211,681 due to Main
Line Medical Leasing which was included in long-term debt.

During 1994 the Company loaned Nephrology Associates, Inc. $75,000. There
are no terms or interest rates associated with this loan. This loan is included
in loans receivable and other assets in the December 31, 1994 balance sheet.

4. INSURANCE PROGRAMS

The Company purchases individual occurrence basis professional liability
insurance for all of the nurses and dialysis technicians with a commercial
carrier. The Company also maintains general liability insurance through a claims
made insurance policy. As of December 31, 1994, management is unaware of any
asserted or unasserted claims against the Company or its employees.

5. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<S> <C>
Equipment loans from Main Line Medical Leasing, secured by the purchased
equipment, monthly payments due through 2000, at interest rates from 11%
to 13.5%................................................................ $211,681
Loans from shareholders, secured by purchased equipment, monthly payments
due through 2001, at an interest rate of 11%............................ 38,628
Capital lease obligations, secured by leased equipment, monthly payments
due through 1995........................................................ 49,936
--------
Totals.................................................................... 300,245
Less current installments of long-term debt............................... 85,536
--------
Long-term debt, excluding current installments............................ $214,709
========
</TABLE>

At December 31, 1994, principal payments on long-term debt during the next
five years are as follows:

The Company had an unsecured line of credit available for $20,000 from a
local bank. This line will expire on June 30, 1995. At December 31, 1994 no
amounts were outstanding relative to this line of credit.

6. INCOME TAXES

The shareholders of the Company have elected subchapter S status of the
Internal Revenue Code. Accordingly, there has been no provision made for Federal
and state income taxes as the liability for such taxes, if any, is attributed to
the individual shareholders.

F-29
<PAGE> 93

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. SUBSEQUENT EVENTS

Subsequent to December 31, 1994, the Company borrowed an additional
$100,000 from its shareholders. The terms of this borrowing call for twelve
monthly principal payments with interest accruing at eleven percent per annum.

F-30
<PAGE> 94

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Main Line Suburban Dialysis Centers, Inc.
Wynnewood, Pennsylvania 19096

We have audited the accompanying balance sheet of Main Line Suburban
Dialysis Centers, Inc. as of December 31, 1995, and the related statements of
operations, changes in shareholders' equity, and cash flows for the year then
ended. 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Main line Suburban Dialysis
Centers, Inc. as of December 31, 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

DRESLIN AND COMPANY, INC.

West Chester, Pennsylvania

March 12, 1996

F-31
<PAGE> 95

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

BALANCE SHEET
DECEMBER 31, 1995

<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash.......................................................................... $ 750
Patient Accounts Receivable (Net of Allowance for Doubtful Accounts of
$814,231).................................................................. 2,058,252
Supplies...................................................................... 178,075
Loans Receivable and Other Current Assets..................................... 23,362
-----------
Total Current Assets.................................................. $ 2,260,439
-----------
Property and Equipment:
Leasehold improvements........................................................ $ 416,215
Equipment..................................................................... 1,829,591
-----------
Total Property and Equipment.................................................. $ 2,245,806
Less: Accumulated Depreciation................................................ (1,354,486)
-----------
Property and Equipment -- Net............................................ $ 891,320
-----------
Total Assets.......................................................... $ 3,151,759
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current Installments of Long-Term Debt........................................ $ 68,468
Bank Overdraft................................................................ 799
Accounts Payable.............................................................. 759,110
Accrued Salaries.............................................................. 70,395
Accrued Vacation and Sick Pay................................................. 167,723
Accrued and Withheld Payroll Taxes............................................ 11,239
Accrued and Withheld Retirement Contribution.................................. 50,752
Other Accrued Expenses........................................................ 41,264
Due to Third-Party Payers..................................................... 10,114
Unused Cash Advances -- Research Studies...................................... 56,911
Loan Receivable -- Nephrology Associates, Inc................................. 20,000
Due to Nephrology Associates, Inc. for Physician Services and Executive
Management Fees............................................................ 250,000
-----------
Total Current Liabilities............................................. $ 1,506,775
Long-Term Debt, Net of Current Installments..................................... 172,373
-----------
Total Liabilities..................................................... $ 1,679,148
-----------
Shareholders' Equity:
Common Stock (Stated Value $1.00 -- 1,000 Shares Authorized; 272 1/4 Shares
Issued and Outstanding).................................................... $ 276
Additional Paid-in Capital.................................................... 90,829
Retained Earnings............................................................. 1,387,984
-----------
$ 1,479,089
Less: Treasury Stock at Cost -- 4 1/2 Shares.................................. (6,478)
-----------
Total Shareholders' Equity............................................ $ 1,472,611
-----------
Total Liabilities and Shareholders' Equity............................ $ 3,151,759
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-32
<PAGE> 96

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C>
Revenue:
Outpatient Fee Revenue........................................................ $ 6,648,143
Inpatient Fee Revenue......................................................... 1,220,461
Other Patient Fee Revenue..................................................... 27,017
Pharmacy Revenue -- EPO....................................................... 2,314,449
Pharmacy Revenue -- Other..................................................... 749,795
Other Revenue................................................................. 39,335
-----------
Total Revenue......................................................... $10,999,200
-----------
Cost of Operations:
Medical Supply Costs.......................................................... $ 1,268,693
Direct Labor Costs............................................................ 3,841,783
Pharmacy Costs -- EPO......................................................... 1,955,283
Pharmacy Costs -- Other....................................................... 548,821
Equipment Maintenance Costs................................................... 102,776
Medical Director Fees......................................................... 207,500
-----------
Total Cost of Operations.............................................. $ 7,924,856
-----------
Gross Profit.......................................................... $ 3,074,344
-----------
General and Administrative Expenses:
Bank Service Charges.......................................................... $ 30
Patient Transport Expenses.................................................... 15,140
Advertising................................................................... 4,068
Service Contracts............................................................. 8,347
Contributions................................................................. 340
Entertainment Costs........................................................... 27,109
Flowers and Gifts............................................................. 3,927
Office Insurance.............................................................. 9,448
Finance Charges............................................................... 8,268
Cleaning & Janitorial......................................................... 24,468
Legal, Accounting & Other..................................................... 277,162
Miscellaneous Costs........................................................... 12,162
Patient Insurance Costs....................................................... 36,838
Postage and Courier Costs..................................................... 7,478
Office Supply Costs........................................................... 22,682
Repairs & Maintenance Costs................................................... 4,746
Computer Costs................................................................ 4,421
Billing Support Services...................................................... 40,807
Rent Expenses................................................................. 347,647
Business Tax Expenses......................................................... 36,224
Storage Expenses.............................................................. 2,324
Subscription Costs............................................................ 3,475
Telephone & Utility Costs..................................................... 75,572
Retirement Plan Contribution.................................................. 103,241
Retirement Plan Admin. Expense................................................ 15,298
Indirect Labor Costs.......................................................... 672,189
Salary Exp. -- Sleep Study.................................................... 22,504
Interest Expense.............................................................. 37,192
Depreciation Expense.......................................................... 179,777
Provision for Bad Debts....................................................... 285,506
-----------
Total General and Administrative Expenses............................. 2,290,390
-----------
Income before Executive Management Fees......................................... $ 783,954
Executive Management Fees....................................................... 809,094
-----------
Net (Loss)............................................................ $ (25,140)
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-33
<PAGE> 97

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994, as Previously
Reported.................................. $250 $ 15,050 $1,413,124 $ 0 $1,428,424
Adjustment to Reflect the Cost of 4 1/4
Shares of Common Stock Redeemed in 1994,
and to Reflect Amounts Due for Stock
Subscriptions as of December 31, 1994..... 0 38,254 0 (6,478) 31,776
---- ------- ---------- ------- ----------
Balance at December 31, 1994, as Restated... $250 $ 53,304 $1,413,124 $ (6,478) $1,460,200
26 1/4 Shares Issued in 1995................ 26 37,525 37,551
Net (Loss) for the Year..................... (25,140) (25,140)
---- ------- ---------- ------- ----------
Balance at December 31, 1995................ $276 $ 90,829 $1,387,984 $ (6,478) $1,472,611
==== ======= ========== ======= ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-34
<PAGE> 98

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net (Loss)..................................................................... $ (25,140)
Adjustments to Reconcile Net (Loss) to Net Cash (used) by Operating Activities:
Depreciation................................................................ 179,777
(Increase) Decrease in:
Patient Accounts Receivable............................................... 96,521
Supplies.................................................................. 112,809
Loans Receivable and Other Current Assets................................. (5,573)
Increase (Decrease) in:
Bank Overdraft............................................................ 799
Accounts Payable.......................................................... (46,257)
Accrued Expenses.......................................................... (298,344)
Due to Third-Party Payers................................................. (73,449)
Due to Nephrology Associates, Inc......................................... 20,000
----------
Net Cash (Used) by Operating Activities................................ $ (38,857)
----------
Cash Flows from Investing Activities:
Purchases of Property and Equipment............................................ $(134,486)
Repayment of Loan Receivable -- Nephrology Associates, Inc..................... 75,000
----------
Net Cash (Used) by Financing Activities................................ $ (59,486)
----------
Cash Flows from Financing Activities:
Unused Cash Advances -- Research Studies....................................... $ 24,158
Reduction of Long-Term Debt.................................................... (59,404)
Issuance of Common Stock....................................................... 71,594
Redemption of Common Stock..................................................... (2,266)
----------
Net Cash Provided by Financing Activities.............................. $ 34,082
----------
Net (Decrease) in Cash................................................. $ (64,261)
Cash -- Beginning of Year........................................................ 65,011
----------
Cash -- End or Year.............................................................. $ 750
==========
Supplemental Disclosure:
Interest Paid.................................................................. $ 37,192
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-35
<PAGE> 99

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. SIGNIFICANT ACCOUNTING POLICIES:

Organization and Basis of Presentation:

Main Line Suburban Dialysis Centers, Inc., ("the Company") is a group of
five dialysis centers located in the greater Philadelphia area. Prior to 1994,
these five dialysis centers functioned as individual entities all owned by the
same parties. These companies consisted of Bryn Mawr Dialysis Services, P.C. and
Valley Forge Dialysis Center, P.C. both organized as subchapter-S corporations
and Main Line Dialysis Services, Ltd., Haverford Dialysis Unit, Ltd., and
Dialysis Center of Montgomery, Ltd. which were organized as professional
corporations. Effective January 1, 1994, four of these individual centers were
combined into the remaining center, Haverford Dialysis Unit, Ltd. which was
renamed Main Line Suburban Dialysis Centers, Inc. and converted to subchapter-S
status. The shareholders and partners of the previous five entities dissolved
their respective interests in these individual entities in exchange for shares
of common stock of the Company. The assets and liabilities of the Company,
effective January 1, 1994 are the same as the combined assets and liabilities of
the individual entities.

Net Patient Service Revenue:

Leasehold Improvements and Equipment:

Depreciation is provided over the estimated useful lives of fixed assets on
the straight-line method.

Supplies:

Supplies are carried at the lower of cost or market based on the first-in,
first-out method.

Use of Estimates:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2. PENSION PLAN:

The Company has a 401(k) plan covering substantially all employees.
Annually, the Company contributes to the plan three percent of the gross
compensation of each eligible participant. Participants in the plan may also
elect to contribute between five and fifteen percent of their gross annual
compensation. For those participants who elect to contribute, the Company will
fund up to an additional three percent of these participants' gross annual
compensation. The Company's contribution totals $103,241 for 1995.

F-36
<PAGE> 100

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. RELATED PARTY TRANSACTIONS:

Physician services are provided to the Company by Nephrology Associates,
Inc. a physician group whose shareholders are also shareholders in Main Line
Suburban Dialysis Centers, Inc. This group provides management, training,
billing, and medical services for the Company under a management agreement which
is renewable annually. Nephrology Associates, Inc. maintains professional
malpractice liability insurance for each of its physicians. During 1995 the
Company incurred $786,594 for physician services and executive management fees
pursuant to a management agreement with Nephrology Associates, Inc. The Company
also incurred $242,844 for administrative services during 1995.

The shareholders of the Company have also established an organization named
Main Line Medical Leasing from which the Company has borrowed amounts to
purchase equipment. At December 31, 1995 the Company had $177,358 due to Main
Line Medical Leasing which was included in long term debt.

During 1995, Nephrology Associates, Inc. loaned the Company $20,000. There
are no terms or interest rates associated with this loan.

4. INSURANCE PROGRAMS:

The Company purchases individual occurrence basis professional liability
insurance for all of the nurses and dialysis technicians with a commercial
carrier. The Company also maintains general liability insurance through a claims
made insurance policy. As of December 31, 1995, management is unaware of any
asserted or unasserted claims against the Company or its employees.

5. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<S> <C>
Equipment loans from Main Line Medical Leasing, secured by the
purchased equipment, monthly payments due through 2000, at
interest rates from 11% to 13.5%................................ $177,358
Loans from shareholders, secured by purchased equipment, monthly
payments due through 2001, at an interest rate of 11%........... 34,543
Capital lease obligations, secured by leased equipment, payment
currently due................................................... 28,940
--------
Totals.................................................. $240,841
Less: Current Installments of Long-Term Debt...................... 68,468
--------
Long-Term Debt, Excluding Current Installments.......... $172,373
========
</TABLE>

F-37
<PAGE> 101

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1995, principal payments on long-term debt in future years
is as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------------------------------------ --------
<S> <C>
1996.............................................................. $ 68,468
1997.............................................................. 45,879
1998.............................................................. 51,930
1999.............................................................. 55,413
2000.............................................................. 13,322
2001 and Thereafter............................................... 5,829
--------
Total................................................... $240,841
========
</TABLE>

The Company has an unsecured line of credit available for $20,000 from a
local bank. At December 31, 1995 no amounts were outstanding relative to this
line of credit.

6. INCOME TAXES:

7. LEASES:

The Company rents office space from Lankenau Hospital on a year to year
basis, for which the current monthly rental is $11,575. The Company rents space
at Bryn Mawr Hospital on a monthly basis, for which the current monthly rental
is $6,673. During 1995, the company entered into a seven-year lease with
Montgomery Hospital for the rent of medical office space for the period November
1, 1995 to October 31, 2002, for which the currently scheduled monthly payment
is $4,386.

The Company occupies space in the Phoenixville Medical Building located at
Phoenixville Hospital, and is currently paying rent pursuant to a lease
agreement an affiliate has with the landlord of Phoenixville Medical Building.
It is management's intention that the payment of rent on behalf of the affiliate
is being made pursuant to a sublease agreement between the Company and the
affiliate. It is also management's intention that the terms of the sublease
include provisions that would obligate the Company to make required rent
payments over a period of years to the affiliate, in the same way and under the
same terms as the affiliate is obligated to the landlord of Phoenixville Medical
Building. However, such a sublease would not eliminate the obligations the
affiliate has under the terms of its lease with the landlord of Phoenixville
Medical Building. The sublease agreement between the Company and its affiliate
is currently an oral agreement. The current monthly rent is $4,292.

Total payments made under these leases totaled $325,747 in 1995. Future
minimum rental payments under these leases are as follows:

<TABLE>
<CAPTION>
PHOENIXVILLE MONTGOMERY
YEAR TOTAL MEDICAL BUILDING HOSPITAL
- - ---------------------------------------------------------- -------- ---------------- ----------
<S> <C> <C> <C>
1996...................................................... $107,654 $ 54,760 $ 52,894
1997...................................................... 109,442 55,056 54,386
1998...................................................... 110,534 55,056 55,478
1999...................................................... 97,870 41,292 56,578
2000...................................................... 57,622 -0- 57,622
2001 and Thereafter....................................... 107,078 -0- 107,078
-------- -------- --------
Total........................................... $590,200 $206,164 $384,036
======== ======== ========
</TABLE>

F-38
<PAGE> 102

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The monthly rent payment for the Phoenixville Medical Building generally
increases each year, and is scheduled to increase to $4,588 effective February
1, 1996. The schedule of minimum rental payments above reflects the intentions
of management regarding the oral sublease agreement, and does not reflect future
annual increases above the $4,588 monthly rent.

The Company also reimburses Nephrology Associates, Inc., an affiliated
corporation, for office space shared at Lankenau Hospital. The Company paid
Nephrology Associates, Inc. $21,899 in 1995.

8. CONCENTRATIONS OF CREDIT RISK:

The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. At December 31, 1995, the Company's
uninsured cash balances totaled $549,021.

9. SIGNIFICANT ESTIMATES:

Accounts Receivable:

Patient accounts receivable totals $2,872,484 at December 31, 1995, of
which $830,981 has aged 120 or more days. Management estimates that at most
approximately 98% of these accounts will be uncollectible. The allowance for
doubtful accounts of $814,231 as of December 31, 1995 represents approximately
98% of the accounts aged 120 or more days.

The Company's policy is to record patient service revenue net of
contractual adjustments and other discounts. Management estimates that the
contractual adjustments recorded for accounts aged less than 120 days has in
effect stated these accounts at their net realizable value; and therefore,
management believes that an additional allowance for doubtful accounts is not
warranted.

It is at least reasonably possible that a change in the estimate of the
probability of collecting patient accounts receivable existing as of December
31, 1995 will occur in the near term. However, in the opinion of management,
this estimate at December 31, 1995 is reasonable.

Accrued Vacation and Sick Pay:

The Company has adopted a policy whereby all full-time and "part-time with
benefits" employees with one or more years of service are eligible for paid
absences. These absences are categorized as either "basic leave" or "extended
illness leave".

Basic leave includes scheduled vacation days and short-term illnesses.
Extended illness leave includes absences caused by illness that for full-time
employees begins on the fourth consecutive work day of illness, and for eligible
part-time employees begins on the sixth consecutive calendar day of any illness.
Basic leave, within certain limits, may be carried over from one year to the
next. In addition, employees may, within certain limits, opt to receive wages
for basic leave days earned, and may be paid for unused basic leave days upon
termination of employment. Unused extended illness leave is not paid upon
termination.

The estimated maximum vacation and sick pay related to the basic leave is
$128,355 as of December 31, 1995. Since employees may from time to time opt to
receive wages for basic leave days earned, and employees may carry over unused
basic leave days earned, management has accrued 100% of the value of the basic
leave days earned.

The estimated maximum sick pay related to the extended illness leave is
$393,684 as of December 31, 1995. Management has assessed the probability of
incurring the maximum cost at 10%. Accordingly, management has accrued $39,368,
or 10% of the value of the estimated maximum extended illness leave.

F-39
<PAGE> 103

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Accrued Vacation and Sick Pay has been estimated at $167,723, as follows:

<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Basic Leave....................................................... $128,355
Extended Illness Leave............................................ 39,368
--------
Total................................................... $167,723
========
</TABLE>

It is at least reasonably possible that a change in the estimate of the
maximum vacation and sick pay, or the probability of incurring the maximum cost,
will occur in the near term. However, in the opinion of management, these
estimates at December 31, 1995 are reasonable.

Restatement of Shareholders' Equity:

As of December 31, 1994, the Company had stock subscriptions outstanding
totaling $38,254; and effective December 31, 1994, the Company had purchased
4 1/2 shares of stock from its shareholders at a total cost of $6,478. Neither
transaction was reflected in the financial statements for the year ended
December 31, 1994. As a result, total shareholders' equity was understated by
$31,776. Accordingly, the statement of changes in shareholders' equity for the
year ended December 31, 1995 includes an adjustment to restate the balance of
shareholders' equity as of December 31, 1994.

F-40
<PAGE> 104

The following financial statements represent the unaudited interim
financial statements of Main Line Suburban Dialysis Centers, Inc. as of June 30,
1995 and for the six months then ended.

MAIN LINE SUBURBAN DIALYSIS CENTERS

BALANCE SHEET
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30, 1995
--------------
(UNAUDITED)
<S> <C>
ASSETS
Current Assets
Cash............................................................................ 68
Accounts Receivable (net of allowances for doubtful accounts of $716,303)....... 2,062
Inventory....................................................................... 213
Prepaid and Other Assets........................................................ 133
-----
Total Current Assets............................................................ 2,475
Property and equipment, net..................................................... 979
-----
Total Assets.......................................................... 3,455
=====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable................................................................ 652
Accrued wages and benefits...................................................... 501
Other Accrued Liabilities....................................................... 131
Due to related parties.......................................................... 518
Current portion of capital leases............................................... 52
-----
Total Current Liabilities............................................. 1,854
Loans Payable -- Banks.......................................................... --
Shareholders' Equity
Common Stock.................................................................... --
Paid in Capital................................................................. 74
Treasury Stock.................................................................. (2)
Retained Earnings............................................................... 1,529
-----
Total Shareholders' Equity............................................ 1,601
-----
Total Liabilities & Shareholders' Equity.............................. 3,455
=====
</TABLE>

F-41
<PAGE> 105

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30, 1995
-------------
(UNAUDITED)
<S> <C>
Net Revenue..................................................................... $ 5,568
Operating Costs and Expenses:
Patient Care Costs............................................................ 4,009
General and Administrative Expenses........................................... 1,272
Provision for Doubtful Accounts............................................... 109
Depreciation and Amortization................................................. 45
-----
Total Operating Costs and Expenses.................................... 5,435
-----
Income from Operations.......................................................... 133
Interest Expense, net........................................................... 17
-----
Net Income before Income Taxes.................................................. 116
=====
Retained Earnings, at the beginning of year..................................... 1,413
-----
Retained Earnings, at the end of year........................................... $ 1,529
=====
</TABLE>

F-42
<PAGE> 106

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

STATEMENT OF CASH FLOWS
FOR PERIODS AS INDICATED

<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
1995
------------------
(UNAUDITED)
<S> <C>
Operating Activities:
Net Income.................................................................. $ 116
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 45
Changes in assets and liabilities:
Accounts receivable.................................................... 93
Prepaid expenses....................................................... (40)
Inventories............................................................ 78
Accounts payable....................................................... (164)
Accrued wages and benefits............................................. 93
Accrued expenses....................................................... (206)
Other liabilities...................................................... 19
-------
Net cash provided by operating activities......................... 34
Investing activities:
Purchases of property and equipment......................................... (88)
-------
Net cash used in investing activities............................. (88)
Financing activities:
Additions to Paid in Capital................................................ 59
Redemption of common stock.................................................. (2)
-------
Net cash provided by financing activities......................... 57
Net increase in cash and cash equivalents................................... 3
Cash and cash equivalents, at beginning of period........................... 65
-------
Cash and cash equivalents, at end of period................................. $ 68
==============
Supplemental disclosures of cash flow information:
Interest paid............................................................. $ 20
==============
</TABLE>

F-43
<PAGE> 107

MAIN LINE SUBURBAN DIALYSIS CENTERS, INC.

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995

1. SIGNIFICANT ACCOUNTING POLICIES:

Organization and Basis of Presentation:

2. UNAUDITED INTERIM FINANCIAL INFORMATION

The balance sheet as of June 30, 1995 and related statements of operations
and cash flows for the period ended June 30, 1995 have been prepared by
management and are unaudited. The interim financial statements include all
adjustments, consisting of only normal recurring adjustments necessary for a
fair presentation of the interim results.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial statements. The
interim financial statements should be read in conjunction with the December 31,
1994 audited financial statements. The results of the six months ended June 30,
1995 may not be indicative of operating results for the full respective year.

F-44
<PAGE> 108

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
RENALWEST L.C.

We have audited the accompanying combined balance sheets of RENALWEST L.C.,
et al. (see Note 1) as of December 31, 1995 and 1994, and the related combined
income statements, statements of changes in owners' equity, and cash flows for
the years then ended. 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 combined financial position of RENALWEST L.C., et
al. at December 31, 1995 and 1994, and the combined results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.

ERNST & YOUNG LLP

Phoenix, Arizona

March 28, 1996, except for Note 12,
as to which the date is June 20, 1996

F-45
<PAGE> 109

RENALWEST L.C., ET AL.

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 232,995 $ 339,846
Accounts receivable, net.......................................... 7,182,713 6,146,303
Inventory......................................................... 475,975 549,563
Prepaid expenses.................................................. 207,693 274,159
Related party receivable.......................................... 185,568 95,796
Other accounts receivable......................................... 90,842 352,729
----------- -----------
Total current assets...................................... 8,375,786 7,758,396
Property, plant and equipment, net.................................. 5,254,718 8,333,759
Intangible assets, net.............................................. 64,193 52,853
Other assets........................................................ 81,513 89,124
----------- -----------
Total assets.............................................. $13,776,210 $16,234,132
=========== ===========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 573,351 $ 1,414,771
Accrued wages and benefits........................................ 973,928 1,119,739
Due to third parties.............................................. 2,328,351 4,254,803
Accrued expenses.................................................. 290,947 625,263
Line of credit.................................................... 44,000 785,000
Current portion of long term debt................................. 1,701,107 1,444,265
----------- -----------
Total current liabilities................................. 5,911,684 9,643,841
Long-term debt, net of current portion.............................. 3,373,838 3,491,365
----------- -----------
Total liabilities......................................... 9,285,522 13,135,206
Owners' equity:
Contributed capital............................................... 4,501,868 5,197,701
Accumulated deficit............................................... (11,180) (2,098,775)
----------- -----------
Total owners' equity...................................... 4,490,688 3,098,926
----------- -----------
Total liabilities and owners' equity...................... $13,776,210 $16,234,132
=========== ===========
</TABLE>

See accompanying notes.

F-46
<PAGE> 110

RENALWEST L.C., ET AL.

COMBINED INCOME STATEMENTS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net revenue....................................................... $30,693,743 $32,036,991
Operating costs and expenses:
Patient care costs.............................................. 17,605,499 18,983,772
General and administrative expenses............................. 4,766,703 6,103,967
Provision for doubtful accounts................................. 1,198,438 2,134,445
Depreciation and amortization................................... 1,315,430 1,399,719
----------- -----------
Total operating costs and expenses...................... 24,886,070 28,621,903
Income from operations............................................ 5,807,673 3,415,088
Interest expense, net............................................. 329,333 409,008
----------- -----------
Net income........................................................ $ 5,478,340 $ 3,006,080
=========== ===========
</TABLE>

See accompanying notes.

F-47
<PAGE> 111

RENALWEST L.C., ET AL.

COMBINED STATEMENT OF CHANGES IN OWNERS' EQUITY

<TABLE>
<CAPTION>
ACCUMULATED CONTRIBUTED
DEFICIT CAPITAL TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1, 1994............................... $(1,458,061) $ 4,089,368 $ 2,631,307
Capital contribution..................................... -- 412,500 412,500
Net income............................................... 5,478,340 -- 5,478,340
Distributions to owners.................................. (4,031,459) -- (4,031,459)
----------- ---------- -----------
Balance at December 31, 1994............................. (11,180) 4,501,868 4,490,688
Capital contribution..................................... -- 695,833 695,833
Net income............................................... 3,006,080 -- 3,006,080
Distributions to owners.................................. (5,093,675) -- (5,093,675)
----------- ---------- -----------
Balance at December 31, 1995............................. $(2,098,775) $ 5,197,701 $ 3,098,926
=========== ========== ===========
</TABLE>

See accompanying notes.

F-48
<PAGE> 112

RENALWEST L.C., ET AL.

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................................ $ 5,478,340 $ 3,006,080
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 1,315,430 1,399,719
Provision for doubtful accounts................................ 1,198,438 2,134,445
Loss on sale of property and equipment......................... -- 19,893
Changes in current assets and current liabilities exclusive of
cash and cash equivalents and current portion of noncurrent
liabilities:
Accounts receivable.......................................... (4,633,361) (1,098,035)
Inventory.................................................... (47,012) (73,588)
Prepaid expenses............................................. 29,923 (66,466)
Related party receivables.................................... (74,687) 89,772
Other accounts receivable.................................... 149,589 (261,887)
Accounts payable............................................. 78,028 841,420
Accrued wages and benefits................................... 213,430 145,811
Due to third parties......................................... 1,118,914 1,926,452
Accrued expenses............................................. (34,170) 334,316
----------- -----------
Net cash provided by operating activities........................... 4,792,862 8,397,932
INVESTING ACTIVITIES
Sale of property and equipment...................................... -- 169,646
Purchases of property and equipment................................. (2,300,968) (4,650,183)
Increase in intangible assets....................................... (29,985) (6,776)
Decrease (increase) in other assets................................. 44,197 (7,611)
----------- -----------
Net cash used in investing activities............................... (2,286,756) (4,494,924)
FINANCING ACTIVITIES
Payments on line of credit.......................................... (9,642,000) (8,414,000)
Proceeds from line of credit........................................ 9,603,000 9,155,000
Payments on long-term debt and capital leases....................... (1,759,316) (1,703,715)
Proceeds from long-term debt and capital leases..................... 1,960,389 1,564,400
Capital contribution................................................ 412,500 695,833
Distributions to owners............................................. (4,031,459) (5,093,675)
----------- -----------
Net cash used in financing activities............................... (3,456,886) (3,796,157)
----------- -----------
(Decrease) increase in cash and cash equivalents.................... (950,780) 106,851
Cash and cash equivalents at beginning of year...................... 1,183,775 232,995
----------- -----------
Cash and cash equivalents at end of year............................ $ 232,995 $ 339,846
=========== ===========
</TABLE>

See accompanying notes.

F-49
<PAGE> 113

RENALWEST L.C., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. ORGANIZATION AND BASIS OF PRESENTATION

RENALWEST L.C., et al. (the "Company") consists of RENALWEST L.C.
("RENALWEST") its owner members, including 9-CO., Inc., and 3-CO., Inc., and its
wholly owned subsidiary RENALWEST Health Supply L.C. 9-CO., Inc. and 3-CO., Inc.
are both organized as S Corporations.

RENALWEST, a limited liability company, was formed on September 1, 1993
from the combination of assets and liabilities of 13 commonly-owned S
corporations. RENALWEST provides dialysis services for patients with End Stage
Renal Disease (ESRD) in an outpatient setting, in a patient's residence or in a
hospital. At December 31, 1995, RENALWEST operated 17 outpatient hemodialysis
facilities, three peritoneal dialysis training centers, and a staff-assisted
hemodialysis program, and had contracts for inpatient dialysis at 17 hospitals.

The owner members of RENALWEST are not liable for any debts, liabilities or
other obligations of RENALWEST except as agreed upon by all owner members. As
currently structured, RENALWEST must dissolve by December 31, 2050.

Approximately 60 and 70 percent of the Company's accounts receivable at
December 31, 1994 and 1995, respectively, are from Medicare and the Arizona
Healthcare Cost Containment System (AHCCCS). Accordingly, revenues and cash
flows are dependent upon the rates set by, and the promptness of payment from,
Federal and State administered programs, and in management's opinion do not
create a significant credit risk to the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Combination

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

Cash Equivalents

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

Inventory

Inventory consists of drugs, supplies and parts consumed in dialysis
treatments and is stated at the lower of cost (using the average method) or
market.

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.

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

F-50
<PAGE> 114

RENALWEST L.C., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

estimates. During 1995, the Company changed its assumptions in estimating the
accounts receivable allowance for doubtful accounts, resulting in a $1,682,000
increase in the provision for doubtful accounts.

Net Revenue

Net revenue is recorded at established rates net of contractual allowances
for arrangements with third-parties. Net revenue from the Medicare and AHCCCS
programs approximated 76 percent and 70 percent of total net revenue for the
years ended December 31, 1994 and 1995, respectively.

Income Taxes

A provision for income taxes has not been included in the combined
financial statements as income from the Company is reported on the owner
members' respective tax returns.

3. 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.

4. ACCOUNTS RECEIVABLE

Accounts receivable at December 31 consist of the following:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Patient accounts receivable............................. $ 8,652,713 $ 9,312,536
Allowance for doubtful accounts......................... (1,470,000) (3,166,233)
----------- -----------
Net accounts receivable................................. $ 7,182,713 $ 6,146,303
=========== ===========
</TABLE>

5. PROPERTY AND EQUIPMENT

Property and equipment at December 31 consists of the following:

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Medical equipment....................................... $ 4,845,873 $ 7,129,589
Furniture and nonmedical equipment...................... 1,411,307 2,182,863
Leasehold improvements.................................. 1,534,653 2,419,871
Buildings............................................... 840,773 960,584
----------- -----------
8,632,606 12,692,907
Less accumulated depreciation........................... (3,377,888) (4,359,148)
----------- -----------
$ 5,254,718 $ 8,333,759
=========== ===========
</TABLE>

6. LINE OF CREDIT

The Company has a $1,500,000 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 percent (8.88 percent at December 31, 1994 and 1995).

F-51
<PAGE> 115

RENALWEST L.C., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt and capital lease obligations at December 31 consists of the
following:

<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Term note, bearing interest at the prime rate plus 1/2
percent, payable in monthly installments of $48,838,
collateralized by inventory, accounts receivable, property
and equipment, due 1997. ................................... $1,088,078 $ 502,022
Nonrevolving line of credit converted to a term note, bearing
interest at the prime rate plus 3/8 percent, payable in
monthly installments of $25,000, collateralized by
inventory, accounts receivable, property and equipment, due
1999. ...................................................... 1,500,000 1,200,000
Equipment line of credit, advances made through December 31,
1995, bearing interest at the variable bank base rate plus
3/8 percent, converts May 28, 1996 to a term loan, bearing
interest at the variable Bank Base Rate plus 1/2 percent,
due May 31, 2001. .......................................... -- 1,460,000
Term note, bearing interest at the prime rate plus 1/2
percent, payable in monthly installments of $50,518,
collateralized by inventory, accounts receivable, property
and equipment, due 1997. ................................... 1,869,175 1,262,956
Notes payable, bearing interest at prime plus 1/2 percent,
due 1995.................................................... 102,000 --
Capital lease obligation, due 1999. .......................... 454,240 377,335
Capital lease obligation, due 1998. .......................... -- 102,006
Other......................................................... 61,452 31,311
---------- ----------
5,074,945 4,935,630
Less current portion.......................................... 1,701,107 1,444,265
---------- ----------
$3,373,838 $3,491,365
========== ==========
</TABLE>

The Company paid interest of $353,036 in 1994 and $432,647 in 1995. Certain
debt obligations contain covenants that require maintenance of certain financial
ratios.

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

<TABLE>
<S> <C>
1996................................................................... $1,444,265
1997................................................................... 1,588,703
1998................................................................... 788,049
1999................................................................... 700,942
2000................................................................... 292,000
Thereafter............................................................. 121,671
----------
$4,935,630
==========
</TABLE>

8. 401(K) PLAN

RENALWEST has a 401(k) plan (the "Plan") which covers all employees after
completion of one year of service. Individual participants may make voluntary
contributions of up to $9,240, the current amount allowed by the Internal
Revenue Service, on a before-tax basis. RENALWEST matches 25 percent of a
participant's contribution for the first five percent of the participant's
salary. RENALWEST contributed $38,244 and $54,208 to the Plan in 1994 and 1995,
respectively.

F-52
<PAGE> 116

RENALWEST L.C., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

9. RELATED PARTY TRANSACTIONS

RENALWEST uses an interior decorating service owned by the spouse of one of
its members to furnish and decorate all dialysis facilities. RENALWEST paid
$113,524 in 1994 and $80,975 in 1995 for furnishings procured through this
decorating service.

RENALWEST leases a dialysis facility from Nephrology Properties Associates,
a company owned by certain individuals with ownership interests in the Company.
RENALWEST paid $54,600 in 1994 and $35,200 in 1995 to this company for rent on
the facility.

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

10. 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..................................................................... $1,173,448
1997..................................................................... 1,186,115
1998..................................................................... 1,063,718
1999..................................................................... 738,741
2000..................................................................... 320,772
Thereafter............................................................... 189,625
----------
$4,672,419
==========
</TABLE>

Rent expense related to operating leases amounted to $1,126,506 in 1994 and
$1,322,951 in 1995.

11. INSURANCE

Health care companies are subject to medical malpractice, personal injury
and other liability claims that are customary risks inherent in the operation of
health facilities and are generally covered by insurance. The Company maintains
property, liability and professional malpractice insurance policies through
commercial carriers on a claims made basis in amounts and with such coverages
and deductibles that are deemed appropriate by management, based upon historical
claims, industry standards and the nature and risks of its business. There can
be no assurance that a future claim will not exceed available insurance
coverages or that such coverages will continue to be available for the same
scope of coverages at reasonable premium rates. Any substantial increase in the
cost of such insurance or the unavailability of any such coverages could have an
adverse effect on the Company's business.

12. SUBSEQUENT EVENT

On June 20, 1996, a letter of intent was initiated between Renal Care Group
("RCG"), Inc., a specialized provider of nephrology services that was founded in
June 1995, to merge with the Company.

F-53
<PAGE> 117

The following represents the unaudited interim financial statements of
Renal West L.C. et al. as of June 30, 1995 and June 30, 1996 and for the six
month periods then ended.

RENAL WEST L.C., ET AL.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ -- $ --
Accounts receivable, net............................................ 7,349 5,866
Inventories......................................................... 534 545
Prepaid expenses.................................................... 176 126
Other............................................................... 217 199
------- -------
Total current assets........................................ 8,276 6,736
------- -------
Property, plant and equipment, net.................................... 5,652 8,466
Intangible assets, net................................................ 54 43
Other assets.......................................................... 112 92
------- -------
Total assets................................................ $14,094 $15,337
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 700 $ 950
Accrued expenses.................................................... 5,112 6,156
Current portion of long-term debt................................... 1,907 2,981
------- -------
Total current liabilities................................... 7,719 10,087
------- -------
Long term debt........................................................ 2,713 2,444
------- -------
Total liabilities........................................... 10,432 12,531
------- -------
Stockholders' equity:
Contributed capital................................................. 4,852 5,194
Accumulated Deficit................................................. (1,190) (2,388)
------- -------
Total stockholders' equity.................................. 3,662 2,806
------- -------
Total liabilities and stockholders' equity.................. $14,094 $15,337
======= =======
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-54
<PAGE> 118

RENAL WEST L.C.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net revenue.......................................................... $16,274 $17,386
Operating costs and expenses:
Patient care costs................................................. 9,159 10,763
General and administrative expenses................................ 3,112 2,785
Provision for doubtful accounts.................................... 1,640 313
Depreciation and amortization...................................... 621 955
------- -------
Total operating costs and expenses......................... 14,532 14,816
------- -------
Income from operations............................................... 1,742 2,570
------- -------
Interest expense, net................................................ 204 262
------- -------
Net Income........................................................... 1,538 2,308
------- -------
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-55
<PAGE> 119

RENAL WEST L.C.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income...................................................... $ 1,537,932 $ 2,307,844
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 621,332 954,921
Bad debt expense............................................. 1,639,635 312,942
Gain on sale of property and equipment....................... (9,277) (117,844)
Changes in current assets and current liabilities exclusive
of cash and cash equivalents and current portion of
noncurrent liabilities:
Accounts receivable........................................ (1,806,171) (32,998)
Related party receivable................................... 143,167 (38,246)
Inventory.................................................. (58,422) 4,135
Prepaid expenses........................................... 32,023 148,272
Other...................................................... (84,680) 288,295
Accounts payable........................................... 126,892 (465,342)
Due to third parties....................................... 1,232,207 68,068
Accrued expenses........................................... 53,744 50,412
Accrued wages and benefits................................. 234,990 37,524
---------- ----------
Net cash provided by operating activities......................... 3,663,372 3,517,983
INVESTING ACTIVITIES
Sale of property and equipment.................................... 34,271 196,270
Purchase of property and equipment................................ (1,033,654) (1,154,805)
Intangibles....................................................... 174 (1,072)
Other............................................................. (30,986) (2,370)
---------- ----------
Net cash used in investing activities............................. (1,030,195) (961,977)
FINANCING ACTIVITIES
Payments on line of credit........................................ (3,097,000) (10,814,000)
Proceeds from line of credit...................................... 3,311,000 10,358,000
Payments on long-term debt and capital leases..................... (908,098) (671,951)
Proceeds on long-term debt and capital leases..................... 0 540,000
Additional contributed capital.................................... 349,637 (3,946)
Distributions to members.......................................... (2,717,000) (2,596,779)
---------- ----------
Net cash used in financing activities............................. (3,061,461) (3,188,676)
---------- ----------
Increase in cash and cash equivalents............................. (428,284) (632,670)
Cash and cash equivalents at beginning of year.................... 232,995 339,846
---------- ----------
Cash and cash equivalents at end of year.......................... $ (195,289) $ (292,824)
========== ==========
</TABLE>

F-56
<PAGE> 120

RENAL WEST L.C.

STATEMENT OF CHANGES IN OWNERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
OWNERS'
CONTRIBUTED ACCUMULATED TOTAL
CAPITAL DEFICIT EQUITY
----------- ----------- -------
<S> <C> <C> <C>
Balance, December 31, 1995.................................... 5,198 (2,099) $ 3,099
====== ======= =======
Distributions paid to Members................................. (2,597) (2,597)
Other......................................................... (4) (4)
Net Income.................................................... 2,308 2,308
------ ------- -------
Balance, June 30, 1996........................................ $ 5,194 $(2,388) $ 2,806
====== ======= =======
</TABLE>

See accompanying notes to Consolidated Financial Statements.

F-57
<PAGE> 121

RENALWEST L.C., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996

1. ORGANIZATION AND BASIS OF PRESENTATION

RENALWEST, a limited liability company, was formed on September 1, 1993
from the combination of assets and liabilities of 13 commonly-owned S
corporations. RENALWEST provides dialysis services for patients with End Stage
Renal Disease (ESRD) in an outpatient setting, in a patient's residence, or in a
hospital. At December 31, 1995, RENALWEST operated 17 outpatient hemodialysis
facilities, three peritoneal dialysis training centers, and a staff-assisted
hemodialysis program, and had contracts for inpatient dialysis at 17 hospitals.

2. MERGER

On August 7, 1996 the Company executed a definitive merger agreement with
Renal Care Group, Inc. ("RCG"), a Nashville, Tennessee based provider of
nephrology services founded in June 1995. The Company provides dialysis and
ancillary services to approximately 3,600 patients through 52 outpatient
dialysis centers in twelve states. In consideration for this transaction, the
owner members will receive 2,400,000 shares of RCG's Common Stock. While this
transaction has been approved by the Company's owner members, it is subject to
the satisfaction of several conditions, including the approval of RCG
Shareholders.

3. UNAUDITED INTERIM FINANCIAL INFORMATION

The balance sheet as of June 30, 1996 and the statements of operations and
cash flows for the six months ended June 30, 1996 and 1995 (interim financial
statements) have been prepared by management and are unaudited. The interim
financial statements include all adjustments, consisting of only normal
recurring adjustments necessary for a fair presentation of the interim results.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial statements. The
interim financial statements should be read in conjunction with the December 31,
1994 and 1995 audited combined financial statements appearing herein. The
results of the six months ended June 30, 1995 and 1996 may not be indicative of
operating results for the full respective years.

F-58
<PAGE> 122

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, 1993 and 1994 and June 30, 1995, and
the related combined statements of operations, owners' equity and cash flows for
each of the three years in the period ended December 31, 1994 and the six months
ended June 30, 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 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 63% in 1993, 57% in
1994, and 53% in 1995 and total revenues constituting 71% in 1992, 68% in 1993,
68% in 1994, and 66% for the six months ended June 30, 1995 of the related
combined totals. 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, 1993 and 1994 and June
30, 1995, and the combined results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994 and six months
ended June 30, 1995, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Nashville, Tennessee
November 21, 1995

F-59
<PAGE> 123

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

COMBINED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30, DECEMBER 31,
1993 1994 1995 1995
------- ------- -------- ------------
(UNAUDITED --
NOTE 14)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,487 $ 2,096 $ 2,844 $ 2,405
Held-to-maturity securities.......................... -- 1,638 495 --
Accounts receivable, net............................. 4,161 5,344 4,694 5,040
Inventories.......................................... 570 583 414 597
Due from related parties............................. 33 217 38 --
Prepaid expenses..................................... 185 169 194 363
Other................................................ 465 261 95 192
------- ------- -------- ------------
Total current assets......................... 6,901 10,308 8,774 8,597
Property, plant and equipment, net..................... 6,188 6,328 7,094 6,971
Intangible assets, net................................. 60 30 99 3,075
Other assets........................................... 821 1,091 1,519 2,888
------- ------- -------- ------------
Total assets................................. $13,970 $17,757 $ 17,486 $ 21,531
======= ======= ======= ==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 342 $ 303 $ 378 $ 1,188
Accounts payable..................................... 639 1,598 1,517 1,523
Accrued wages and benefits........................... 608 789 768 1,081
Other accrued expenses............................... 147 181 457 1,350
------- ------- -------- ------------
Total current liabilities.................... 1,736 2,871 3,120 5,142
Long-term debt, net of current portion................. 1,862 2,152 2,841 6,789
Advances received, net................................. -- 2,449 -- --
------- ------- -------- ------------
Total liabilities............................ 3,598 7,472 5,961 11,923
Redeemable preferred stock............................. -- -- 2,449 2,451
Owners' equity......................................... 10,372 10,285 9,076 7,149
------- ------- -------- ------------
Total liabilities and owners' equity......... $13,970 $17,757 $ 17,486 $ 21,531
======= ======= ======= ==========
</TABLE>

See accompanying Notes to Combined Financial Statements.

F-60
<PAGE> 124

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

COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
--------------------------- JUNE 30, DECEMBER 31,
1992 1993 1994 1995 1995
------- ------- ------- ---------- ------------
(UNAUDITED --
NOTE 14)
<S> <C> <C> <C> <C> <C>
Net revenue.................................. $27,563 $30,950 $32,749 $ 16,406 $ 33,496
Operating costs and expenses:
Patient care costs......................... 18,567 21,025 22,006 11,409 23,314
General and administrative expenses........ 1,932 2,021 2,965 1,428 3,620
Provision for doubtful accounts............ 588 710 726 479 789
Depreciation and amortization.............. 877 943 1,011 527 1,183
------- ------- ------- ------- -------
Total operating costs and
expenses......................... 21,964 24,699 26,708 13,843 28,906
------- ------- ------- ------- -------
Income from operations....................... 5,599 6,251 6,041 2,563 4,590
Interest expense, net........................ 232 147 100 63 312
------- ------- ------- ------- -------
Income before taxes.......................... 5,367 6,104 5,941 2,500 4,278
Provision for income taxes................... -- -- 4 -- --
------- ------- ------- ------- -------
Net income................................... $ 5,367 $ 6,104 $ 5,937 $ 2,500 $ 4,278
======= ======= ======= ======= =======
</TABLE>

See accompanying Notes to Combined Financial Statements.

F-61
<PAGE> 125

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

COMBINED STATEMENTS OF OWNERS' EQUITY
(IN THOUSANDS)

<TABLE>
<S> <C>
Balance at December 31, 1991.................................................... $ 6,769
Net income.................................................................... 5,367
Capital distributions......................................................... (2,649)
-------------
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 for six months..................................................... 2,500
Capital distributions......................................................... (3,709)
Capital contributions by owners and partners.................................. --
-------------
Balance at June 30, 1995........................................................ 9,076
Net income for six months (unaudited -- Note 14).............................. 1,778
Capital distributions (unaudited -- Note 14).................................. (3,705)
Capital contributions by owners and partners (unaudited -- Note 14)........... --
-------------
Balance at December 31, 1995 (unaudited -- Note 14)............................. $ 7,149
==========
</TABLE>

See accompanying Notes to Combined Financial Statements.

F-62
<PAGE> 126

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

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED DECEMBER 31,
-------------------------- JUNE 30, -------------------
1992 1993 1994 1995 1995
------ ------ -------- ---------- -------------------
(UNAUDITED--NOTE
14)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $5,367 $6,104 $ 5,937 $2,500 $ 4,278
Adjustments to reconcile net income to net cash
provided by operating activities:
Net income of liquidated entity................... -- -- -- -- (262)
Depreciation and amortization..................... 877 943 1,011 527 1,183
Loss on asset disposals........................... 18 14 6 -- --
Other............................................. 2 43 (175) (93) (108)
Changes in assets and liabilities:
Accounts receivable............................. 287 700 (1,368) 830 304
Inventories..................................... (1) (392) (13) 169 (14)
Prepaid expenses and other current assets....... (66) 85 220 141 92
Other assets.................................... (491) (100) (174) (416) (1,701)
Accounts payable................................ (499) (388) 959 (81) (75)
Accrued wages and benefits...................... 79 102 181 (22) 292
Other accrued expenses and other liabilities.... 48 48 35 275 1,169
------ ------ -------- ---------- -------
Net cash provided by operating activities........... 5,621 7,159 6,619 3,830 5,158
INVESTING ACTIVITIES
Proceeds from sale of investments................... -- -- 24,303 5,650 6,650
Purchases of investments............................ -- -- (25,941) (4,476)
Proceeds from sale of property, plant and
equipment......................................... 4 19 18 -- --
Purchases of property, plant and equipment.......... (2,730) (549) (1,469) (1,278) (1,769)
Purchase of a professional corporation.............. -- -- -- -- (311)
Acquisition of a 50% partnership interest........... -- -- -- -- (4,200)
Capital contributions to an equity investment....... (10) (102) -- (34) 96
------ ------ -------- ---------- -------
Net cash used in investing activities............... (2,736) (632) (3,089) (138) (4,546)
FINANCING ACTIVITIES
Proceeds from long-term borrowings.................. 3,068 624 745 906 5,559
Principal payments on long-term debt and capital
lease obligations................................. (2,822) (1,329) (494) (141) (284)
Capital contributions by owners and partners........ -- -- 2 -- --
Advances received, net.............................. -- -- 2,449 -- --
Capital distributions............................... (2,649) (5,219) (5,623) (3,709) (5,578)
------ ------ -------- ---------- -------
Net cash (used in) provided by financing
activities........................................ (2,403) (5,924) (2,921) (2,944) (303)
------ ------ -------- ---------- -------
Net increase in cash and cash equivalents........... 482 603 609 748 309
Cash and cash equivalents at beginning of period.... 402 884 1,487 2,096 2,096
------ ------ -------- ---------- -------
Cash and cash equivalents at end of period.......... $ 884 $1,487 $ 2,096 $2,844 $ 2,405
====== ====== ========= ========== ====================
Supplemental disclosures of cash flow information:
Interest paid..................................... $ 288 $ 202 $ 170 $ 111 $ 350
====== ====== ========= ========== ====================
Noncash capital distributions....................... $ -- $ -- $ 404 $ -- $ 1,836
====== ====== ========= ========== ====================
Noncash conversion of advances received to
redeemable preferred stock........................ $ -- $ -- $ -- $2,449 $ --
====== ====== ========= ========== ====================
</TABLE>

See accompanying Notes to Combined Financial Statements.

F-63
<PAGE> 127

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

NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 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 is to be effected in accordance with executed
combination agreements with the four dialysis businesses and Tennessee and is
subject to the closing of the initial public offering of the Company (the
"Offering"). Kidney Care, Inc. and certain operating divisions of Medical
Enterprises, Ltd. and Health care Suppliers, Inc. (collectively "Kidney Care")
has been designated as the Predecessor and thus Kidney Care'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 13).
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 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:

F-64
<PAGE> 128

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

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

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 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%, 68%, and 64% of patient service revenue for the years ended December 31,
1992, 1993 and 1994, respectively, and 67% for the six months ended June 30,
1995.

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, 1993 and 1994 and June 30, 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 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 15 years for furniture, fixtures and equipment. Routine
maintenance and repairs are expensed as incurred, while costs of betterments and
renewals are capitalized.

F-65
<PAGE> 129

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

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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.

3. 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

F-66
<PAGE> 130

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

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

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
====== ======== ======== ========
JUNE 30, 1995:
Cash and cash equivalents:
Demand deposits and money market account...... $2,844 $-- $-- $2,844
====== ======== ======== ========
Held-to-maturity securities:
Obligations................................... $ 495 $2 $-- $ 497
====== ======== ======== ========
</TABLE>

4. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1993 1994 1995
------ ------- --------
<S> <C> <C> <C>
Patient accounts receivable.............................. $4,687 $ 6,058 $4,855
Other receivables........................................ 184 408 232
Allowance for doubtful accounts.......................... (710) (1,122) (393)
------ ------- --------
Net accounts receivable.................................. $4,161 $ 5,344 $4,694
====== ======= ======
Percent of patient accounts receivable related to
patients participating in the Medicare and Medicaid
programs............................................... 78% 76% 72%
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1993 1994 1995
------- ------- ---------
<S> <C> <C> <C>
Buildings................................................. $ 2,317 $ 2,323 $ 2,323
Furniture, fixtures and equipment......................... 5,475 5,707 6,255
Leasehold improvements.................................... 1,374 1,598 2,101
Other..................................................... 2 5 233
------- ------- ---------
9,168 9,633 10,912
Less accumulated depreciation............................. (2,980) (3,305) (3,818)
------- ------- ---------
Net property, plant and equipment......................... $ 6,188 $ 6,328 $ 7,094
======= ======= =======
</TABLE>

F-67
<PAGE> 131

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

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

6. SHORT-TERM AND LONG-TERM OBLIGATIONS

Long-term debt (excluding capital lease obligations) consists of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1993 1994 1995
------ ------ --------
<S> <C> <C> <C>
Lines of credit with banks, due April 30, 1995 and October 1,
1995, interest of prime and prime plus 1% (9.75%), secured
by accounts receivable, equipment and inventory, credit
available of $800,000 at December 31, 1994 and June 30,
1995....................................................... $ -- $ -- $ --
Bank lines of credit, with conversion options to term loans,
due from 1995 to 2010, bearing interest ranging from 8.125%
to 9.35%, secured by certain equipment, inventory and
accounts receivable, credit available under such lines of
$2,047,000 at December 31, 1994 and $1,823,250 at June 30,
1995....................................................... -- 600 824
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...... 773 529 1,123
Real estate mortgage notes payable, due through 2007, bearing
interest ranging from 8.375% to 8.5%, payable monthly,
secured by certain real estate and furniture and
fixtures................................................... 1,431 1,326 1,272
------ ------ --------
Total long-term debt............................... 2,204 2,455 3,219
Less current portion......................................... 342 303 378
------ ------ --------
Long-term debt, net of current portion....................... $1,862 $2,152 $2,841
====== ====== ======
</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 (8.5% at
December 31, 1994 and 9.35% at June 30, 1995), in the amount of $500. There were
no borrowings at December 31, 1994 and June 30, 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 June 30, 1995, Tennessee and each of the Three Unrelated
Businesses to be Acquired had complied with existing loan covenants. Various of
these debt instruments are guaranteed by the respective owners or related
entities.

As of June 30, 1995, the aggregate amounts of annual principal maturities
of long-term debt (excluding capital lease obligations) are as follows:

<TABLE>
<S> <C>
Remaining in 1995........................................................... $ 179
1996........................................................................ 475
1997........................................................................ 519
1998........................................................................ 486
1999........................................................................ 340
2000........................................................................ 269
Thereafter.................................................................. 951
------
$3,219
======
</TABLE>

F-68
<PAGE> 132

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

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

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 June 30, 1995, minimum annual
rental commitments under noncancelable operating leases with terms in excess of
one year are as follows:

<TABLE>
<S> <C>
Remaining in 1995........................................................... $ 457
1996........................................................................ 803
1997........................................................................ 753
1998........................................................................ 674
1999........................................................................ 528
2000........................................................................ 328
Thereafter.................................................................. 804
------
Total minimum lease payments...................................... $4,347
======
</TABLE>

Rent expense related to operating leases amounted to $744, $834 and $963
for the years ended December 31, 1992, 1993, and 1994, respectively, and $408
for the six months ended June 30, 1995.

7. 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 $241, $251, and $351 in 1992,
1993, and 1994, respectively, and $175 for the six months ended June 30, 1995.

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-69
<PAGE> 133

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 June 30, 1995:

<TABLE>
<CAPTION>
EXERCISE
PRICE
OPTIONS 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 June 30, 1995......................................... 116 $2.00-$7.50
======
Exercisable at June 30, 1995..................................... 55
Available for future grant at June 30, 1995...................... 204
</TABLE>

8. 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 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.

9. 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-70
<PAGE> 134

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.

10. INCOME TAXES

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

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
---------------------- JUNE 30,
1992 1993 1994 1995
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Current:
Federal......................................... $ -- $ -- $ 4 $ --
State........................................... -- -- -- --
---- ---- ---- ----------
$ -- $ -- $ 4 $ --
==== ==== ==== ========
</TABLE>

Significant components of the deferred tax assets and liabilities as of
December 31, 1993, 1994, and June 30, 1995, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1993 1994 1995
---- ---- --------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation and amortization............................. $ -- $ 3 $ 15
Accounts receivable....................................... -- -- --
---- ---- --------
Deferred tax liabilities.................................... -- 3 15
Deferred tax assets:
Net operating loss carryforwards.......................... -- 228 409
Other..................................................... -- 1 2
---- ---- --------
Deferred tax assets......................................... -- 229 411
Valuation allowance......................................... -- (226) (396)
---- ---- --------
Net deferred tax assets..................................... -- 3 15
---- ---- --------
Net deferred tax liabilities (assets)....................... $ -- $ -- $ --
==== ==== ======
</TABLE>

The provision for income taxes differs from the amounts computed by
applying the statutory federal income tax rate of 38% to income before provision
for deferred income taxes. The differences are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE
--------------------------- 30,
1992 1993 1994 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Tax provision at statutory rate................... $ 2,039 $ 2,320 $ 2,256 $ 950
State income tax less applicable federal tax
benefit......................................... -- -- (34) --
Income reported in not-for-profit corporation and
adjustment to eliminate S Corporations.......... (2,039) (2,320) (2,445) (1,120)
Change in valuation allowance..................... -- -- 225 170
Other, net........................................ -- -- 2 --
------- ------- ------- -------
$ -- $ -- $ 4 $ --
======= ======= ======= =======
</TABLE>

Tennessee and Three Unrelated Businesses to be Acquired made no payments
for federal income taxes in 1992, 1993, 1994, or through June 30, 1995.

F-71
<PAGE> 135

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 contemplated initial public
offering (see Note 13), the Subchapter S election will be terminated. As a
result, the Three Unrelated Businesses to be Acquired will be subject to
corporate income taxes subsequent to the termination of S Corporation status.
Tennessee and Three Unrelated Businesses to be Acquired had net operating income
for income tax purposes of $5,366, $5,963, and $6,341 and $2,160 for 1992, 1993,
1994, and the six months ended June 30, 1995, respectively. Had Tennessee and
Three Unrelated Businesses to be Acquired filed federal and state income tax
returns as a regular corporation for 1992, 1993, 1994, and the six months ended
June 30, 1995, income tax expense under the provisions of Financial Accounting
Standard No. 109 would have been $2,162, $2,457, $2,455, and $949, 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 will be based on the cumulative temporary
difference at the date of termination of S Corporation status. The effect of
recognizing the deferred taxes will be included in income from continuing
operations. If the termination of S Corporation status had occurred at June 30,
1995, the deferred income tax liability would have been approximately $181.

11. 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.

12. 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 in-center expenses were $919,
$983, and $728 for the years ended December 31, 1992, 1993, and 1994,
respectively, and $302 for the six months ended June 30, 1995. Management fees,
which comprise administrative and executive expenses, accounting fees,
maintenance fees, and general overhead expenses were $175, $165, and $160 for
the years ended December 31, 1992, 1993, and 1994, respectively, and $100 for
the six months ended June 30, 1995. Such fees are included in general and
administrative expenses.

F-72
<PAGE> 136

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 $410, $422, and $429 for the years ended December 31, 1992,
1993, and 1994, respectively, and $253 for the six months ended June 30, 1995.

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 $157 for the six months
ended June 30, 1995.

13. SUBSEQUENT EVENTS

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 will be amortized over forty years.

RECAPITALIZATION AND INITIAL PUBLIC OFFERING (UNAUDITED)

The Company plans to consummate the Offering and simultaneously consummate
the Combination, pursuant to which it will exchange 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 will be 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.

Prior to filing a registration statement on Form S-1 pursuant to the
Securities Act in connection with an the Offering, Renal Care Group, Inc. (of
Delaware) intends to effect the sale of an aggregate principal amount of
$1,380,000 of Convertible Senior Subordinated Promissory Notes (the "Convertible
Notes") to provide funds to complete the Offering. Such Convertible Notes will
bear interest at a rate of 7.0%, will mature in one year, and the principal and
accrued interest thereof will be 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 intends to offer 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.

14. UNAUDITED FINANCIAL INFORMATION

The unaudited combined balance sheet and statements of operations and cash
flows for the year ended December 31, 1995 have been prepared by management and
are presented for informational purposes only. The financial statements,
presented for informational purposes only, include all adjustments, consisting
of only normal recurring adjustments necessary for a fair presentation of the
results.

F-73
<PAGE> 137

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

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the financial statements, prepared for
informational purposes only. The financial statements, prepared for
informational purposes only, should be read in conjunction with the December 31,
1994 and June 30, 1995 audited combined financial statements appearing herein.

F-74
<PAGE> 138

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 then
ended. 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.

ERNST & YOUNG LLP

Nashville, Tennessee
May 15, 1996

F-75
<PAGE> 139

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-76
<PAGE> 140

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-77
<PAGE> 141

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-78
<PAGE> 142

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-79
<PAGE> 143

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)

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 contractual adjustments of $9,284 and
$10,724, respectively, and 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-80
<PAGE> 144

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)

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 amount representing interest............................ (10)
----
Present value of net minimum lease payments.................. 72
Less amount 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, with a bank 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

F-81
<PAGE> 145

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)

certain 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>

F-82
<PAGE> 146

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)

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>

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>

F-83
<PAGE> 147

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)

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:

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 asset
transfer agreements between RCG, KC and MEL described above.

F-84
<PAGE> 148

The following financial statements represent the interim financial
information of Kidney Care, Inc., et al. as of June 30, 1995 and for the six
month period then ended.

KIDNEY CARE, INC., ET AL.

COMBINED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995
----------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 2,955
Short-term government securities........................................... 1,000
Accounts receivable, net................................................... 7,619
Inventories................................................................ 917
Due from related parties................................................... 817
Prepaid expenses........................................................... 85
Deferred income taxes...................................................... 65
-------
Total current assets............................................... 13,458
Property, plant and equipment, net........................................... 2,811
Other assets................................................................. 329
-------
Total assets....................................................... $ 16,598
=======
LIABILITIES AND UNRESTRICTED NET ASSETS
Current liabilities:
Current portion of long-term debt.......................................... $ 425
Accounts payable........................................................... 1,288
Due to related parties..................................................... 1,677
Accrued wages and benefits................................................. 1,046
Other accrued expenses..................................................... 212
-------
Total current liabilities.......................................... 4,048
Long-term debt, net of current portion....................................... 65
-------
Total liabilities.................................................. 4,713
Unrestricted net assets...................................................... 11,885
-------
Total liabilities and unrestricted net assets...................... $ 16,598
=======
</TABLE>

See accompanying notes.

F-85
<PAGE> 149

KIDNEY CARE, INC., ET AL.

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

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1995
----------------
<S> <C>
Net revenue.................................................................. $ 18,605
Operating costs and expenses:
Patient care costs......................................................... 14,421
General and administrative expenses........................................ 534
Provision for doubtful accounts............................................ 399
Depreciation and amortization.............................................. 455
-------
Total operating costs and expenses................................. 15,809
-------
Income from operations....................................................... 2,796
Interest expense, net........................................................ 93
-------
Income before taxes.......................................................... 2,703
Provision for income taxes................................................... 496
-------
Net income................................................................... 2,207
Unrestricted net assets not retained by the entity........................... (539)
Unrestricted net assets at beginning of period............................... 10,217
-------
Unrestricted net assets at end of year....................................... $ 11,885
=======
</TABLE>

See accompanying notes.

F-86
<PAGE> 150

KIDNEY CARE, INC., ET AL.

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 10,
1995
----------------
<S> <C>
OPERATING ACTIVITIES
Net income................................................................. $ 2,207
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................... 455
Gain on disposal of equipment........................................... --
Deferred income tax credit.............................................. --
Changes in assets and liabilities:
Accounts receivable................................................... (494)
Inventories........................................................... (116)
Prepaid expenses and other assets..................................... (207)
Recoverable sales tax................................................. --
Accounts payable...................................................... 338
Other accrued expenses and other liabilities.......................... (628)
-------
Net cash provided by operating activities.................................... 1,555
INVESTING ACTIVITIES
Maturities of short-term government securities............................... 1,000
Purchases of short-term government securities................................ (1,000)
Proceeds from sales of property, plant and equipment......................... --
Purchases of property, plant and equipment................................... (144)
-------
Net cash provided by (used in) investing activities.......................... (144)
FINANCING ACTIVITIES
Proceeds from long-term borrowings........................................... 298
Principal payments on long-term debt and capital lease obligations........... (302)
Decrease in unrestricted net assets not retained by the entity............... (539)
-------
Net cash used in financing activities........................................ (543)
-------
Net increase in cash and cash equivalents.................................... 868
Cash and cash equivalents at beginning of year............................... 2,087
-------
Cash and cash equivalents at end of year..................................... $ 2,955
=======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid.............................................................. $ 30
=======
</TABLE>

See accompanying notes.

F-87
<PAGE> 151

KIDNEY CARE, INC., ET AL.

NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
JUNE 30, 1995

1. ORGANIZATION AND BASIS OF PRESENTATION

2. INTERIM FINANCIAL INFORMATION

The combined balance sheet and statements of revenues, expenses and changes
in unrestricted net assets and cash flows for the six months ended June 30, 1995
(interim financial statements) have been prepared by management and are
unaudited. The interim financial statements include all adjustments, consisting
of only normal recurring adjustments necessary for a fair presentation of the
interim results.

Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the interim financial statements. The
interim financial statements should be read in conjunction with the January 31,
1995 and 1996 audited combined financial statements. The results of the six
months ended June 30, 1995 may not be indicative of operating results for the
full respective years.

F-88
<PAGE> 152
APPENDIX A

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

RENAL CARE GROUP, INC.,

RCG THREE CORP.,

RCG NINE CORP.,

RCG FOUR CORP.,

RENALWEST, L.C.,

3-CO., INC.,

9-CO., INC.

AND

4-CO., INC.

DATED AS OF AUGUST 7, 1996

<PAGE> 153
AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of August 7, 1996, by and among RENAL CARE GROUP, INC. ("RCG"), a
Delaware corporation; RCG THREE CORP. ("RCG Three"), an Arizona corporation,
RCG NINE CORP. ("RCG Nine"), an Arizona corporation, RCG FOUR CORP. ("RCG
Four"), an Arizona corporation; RENALWEST, L.C., an Arizona limited liability
company ("RenalWest"); 3-CO., Inc., an Arizona corporation ("Three Co"); 9-CO.,
Inc., an Arizona corporation ("Nine Co"), 4-CO., Inc., an Arizona corporation
("Four Co"), and those parties listed on the signature pages hereto as the
shareholders of Three Co, Nine Co and Four Co (the "Owners") (RCG Three, RCG
Nine, and RCG Four together the "Merger Corps" and individually a "Merger
Corp.;" Three Co., Nine Co. and Four Co together the "Members" and
individually a "Member"; the Members and RenalWest together the "Companies" and
individually a "Company").

PREAMBLE

The Merger Corps are wholly-owned subsidiaries of RCG and the Members are
the sole owners of RenalWest. The Boards of Directors of RCG, the Merger
Corps, and the Members, and RenalWest and the Owners are of the opinion that
the transactions described herein are in the best interests of the parties and
their respective shareholders, as applicable. This Agreement provides for the
acquisition of the Companies by RCG pursuant to the simultaneous mergers of (i)
RCG Three with and into Three Co, (ii) RCG Nine with and into Nine Co and (iii)
RCG Four with and into Four Co. At the Effective Time of such mergers, the
outstanding shares of the capital stock of each of Three Co, Nine Co and Four
Co shall be converted into the right to receive shares of the common stock of
RCG (except as provided herein). As a result, the Owners shall become
shareholders of RCG and each of Three Co, Nine Co and Four Co shall continue
to conduct its business and operations as a wholly owned subsidiary of RCG, and
RenalWest shall continue to be owned by Three Co, Nine Co and Four Co. It is
the intention of the parties to this Agreement that the mergers qualify (i) as
a "reorganization" within the meaning of Section 368(a) of the Code for federal
income tax purposes, and (ii) for treatment as a pooling of interests for
accounting purposes.

Certain terms used in this Agreement are defined in Article 14 of this
Agreement.

NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree
as follows:

ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER

1.1 The Mergers. Subject to the terms and conditions of this Agreement,
at the Effective Time, (i) RCG Three shall be merged with and into Three Co,
(ii) RCG Nine shall be merged with and into Nine Co, and (iii) RCG Four shall
be merged with and into Four Co, in each case in accordance with the applicable
provisions of ABCA (together the "Mergers" and individually a "Merger"). Each
of Three Co, Nine Co and Four Co shall be the Surviving Corporation resulting
from the Mergers and shall continue in existence as a wholly owned Subsidiary
of RCG and shall continue to be governed by the Laws of the State of Arizona.
The Mergers shall be consummated pursuant to the terms of this Agreement, which
has been approved and adopted by the respective Boards of Directors of RCG, the
Merger Corps and the Members.

1.2 Time and Place of Closing. The closing (the "Closing") will take
place as soon as practicable after the satisfaction or waiver of all conditions
in Articles 9 and 10 hereof and at such location or on such other date as may
be mutually agreed upon by RCG and RenalWest (such actual date of Closing the
"Closing Date").

<PAGE> 154

1.3 Effective Time. Subject to the provisions of this Agreement, the
parties shall file Articles of Merger executed in accordance with the relevant
provisions of the ABCA and shall make all other filings or recordings required
under the ABCA as soon as practicable on or after the Closing Date. The
Mergers and other transactions contemplated by this Agreement shall become
effective on the date and at the time the Articles of Merger reflecting the
Mergers become effective with the Secretary of State of the State of Arizona
(the "Effective Time").

ARTICLE 2
TERMS OF MERGERS

2.1 Charter. The Articles of Incorporation of the Members in effect
immediately prior to the Effective Time shall be amended and restated,
effective at the Effective Time, in a manner satisfactory to RCG. The Articles
of Incorporation of the Members, as so amended and restated, shall be the
Articles of Incorporation of the Surviving Corporations until otherwise amended
or repealed.

2.2 Bylaws. The Bylaws of Merger Corps. in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporations until
otherwise amended or repealed.

2.3 Tax-Free Reorganization. The parties hereby adopt this Agreement as
a tax-free "plan of reorganization" within the meaning of Sections 1.368-2(g)
and 1.368-3(a) of the United States Treasury Regulations.

ARTICLE 3
MANNER OF CONVERTING SHARES

3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Mergers and without any action on the part
of the parties hereto or the shareholders of any of the parties, the shares of
the constituent corporations of the Mergers shall be converted as follows:

(a) Each share of each Merger Corp. Common Stock issued and outstanding at
the Effective Time shall cease to be outstanding and shall (after giving effect
to Section 3.1(b) below) be converted into one share of Member Common Stock.

(b) All of the shares of Member Common Stock (excluding treasury shares)
issued and outstanding at the Effective Time shall cease to be outstanding and
shall be converted into and exchanged for the right to receive an aggregate of
2,400,000 shares of RCG Common Stock to be distributed to Owners as set forth
on Schedule 3.1(b) hereto (the "Merger Consideration").

3.2 Anti-Dilution Provisions. In the event RCG changes the number of
shares of RCG Common Stock issued and outstanding prior to the Effective Time
as a result of a stock split, stock dividend, combination of shares or other
similar recapitalization with respect to such stock (an "Anti-Dilution Event")
and the record date therefor or, if there is no record date, the effective date
thereof, shall be prior to the Effective Time, then the Average Trading Prices
and the numbers of shares specified in Section 3.1 shall be adjusted to
appropriately and proportionately adjust the number of shares of RCG Common
Stock into which the shares of Member Common Stock will be converted pursuant
to Section 3.1.

3.3 Shares Held by the Company. Each share of Member Common Stock held in
treasury by the Members, shall be canceled and retired at the Effective Time
and no consideration shall be issued in exchange therefor.

- 2 -

<PAGE> 155

3.4 Fractional Shares. No certificates representing fractional shares of
RCG Common Stock will be issued as a result of the Mergers. Any fractional
share interest to which a Company shareholder would otherwise be entitled to
receive shall be rounded up to the nearest whole share if such fraction is .5
or greater and shall be rounded down to the nearest whole share if such
fraction is less than .5.

ARTICLE 4
EXCHANGE OF SHARES

4.1 Exchange Procedures. Promptly (and in no event more than five (5)
calendar days) after the Effective Time, RCG and the Company shall cause the
exchange agent selected by RCG (the "Exchange Agent") to mail to the former
holders of Member Common Stock appropriate transmittal materials (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates theretofore representing shares of Member Common Stock shall pass,
only upon proper delivery of such certificates to the Exchange Agent). After
the Effective Time, each holder of shares of Member Common Stock (other than
shares to be canceled pursuant to Section 3.3 of this Agreement) issued and
outstanding at the Effective Time shall surrender the certificate or
certificates representing such shares to the Exchange Agent and shall promptly
upon surrender thereof receive in exchange therefor the consideration provided
in Section 3.1 of this Agreement. RCG shall not be obligated to deliver the
consideration to which any former holder of Member Common Stock is entitled as
a result of the Merger until such holder surrenders his certificate or
certificates representing the shares of Member Common Stock for exchange as
provided in this Section 4.1 or such holder provides an appropriate affidavit
regarding loss of such certificate and an indemnification for loss in favor of
RCG. The certificate or certificates of Member Common Stock so surrendered
shall be duly endorsed as the Exchange Agent may require. Any other provision
of this Agreement notwithstanding, neither RCG, the Surviving Corporation nor
the Exchange Agent shall be liable to a holder of Member Common Stock for any
amounts paid or property delivered in good faith to a public official pursuant
to any applicable abandoned property Law.

4.2 Rights of Former Member Shareholders. At the Effective Time, the
stock transfer books of the Members shall be closed and no transfer of Member
Common Stock by any such holder shall thereafter be made or recognized. Until
surrendered in accordance with the provisions of Section 4.1 of this Agreement,
each certificate theretofore representing shares of Member Common Stock (other
than shares to be canceled pursuant to Section 3.3 of this Agreement) shall
from and after the Effective Time represent for all purposes only the right to
receive the consideration provided in Section 3.1 of this Agreement in exchange
therefor. To the extent permitted by Law, former shareholders of record of the
Members shall be entitled to vote after the Effective Time at any meeting of
RCG shareholders the number of whole shares of RCG Common Stock into which
their respective shares of Member Common Stock are converted. Whenever a
dividend or other distribution is declared by RCG on the RCG Common Stock, the
record date for which is at or after the Effective Time, the declaration shall
include dividends or other distributions on all shares issuable pursuant to
this Agreement, but no dividend or other distribution payable to the holders of
record of RCG Common Stock as of any time subsequent to the Effective Time
shall be delivered to the holder of any certificate representing shares of
Member Common Stock issued and outstanding at the Effective Time until such
holder surrenders such certificate for exchange as provided in Section 4.1 of
this Agreement. However, upon surrender of such certificate, the RCG Common
Stock certificate (together with all such undelivered dividends or other
distributions without interest) shall be delivered and paid with respect to
each share represented by such certificate.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND THE OWNERS

Each Company and the Owners jointly and severally represent and warrant
the following to RCG:

- 3 -

<PAGE> 156

5.1 Organization, Authority and Capacity. Each Member is a corporation
and RenalWest is a limited liability company, duly organized, validly existing,
and in good standing under the laws of the State of Arizona, and has the full
power and authority necessary to (i) execute, deliver and perform its
obligations under this Agreement and the other documents and instruments to be
delivered by it pursuant to this Agreement (collectively, the "Merger
Documents") and (ii) carry on its business as it has been and is now being
conducted and to own and lease the properties and assets which it now owns or
leases. Each Company is duly qualified to do business and is in good standing
in the jurisdictions set forth with respect to that Company in Schedule 5.1,
which includes every jurisdiction in which the failure to be so qualified or in
good standing would have a material adverse effect on (i) such Company's
ability to perform its obligations under the Merger Documents or (ii) the
assets, results of operations or prospects of the Companies taken as a whole.

5.2 Authorization and Validity. The execution, delivery and performance
of the Merger Documents have been duly authorized by all necessary corporate
action on the part of each Company. The Merger Documents to be executed and
delivered by the Companies have been or will be, as the case may be, duly
executed and delivered by each Company and constitute or will constitute the
legal, valid and binding obligations of each Company, enforceable in accordance
with their respective terms, except as may be limited by bankruptcy,
insolvency, or other laws affecting creditors' rights generally, or as may be
modified by a court of equity.

5.3 Absence of Conflicting Agreements or Required Consents. Except as set
forth on Schedule 5.3, the execution, delivery and performance by each Company
of the Merger Documents to be executed and delivered by each Company: (i) do
not require the consent of or notice to any governmental or regulatory
authority or any other third party; (ii) will not conflict with any provision
of such Company's organizational documents; (iii) will not conflict with or
result in a violation of any law, ordinance, regulation, ruling, judgment,
order or injunction of any court or governmental instrumentality to which such
Company is subject or by which such Company or any of its properties are bound;
(iv) will not conflict with, constitute grounds for termination of, result in a
breach of, constitute a default under, require any notice under, or accelerate
or permit the acceleration of any performance required by the terms of any
agreement, instrument, license or permit to which such Company is a party or by
which such Company or any of its properties are bound; and (v) will not create
any lien, encumbrance or restriction upon any of the assets or properties of
such Company.

5.4 Governing Documents of the Company. True and correct copies of the
organizational documents and all amendments thereto of each Company (certified
by the Secretary of State of the State of Arizona) have been provided to RCG.
RCG has previously been provided with access to each Company's minutes, and
such minutes accurately reflect in all material respects the proceedings of the
board of directors (or other similar body) of each Company (and all committees
thereof). The record books of each Company, which have been made available to
RCG for review, contain true, complete and accurate records of the ownership of
each Company.

5.5 Outstanding and Authorized Capitalization. All authorized and
outstanding Company Equity Securities are accurately described on Schedule 5.5.
No shares of capital stock are held in the treasury of any Company except as
set forth on Schedule 5.5. All outstanding Company Equity Securities are
listed and held of record as indicated on Schedule 5.5 and have been duly and
validly issued, are fully paid and nonassessable. None of such Company Equity
Securities were issued in violation of preemptive rights of any past or present
holder of any Company Equity Security. There are no outstanding warrants,
options, rights, calls or other commitments of any nature relating to Company
Equity Securities and there are no outstanding securities of any Company
convertible into or exchangeable for any Company Equity Securities. Except as
set forth on Schedule 5.5, no Company is obligated to issue or repurchase any
of its Company Equity Securities for any reason and no person or entity has any
right or privilege (whether preemptive or contractual) for the purchase,
subscription or issuance of any unissued Company Equity Securities. There are
no outstanding rights to demand registration of securities of any Company or to
sell securities of any Company in connection with a registration by such
Company under the 1933 Act. Except

- 4 -

<PAGE> 157

as set forth in Schedule 5.5, to the knowledge of each Company and the Owners,
there has been no transaction or action taken with respect to any Company
Equity Securities in contemplation of the Merger that would prevent RCG from
accounting for the Merger on a "pooling of interests" basis.

5.6 Subsidiaries, Investments and Predecessors. Except as set forth on
Schedule 5.6, no Company has owned and does not currently own, directly or
indirectly, of record, beneficially or equitably, any capital stock or other
equity, ownership or proprietary interest in any corporation, partnership,
limited liability company, association, trust, joint venture or other entity.
Set forth on Schedule 5.6 is a listing of all predecessor companies of each
Company, including the names of any entities from whom each Company previously
acquired material assets, and any other entity of which such Company has been a
subsidiary or division. Except as listed on Schedule 5.6, no Company has sold
or disposed of, by way of asset sale, stock sale, spin-off or otherwise, any
material assets or business.

5.7 Financial Statements. Attached hereto as Schedule 5.7 are the audited
financial statements of the Companies on a combined basis for the years ended
December 31, 1994 and 1995 prepared by Ernst & Young, LLP and interim financial
statements for the interim period ending June 30, 1996, which reflect the
results of operations and financial condition of the Companies on a combined
basis for such periods and at such dates (collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied, except for (i)
the omission of notes to unaudited Financial Statements, (ii) the fact that
interim Financial Statement are subject to normal and customary year-end
adjustments which will not, in the aggregate, be material and (iii) any
exceptions that may be indicated in the notes to such Financial Statements.
The Financial Statements present fairly in all material respects the financial
position of the Company as of the dates indicated and present fairly in all
material respects the results of the Companies' operations on a combined basis
for the periods then ended, and are in accordance with the books and records of
the Companies, which have been properly maintained and are complete and correct
in all material respects.

5.8 Absence of Changes. Except as set forth on Schedule 5.8, and except
as contemplated by this Agreement, since December 31, 1995, the Companies have
conducted their business only in the ordinary course and have not:

(i) suffered any material adverse change in their working capital,
condition (financial or otherwise), assets, liabilities, reserves, business or
operations;

(ii) paid, discharged or satisfied any material liability other than in
the ordinary course of business;

(iii) written off as uncollectible any account receivable other than in
the ordinary course of business;

(iv) compromised any debts, claims or rights or disposed of any of its
properties or assets other than in the ordinary course of business;

(v) entered into any commitments or transactions not in the ordinary
course of business involving aggregate value in excess of $250,000 or made
aggregate capital expenditures or commitments in excess of $250,000;

(vi) made any material change in any method of accounting or accounting
practice;

(vii) subjected any of their assets, tangible or intangible, to any lien,
encumbrance or restriction of any nature whatsoever, except for liens for
current property taxes not yet due and payable;

- 5 -

<PAGE> 158

(viii) increased any salaries, wages or employee benefits for any employee
of the Company other than in the ordinary course of business;

(ix) hired, committed to hire or terminated any employee or medical
director other than in the ordinary course of business;

(x) except for payments, dividends or distributions consistent with past
practices for prior periods, declared, set aside or made any payment, dividend
or other distribution to any holder of a Company Equity Security or purchased,
redeemed or otherwise acquired, directly or indirectly, any Company Equity
Security;

(xi) terminated or amended any material contract, license or other
instrument to which any Company is a party or suffered any loss or termination
or threatened loss or termination of any existing material business arrangement
or supplier, the termination or loss of which, in the aggregate, could
materially and adversely affect the Companies;

(xii) effected any change in its capital structure; or

(xiii) agreed, whether in writing or otherwise, to take any action
described in this Section 5.8.

5.9 No Undisclosed Liabilities. Except as listed on Schedule 5.9 hereto,
or otherwise disclosed herein or in the Schedules hereto, the Companies have no
material Liabilities or obligations, whether accrued, absolute, contingent or
otherwise, except for liabilities and obligations reflected in the Financial
Statements or incurred in the ordinary course of its business since the date of
the Companies' most recent balance sheet included in the Financial Statements.

5.10 Litigation, etc. Except as listed on Schedule 5.10 hereto, there are
no claims, lawsuits, actions, arbitrations, administrative or other proceedings
pending against any Company. Except as listed on Schedule 5.10, to the
knowledge of the Companies and the Owners, (i) no such matter described in the
previous sentence is threatened and there is no basis for any such action, and
(ii) there are no governmental or administrative investigations or inquiries
pending that involve any Company, except in either case for any such matter
that could not reasonably be expected to have a material adverse effect on the
business of the Companies taken as a whole, financial or otherwise. Except as
listed on Schedule 5.10, there are no judgments against or consent decrees
binding on any Company or its assets or, to the knowledge of the Companies and
its Owners, any licensed professional relating to the business of the
Companies.

5.11 No Violation of Law. Except as set forth on Schedule 5.11, to the
knowledge of the Companies and the Owners, no Company has been or is currently
in violation of any applicable local, state or federal law, ordinance,
regulation, order, injunction or decree, or any other requirement of any
governmental body, agency or authority or court binding on it, or relating to
its property or business or its advertising, sales or pricing practices, except
for any such violations as would not individually or in the aggregate have a
material adverse effect on the Companies taken as a whole, financial or
otherwise.

5.12 Real and Personal Property. (a) Schedule 5.12(a) sets forth a list
of all items of personal and mixed, tangible and intangible property, rights
and assets of each Company having an original or replacement cost or value
greater than $10,000. Except as set forth on Schedule 5.12(a), each Company
(i) has good and valid title to all of the personal and mixed, tangible and
intangible property, rights and assets which it purports to own, including all
the personal property and assets reflected in the Financial Statements; and
(ii) owns such rights, assets and personal property free and clear of all
liens, encumbrances or restrictions of any nature whatsoever (except for
current year ad valorem taxes).

(b) The Company does not own any real property. Schedule 5.12(b) contains
a true and correct description of all real property leased by each Company,
including all improvements located thereon. RCG has been furnished with true,
correct and complete copies of all leases, deeds, easements and

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<PAGE> 159

other documents and instruments concerning the matters listed on Schedule
5.12(b). No condemnation or similar actions are currently in effect or, to the
knowledge of the Companies and the Owners, pending or threatened against any
part of any real property leased by any Company. To the knowledge of the
Company and the Owners, there are no encroachments, leases, easements,
covenants, restrictions, reservations or other burdens of any nature which
might impair in any material respect the use of any leased real property in a
manner consistent with past practices nor does any part of any building
structure or any other improvement thereon encroach on any other property.

(c) The present zoning, subdivision, building and other ordinances and
regulations applicable to the leased real property permit the continued
operation, use, occupancy and enjoyment of such real property consistent with
past practices, and each Company is in compliance with, and has received no
notices of violations of, any applicable zoning, subdivision or building
regulation, ordinance or other law, regulation, or requirement. Each Company
has all rights and easements necessary for public ingress thereto and egress
therefrom and for the provision of all utility services thereto, including any
required curb cut or street opening permits or licenses for vehicular access
over presently existing roads and driveways.

(d) Each Company's assets (including all buildings and improvements in
connection therewith) are in good operating condition and repair, ordinary wear
and tear excepted (and except where the failure to be in such condition and
repair, either individually or in the aggregate, would not have a material
adverse effect on the Companies taken as a whole, financial or otherwise), and
such assets include all rights, properties, interests in properties, and assets
necessary to permit the Companies to continue their business after the Closing
Date as presently conducted, with the Members becoming wholly owned
subsidiaries of RCG.

(e) Schedule 5.12(e) contains a complete and correct list of all
trademarks, trade names, service marks, service names, brand names, copyrights,
technology rights and licenses, know-how, software and patents, registrations
thereof and applications therefor, and any other intellectual property used in
the business of each Company, together with a complete list of all licenses
granted by or to each Company with respect to any of the foregoing. Neither
the Company nor any of the Owners is currently in receipt of any notice of any
violation of, and each has no reason to believe that the Company's operations
are violating, the rights of others with respect to any such matter, and the
Company has taken reasonable measures to protect its rights with respect to any
such matters as are proprietary to the Company.

5.13 Contracts and Commitments. (a) Schedule 5.13 contains a complete
and accurate list of all contracts, agreements, commitments, instruments and
obligations (whether written or oral, contingent or otherwise) of each Company
of or concerning the following matters (the "Company Agreements"):

(i) the lease, as lessee or lessor (except for leases of machines and
equipment, the aggregate annual rental payments by the Companies for which do
not exceed $25,000), or license, as licensee or licensor, of any real or
personal property (tangible or intangible);

(ii) the employment or engagement of any officer, director, employee,
consultant or agent, other than those terminable at will without material
severance obligation;

(iii) any relationship that requires financial payments, or performance
over a period of more than 90 days, with any Owner, or any person or entity
affiliated with or related to any Owner or any officer or director;

(iv) any arrangement limiting the freedom of such Company to compete in
any manner in any line of business or requiring such Company to share profits;

(v) any arrangement that could reasonably be anticipated to have a
material adverse effect on such Company, financial or otherwise;

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<PAGE> 160

(vi) any material arrangement not in the ordinary course of business;

(vii) any power of attorney, whether limited or general, granted by or to
such Company; and

(viii) any other arrangement that requires performance for a period of
more than 90 days or that requires payments in excess of $50,000.

(b) Each Company has delivered to RCG true and complete copies of all of
its Company Agreements. Except as indicated on Schedule 5.13, the Company
Agreements are valid and effective in accordance with their terms, and there is
not under any of such Company Agreements (i) any existing or claimed default by
any Company or event which with the notice or lapse of time, or both, would
constitute a material default by such Company or (ii) to the knowledge of the
Companies and the Owners, any existing or claimed default by any other party or
event which with notice or lapse of time, or both, would constitute a material
default by any such party. Except as indicated on Schedule 5.13, the
continuation, validity and effectiveness of the Company Agreements will not be
affected by the Mergers and the Mergers will not result in a breach of or
default under, or require the consent of any other party to, any of the Company
Agreements. There is no actual or, to the knowledge of the Companies and the
Owners, threatened termination, cancellation or limitation of any Company
Agreements that would have a material adverse effect on the Companies taken as
a whole, financial or otherwise. To the knowledge of the Companies and the
Owners, there is no pending or threatened bankruptcy, insolvency or similar
proceeding with respect to any other party to the Company Agreements.

5.14 Employment and Labor Matters. (a) Schedule 5.14(a) sets forth (i)
the number of full-time and part-time employees of each Company and (ii) the
name and compensation (including benefits) paid to each employee of or
consultant to each Company who received salary and bonuses for either of such
Company's two most recently ended fiscal years in excess of $50,000.

(b) Each Company is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, occupational safety and health,
including laws concerning unfair labor practices within the meaning of Section
8 of the National Labor Relations Act, and the employment of non-residents
under the Immigration Reform and Control Act of 1986.

(i) there are no charges, governmental audits, investigations,
administrative proceedings or complaints concerning any Company's employment
practices pending or, to the knowledge of the Companies and the Owners,
threatened before any federal, state or local agency or court that could
reasonably be expected to have a material adverse effect on the Companies taken
as a whole, financial or otherwise, and, to the knowledge of the Companies and
the Owners, no basis for any such matter exists;

(ii) to the knowledge of the Companies and the Owners, there are no
inquiries, investigations or monitoring of activities of any licensed,
registered, or certified professional personnel employed by, credentialed or
privileged by, or otherwise affiliated with any Company pending or threatened
by any state professional board or agency charged with regulating the
professional activities of health care practitioners;

(iii) no Company is a party to any union or collective bargaining
agreement, and, to the knowledge of the Companies and the Owners, no union
attempts to organize the employees of any Company have been made, nor are any
such attempts now threatened; and

(iv) no Company has experienced any organized slowdown, work interruption,
strike, or work stoppage by its employees.

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5.15 Employee Benefit Matters .

(a) The Companies currently maintain only the employee pension benefit
plans, as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), as are listed on Schedule 5.15(a) (the
"Pension Plans"). The Companies have never maintained or contributed to any
other employee pension benefit plan, as defined in Section 3(2) of ERISA.

(b) The Companies currently maintain only the employee welfare benefit
plans, as defined in Section 3(1) of ERISA (including but not limited to, life
insurance, medical, hospitalization, holiday, vacation, disability dental and
vision plans) as are listed on Schedule 5.15(b) (the "Welfare Plans").

(c) The Companies currently maintain, or have entered into, only the
compensation programs and/or employment arrangements, (including but not
limited to, any written or unwritten incentive compensation, fringe benefit,
payroll or employment practice, bonus, severance, sick pay, salary
continuation, deferred compensation, supplemental executive compensation plans,
employment agreements and consulting agreements for the benefit of their
officers, directors, employees, former employees, or independent contractors)
as are listed on Schedule 5.15(c) (the "Compensation Programs").

(d) No Company or an ERISA Affiliate contributes or has contributed within
the last five years to any multiemployer plan, as defined by Section 3(37) of
ERISA.

(e) Each Pension Plan and Welfare Plan has been operated and administered
in substantial compliance with ERISA and the Code; each Pension Plan which is
intended to be qualified under Section 401(a) of the Code has been determined
by the Internal Revenue Service to be so qualified or a request for such
determination has been timely filed with the Internal Revenue Service (and no
Company has any knowledge that any event has occurred between the date of the
last such determination and the Closing Date that would cause the Internal
Revenue Service to revoke such determination).

(f) Each Pension Plan and Welfare Plan designed to satisfy the
requirements of Section 125, Section 401, Section 401(k), Section 409, Section
501(c)(9), Section 4975(e)(7), and/or Section 4980B of the Code, satisfies such
section.

(g) No accumulated funding deficiency, as defined in Section 302(a)(2) of
ERISA, exists (whether or not waived) with respect to any Pension Plan as of
the date hereof.

(h) All amounts required to be paid by the Companies with respect to each
Pension Plan, Welfare Plan and Compensation Program on or before the Closing
Date have been paid.

(i) Neither the execution and delivery of this Agreement nor the
consummation of any of the transactions contemplated hereby will (i) result in
any payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any current or
former employee, (ii) increase any benefits otherwise payable under any Pension
Plan, Welfare Plan or Compensation Program, or (iii) result in any acceleration
of the time of payment or vesting of any such benefits.

(j) Neither the execution and delivery of this Agreement nor the
consummation of any of the transactions contemplated hereby will result in a
material increase in the premium costs of any Welfare Plan for which benefits
are insured or a material increase in benefit costs of any Welfare Plan which
provides self-insured benefits.

(k) No Pension Plan is subject to a lien (or expected to be subject to a
lien) under Code Section 412(n) or ERISA Section 302(f) or to tax under Code
Section 4971. No Pension Plan has a "liquidity shortfall" as defined in Code
Section 412(m)(5). No event has occurred in connection with a

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Pension Plan that could result in liability under Title IV of ERISA. None of
the Companies has incurred any liability to the Pension Benefit Guaranty
Corporation in connection with any Pension Plan.

(l) The assets of each Pension Plan are sufficient to provide all "benefit
liabilities" (as defined in ERISA Section 4001(a)(16)) under such Pension Plan
if such Pension Plan is terminated, and are also sufficient to provide all
other benefits due under the Pension Plan (including, but not limited to,
ancillary, disability, shutdown, early retirement and welfare benefits).

(m) None of the Pension Plans or a Company or any party in interest or
disqualified person has engaged in any non-exempt "prohibited transactions" as
defined in Section 406 of ERISA or Section 4975 of the Code.

(n) Except as disclosed in Schedule 5.15(n), no Pension Plan or Welfare
Plan provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees beyond
their retirement or other termination of service other than (i) coverage
mandated by applicable law, (ii) retirement benefits under a Pension Plan,
(iii) death benefits under a Welfare Plan, (iv) deferred compensation accrued
on the books of the Company or a Subsidiary, or (v) benefits the full cost of
which is borne by the current or former employer (or his or her beneficiary).

(o) No "leased employee," as that term is defined in Section 414(n) of the
Code, performs services for a Company.

(p) No liability has been, or is expected by a Company to be, incurred by
a Company under Section 4062 of ERISA with respect to any Pension Plan.

(q) No reportable event within the meaning of Title IV of ERISA has
occurred with respect to any Pension Plan.

(r) The Companies have furnished RCG with correct and complete copies of
each Pension Plan, Welfare Plan, and Compensation Program, together with any
trust agreements, summary plan descriptions, employee informational material,
IRS Forms 5500, the most recent actuarial valuation for any Pension Plan,
financial statements relating thereto and participant listings.

5.16 Insurance Policies. Except as described on Schedule 5.16, all of the
assets and business of each Company are insured in such amounts and against
such losses, casualties or risks as are customary for similar properties and
businesses, and the Company has maintained such insurance continuously from the
earlier of (i) the date of its inception and (ii) the date of inception of any
of its predecessors. Schedule 5.16 sets forth a complete and accurate list and
description of all insurance policies in force naming each Company, or any
employee thereof, as an insured or beneficiary or as a loss payee or for which
the Company has paid or is obligated to pay all or part of the premiums,
including, without limitation, all liability, malpractice, fire, health and
life insurance policies. All such policies are in full force and effect and
the premiums due thereon have been timely paid. No Company has received notice
of any pending or threatened termination or premium increase (retroactive or
otherwise) with respect thereto, and, to the knowledge of the Companies and the
Owners, each Company is in compliance with all conditions contained therein.
Except as set forth on Schedule 5.16, there are no pending claims against such
insurance by any Company as to which insurers are defending under reservation
of rights or have denied liability, and except as set forth on Schedule 5.16,
there exists no claim under such insurance that has not been properly filed by
any Company. To the knowledge of the Companies and the Owners, there are no
outstanding or unfulfilled requirements or recommendations of any insurance
company insuring any Company regarding any repairs to or work to be performed
with respect to the assets of such Company. Each Company has complied with any
such requirements and recommendations as to which the Company has received
notice. Schedule 5.16 contains a listing of all claims made and loss histories
in respect of any insurance maintained by each Company or any predecessor
during the past three (3) years.

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5.17 Environmental Matters. Except as set forth in Schedule 5.17, to the
knowledge of the Companies and the Owners, there are no present or past
Environmental Conditions in any way relating to the business, properties or
assets of any Company. For the purposes of this Agreement, "Environmental
Condition" means (a) the introduction into the environment of any pollution,
including without limitation any contaminant, irritant or pollutant or other
toxic or hazardous substance, in violation of any federal, state or local law,
ordinance or governmental rule or regulations, as a result of any spill,
discharge, leak, emission, escape, injection, dumping or release of any kind
whatsoever of any substance or exposure of any type in any work places or to
any medium, including without limitation air, land, surface waters or ground
waters, or from any generation, transportation, treatment, discharge, storage
or disposal of waste materials, raw materials, hazardous materials, toxic
materials or products of any kind or from the storage, use or handling of any
hazardous or toxic materials or other substances, as a result of which any
Company has or may become liable to any person or by any reason of which any of
the assets of any Company may suffer or be subjected to any lien, encumbrance
or restriction of any nature, or (b) any noncompliance with any federal, state
or local environmental law, rule, regulation or order as a result of or in
connection with any of the foregoing.

5.18 Accounts Receivable and Payable. To the knowledge of the Companies
and the Owners, except as set forth on Schedule 5.18.1, the accounts receivable
outstanding as of the Effective Time will be subject to no defenses,
counterclaims, or rights of setoff other than those arising in the ordinary
course of business and for which adequate reserves have been established. No
accounts payable of any Company are, at this date, over 45 days old and no
accounts payable of any Company will be over 45 days old at any Closing Date,
except as listed on Schedule 5.18.2.

5.19 Taxes. (a) Except as listed in Schedule 5.19 or as reflected in the
Financial Statements, there does not exist any material liability for taxes
which may be asserted by any taxing authority against, and no lien or other
encumbrance for taxes will attach to, any Company or any of its assets other
than taxes due in respect of periods for which tax returns are not yet due and
for which adequate accruals have been made in the Financial Statements. All
federal, state and local tax returns and tax reports required to be filed prior
to the date hereof with respect to any Company have been filed (other than
returns for which extensions to file have been granted) with the appropriate
governmental agencies in all jurisdictions in which such returns and reports
are required to be filed, all of which are true, correct and complete, and all
amounts shown as owing thereon have been paid.

(b) Except as listed on Schedule 5.19, no Company has received notice of
any tax claims being asserted or any proposed assessment by any taxing
authority and no tax returns of any Company have been audited by the Internal
Revenue Service (the "IRS") or the appropriate state agencies for any fiscal
year or period ended prior to the date hereof, and no Company is presently
under, nor has received notice of any, contemplated investigation or audit by
the IRS or any state agency concerning any fiscal year or period ended prior to
the date hereof. Except as listed on Schedule 5.19, no Company has executed
any extension or waivers of any statute of limitations on the assessment or
collection of any tax due that is currently in effect.

(c) Each Company and any of its predecessors in interest have withheld or
collected from each payment made to each of their employees the amount of all
taxes required to be withheld or collected therefrom and each Company and any
of its predecessors in interest have paid the same to the proper tax
depositories or collecting authorities.

(d) From its inception, each Member has been a validly electing S
corporation as defined in Section 1361 of the Code and corresponding provisions
of state and local income tax law in all jurisdictions in which it is required
to report its business operations. No Member or Owner has received any notice
from the IRS challenging such status and no Member or Owner is aware of any
circumstances that would be a basis for challenging such status.

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(e) From its inception, each of RenalWest and its ninety-nine percent
owned subsidiary, Renal West Health Supply L.C., has been a limited liability
company formed under Arizona law and taxable as a partnership under Section
7701 of the Code and in all states in which it has conducted business.

(f) The Owners shall cause to be prepared and filed, at their expense, a
short period tax return of each Company ending on the Closing Date. Such
returns shall be provided for RCG's prior review and approval, which approval
shall not be unreasonably withheld or delayed. The Owners shall file as an "S"
corporation for that short period for each Member and as a partnership for
RenalWest. RCG shall make available any information in its or the Companies'
possession which is reasonably required by the Owners to complete such returns
at no cost to the Owners.

(g) Except as disclosed on Schedule 5.19, there is no liability for taxes
on the part of any Company or any of their subsidiaries (excluding transactions
for which the financial reporting gain would exceed applicable income tax
liability related to such transaction) (i) that will arise with respect to a
current or a future taxable period, (ii) that is wholly or partly a consequence
of a transaction or occurrence, or transactions or occurrences, one or more of
which occurred before the date hereof, and (iii) that is not fully reserved on
the Financial Statements. In addition, except as disclosed on Schedule 5.19,
there are no joint venture, partnership or other arrangements or contracts to
which any Company or any of their subsidiaries is a party and that could be
treated as a partnership for federal income tax purposes.

(h) For purposes hereof, "taxes" shall mean any federal, state, county,
local, foreign or other tax, charge, imposition or other levy (including
interest or penalties thereon) including without limitation, income taxes
estimated taxes, excise taxes, sales taxes, use taxes, gross receipts taxes,
franchise taxes, taxes on earnings and profits, employment and payroll related
taxes, property taxes, real property transfer taxes, Federal Insurance
Contributions Act taxes, taxes on value added and import duties, whether or not
measured in whole or in part by net income, imposed by the United States or any
political subdivision thereof or by any jurisdiction other than the United
States or any political subdivision thereof.

5.20 Licenses, Authorizations and Provider Programs. (a) Each Company is
the holder of all valid licenses and other rights and authorizations required
by law, ordinance, regulation or ruling of any governmental regulatory
authority necessary to operate its business. RenalWest is certified for
participation and reimbursement under Titles XVIII and XIX of the Social
Security Act (the "Medicare and Medicaid programs") (Medicare and Medicaid
programs and such other similar federal, state or local reimbursement or
governmental programs for which the Company is eligible are hereinafter
referred to collectively as the "Government Programs") and has current provider
agreements for such Government Programs and with such private non-governmental
programs, including without limitation any private insurance program, under
which the Company directly or indirectly is presently receiving payments (such
non-governmental programs herein referred to as "Private Programs"). Set forth
on Schedule 5.20.1, as to each facility, is a correct and complete list of such
licenses, permits and other authorizations, and provider agreements under all
Government and Private Programs, complete and correct copies of which have been
provided to RCG. True, complete and correct copies of all surveys of each
Company or its facilities conducted in connection with any Government Program,
Private Program or licensing or accrediting body during the past two (2) years
have been provided to RCG.

(b) To the knowledge of the Companies and the Owners, no material
violation, default, order or deficiency exists with respect to any of the items
listed on Schedule 5.20.1. None of the Companies or the Owners has received
any notice of any action pending or recommended by any state or federal
agencies having jurisdiction over the items listed on Schedule 5.20.1, either
to revoke, withdraw or suspend any license, right or authorization, or to
terminate the participation of any Company in any Government or Private
Program. To the knowledge of the Companies and the Owners, no event has
occurred which, with the giving of notice, the passage of time, or both, would
constitute grounds for a material violation, order or deficiency with respect
to any of the items listed on Schedule 5.20.1 or to revoke, withdraw or suspend
any such license, or to terminate or modify the participation of any Company

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in any Government or Private Program. To the knowledge of the Companies and
the Owners, there has been no decision not to renew any provider or
third-party payor agreement of any Company. Except as listed on Schedule
5.20.2, no consent or approval of, prior filing with or notice to, or any
action by, any governmental body or agency or any other third party is required
in connection with any such license, right or authorization, or Government or
Private Program, by reason of the consummation of the Mergers, and the
continued operation of the business of the Companies thereafter on a basis
consistent with past practices.

(c) Each Company has timely filed all cost reports and other reports
required to be filed by it prior to the date hereof with respect to the
Government and Private Programs, all fiscal intermediaries and other insurance
carriers and all such reports are complete and accurate in all material
respects and have been prepared in material compliance with all applicable
laws, regulations, and principles governing reimbursement and payment claims.
True and complete copies of such cost reports filed by each Company for the
most recent cost-reporting year, if applicable, have heretofore been delivered
to RCG. Each Company has paid or caused to be paid or has properly reflected
in the Financial Statements all known and undisputed refunds, overpayments,
discounts or adjustments which have become due pursuant to such reports and has
no liability under any Government or Private Program (known or unknown,
contingent or otherwise) for any refund, overpayment, discount or adjustment
other than in the ordinary course, and no interest or penalties accruing with
respect thereto, except as has been specifically reserved for in the Financial
Statements or disclosed herein or in the Schedules hereto. To the knowledge of
the Companies and Owners, except as set forth on Schedule 5.20.3, there are no
pending appeals, adjustments, challenges, audits, litigation, or notices of
intent to reopen any closed cost reports. There are no other reports required
to be filed by any Company in order to be paid under any Government or Private
Program for services rendered, except for cost reports not yet due.

5.21 Inspections and Investigations. Except as set forth and described in
Schedule 5.21, (i) neither any of the Company's right nor, to the knowledge of
the Companies and the Owners, the right of any licensed professional or other
individual affiliated with any Company to receive reimbursements pursuant to
any Government or Private Program has been terminated or otherwise adversely
affected as a result of any investigation or action whether by any federal or
state governmental regulatory authority or other third party, (ii) no Company,
or, to the knowledge of the Companies and the Owners, any licensed professional
or other individual affiliated with any Company has, during the past three (3)
years, been the subject of any inspection, investigation, survey, audit,
monitoring or other form of review by any governmental regulatory entity, trade
association, professional review organization, accrediting organization or
certifying agency based upon any alleged improper activity on the part of such
individual, nor has any Company received any notice of deficiency during the
past three years in connection with its operations, (iii) there are not
presently, and at the Effective Time there will not be, any outstanding
deficiencies or work orders of any governmental authority having jurisdiction
over any Company, or other third party, requiring conformity to any applicable
agreement, statute, regulation, ordinance or bylaw, including but not limited
to, the Government and Private Programs, and (iv) there is not any notice of
any claim, requirement or demand of any licensing or certifying agency or other
third party supervising or having authority over any Company or their
operations to rework or redesign any part thereof or to provide additional
furniture, fixtures, equipment, appliances or inventory so as to conform to or
comply with any existing law, code, rule, regulation or standard. Attached as
part of Schedule 5.21 are copies of all reports, correspondence, notices and
other documents relating to any matter described or referenced therein.

5.22 Certain Relationships. (a) Except as set forth on Schedule 5.22(a),
no Company has:

(i) offered, paid, solicited or received anything of value, paid directly
or indirectly, overtly or covertly, in cash or in kind ("Remuneration") to or
from any physician, family member of a physician, or an entity in which a
physician or physician family member has an ownership or investment interest,
including, but not limited to:

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(A) payments for personal or management services pursuant to a
medical director agreement, consulting agreement, management contract,
personal services agreement, or otherwise;

(B) payments for the use of premises leased to or from a physician,
a family member of a physician or an entity in which a physician or
family member has an ownership or investment interest;

(C) payments for the acquisition or lease of equipment, goods or
supplies from a physician, a family member of a physician or an entity in
which a physician or family member has an ownership or investment
interest; or

(ii) offered, paid, solicited or received any Remuneration (excluding fair
market value payments for equipment or supplies) to or from any healthcare
provider, pharmacy, drug or equipment supplier, distributor or manufacturer,
including, but not limited to:

(A) payments or exchanges of anything of value under a warranty
provided by a manufacturer or supplier of an item to the Company; or

(B) discounts, rebates, or other reductions in price on a good or
service received by the Company;

(iii) offered, paid, solicited or received any Remuneration to or from any
person or entity in order to induce business, including, but not limited to,
payments intended not only to induce referrals of patients, but also to induce
the purchasing, leasing, ordering or arrangement for any good, facility,
service or item;

(iv) entered into any joint venture, partnership, co-ownership or other
arrangement involving any ownership or investment interest by any physician, or
family member of a physician, or an entity in which physician or physician
family member has an ownership or investment interest, directly or indirectly,
through equity, debt, or other means, including, but not limited to, an
interest in an entity providing goods or services to such Company;

(v) entered into any joint venture, partnership, co-ownership or other
arrangement involving any ownership or investment interest by any person or
entity including, but not limited to, a hospital, pharmacy, drug or equipment
supplier, distributor or manufacturer, that is or was in a position to make or
influence referrals, furnish items or services to, or otherwise generate
business for the Company; or

(vi) entered into any agreement providing for the referral of any patient
for the provision of goods or services by such Company, or payments by such
Company as a result of any referrals of patients to the Company.

(b) Set forth on Schedule 5.22(b) is a list of all affiliated practices or
physicians who have privileges to use any Company's dialysis facilities or who
are otherwise involved with the use or operation of or referral of patients to
any Company's dialysis facilities.

5.23 Statements True and Correct. No representation or warranty made
herein by the Companies or any of the Owners, nor in any statement, certificate
or instrument to be furnished to RCG by the Companies or any of the Owners
pursuant to any Merger Document, contains or will contain any untrue statement
of material fact or omits or will omit to state a material fact necessary to
make these statements contained herein and therein not misleading.

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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE OWNERS

Each Owner, severally and not jointly, represents and warrants the
following to RCG:

6.1 Ownership Interest Held and Conveyed. Owner is the owner of all
right, title and interest (legal, record and beneficial) in and to the Company
Equity Securities as set forth on Schedule 6.1, free and clear of any and all
liens, encumbrances or restrictions of any nature whatsoever (except for any
restrictions on transfer imposed by securities laws), and Owner holds no other
interest in any Company. Except as provided in Schedule 6.1 or as specifically
contemplated by this Agreement, no person or entity has any right or privilege
(whether preemptive or contractual) for the purchase of any Company Equity
Securities from Owner. Schedule 6.1 contains a complete list of all agreements
or arrangements, whether written or oral, to which Owner is a party that relate
in any way to the Company Equity Securities.

6.2 Organization, Authority and Capacity. Owner has the full authority
and capacity necessary to execute, deliver and perform his or her obligations
under the Merger Documents to be executed and delivered by Owner.

6.3 Authorization and Validity. Owner has the legal capacity required
for executing, delivering and performing the Merger Documents to be executed
and delivered by Owner. If Owner is married and Owner's interest in the
Company constitutes community property, the Merger Documents to be executed and
delivered by Owner's spouse have been or will be, as the case may be, duly
executed and delivered by Owner's spouse and constitute or will constitute the
legal, valid and binding obligations of Owner's spouse, enforceable in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency or other laws affecting creditors' rights generally, or as may be
modified by a court of equity.

6.4 Absence of Conflicting Agreements or Required Consents. Except as set
forth on Schedule 6.4, the execution, delivery and performance by Owner of the
Merger Documents to be executed and delivered by Owner (i) do not require the
consent of or notice to any governmental or regulatory authority or any other
third party; (ii) will not conflict with or result in a violation of any law,
ordinance, regulation, ruling, judgment, order or injunction of any court or
governmental instrumentality to which Owner is subject or by which Owner is
bound; (iii) will not conflict with, constitute grounds for termination of,
result in a breach of, constitute a default under, require any notice under, or
accelerate or permit the acceleration of any performance required by the terms
of any agreement, instrument, license or permit material to the Merger and (v)
will not create any encumbrance or restriction upon the Company Equity
Securities.

6.5 Interested Transactions. Except as set forth on Schedule 6.5, Owner
is not a party to any contract, loan or other transaction with any Company and
does not have any direct or indirect interest in or affiliation with any party
to any such a contract, loan or other transaction. Except as set forth on
Schedule 6.5, Owner is not an employee, consultant, partner, principal,
director or owner of, and does not have any other direct or indirect interest
in or affiliation with, any person or business entity that is engaged in a
business that competes with or is similar to the business of any Company.

6.6 Purchase for Investment, Etc. (a) Such Owner is acquiring the RCG
Common Stock for such Owner's own account and not with a view to or for sale in
connection with any public distribution thereof within the meaning of the 1933
Act;

(b) such Owner (i) has sufficient knowledge and experience in financial
and business matters to enable him, her or it to evaluate the merits and risks
of an investment in the RCG Common Stock, (ii) has the ability to bear the
economic risk of acquiring the RCG Common Stock, (iii) has received and
reviewed the RCG Documents identified in Section 7.8 below, and (iv) has had an
opportunity to ask

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questions of and to receive answers from the officers of RCG and to obtain
additional information in writing as requested, which has been made available
to and examined by such Owner or such Owner's advisors;

(c) such Owner (i) acknowledges that the RCG Common Stock has not been
registered under any securities laws and cannot be resold without registration
thereunder or exemption therefrom, (ii) agrees not to transfer all or any of
the RCG Common Stock received by such Owner unless such transfer has been
registered or is exempt from registration under applicable securities laws and
(iii) acknowledges that the certificate(s) representing the RCG Common Stock
shall bear a prominent legend with respect to the restrictions on transfer
under applicable securities laws; and

(d) such Owner has accurately completed the Investor Questionnaire
required by RCG contemporaneous with the execution of this Agreement and the
statements therein are true and correct.

6.7 Pooling and Tax-Free Reorganization Restrictions. (a) Except as
disclosed on Schedule 6.7(a) during the 30 days immediately preceding the
Effective Time of the Merger, such Owner represents, warrants and covenants
that he has not and will not have sold, transferred, or otherwise disposed of
his interests in, or reduced his risk relative to, any of the shares of Member
Common Stock beneficially owned by the undersigned, except for any pledges of
such Member Common Stock existing prior to such 30-day period as disclosed on
Schedule 6.7(a) hereto. In the event of any such pledge, each Owner will use
his commercially reasonable efforts to obtain an agreement from any such
pledgee to abide by the terms of this Agreement.

(b) Each Owner is aware that the Merger is intended to qualify as a
tax-free reorganization under Section 368 of the Internal Revenue Code ("Code")
for federal income tax purposes. Each Owner acknowledges that Section
1.368-1(b) of the Income Tax Regulations requires "continuity of interest" in
order for the Merger to be treated as tax-free under Section 368 of the Code.
Such Owner represents that he has no pre-arrangement, plan or intention to sell
or otherwise dispose of an amount of his RCG Common Stock to be received in the
Merger which would cause the foregoing requirement not to be satisfied. Each
Owner represents that he has consulted with counsel of his choosing regarding
this and other requirements for such a tax-free reorganization and that he
understands such requirements and the risk that his receipt of RCG Common Stock
could be a taxable event if such requirements are not met. Each Owner further
represents that he is not relying on RCG or its advisors concerning the tax
treatment or consequences of this Agreement or the transactions contemplated
hereby.

6.8 Statements True and Correct. No representation or warranty made
herein by Owner, nor in any statement, certificate or instrument furnished or
to be furnished to RCG by Owner pursuant to any Merger Document, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained herein and
therein not misleading.

ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF RCG AND MERGER CORPS.

RCG and each Merger Corp. hereby represent and warrant to the Company and
the Owners as follows:

7.1 Organization, Authority and Capacity. RCG is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and each Merger Corp. is a corporation duly organized, validly
existing and in good standing under the laws of the State of Arizona. RCG and
each Merger Corp. have the full power and authority necessary to (i) execute,
deliver and perform their obligations under the Merger Documents to be executed
and delivered by them, and (ii) carry on their business as they have been and
are now being conducted and to own and lease the properties and assets which
they now own or lease. RCG and each Merger Corp. are duly qualified to do
business and are in

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good standing in each jurisdiction in which a failure to be so qualified
or in good standing would have a material adverse effect on (i) their
ability to perform their obligations under the Merger Documents to be executed
and delivered by them or, (ii) the assets, results of operations or prospects
of RCG.

7.2 Authorization and Validity. The execution, delivery and performance
of the Merger Documents to be executed and delivered by RCG and each Merger
Corp. have been duly authorized by all necessary action by RCG and each Merger
Corp. The Merger Documents to be executed and delivered by RCG and each Merger
Corp. have been or will be, as the case may be, duly executed and delivered by
RCG and each Merger Corp. and constitute or will constitute the legal, valid
and binding obligations of RCG and each Merger Corp., enforceable in accordance
with their respective terms, except as may be limited by bankruptcy,
insolvency, or other laws affecting creditors' rights generally, or as may be
modified by a court of equity.

7.3 Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance by RCG and each Merger Corp. of the Merger
Documents to be executed and delivered by it: (i) do not require the consent of
or notice to any governmental or regulatory authority or any other third party;
(ii) will not conflict with any provision of RCG's or such Merger Corp.'s
articles of incorporation or bylaws; (iii) will not conflict with or result in
a violation of any law, ordinance, regulation, ruling, judgment, order or
injunction of any court or governmental instrumentality to which RCG or such
Merger Corp. is a party or by which RCG or such Merger Corp. or any of their
respective properties is bound; (iv) will not conflict with, constitute grounds
for termination of, result in a breach of, constitute a default under, require
any notice under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit to which
RCG or such Merger Corp. is a party or by which any of its properties are
bound; and (v) will not create any lien, encumbrance or restriction upon any of
the assets or properties of RCG or such Merger Corp.

7.4 Governing Documents. True and correct copies of the organizational
documents and all amendments thereto of RCG (certified by the Secretary of
State of the State of Delaware) and copies of the bylaws of RCG have been
provided to the Company and the Owners. The Company and the Owners have
previously been provided with access to RCG's minutes, and such minutes
accurately reflect all material proceedings of the shareholders and board of
directors of RCG (and all committees thereof). True and correct copies of the
organizational documents and all amendments thereto of each Merger Corp.
(certified by the Secretary of State of the State of Arizona) and copies of the
Bylaws of each Merger Corp. have been provided to the Company and the Owners.
The Company and the Owners have previously been provided with access to the
minutes of each Merger Corp., and such minutes accurately reflect all material
proceedings of the shareholder and Board of Directors of each Merger Corp.

7.5 Outstanding and Authorized Capitalization. (a) The authorized
capital stock of each Merger Corp. consists of 1,000 shares of common stock, of
which 100 shares are issued and outstanding. All of the issued and outstanding
shares of capital stock of each Merger Corp. have been duly and validly issued,
are fully paid and non-assessable. There are no outstanding warrants, options,
rights, calls or other commitments of any nature relating to capital stock of
any Merger Corp., and there are no outstanding securities of any Merger Corp.
convertible into or exchangeable for any securities of any Merger Corp. or RCG.

(b) The authorized capital stock of RCG consists of 22,000,000 shares of
RCG Common Stock and 10,000,000 shares of $.01 par value Preferred Stock. As
of the date hereof, RCG has 10,146,020 shares of RCG Common Stock and no shares
of Preferred Stock issued and outstanding. All issued and outstanding shares
of RCG Common Stock have been duly and validly issued, are fully paid and
non-assessable. Except for (i) options to purchase 1,433,948 shares of common
stock, (ii) warrants to purchase 220,000 shares of common stock and (iii)
promissory notes that are convertible into 184,000 shares of common stock,
there are no outstanding warrants, options, rights, calls or other commitments
of any nature relating to shares of capital stock of RCG, no outstanding
securities convertible into or exchangeable for shares of capital stock of RCG,
and, RCG is not obligated to issue or repurchase any of its

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shares of capital stock for any reason and no person or entity has any
right or privilege (whether preemptive or contractual) for the purchase,
subscription or issuance of any unissued shares of capital stock of RCG.
Except for rights with respect to 5,661,020 shares outstanding, 220,000 shares
under warrants and 184,000 shares under convertible notes, there are no
outstanding rights to demand registration of any shares of capital stock of RCG
or to sell any securities in connection with a registration by RCG under the
1933 Act. No shares of Common Stock are held in RCG's treasury. All RCG
Common Stock to be issued in connection with the Merger will be duly and
validly issued, fully paid and nonassessable, and, based on the representations
of the Companies and the Owners herein and in documents delivered pursuant
hereto, will be issued pursuant to a valid exemption from registration under
the 1933 Act and all applicable state securities laws.

7.6 Litigation and Claims. There are no claims, lawsuits, actions,
arbitrations, administrative or other proceedings, governmental investigations
or inquiries pending or threatened against RCG or the Merger Corps. which could
(i) affect the performance by RCG or the Merger Corps. of the Merger Documents,
or (ii) adversely affect the condition of RCG or the Merger Corps. (financial
or otherwise), and there is no basis for any such action or any state of facts
or occurrence of any event which might give rise to the foregoing.

7.7 Statements True and Correct. No representation or warranty made
herein by RCG and the Merger Corps., nor in any statement, certificate or
instrument to be furnished to the Company or any of the Owners by RCG or the
Merger Corps. pursuant to any Merger Document, nor in any RCG Document,
contains or will contain any untrue statement of material fact or omits or will
omit to state a material fact necessary to make these statements contained and
therein not misleading.

7.8 RCG Documents. RCG has heretofore furnished the following documents
to the Company:

(a) Confidential Private Placement Memorandum, dated November 15, 1995;

(b) Final Prospectus, dated February 6, 1996, contained in its
Registration Statement on Form S-1 (Registration No. 33-80221);

(d) Press release, dated April 1, 1996;

(e) Registration Statement on Form S-8, dated April 22, 1996;

(f) Press release, dated April 29, 1996;

(g) current report on Form 8-K/A, dated May 3, 1996;

(h) Form 12b-25, dated May 3, 1996;

(i) Press release, dated May 6, 1996;

(j) Form 12b-25, dated May 13, 1996;

(k) Form SR, dated May 17, 1996;

(l) Form 10-Q, dated May 20, 1996;

(m) Form 10-K, dated May 21, 1996;

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(n) Form 10-K/A, dated June 7, 1996;

(o) Press Release, dated July 1, 1996;

(p) Press Release, dated July 18, 1996;

(q) Agreement and Plan of Merger, dated April 26, 1996, among RCG and Main
Line Suburban Dialysis Centers, Inc., et al.;

(r) Merger Agreement, dated June 20, 1996, among RCG and The Nephrology
Center, Inc., et al.;

(s) Loan Agreement, dated May 30, 1996, among RCG, et al. and NationsBank
of Tennessee, N.A.; and

(t) Press Release, dated August 6, 1996.

The foregoing documents together with the exhibits thereto (which will be
made available upon written request), are collectively referred to herein as
the "RCG Documents." The RCG Documents include accurate and complete copies of
each and every (i) report and registration statement filed with the SEC ("SEC
Documents") and (ii) publicly disseminated press release of RCG during the past
twelve months ("Press Releases"). As of the time each SEC Document was filed
with the SEC, such SEC Document did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.

7.9 Absence of Changes. Except as set forth on Schedule 7.9, since March
31, 1996 (the date of last financial statements), RCG has not suffered any
material adverse change in its working capital, condition (financial or
otherwise), assets, liabilities, reserves, business or operations.

7.10 No Undisclosed Liabilities. Except as listed on Schedule 7.10, and
except for liabilities and obligations reflected in the most recent financial
statements of RCG contained in the RCG Documents or incurred in the ordinary
course of its business since the date of RCG's most recent balance sheet
included in the RCG Documents, RCG has no material liabilities or obligations,
whether accrued, absolute, contingent or otherwise.

7.11. No Liabilities of Merger Corps. Except for the obligations
hereunder, the Merger Corps. are not subject to any liabilities, obligations or
claims, whether accrued, absolute, contingent, liquidated or unliquidated, or
otherwise. Each Merger Corp. was formed solely for the purpose of consummating
the Mergers contemplated by this Agreement and each Merger Corp. has not
engaged in any business or other activity for any other purpose.

7.12 Compliance with Legal Requirements. To the knowledge of RCG, RCG and
each Merger Corp. are in compliance with all applicable legal requirements,
except where the failure to comply with such legal requirements has not had and
could not reasonably be expected to have a material adverse effect on RCG or
the Company. RCG has not received any notice or any communication from any
governmental authority regarding any actual or possible violation of, or
failure to comply with, any legal requirement, except where failure to comply
with such legal requirement has not had and could not reasonably be expected to
have a material adverse effect on RCG.

7.13 Employee Benefits. RCG agrees that after the Mergers it will cause
the Members to cause RenalWest to credit RenalWest employees with service for
eligibility and vesting purposes, as applicable,

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under the benefit plans in which they participate after the Closing Date
and that such employees will receive such RCG benefits as are provided to
similarly situated employees of RCG.

7.14 Taxes. (a) Except as reflected in RCG's financial statements
included in the RCG Documents (the "RCG Financial Statements"), there does not
exist any material liability for taxes that may be asserted by any taxing
authority against, and no lien or other encumbrance for any such taxes will
attach to, RCG, any subsidiary ("Subsidiary") of RCG, or any assets of RCG or
any Subsidiary, other than taxes due in respect of periods for which tax
returns are not yet due and for which adequate accruals have been made in the
RCG Financial Statements. All federal, foreign, state, county, and local tax
returns and tax reports required to be filed prior to the date hereof with
respect to RCG or any Subsidiary have been timely filed (other than returns for
which extensions to file have been granted) with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to
be filed, all of which are true, correct, and complete, and all amounts shown
as owing thereon have been timely paid.

(b) Neither RCG nor any Subsidiary has received notice of any tax claims
being asserted or any proposed assessment by any taxing authority and neither
RCG nor any Subsidiary is presently under, nor has received notice of, any
contemplated investigation or audit by the IRS or any other taxing authority
concerning any fiscal year or period ended prior to the date hereof. Neither
RCG nor any Subsidiary has executed any extensions or waivers of any statute of
limitations on the assessment or collection of any tax due that is currently in
effect.

(c) RCG and each Subsidiary, as well as any of their predecessors in
interest, have withheld or collected from each payment made to each of their
employees the amount of all taxes required to be withheld or collected
therefrom and have paid the same to the proper tax depositories or collecting
authorities.

(d) Neither RCG nor any Subsidiary is or has ever been an includible
corporation in an affiliated group of corporations, within the meaning of
Section 1504 of the Code, other than in the affiliated group of which RCG is
the common parent corporation.

(e) Neither RCG nor any Subsidiary is now or has ever been a party to any
tax-sharing agreements or similar arrangements, other than with respect to the
federal income tax returns for the affiliated group of which RCG is the common
parent corporation.

(f) For purposes hereof, "tax" or "taxes" shall have the meaning
prescribed for "taxes" in section 5.19(g) of this Agreement.

(g) RCG has no intention to cause or permit the liquidation or merging out
of existence of the Members.

(h) RCG has no intention following the Mergers to sell or otherwise
dispose of its ownership of the Members, except for transfers of stock to
corporations controlled by RCG, as "control" is defined in section 368(c) of
the Code, or to cause the Members to sell or otherwise dispose of any of their
assets or of any of the assets acquired from any of the Merger Corps, except
for dispositions made in the ordinary course of business or transfers of assets
to a corporation controlled by RCG, as "control" is defined in section 368(c)
of the Code.

(i) Except as disclosed on Schedule 7.14, there is no liability for taxes
on the part of RCG or any Subsidiary (excluding transactions for which the
financial reporting gain would exceed applicable income tax liability related
to such transaction) (i) that will arise with respect to a current or a future
taxable period, (ii) that is wholly or partly a consequence of a transaction or
occurrence, or transactions or occurrences, one or more of which occurred
before the date hereof, and (iii) that is not fully reserved on the RCG
Financial Statements. In addition, except as disclosed on Schedule 7.14, there
are no

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joint venture, partnership or other arrangements or contracts to which
RCG or any Subsidiary is a party and that could be treated as a partnership for
federal income tax purposes.

ARTICLE 8
ADDITIONAL AGREEMENTS

8.1 Access to Company Information. At all times prior to the Closing, the
Companies and the Owners will afford the officers and authorized
representatives of RCG access upon reasonable notice to all of the Companies'
properties, books and records that may relate to or concern the Mergers and
will furnish such parties with such additional financial, operating and other
information as to the business and properties of the Companies as such parties
may from time to time reasonably request. Such parties shall also be allowed
access, upon reasonable notice, to consult with the officers, employees,
accountants, counsel and agents of the Companies in connection with such
investigation of the properties and business of the Companies. In addition, at
all times prior to the Closing, RCG will afford to the Companies and the
Owners, and their representatives, access, upon reasonable notice, to all of
RCG's and its affiliate's properties, books and records as the Companies and
the Owners may reasonably request. No such investigation shall diminish or
otherwise affect any of the representations, warranties, covenants or
agreements of any party under this Agreement.

8.2 No-Shop. Unless and until this Agreement is terminated pursuant to
Article 11 hereof, neither any of the Companies nor any Owner shall directly or
indirectly, through any officer, director, employee, agent, intermediary or
otherwise: (i) solicit, initiate or encourage submission of proposals or offers
from any person or other entity relating to any purchase of an equity interest
in any of the Companies, or any merger, sale of substantial assets or any
similar transaction whether or not resulting in a change of control of any of
the Companies; (ii) participate in any discussions or negotiations regarding,
or furnish to any other person or other entity, any information with respect
to, or otherwise respond to, cooperate or encourage, any effort or attempt by
any other person or other entity to purchase any equity interest in the
Companies, or engage in a merger, purchase of substantial assets or any similar
transaction whether or not such transaction contemplates a change of control of
any of the Companies; or (iii) approve or undertake any such transaction. The
Companies and the Owners shall promptly communicate to RCG the terms of any
such oral or written proposal or offer upon knowledge or receipt of such
proposal or offer.

8.3 Affirmative Covenants of the Companies and the Owners. From the date
hereof until the earlier of the Effective Time or the termination of this
Agreement, the Companies and the Owners covenant and agree that, unless the
prior written consent of RCG shall have been obtained, and except as otherwise
expressly contemplated herein, each Company shall:

(i) operate its business only in the usual, regular, and ordinary course
of business, consistent with past practices;

(ii) use reasonable commercial efforts to preserve intact its business
organization, licenses, permits, government programs, private programs and
customers;

(iii) use reasonable commercial efforts to retain the services of its
employees, agents and consultants on terms and conditions not less favorable
than those existing prior to the date hereof and to ensure that there are no
material or adverse changes to employee relations;

(iv) keep and maintain its assets in their present condition, repair and
working order, except for normal depreciation and wear and tear, and maintain
its insurance, rights and licenses;

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(v) pay all accounts payable of the Company in accordance with past
practice and collect all accounts receivable in accordance with past practice,
but not less than in accordance with prudent business practices;

(vi) consult with RCG prior to undertaking any new business opportunity
outside the ordinary course of business;

(vii) confer on a regular and frequent basis with one or more designated
representatives of RCG to report material operational matters and to report the
general status of ongoing business operations;

(viii) make available to RCG true and correct copies of all internal
management and control reports (including aging of accounts receivable,
listings of accounts payable, and inventory control reports) and financial
statements related to the Company and furnished to management of the Company;

(ix) cause all tax returns that are due and have not been filed prior to
the date hereof or which become due prior to the Effective Time, to be prepared
and filed on or before the date such tax return is required to be filed (taking
into account any extensions of the filing deadlines granted); provided,
however, that any such tax return shall not be filed without a reasonable
opportunity for prior review and comment by RCG;

(x) as soon as reasonably practicable after they become available, but in
no event more than thirty (30) days following the end of each calendar month,
deliver to RCG true and complete copies of its monthly financial statements for
each calendar month ending subsequent to the date hereof in the format
historically utilized by the Company;

(xi) perform in all material respects all obligations under agreements
relating to or affecting its assets, properties or rights, except for the
failure of which performance would not have a material adverse effect on the
business of the Companies taken as a whole, financial or otherwise;

(xii) keep in full force and effect present insurance policies or other
comparable insurance coverage; and

(xiii) notify RCG of (i) any event or circumstance which is reasonably
likely to have a material adverse effect on the Company or would cause or
constitute a breach of any of the Company's representations, warranties or
covenants contained herein; or (ii) any unexpected change in the normal course
of business or in the operation of the Company's assets, and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), adjudicatory proceedings, budget
meetings or submissions involving any material property. Each Company agrees
to keep RCG fully informed of such events and to permit RCG's representatives
prompt access to all materials prepared in connection therewith.

8.4 Negative Covenants of the Company and the Owners. From the date
hereof until the earlier of the Effective Time or the termination of this
Agreement, the Companies and the Owners covenant and agree that no Company will
do any of the following without the prior written consent of the RCG:

(i) take any action which would (a) adversely affect the ability of any
party to the Merger Documents to obtain any consents required for the
transactions contemplated thereby, or (b) adversely affect the ability of any
party hereto to perform its covenants and agreements under the Merger
Documents;

(ii) amend any of its organizational or governing documents, except as
provided herein or for the purpose of accomplishing the transactions
contemplated by this Agreement;

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(iii) incur any additional debt obligation or other obligation for
borrowed money in excess of an aggregate of $100,000 except in the
ordinary course of the business of the Company consistent with past practices,
or impose, or suffer the imposition, on any material asset of the Company of
any lien or permit any such lien to exist;

(iv) repurchase, redeem, or otherwise acquire or exchange, directly or
indirectly, any Company Equity Securities, or any securities convertible into
any Company Equity Securities, or declare or pay any dividend or make any other
distribution in respect of Company Equity Securities, other than such dividends
or distributions as are described in Section 8.19 below.

(v) other than pursuant to the Merger Documents, issue, sell, pledge,
encumber, authorize the issuance of, enter into any contract to issue, sell,
pledge, encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional Company Equity Securities or any rights with
respect to any Company Equity Securities;

(vi) purchase or acquire any assets or properties, whether real or
personal, tangible or intangible, or sell or dispose of any assets or
properties, whether real or personal, tangible or intangible, except in the
ordinary course of business and consistent with past practices;

(vii) adjust, split, combine or reclassify any Company Equity Securities
or issue or authorize the issuance of any other securities in respect of or in
substitution for Company Equity Securities, or sell, lease, mortgage or
otherwise dispose of or otherwise encumber any asset having a book value in
excess of $50,000 other than in the ordinary course of business for reasonable
and adequate consideration;

(viii) purchase any securities or make any material investment, either by
purchase of stock or other securities, contributions to capital, asset
transfers, or purchase of any assets, in any entity, or otherwise acquire
direct or indirect control over any other entity;

(ix) grant any increase in compensation or benefits to the employees or
officers of the Company, except in accordance with past practice; pay any
severance or termination pay or any bonus other than pursuant to written
policies or written contracts in effect as of the date hereof and disclosed on
the Schedules hereto; enter into or amend any severance agreements with
officers of the Company; or grant any material increase in fees or other
increases in compensation or other benefits to directors of the Company except
in accordance with past practice;

(x) enter into or amend any employment contract between the Company and
any person or entity (unless such amendment is required by law) that the
Company does not have the unconditional right to terminate without liability
(other than liability for services already rendered), at any time on or after
the Effective Time;

(xi) adopt any new employee benefit plan or make any material change in or
to any existing employee benefit plans other than any such change that is
required by law or that, in the opinion of counsel, is necessary or advisable
to maintain the tax qualified status of any such plan;

(xii) make any significant change in any tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in tax laws or regulatory accounting requirements or GAAP;

(xiii) commence any litigation other than in accordance with past
practice, settle any litigation involving any liability of the Company for
material money damages or restrictions upon the operations of the Company;

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(xiv) except in the ordinary course of business and which is not material,
modify, amend or terminate any material contract or waive, release, compromise
or assign any material rights or claims;

(xv) except in the ordinary course of business and, even if in the
ordinary course of business, then not in an amount to exceed $300,000 in the
aggregate, make or commit to make any capital expenditure, or enter into any
lease of capital equipment as lessee or lessor;

(xvi) take any action, or omit to take any action, which would cause any
of the representations and warranties contained in Article 5 to be untrue or
incorrect; or

(xvii) make any loan to any person or increase the aggregate amount of any
loan currently outstanding to any person.

8.5 Affirmative Covenants of RCG. From the date hereof until the earlier
of the Effective Time or the termination of this Agreement, RCG covenants and
agrees that, unless the prior written consent of RenalWest shall have been
obtained, and except as expressly contemplated herein, RCG shall

(i) consult with RenalWest prior to making a new material business
opportunity outside the ordinary course of business;

(ii) as soon as reasonably practicable after they become available,
deliver to RenalWest true and complete copies of its monthly financial
statements for each calendar month ending subsequent to the date hereof, in the
format historically utilized by RCG;

(iii) perform in all material respects all obligations under agreements
relating to or affecting its assets, property or rights, except for the failure
of which performance would not have a material adverse effect on the business
of RCG, financial or otherwise; and

(iv) notify RenalWest of (i) any event or circumstance which is reasonably
likely to have a material adverse effect on RCG or would cause or constitute a
breach of any of RCG's representations, warranties or covenants contained
herein; or (ii) any unexpected change in the normal course of business or in
the operation of RCG's assets, and of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), adjudicatory proceedings, budget meetings or submissions
involving any material property. RCG agrees to keep RenalWest fully informed
of such events and to permit RenalWest's representatives prompt access to all
materials prepared in connection therewith.

8.6 Negative Covenants of RCG. (a) From the date hereof until the
earlier of the Effective Time or the termination of this Agreement, RCG
covenants and agrees that it will not do any of the following without the prior
written consent of RenalWest:

(i) take any action that would (a) adverse affect the ability of any
party to the Merger Documents to obtain any consents required for the
transactions contemplated thereby, or (b) adversely affect the ability of any
party hereto to perform its covenants and agreements under the Merger
Documents; or

(ii) amend any of its organizational or governing documents, except for
the purpose of accomplishing the transactions contemplated by this Agreement.

(b) From the date hereof until the earlier of the Effective Time or the
termination of this Agreement, RCG covenants and agrees that it will not do any
of the following without first notifying RenalWest of its intent:

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(i) other than pursuant to the Merger Documents, issue, sell, pledge,
encumber or enter into any contract to issue, sell, pledge, encumber, or
authorize the issuance of, or otherwise permit to become outstanding, any
additional capital stock of RCG, except for the granting of stock options to
employees and consultants in the ordinary course;

(ii) adjust, split or reclassify any outstanding capital stock of RCG
or authorize the issuance of any other securities in respect of, or in
substitution for, or in addition to, any outstanding capital stock of RCG, or
sell, lease, mortgage or otherwise dispose of or otherwise encumber any asset
having a book value in excess of $100,000 other than in the ordinary course of
business for reasonable and adequate consideration;

(iii) except for normal and customary cash management activities,
purchase any securities or make any material investment, either by purchase of
stock or other securities, contributions to capital, asset transfers, or
purchase of any assets, in any entity, or otherwise acquire direct or indirect
control over any other entity; or

(iv) take any action, or omit to take any action, which would cause any
of the representations and warranties contained in Article 7 to be untrue or
incorrect.

8.7 Confidentiality, Public Announcements. The parties hereby affirm and
ratify the terms of that certain letter agreement, dated June 27, 1996, among
them concerning confidentiality, public announcements and related matters,
which agreement remains valid and binding among the parties notwithstanding
Section 15.9 hereof.

8.8 Confidentiality, Noncompetition and Nonsolicitation. (a) Each Owner
agrees that, for a period of ten (10) years after the Effective Time, Owner
will not in any manner, directly or indirectly, by himself or herself or in
conjunction with any other person, conduct activities that are competitive with
the business of the Companies or acquire, establish or own any financial,
beneficial or other interest in (other than an interest consisting of less than
one percent (1%) of a class of publicly traded security), make any loan to or
for the benefit of, or render any managerial, marketing or other business
advice, to any entity that is then conducting activities that are competitive
with the business of the Companies, in either case within a geographic
territory defined as the seventy-five (75) mile radius of the Companies'
current locations (the "Territory"). For purposes of this Section the
"business of the Companies" shall mean owning or operating a renal dialysis
center, unit or facility or providing renal dialysis supplies or services to
any other center, unit or facility or any acute care facility or any home renal
dialysis patient, including the provision of pharmaceuticals or laboratory
services.

(b) Each Owner further agrees that, for a period of ten (10) years after
the Effective Time, Owner will keep confidential and not directly or indirectly
divulge to anyone or use or otherwise appropriate for Owner's own benefit or
for the benefit of others, any knowledge or information of a confidential
nature with respect to the business of the Companies, RCG, or any of their
affiliates, including all trade secrets, pricing information, marketing
information or technical information (hereinafter referred to as the
"Confidential Data"), except for (i) a disclosure that is required by law; or
(ii) information that has been made generally available to the public by the
act of one who has the right to disclose such information. Each Owner hereby
acknowledges and agrees that the prohibitions against disclosure of
Confidential Data recited herein are in addition to, and not in lieu of, any
rights or remedies which RCG may have available pursuant to the laws of any
jurisdiction or at common law to prevent the disclosure of confidential
information, and the enforcement by RCG of its rights and remedies pursuant
hereto shall not be construed as a waiver of any other rights or available
remedies which RCG may possess in law or equity. Each Owner acknowledges that
RCG has taken reasonable and appropriate steps to ensure the confidentiality
and non-disclosure of all such Confidential Data.

(c) Each Owner also agrees that, for a period of ten (10) years after the
Effective Time, Owner will not, for his or her own benefit or the benefit of
others, solicit any person or entity that has

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had, or disrupt or attempt to disrupt, any relationship, contractual or
otherwise (including with any patient, payor, physician, provider, managed care
organization or supplier), with RCG or any of its affiliates (including the
Companies), for the purpose of assisting, or creating such a relationship for,
any business entity that is conducting activities competitive with the business
of the Companies within the Territory.

(d) Each Owner further agrees that, for a period of ten (10) years after
the Effective Time, Owner shall not induce, nor attempt to induce, any employee
of RCG, or any of its affiliates (including the Companies), to terminate his or
her association with any such party.

(e) The covenants contained in this Section 8.8 are considered by the
parties hereto to be fair, reasonable and necessary for the protection of RCG
and the Companies. The parties mutually agree that if a violation of any
covenant contained in this Section 8.8 occurs, such violation or threatened
violation will cause irreparable injury to RCG and the Companies and the remedy
at law for any such violation or threatened violation will be inadequate. Each
Owner therefore agrees that RCG shall be entitled to appropriate equitable
relief, including but not limited to a temporary restraining order or a
preliminary injunction, in addition to any other remedy that might be available
at law or in equity.

(f) Nothing in this Section 8.8 shall be deemed to prohibit any Owner who
is a physician from exercising his or her medical judgment concerning the
treatment of his or her patient in any manner whatsoever in any location
whatsoever, and shall not be deemed to require the referral of any such patient
to any facility of RCG or any of its affiliates.

(g) The foregoing ten (10) year periods in this Section 8.8 are subject to
RCG obtaining from its physician stockholders owning at least sixty percent
(60%) of the RCG Common Stock issued to its physician stockholders in
connection with the acquisition by RCG of their dialysis centers (the "Required
Physicians"), revisions where needed to similar agreements with such Required
Physician extending their corresponding periods of coverage to ten (10) years
from their original starting date. In the event that the Required Physicians
are not subject to such ten year periods prior to or at the Closing, then the
foregoing ten (10) year periods in this Section 8.8 shall be reduced to the
longest corresponding period of time to which the Required Physicians are or
become subject.

8.9 Medical Director Agreements. The parties hereto agree that the
Company and each affiliated physician practice that has a physician member or
employee involved with the use, operation of or referral of patients to the
Company's dialysis facilities (the "Practices"), shall enter into a Medical
Director Agreement at Closing under which the Practices shall provide medical
director services to the Company for the dialysis facilities operated by the
Company. Such Medical Director Agreement shall have an initial term of seven
(7) years with renewal terms for additional three year periods and shall
provide for (i) an aggregate annual fee to be paid by RCG to the Practices of
$840,000 (subject to agreed upon modifications) to be divided among the
Practices at the Practices' discretion, (ii) certain restrictive covenants,
including but not limited to a covenant not to compete with a duration of the
term of the Medical Director Agreement and three (3) years after termination of
the Medical Director Agreement, and (iii) other customary terms and conditions.
The Owners agree that a Medical Director Agreement substantially in the form
of Exhibit 8.9 attached hereto will be entered into at the Closing by them and
their practices.

8.10 Right of First Refusal. The Owners recognize the opportunities to
provide care for End Stage Renal Disease in an integrated manner and agree to
work in good faith with RCG to pursue opportunities for RCG and its affiliates
to offer the full range of dialysis services, including physician and
transplant services, to payors, health maintenance and other managed care
organizations. Furthermore, the Owners agree to work in good faith with RCG or
any of its affiliates for the provision of medical director services for
dialysis treatment and for the provision of nephrology physician services at
the facilities of RCG acquired from or operated through the Company after the
Closing, and agree that for a period of three years from the Closing Date, the
Owners will allow RCG to have a right of first refusal with respect to any
proposed contract or other arrangement with a third party for the sale or
management of the Owner's medical practice on the same terms and conditions as
proposed by such third party, provided that such offer

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shall not apply to any a transaction in which the Owner's medical practice
would join the multispecialty physician group from which the Owner's
practice has received substantially all of its patient referrals. RCG or any
of its affiliates may accept the offer by giving written notice of such
acceptance at any time within 20 days following receipt of written notice of
the offer. No activities of any Owner under this Section 8.10 shall be deemed a
violation of Section 8.8 hereof.

8.11 Delivery of Schedules. As soon as reasonably practical following the
execution hereof, the Companies and the Owners shall deliver all Schedules to
be delivered by them to RCG and its counsel accompanied by a certificate,
executed by the Companies and the Owners stating that all Schedules required to
be delivered by them hereunder have been delivered. The Companies and the
Owners understand and acknowledge that RCG's obligation to consummate the
Closing is subject to its satisfactory review of said Schedules as contemplated
by Section 9.6 hereof. After receipt of all such Schedules and the
certificate, RCG shall complete its review of said Schedules and notify the
Company of its satisfaction with said Schedules at least ten (10) days prior to
Closing.

8.12 Availability of Rule 144 Information. For so long as RCG is subject
to the 1934 Act, RCG shall take all actions necessary to enable the Owners to
sell any shares of RCG Stock received by them without registration under the
1933 Act within the limitations of the exemption provided by Rule 144 under the
1933 Act, as such rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission,
including filing on a timely basis all reports required to be filed by the 1934
Act. Upon the request of an Owner, RCG shall deliver to such Owner a written
statement as to whether it has complied with such requirements.

8.13 Approval of Transactions. Subject to Article 11 hereof, each Owner,
through the execution and delivery of this Agreement, irrevocably votes for and
approves the Merger in its capacity as a holder of Company Equity Securities
and each such Owner does hereby waive any required notice for any meeting
concerning such matters. Subject to Article 11 hereof, at any further meeting
of the Owners of the Company called to vote on the Mergers or in any other
circumstances upon which a vote, consent or other approval with respect to the
Mergers is sought, such Owner shall vote (or cause to be voted), such Owner's
Company Equity Securities in favor of the Mergers and the execution, delivery
and performance by the Companies of the Merger Documents. Each Owner
acknowledges and agrees that he, she or it has had adequate opportunity to
review the terms and conditions of the Mergers and to seek independent legal,
tax and financial advice.

8.14 Accounting and Tax Treatment. Each of the parties undertakes and
agrees to use its reasonable efforts to cause the Mergers, and to take no
action which would cause the Mergers not, to qualify for pooling-of-interests
accounting treatment and treatment as a "reorganization" within the meaning of
Section 368(a) of the Code for federal income tax purposes. Each Owner agrees
that he will not sell, transfer, or otherwise dispose of his interests in, or
reduce his risk relative to, any of the shares of RCG Common Stock into which
his shares of Company Common Stock are converted upon consummation of the
Merger until such time as the requirements of SEC Accounting Series Release
Nos. 130 and 135 ("ASR 130 and 135") have been met. Each Owner understands
that ASR 130 and 135 relate to publication of financial results of post-Merger
combined operations of RCG and the Companies. RCG agrees to promptly notify
the Owners following satisfaction of the requirements of ASR 130 and 135.

8.15 Resignation and Releases. Simultaneously with the execution and
delivery of this Agreement, each officer, director and Owner of the Companies
shall deliver a Resignation and Release, to be effective as of the Closing, in
the form of Exhibit 8.15 to this Agreement.

8.16 Representations on RCG Board of Directors and Medical Advisory Board.
RCG agrees that it shall at the Closing increase the number of members to its
Board of Directors by one and add an individual specified by the Companies as a
new member, with such member subject to the reasonable approval of RCG, to
serve an initial term ending on the date of RCG's 1999 Annual Meeting of its
stockholders. Further, RCG shall recommend to its stockholders at such 1999
Annual Meeting that such

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designee, or such other designee reasonably approved by RCG, serve for
an additional three (3) year term as a member of the Board of Directors of
RCG. Furthermore, RCG agrees to name a physician specified by the Companies,
who shall be subject to the reasonable approval of RCG, as a member of RCG's
Medical Advisory Board.

8.17 Grant of Options. At Closing, RCG shall grant options to purchase an
aggregate of 270,000 shares of RCG Common Stock to employees of the Companies.
Such options shall (i) to the extent possible be granted under RCG's 1996 Stock
Option Plan, (ii) be non-qualified stock options for tax purposes, (iii) be
allocated among the employees or consultants of the Companies in a manner
mutually agreed with RCG prior to the Closing, (iv) vest over a five-year
period, and (v) have exercise prices equal to the closing price of the RCG
Common Stock on the Nasdaq National Market on the Closing Date. The additional
terms of said options shall be commensurate with similar stock options granted
generally by RCG to similarly situated employees and affiliates of RCG.

8.18 Arizona Operations. RCG agrees that the main office of RenalWest in
Mesa, Arizona, will serve as the executive headquarters of RCG's southwest
region, which will include the existing operations of the Companies in Mesa
plus all centers newly developed or acquired in the states of Arizona, New
Mexico, Colorado, Utah, Nevada and California (the "Southwest Region"), and
that John Greksa, the current Chief Executive Officer of RenalWest, will serve
as the Chief Operating Officer of the Southwest Region while he is employed
with RCG. The foregoing covenant shall expire upon the later to occur of the
fifth anniversary of the Closing Date or the date on which Sam A. Brooks, Jr.
ceases to serve as the Chief Executive Officer of RCG.

8.19 Pre-Closing Distributions to Members. The parties intend and agree
that, solely in a manner consistent with prior practices, the income of
RenalWest earned prior to the Closing shall be distributed to the Members and
that the Members shall distribute such income to the Owners. Such
distributions by RenalWest shall be made in accordance with the respective
ownership interests therein of the Members and such distributions to the Owners
shall be made in accordance with their respective ownership of the Members, all
of which shall be consistent with past practices. The Owners agree that they
shall be responsible for their personal income tax liability resulting from
such distributions. RCG agrees to provide reasonable cooperation to assist
with the accounting and completion of such distributions.

8.20 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, the Members and the Merger Corps. shall execute
and file Articles of Merger with the Secretary of State of Arizona in
connection with the Closing.

8.21 Availability of Books and Records. RCG agrees to cause the Companies
to make available in a reasonable manner the books and records of the Companies
to enable the Owners to complete the tax returns and other matters described in
Section 5.19 and for general review by the Owners for a period of three (3)
years following the Closing.

8.22 Conditions to Closing. The Owners, the Companies and RCG agree to
use their commercially reasonable efforts to satisfy the closing conditions set
forth in Articles 9 and 10 of this Agreement by September 30, 1996, and if not
by such time, as soon thereafter as possible.

ARTICLE 9
CONDITIONS TO OBLIGATIONS OF RCG AND MERGER CORP.

The obligation of RCG and the Merger Corps. to consummate the Mergers is
subject to the satisfaction or waiver, at or prior to Closing, of each of the
following conditions:

9.1 Representations and Warranties. The representations and warranties of
the Companies and the Owners set forth in this Agreement, or any document or
instrument delivered to RCG hereunder,

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shall be true and correct as of the Effective Time with the same force
and effect as if such representations and warranties had been made at and as of
the Effective Time, except with respect to any of such representations and
warranties referring to a state of facts existing on a specified date prior to
the Closing Date, it shall be sufficient if at the Effective Time such
representation and warranty continues to describe accurately the state of facts
existing on the date so specified.

9.2 Performance; Covenants. All of the terms, covenants and conditions of
the Merger Documents to be complied with or performed by the Companies or the
Owners at or prior to Closing shall have been complied with and performed in
all material respects including, but not limited to, the delivery of the
following documents:

(a) A good standing certificate regarding the Companies, certified by the
Secretary of State of Arizona dated within fifteen (15) business days of the
Closing;

(b) A certificate dated as of the Closing Date signed by the duly
authorized officers of the Companies and by the Owners certifying the
satisfaction of the condition in Section 9.1 and that the Companies and each of
the Owners have fulfilled all of the conditions of this Article 9;

(c) Written consents of all third parties necessary for the consummation
of the transactions contemplated by the Merger Documents;

(d) Resolutions of the Companies (Board and shareholder) in form and
substance reasonably satisfactory to RCG approving the execution, delivery and
performance of this Agreement and the consummation of the Mergers, certified by
an appropriate officer of the Companies;

(e) An incumbency certificate certifying the identity of the officers of
the Companies; and

(f) Resignations and Release of each of the officers, directors and Owners
of the Companies (as applicable) effective as of the Effective Time;

(g) The Medical Director Agreements entered into by the Practices as
described in Section 8.9;

(h) All books and records of the Companies, including all corporate and
other records, minute books, stock record books, stock registers, books of
accounts, contracts, agreements and such other documents or certificates as
shall be reasonably requested by RCG; and

(i) All agreements or arrangements, whether written or oral, among the
Owners and/or the Companies that relate in any manner to the Company Equity
Securities shall have been terminated.

9.3 Necessary Consents and Approvals. RCG, the Companies and the Owners
shall have obtained all licenses, consents and permits, provided all notices,
and all waiting periods required by Law shall have expired, necessary in order
for RCG, the Merger Corps. and the Companies to consummate the Mergers and for
the continued operation of the business of the Company after the Effective Time
consistent with their operation prior to the Effective Time, including all
consents and approvals listed on the Schedules hereto.

9.4 No Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets, liabilities or condition,
financial or otherwise, of the Companies, taken a whole, between the date
hereof and the Effective Time, and a certificate shall have been delivered to
RCG to such effect signed by each of the Owners and such executive officers of
the Companies as RCG may request.

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9.5 No Injunction, Etc. No action, proceeding, investigation or
legislation shall have been instituted, threatened or proposed before any
court, governmental agency, or legislative body to enjoin, restrain, prohibit
or obtain substantial damages in respect of, or which is related to, arises out
of, this Agreement or the consummation of the Mergers, or which is related to
or arises out of the business or operations of the Companies, if such action,
proceeding, investigation or legislation, in the reasonable judgment of RCG or
its counsel, would make it inadvisable to consummate such transactions.

9.6 Satisfactory Due Diligence. RCG shall in all respects be reasonably
satisfied with the results of its due diligence investigation of the Company,
including its continuing review of matters contained or not contained in the
Schedules.

9.7 Legal Opinion. RCG shall have received an opinion of counsel to the
Company and Owners in form and substance reasonably satisfactory to RCG .

9.8 Pooling Letter. RCG shall have received, from Ernst & Young LLP,
assurances in form and substance reasonably acceptable to RCG to the effect
that the Mergers will qualify for pooling-of-interests accounting treatment.

9.9 Stockholder Approval. The Mergers shall have been approved by the
stockholders of RCG.

9.10 Employment Agreements. Each of John Greksa, Jeff Weintraub and Ron
Fuller shall have entered into an Employment Agreement in form and substance
reasonably satisfactory to RCG.

9.11 Dissenter's Rights. No Owner shall have exercised dissenter's or
appraisal rights under any applicable law in respect of the Mergers.

ARTICLE 10
CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE OWNERS

The obligations of the Companies and the Owners to close the Mergers are
subject to the satisfaction or waiver, at or prior to Closing, of each of the
following conditions:

10.1 Representations and Warranties. The representations and warranties
of RCG and the Merger Corp. set forth in this Agreement, or any document or
instrument delivered to any party hereunder, shall be true and correct as of
the Effective Time with the same force and effect as if such representations
and warranties had been made at and as of the Effective Time, except with
respect to any of such representations and warranties referring to a state of
facts existing at a specified date prior to the Closing Date, it shall be
sufficient if at the Effective Time such representation and warranty continues
to describe accurately the state of facts existing on the date so specified.

10.2 Performance; Covenants. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by RCG at or prior to the
Closing shall have been complied with and performed in all material respects,
including, but not limited to delivery of the following documents:

(a) A good standing certificate regarding the Merger Corps. certified
by the Secretary of State of Arizona, each dated within 15 days prior to
Closing;

(b) A certificate dated as of the Closing Date signed by a duly
authorized officer of RCG and the Merger Corps. certifying the satisfaction of
the condition in Section 10.1 and that RCG and the Merger Corps. have fulfilled
all of the conditions of this Article 10;

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(c) Resolutions adopted by the Board of Directors of RCG and the Board
of Directors and shareholder of the Merger Corps. in form and substance
satisfactory to the Companies and the Owners approving the execution, delivery
and performance of this Agreement and the consummation of the Mergers,
certified by the Secretary of RCG and the Merger Corps., respectively;

(d) The Medical Director Agreement entered into by RCG as described in
Section 8.9; and

(e) An incumbency certificate certifying the identity of the officers of
RCG.

10.3 Necessary Consents and Approvals. RCG, the Companies and the Owners
shall have obtained all licenses, consents and permits, provided all notices,
and all waiting periods required by Law shall have expired, necessary in order
for RCG, the Merger Corps. and the Companies to consummate the Mergers and for
the continued operation of the business of the Company after the Effective Time
consistent with their operation prior to the Effective Time, including all
consents and approvals listed on the Schedules hereto.

10.4 No Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets, liabilities or condition,
financial or otherwise, of RCG between the date hereof and the Effective Time,
and a certificate shall have been delivered to the Companies and the Owners to
such effect signed by an authorized officer of RCG.

10.5 No Injunction, Etc. No action, proceeding, investigation or
legislation shall have been instituted, threatened or proposed before any
court, governmental agency, or legislative body to enjoin, restrain, prohibit
or obtain substantial damages in respect of, or which is related to, arises out
of, this Agreement or the consummation of the Mergers, or which is related to
or arises out of the business or operations of RCG, if such action, proceeding,
investigation or legislation, in the reasonable judgment of the Companies or
their counsel, would make it inadvisable to consummate such transactions.

10.6 Legal Opinion. The Owners shall have received an opinion of counsel
to RCG in form and substance reasonably satisfactory to the Owners.

10.7 SEC and Exchange Approval. RCG shall have taken all actions and
complied in all material respects with requirements necessary to notify and
obtain any consents from the SEC, Nasdaq and any state securities law
regulatory agency of all actions contemplated by this Agreement.

10.8 Approval of Registration Rights. RCG shall have obtained the
requisite approval of its stockholders currently holding registration rights
for the grant of the registration rights provided to the Owners in Article 13
hereof.

10.9 Satisfactory Due Diligence. The Owners shall in all respects be
reasonably satisfied with the results of the due diligence investigation of
RCG.

10.10 Pooling Letter. RCG shall not have waived the condition in Section
9.8.

10.11 Employment Agreements. RCG shall have caused RenalWest to enter
into an employment agreement with each of John Greksa, Jeff Weintraub and Ron
Fuller on terms and conditions reasonably satisfactory to and approved by
RenalWest prior to the Closing.

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ARTICLE 11
TERMINATION

11.1 Right of Termination. This Agreement and the Mergers may be
terminated at any time prior to the Closing Date:

(a) By the mutual written consent of RCG and each Company.

(b) By RCG or the Companies as contemplated in Section 3.1(b)(iii) and
(v).

(c) By RCG in the event that the conditions set forth in Article 9 of this
Agreement shall not have been satisfied or waived by October 31, 1996, unless
such satisfaction shall have been frustrated or made impossible by any act or
failure to act of RCG.

(d) By the Companies in the event that the conditions set forth in Article
10 of this Agreement shall not have been satisfied or waived by October 31,
1996, unless such satisfaction shall have been frustrated or made impossible by
any act or failure to act of any Company or one or more of the Owners.

(e) By the Companies or RCG if the Closing shall not have occurred by
November 30, 1996.

11.2 Effect of Termination. In the event of termination in accordance
with Section 11.1, this Agreement shall become void and of no further force or
effect, without any liability on the part of any of the parties hereto or their
respective owners, directors, officers or employees, except the obligations of
each party to preserve the confidentiality of documents, certificates and
information furnished to such party pursuant thereto and for any obligation or
liability of any party based on or arising from any breach or default by such
party with respect to its representations, warranties, covenants or agreements
contained in the Merger Documents.

ARTICLE 12
INDEMNIFICATION

12.1 Indemnification by Owners. (a) Subject to Sections 12.3 through
12.6, each Owner shall, severally and not jointly, indemnify and hold harmless
RCG, the Surviving Corporations and their respective officers, directors,
agents or affiliates, from and against any and all demands, claims, actions or
causes of action, assessments, losses, diminution in value, damages (including
special and consequential damages), liabilities, costs and expenses, including
but not limited to reasonable attorneys' fees ("Losses"), suffered or incurred
by any such party by reason of or arising out of any of the following:

(i) the breach of any representation or warranty contained in Article 6
hereof or in any document or instrument delivered by such Owner in connection
with the Merger Documents; and

(ii) the non-fulfillment of any covenant or agreement of such Owner
contained in the Merger Documents.

(b) Subject to Sections 12.3 through 12.6, the Owners shall jointly and
severally indemnify and hold harmless RCG, the Surviving Corporations and their
respective officers, directors, agents or affiliates, from and against any and
all demands, claims, actions or causes of action, assessments, losses,
diminution in value, damages (including special and consequential damages),
liabilities, costs and

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expenses, including but not limited to reasonable attorneys' fees
("Losses"), suffered or incurred by any such party by reason of or arising out
of any of the following:

(i) the breach of any representation or warranty contained in Article 5
hereof or in any document or instrument delivered by the Companies in
connection with the Merger Documents; and

(ii) the non-fulfillment of any covenant or agreement of the Companies
contained in the Merger Documents.

(c) No claim for indemnification with respect to any alleged
misrepresentation or breach of warranty may be made (i) thirty days after the
first publication by RCG of audited consolidated financial statements covering
an accounting period after the Closing Date for those items that would be
expected to be encountered in the audit process or (ii) one (1) year after the
Closing Date for all other items; provided, however, that the right to
indemnification shall extend beyond such period with respect to any specific
claim for indemnification for which written notice was given to the Owners
during such period but shall expire on the expiration of the applicable
statutes of limitations unless an action has been brought with respect thereto.

12.2 Indemnification by RCG. (a) Subject to Sections 12.3 through 12.6,
RCG shall indemnify and hold harmless the Owners, and any of their officers,
directors, agents and affiliates, at all times after the date hereof from and
against any and all Losses suffered or incurred by any such party by reason of,
or arising out of any of the following:

(i) any misrepresentation, breach of warranty or breach or
non-fulfillment of any agreement of RCG contained in any Merger Document or any
document or instrument delivered by RCG in connection therewith; and

(ii) the non-fulfillment of any covenant or agreement of RCG contained
in the Merger Documents hereof.

(b) No claim for indemnification with respect to any alleged
misrepresentation or breach of warranty may be made (i) thirty days after first
publication by RCG of audited consolidated financial statements covering an
accounting period after the Closing Date for those items that would be expected
to be encountered in the audit process or (ii) one (1) year after the Closing
Date for all other items; provided, however, that the right to indemnification
shall extend beyond such period with respect to any specific claim for
indemnification for which written notice was given to RCG during such period
but shall expire on the expiration of the applicable statutes of limitations
unless an action has been brought with respect thereto.

12.3 Notice and Opportunity to Defend. The party indemnified under this
Article 12 (the "Indemnified Party") shall promptly notify in writing the
indemnifying party (the "Indemnifying Party") of any matter giving rise to an
obligation to indemnify and the Indemnifying Party shall defend such claim at
its expense with counsel reasonably acceptable to the Indemnified Party,
provided that the Indemnifying Party may not settle any such claim without the
consent of the Indemnified Party. The Indemnified Party agrees to cooperate
with the Indemnifying Party and to make reasonably available to the
Indemnifying Party any necessary records or documents in the possession of the
Indemnified Party which are necessary to defend such claim. If the
Indemnifying Party does not defend or settle such claim, the Indemnified Party
may do so without the Indemnifying Party's participation, in which case the
Indemnifying Party shall pay the expenses of such defense, and the Indemnified
Party may settle or compromise such claim without the Indemnifying Party's
consent. The failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations hereunder
except to the extent that the Indemnifying Party is actually prejudiced by such
failure to give notice.

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12.4 Indemnification Deductible. Except with respect to any
indemnification claim under Sections 12.1(a)(ii), 12.1(b)(ii) or 12.2(a)(ii),
no Indemnifying Party (with the Owners as a group deemed as a single
Indemnifying Party for this purpose) shall be required to indemnify the
Indemnified Party (with the Owners as a group deemed as a single Indemnifying
Party for this purpose) unless the amount of the loss or claim for which
indemnification is sought, when aggregated with all other losses and claims for
which indemnification is sought by the Indemnified Party (with the Owners as a
group deemed as a single Indemnifying Party for this purpose), exceeds
$200,000, at which time rights to indemnification for losses and claims may be
asserted for any amounts in excess of $200,000.

12.5 Indemnification Limit.

(a) In no event shall any Owner be required to satisfy an indemnification
obligation in excess of one hundred percent (100%) of the aggregate value of
the shares of RCG Common Stock (valued at the Average Trading Price) to be
received by such Owner and in no event shall RCG be required to satisfy an
indemnification obligation in excess of one hundred percent (100%) of the
aggregate value of all of the shares of RCG Common Stock (valued at the Average
Trading Price) issued as consideration hereunder.

(b) The obligations to indemnify under this Article 12 shall be satisfied
solely and exclusively by means of delivery by the Indemnifying Party to the
Indemnified Party of shares of RCG Common Stock whose Average Trading Price
equals the amount for which the Indemnified Party is entitled to be
indemnified, provided that the Owners shall be obligated to satisfy their
indemnification obligation in cash to the extent that they no longer hold a
sufficient number of shares of RCG Common Stock to satisfy their obligation.

12.6 Survival, Exclusivity and Insurance. The representations and
warranties of the parties contained in the Merger Documents or in any document
or instrument delivered in connection therewith shall survive the Closing and
shall not be extinguished thereby notwithstanding any investigation or other
examination by any party, provided that from and after the Closing the remedies
set forth in this Article 12 shall constitute the sole and exclusive remedy for
any inaccuracy or breach of any such representation or warranty. The
limitations contained in this Article 12 shall not apply to fraud or
intentional misrepresentation.

ARTICLE 13
REGISTRATION RIGHTS

13.1 General.

(a) For purposes of this Article 13, (i) the term "Registrable Securities"
means (1) the RCG Common Stock issued to the Owners pursuant to this Agreement
and (2) any security issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of (pursuant
to any reorganization, recapitalization, business combination or otherwise),
such RCG Common Stock and (ii) the term "Holder" means the Owners or a
transferee of Registrable Securities to which the Owners may transfer their
registration rights pursuant hereto, but not a transferee of any such
transferee.

(b) RCG hereby grants to the Holders the right to include their
Registrable Securities in a registration for resale upon the same terms and
conditions as granted by RCG to its existing stockholders (the "Founding
Stockholders"), a copy of which registration rights is attached hereto as
Appendix A and which are hereby granted and made applicable to the Owners with
the following modifications:

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<PAGE> 187

(i) RCG will undertake reasonable commercial efforts to file a
registration statement for the Secondary Offering described in Section 1.2(a)
of Appendix A with the SEC by November 30, 1996 and thereafter to take
reasonable commercial efforts to have said registration statement declared
effective by the SEC as soon as practicable.

(ii) To the extent permissible under the "pooling of interests" rules
described in Section 8.14 of this Agreement, the Owners shall have the right to
include up to forty percent (40%) of their aggregate Registrable Securities in
any such Secondary Offering, provided that said Registrable Securities are
allocated among the Owners in a manner reasonably acceptable to RCG.

(iii) The Owners, acting by a majority in interest, shall have the
right independently to elect the demand registration rights described in
Section 1.2(a) of Appendix A and shall have the right to include up to twenty
percent (20%) of their Registrable Securities in any such demand registration.

(iv) Notwithstanding Section 1.11 of Appendix A, the rights granted in
this Article 13 shall not expire until the expiration of the holding period
specified in paragraph (d) of Rule 144 under the 1933 Act with respect to the
Registrable Securities, as said Rule may be amended after the date hereof.

(v) Notwithstanding Section 1.2(c) of Appendix A, if Holders (i.e.,
Owners and their transferees as defined in this Agreement) proposing to
distribute their Registrable Securities shall be prevented from including at
least eighty percent (80%) of the Registrable Securities proposed to be
distributed by them, then RCG shall be obligated to effect one (1) additional
demand registration pursuant to Section 1.2 upon the request of Holders.

(vi) Notwithstanding Section 1.3 of Appendix A, the Holders shall have
the right to include up to forty percent (40%) of their aggregate Registrable
Securities in any such Piggy-Back Registration.

(vii) Notwithstanding Section 1.9 of Appendix A, any Holder's
registration rights hereunder may be assigned to a permitted transferee or
assignee of Registrable Securities, provided that RCG is given written notice
by such Holder at the time of or within a reasonable time of after such
transfer, stating the name and address of said transferee or assignee and
identifying the Registrable Securities with respect to which such registration
rights are being assigned. Any transferee shall, as a condition of such
transfer, agree that all transferred Registrable Securities are subject to the
terms, conditions, provisions and agreement of this Agreement.

(c) The foregoing rights in Section 13.1(b) are subject to RCG obtaining
the written consent of the Founding Stockholders as required by Section 1.10 of
Appendix A.

(d) RCG agrees to undertake reasonable commercial efforts to satisfy the
reporting requirements described in Section 8.14 in a manner to enable the
Owners to participate in the Secondary Offering described above and to take
other reasonable and appropriate actions to enable the owners to participate in
such Secondary Offering. In the event that such Secondary Offering occurs and
the Owners are not able to participate through no fault of them or the
Companies, then RCG agrees to provide reasonable assistance to the Owners to
aid them in obtaining a loan or loans from a third party (such loan secured by
an adequate amount of their shares of Common Stock) until June 30, 1997 (the
"Maturity Date"), including, if necessary, a guaranty by RCG to such third
party lender of up to an aggregate of $1,500,000 of such loan or loans (such
guaranty by RCG to be secured by an adequate number of the Owners' shares of
RCG Common Stock and allocated among such Owner loans at their discretion). If
such loan or loans are not available on terms and conditions otherwise
reasonably acceptable to the Owners, RCG agrees to provide a loan or loans
directly to the Owners of up to an aggregate amount of $1,500,000 (to be
allocated among the Owners at their discretion) which (i) mature on the
Maturity Date (ii) contain terms and

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<PAGE> 188

conditions to the Owners no less favorable than are available to RCG
from its third party lenders, and (iii) are secured by an adequate number of
shares of RCG Common Stock. Either of the loan or loans described in this
Section 13.1(d) shall be paid prior to the Maturity Date to the extent of the
first available proceeds from any resale of the Owner's shares of RCG Common
Stock under the registration rights provided herein.

ARTICLE 14
CERTAIN DEFINITIONS

Except as otherwise provided herein, the capitalized terms set forth below
shall have the following meanings:

"ABCA" shall mean the Arizona Business Corporation Act.

"Agreement" shall mean this Agreement and Plan of Merger, including the
Exhibits and Schedules delivered pursuant hereto and incorporated herein by
reference.

"Articles of Merger" shall mean the Articles of Merger to be executed by
the Merger Corps. and the Members and filed with the Secretary of State of
Arizona relating to the Mergers as contemplated by Section 1.1 of this
Agreement.

"Closing Date" shall mean the date on which the Closing occurs.

"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.

"Company Equity Securities" shall mean the equity securities of each
Company of any type, including but not limited to common stock, preferred
stock, options to purchase the foregoing and securities convertible into any of
the foregoing.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.

"ERISA Affiliate" shall mean, with respect to any entity, any other
entity, which, together with such entity, would be treated as a single employer
(i) under Section 414(b) or (c) of the Code or (ii) for purposes of any Benefit
Plan subject to Title IV of ERISA, under Section 414(b), (c), (m) or (o) of the
Code.

"Exhibits" shall mean the Exhibits so marked, copies of which are attached
to this Agreement. Such Exhibits are hereby incorporated by reference herein
and made a part hereof, and may be referred to in this Agreement and any other
related instrument or document without being attached hereto.

"HSR Act" shall mean Section 7A of the Clayton Act, as added by Title II
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder.

"Law" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a person or its assets,
Liabilities or business, including those promulgated, interpreted or enforced
by any Regulatory Authority.

"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including costs
of investigation, collection and defense), claim, deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course
of business) of any type, whether accrued, absolute or contingent, liquidated
or unliquidated, matured or unmatured, or otherwise.

"Member Common Stock" shall mean the common stock of the Members.

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<PAGE> 189

"Merger Corp. Common Stock" shall mean the $0.01 par value common
stock of each Merger Corp.

"Merger Documents" shall mean the Merger Agreement, including these
terms and conditions, and all other agreements, instruments and documents to be
executed and delivered in connection with the Merger Agreement and the
transactions contemplated hereby.

"NASD" shall mean the National Association of Securities Dealers, Inc.

"1933 Act" shall mean the Securities Act of 1933, as amended.

"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.

"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in a
representative capacity.

"RCG Common Stock" shall mean the $0.01 par value common stock of RCG.

"Regulatory Authorities" shall mean, collectively, all federal and
state regulatory agencies having jurisdiction over the Parties and their
respective Subsidiaries, including the NASD, and the SEC.

"SEC" shall mean the Securities and Exchange Commission.

"Surviving Corporations" shall mean the Members as the surviving
corporations resulting from the Mergers.

(b) In addition to the terms defined in Section 14.1 (a) above, the
terms set forth below shall have the meanings ascribed thereto in the referenced
sections:

<TABLE>
<S> <C>
Anti-Dilution Event - Section 3.2 Indemnified Party - Section 12.3
Benefit Plans - Section 5.15 Indemnifying Party - Section 12.3
Closing - Section 1.2 IRS - Section 5.19
Closing Date - Section 1.2 Losses - Section 12.1
Company Agreements - Section 5.13 Medicare and Medicaid programs - Section 5.20
Confidential Data - Section 8.7(b) Merger - Section 1.1
Effective Time - Section 1.3 Merger Consideration - Section 3.1(b)
Environmental Condition - Section 5.17 Merger Documents - Section 5.1
Exchange Agent - Section 4.1 Private Programs - Section 5.20
Financial Statements - Section 5.7 RCG Documents - Section 7.8
Government Programs - Section 5.20 Remuneration - Section 5.22
</TABLE>

(c) Any singular term in this Agreement shall be deemed to include
the plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."

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<PAGE> 190

ARTICLE 15
MISCELLANEOUS PROVISIONS

15.1 Notices. (a) Any notice sent in accordance with the provisions of
this Section 15.1 shall be deemed to have been received (even if delivery is
refused or unclaimed) on the date which is: (i) the date of proper posting, if
sent by certified U.S. mail or by Express U.S. mail or private overnight
courier; or (ii) the date on which sent, if sent by facsimile transmission,
with confirmation and with the original to be sent by certified U.S. mail,
addressed as follows:

<TABLE>
<S> <C>
If to the Owners: c/o Jeff Weintraub
------------------------------
------------------------------
------------------------------
Telecopy Number:
--------------

Copy to Counsel: Squire, Sanders & Dempsey
Two Renaissance Square
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
Telecopy Number: 602-253-8129
Attention: Christopher D. Johnson, Esq.

If to RCG: Renal Care Group, Inc.
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
Telecopy Number: (615) 321-5419
Attention: Mr. Sam A. Brooks

Copy to Counsel: Alston & Bird
One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309
Telecopy Number: (404) 881-7777
Attention: Steven L. Pottle, Esq.
</TABLE>

(b) Any party hereto may change its address specified for notices
herein by designating a new address by notice in accordance with this Section
15.1.

15.2 Owner's Representative. (a) The Owners have and do hereby
irrevocably make, constitute and appoint Jeff Weintraub as their agent (the
"Owner's Representative") and authorize and empower him to fulfill the role of
Owner's Representative hereunder. In the event of the resignation of the
Owner's Representative, the resigning Owner's Representative shall appoint a
successor from among the Owners and who shall agree in writing to accept such
appointment. If the Owner's Representative should die or become incapacitated,
his successor shall be appointed within 15 days of his death or incapacity by a
majority of the Owners, and such successor shall be a Owner. The choice of a
successor Owner's Representative appointed in any manner permitted above shall
be final and binding upon all of the Owners. The decisions and actions of any
successor Owner's Representative shall be, for all purposes, those of a Owner's
Representative as if originally named herein.

(b) Each Owner has made, constituted and appointed and by the execution
of this Agreement hereby irrevocably makes, constitutes and appoints the
Owner's Representative as such person's true and lawful attorney in fact and
agent, for such person and in such person's name, place and stead for all
purposes necessary or desirable in order for the Owner's Representative to take
the actions contemplated by

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<PAGE> 191

the Merger Documents on behalf of the Owners, with the ability to execute and
deliver all instruments, certificates and other documents of every kind
incident to the foregoing to all intents and purposes and with the same effect
as such Owner could do personally, and each such Owner hereby ratifies and
confirms as his, her, or its own act, all that the Owner's Representative shall
do or cause to be done pursuant to the provisions hereof. All Claim Notices
and all other notices and communications directed to Owners under this
Agreement shall be given to the Owner's Representative.

(d) The Owners hereby agree to indemnify the Owner's Representative and
to hold him or her harmless against any and all loss, liability or expense
incurred without bad faith on the part of the Owner's Representative and
arising out of or in connection with his or her duties as Owner's
Representative, including the reasonable costs and expenses incurred by the
Owner's Representative in defending against any claim or liability in
connection herewith.

15.3 Expenses. Each of the parties hereto shall bear and pay all costs
and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, provided, however, all legal, accounting
and other fees and expenses incurred by the Companies and the Owners concerning
the transactions contemplated hereby in excess of $150,000 shall be paid by the
Owners at the Closing or thereafter when due.

15.4 Further Assurances. Each party covenants that at any time, and from
time to time, after the Closing, it will execute such additional instruments
and take such actions as may be reasonably requested by the other parties to
confirm or perfect or otherwise to carry out the intent and purposes of this
Agreement.

15.5 Waiver. Any failure on the part of any party to comply with any of
its obligations, agreements or conditions hereunder may be waived by any other
party to whom such compliance is owed. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a continuing
waiver.

15.6 Assignment. This Agreement shall not be assignable by any of the
parties hereto without the written consent of all other parties.

15.7 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns. This
Agreement shall survive the Closing and not be merged therein.

15.8 Headings. The section and other headings in this Agreement are
inserted solely as a matter of convenience and for reference, and are not a
part of this Agreement.

15.9 Entire Agreement. This Agreement and the Exhibits, Schedules,
certificates and other documents delivered pursuant hereto or incorporated
herein by reference, contain and constitute the entire agreement among the
parties and supersede and cancel any prior agreements, representations,
warranties, or communications, whether oral or written, among the parties
relating to the transactions contemplated by this Agreement. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only by an agreement in writing signed by the party
against whom or which the enforcement of such change, waiver, discharge or
termination is sought.

15.10 Governing Law; Severability. This Agreement shall be governed by
and construed in accordance with the Laws of the State of Delaware, without
regard to any applicable conflicts of Laws; provided, however, that the
effectiveness and validity of the Mergers and Section 8.7 hereof shall be
governed by the Laws of the State of Arizona. The provisions of this Agreement
are severable and the

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<PAGE> 192

invalidity of one or more of the provisions herein shall not have any effect
upon the validity or enforceability of any other provision.

15.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

15.12 No Brokers. The Owners, the Companies and RCG each represent to the
others that no broker or finder has been employed in connection with the
transactions hereunder.

15.13 Schedules and Exhibits. All Schedules and Exhibits attached to this
Agreement are by reference made a part hereof.

[Signatures appear on next page]

- 40 -

<PAGE> 193

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.

ATTEST: RENAL CARE GROUP, INC.

By:
- - ----------------------- ----------------------------
Secretary Title:
--------------------------

[CORPORATE SEAL]

ATTEST: RENAL THREE CORP.

By:
- - ----------------------- ----------------------------
Secretary Title:
--------------------------

[CORPORATE SEAL]

ATTEST: RCG NINE CORP.

By:
- - ----------------------- ----------------------------
Secretary Title:
--------------------------

[CORPORATE SEAL]

ATTEST: RCG FOUR CORP.

By:
- - ----------------------- ----------------------------
Secretary Title:
--------------------------

[CORPORATE SEAL]

ATTEST: RENALWEST, L.C.

By:
- - ----------------------- ----------------------------
Secretary Title:
--------------------------

[CORPORATE SEAL]

- 41 -
<PAGE> 194

ATTEST: 3-CO.,INC.

By:
- - ----------------------- ----------------------------
Secretary Title:
--------------------------

[CORPORATE SEAL]

ATTEST: 9-CO.,INC.

By:
- - ----------------------- ----------------------------
Secretary Title:
--------------------------

[CORPORATE SEAL]

ATTEST: 4-CO.,INC.

By:
- - ----------------------- ----------------------------
Secretary Title:
--------------------------

[CORPORATE SEAL]

OWNERS:

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

- 42 -

<PAGE> 195

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

- 43 -

<PAGE> 196

APPENDIX B

EQUITABLE LETTERHEAD

STRICTLY CONFIDENTIAL

September 6, 1996

Board of Directors
Renal Care Group, Inc.
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203

Gentlemen:

You have asked us to advise you with respect to the fairness to the common
stockholders of Renal Care Group, Inc. (the "Company") from a financial point of
view, of the consideration to be paid by them pursuant to an Agreement and Plan
of Merger dated as of August 7, 1996 (the "Merger Agreement"), involving the
Company and RENALWEST, L.C. ("RenalWest"). Pursuant to the terms of the Merger
Agreement, RenalWest will become a wholly owned second-tier subsidiary of the
Company by means of the merger (the "Merger") of three wholly owned subsidiaries
of the Company into 3-CO, Inc., 4-CO, Inc., and 9-CO, Inc., the three members of
RenalWest (the "Members"), and the issuance of an aggregate of 2,400,000 shares
of the Company's common stock to the shareholders of the Members upon
consummation of the Merger. The Merger is expected to be tax-free to the
shareholders of RenalWest and will be accounted for as a pooling of interests.

In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and RenalWest. We
have reviewed certain other information, including financial forecasts and other
internal financial analyses, provided to us by the Company and RenalWest, and we
have met with the managements of both the Company and RenalWest to discuss the
business prospects of their respective companies and the joint prospects of a
combined company. In addition, we have: (i) reviewed the reported price and
trading activity for the common stock of the Company; (ii) compared certain
financial and stock market information for the Company and RenalWest with
similar information for certain other comparable companies whose securities are
publicly traded; and (iii) performed such other studies and analyses as we
considered appropriate.

We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections used in our analyses, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective senior
managements of the Company and RenalWest as to the likely future financial
performance of their respective companies. In addition, we have not made an
independent valuation or appraisal of the assets of the Company or RenalWest.
Our opinion is based on market, economic, and other conditions as they exist and
can be evaluated as of the date of this letter.

Equitable Securities Corporation has acted as financial advisor to the
Company in connection with the Merger and has received a fee for rendering this
opinion, a portion of which is contingent upon the consummation of the Merger.
We regularly publish research reports regarding the health care industry and the
businesses and securities of publicly owned companies in that industry,
including the Company. We own for

<PAGE> 197

investment 30,763 shares of the Company's common stock and securities
exercisable or convertible into 66,667 shares of the Company's common stock. We
acted as managing underwriter in February 1996 in connection with the Company's
initial public offering of common stock, and we received customary compensation
for our services. In the ordinary course of our business as broker-dealers, we
maintain a market in and actively trade the common stock of the Company for our
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.

Based on the analysis described above and subject to the foregoing
limitations and qualifications, it is our opinion that, as of the date hereof,
the consideration to be issued by the Company pursuant to the Merger Agreement
is fair from a financial point of view to the Company's shareholders.

It is understood that this letter is for the information of the Board of
Directors of the Company and is not to be quoted or referred to, in whole or in
part, without our written consent; provided, however, that we hereby consent to
the inclusion of this opinion in any registration or proxy statement used in
connection with the Merger, so long as the opinion is quoted in full in such
registration or proxy statement.

Very truly yours,

/s/ Equitable Securities Corporation

EQUITABLE SECURITIES CORPORATION

<PAGE> 198

APPENDIX C

RENAL CARE GROUP, INC.

AMENDED AND RESTATED 1996 STOCK OPTION PLAN

ARTICLE I

PURPOSE

1.1 GENERAL. The purpose of the Renal Care Group, Inc. Amended and
Restated 1996 Stock Option Plan (the "Plan") is to promote the success, and
enhance the value, of Renal Care Group, Inc. (the "Company"), by linking the
personal interests of its key employees and consultants to those of Company
stockholders and by providing its key employees and consultants with an
incentive for outstanding performance. The Plan is further intended to provide
flexibility to the Company in its ability to motivate, attract, and retain the
services of employees and consultants upon whose judgment, interest, and special
effort the successful conduct of the Company's operation is largely dependent.
Accordingly, the Plan permits the grant of stock option awards from time to time
to selected officers and key employees and consultants.

ARTICLE 2

EFFECTIVE DATE

2.1 EFFECTIVE DATE. The Plan first became effective upon approval of the
same by the Board of Directors of the Company (January 15, 1996) (the "Effective
Date"), as approved by the sole stockholder of the Company. The first amendments
to the Plan were approved by the Board of Directors of the Company on August ,
1996, subject to approval thereof by the stockholders of the Company at the
special meeting of stockholders held on September 27, 1996.

ARTICLE 3

DEFINITIONS

3.1 DEFINITIONS. When a word or phrase appears in this Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall generally be given the meaning ascribed to it in this
Section or in Sections 1.1 or 2.1 unless a clearly different meaning is required
by the context. The following words and phrases shall have the following
meanings:

(a) "Board" means the Board of Directors of the Company.

(b) "Cause" means the continued failure by a Participant to
substantially perform such Participant's duties of employment after written
warnings identifying the lack of substantial performance are communicated
to the Participant by the employer that identify the manner in which the
employer believes that the Participant has not substantially performed such
duties, or the engaging by an Participant in illegal conduct that is
materially and demonstrably injurious to the Company, unless otherwise
defined in an employment agreement between the Participant and the Company
or a Subsidiary in effect on the date of termination in which case "Cause"
shall be defined as set forth therein.

(c) "Change in Control" means a change in control of the Company after
the closing of an initial public offering of Stock registered under the
Securities Act on a Registration Statement on Form S-1 of a nature that
would be required to be reported (assuming such event has not been
"previously reported") in response to Item 1(a) of a Current Report on Form
8-K pursuant to Section 13 or 15(d) of the Exchange Act; provided that,
without limitation, a Change in Control shall also be deemed to have
occurred at such time as:

(i) any "person" within the meaning of Section 14(d) of the
Exchange Act, other than the Company, a Subsidiary, or any employee
benefit plan(s) sponsored by the Company or any
<PAGE> 199

Subsidiary, is or has become the "beneficial owner," as defined in Rule
13d-3 under the Exchange Act, directly or indirectly, of 25% or more of
the combined voting power of the outstanding securities of the Company
ordinarily having the right to vote at the election of directors;

(ii) individuals who constitute the Board immediately prior to any
meeting of stockholders (the "Incumbent Board") have ceased for any
reason to constitute at least a majority thereof, provided that any
person becoming a director whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least
three-quarters ( 3/4) of the directors comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director without
objection to such nomination) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board;

(iii) upon approval by the Company's stockholders of a
reorganization, merger, share exchange or consolidation, other than one
with respect to which those persons who were the beneficial owners,
immediately prior to such reorganization, merger, share exchange or
consolidation, of outstanding securities of the Company ordinarily
having the right to vote in the election of directors own, immediately
after such transaction, more than 75% of the outstanding securities of
the resulting corporation ordinarily having the right to vote in the
election of directors; or

(iv) upon approval by the Company's stockholders of a complete
liquidation and dissolution of the Company or the sale or other
disposition of all or substantially all of the assets of the Company
other than to a Subsidiary.

Notwithstanding the occurrence of any of the foregoing, the Board may
determine, if it deems it to be in the best interest of the Company, that an
event or events otherwise constituting a Change in Control shall not be so
considered. Such determination shall be effective if it is made by the Board
prior to the occurrence of an event that otherwise would be or probably will
lead to a Change in Control or after such event if made by the Board a majority
of which is composed of directors who were members of the Board immediately
prior to the event that otherwise would be or probably will lead to a Change in
Control. Upon such determination, such event or events shall not be deemed to be
a Change in Control for any purposes hereunder, including but not limited to,
Section 8.6.

(d) "Change in Control Price" means the highest closing price per
share paid for the purchase of Stock in a national securities market during
the ninety (90) day period ending on the date the Change in Control occurs.

(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.

(f) "Committee" means the committee of the Board described in Article
4.

(g) "Company" means Renal Care Group, Inc., a Delaware corporation.

(h) "Disability" shall mean any permanent disability as defined by
Section 22(e)(3) of the Code. The Committee may require such medical or
other evidence as it deems necessary to judge the nature and permanency of
a Participant's Disability.

(i) "Effective Date" has the meaning assigned such term in Section
2.1.

(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.

(k) "Fair Market Value" means the closing price of the shares of Stock
on the New York Stock Exchange or other national securities exchange on the
day on which such value is to be determined or, if no shares were traded on
such day, on the next preceding day on which shares were traded, as
reported by the National Quotation Bureau, Inc. or other national quotation
service. If the shares are not traded on an exchange but are traded in the
over-the-counter market, Fair Market Value means the closing "asked" price
of the shares in the over-the-counter market on the day on which such value
is to be determined or, if such "asked" price is not available, the last
sales price on such day or, if no shares were traded on such

2
<PAGE> 200

day, on the next preceding day on which the shares were traded, as reported
by the National Association of Securities Dealers Automatic Quotation
System (NASDAQ) or other national quotation service.

(l) "Incentive Stock Option" means an Option that is intended to meet
the requirements of Section 422 of the Code or any successor provision
thereto.

(m) "Non-Qualified Stock Option" means an Option that is not an
Incentive Stock Option.

(n) "Option" means a right granted to a Participant under Article 7 of
the Plan to purchase Stock at a specified price during specified time
periods. An Option may be either an Incentive Stock Option or a
Non-Qualified Stock Option.

(o) "Option Agreement" means any written agreement, contract, or other
instrument or document evidencing an Option.

(p) "Participant" means a person who, as an officer or key employee or
consultant of the Company or any Subsidiary, has been granted an Option
under the Plan.

(q) "Plan" means the Renal Care Group, Inc. 1996 Stock Option Plan, as
amended from time to time.

(r) "Securities Act" means the Securities Act of 1933, as amended from
time to time.

(s) "Stock" means the $0.01 par value common stock of the Company and
such other securities of the Company as may be substituted for Stock
pursuant to the terms of the Plan including but not limited to Article 9
hereof.

(t) "Subsidiary" means any corporation that qualifies as a subsidiary
of a corporation under the definition of "subsidiary corporation" contained
in Section 424(f) of the Code.

ARTICLE 4

ADMINISTRATION

4.1 The Plan shall be administered by a committee of directors of the
Company (the "Committee") appointed by the Board from time to time and
consisting of at least two members of the Board, each of whom shall be both (i)
a "non-employee director" as such term is defined in Rule 16b-3 promulgated
under Section 16 of the Exchange Act or any successor provision, and (ii) an
"outside director" as that term is used in Section 162 of the Code and the
regulations promulgated thereunder. In the absence of an appointment of a
Committee, the Board shall serve as the Committee.

4.2 AUTHORITY OF COMMITTEE. The Committee has the exclusive power,
authority and discretion to:

(a) Designate Participants;

(b) Determine the type or types of Options to be granted to each
Participant;

(d) Determine the terms and conditions of any Option granted under the
Plan, including but not limited to, the exercise price, any restrictions or
limitations on the Option, any schedule for lapse of forfeiture
restrictions or restrictions on the exercisability of an Option, and
accelerations or waivers thereof, based in each case on such considerations
as the Committee in its sole discretion determines;

(e) Determine whether, to what extent, and under what circumstances an
Option may be settled in, or the exercise price of an Option may be paid
in, cash, Stock, or other property, or an Option may be canceled,
forfeited, or surrendered;

(f) Prescribe the form of each Option Agreement, which need not be
identical for each Participant;

(g) Decide all other matters that must be determined in connection
with an Option;

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(h) Establish, adopt or revise any rules and regulations as it may
deem necessary or advisable to administer the Plan; and

(i) Make all other decisions and determinations that may be required
under the Plan or as the Committee deems necessary or advisable to
administer the Plan.

4.3. DECISIONS BINDING. The Committee's interpretation of the Plan, any
Options granted under the Plan, any Option Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding, and
conclusive on all parties.

ARTICLE 5

SHARES SUBJECT TO THE PLAN

5.1. NUMBER OF SHARES. Subject to adjustment as provided in Section 9.1,
the aggregate number of shares of Stock reserved and available for Options shall
be .

5.2. LAPSED AWARDS. To the extent that an Option is canceled, terminates,
expires or lapses for any reason, any shares of Stock subject to the Option will
again be available for the grant of an Option under the Plan.

5.3. STOCK DISTRIBUTED. Any Stock distributed pursuant to an Option may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.

5.4. LIMITATION ON NUMBER OF SHARES SUBJECT TO AWARDS. Notwithstanding any
provision in the Plan to the contrary, the maximum number of shares of Stock
with respect to one or more Options that may be granted to any one Participant
in any one taxable year shall be 100,000, subject to adjustment as set forth in
Article 9 hereto.

ARTICLE 6

ELIGIBILITY

6.1. GENERAL. Options may be granted only to individuals who are (i)
officers or other key employees (including employees who also are directors or
officers) of the Company or a Subsidiary, or (ii) bona fide consultants to the
Company or a Subsidiary, as determined by the Committee.

ARTICLE 7

STOCK OPTIONS

7.1. GENERAL. The Committee is authorized to grant Options to Participants
on the following terms and conditions:

(a) Exercise Price. The exercise price per share of Stock under an
Option shall be determined by the Committee. The Committee may elect to
grant Non-Qualified Stock Options with an exercise price per share of Stock
less than the Fair Market Value of a share of Stock on the date any such
Non-Qualified Stock Option is granted.

(b) Time and Conditions of Exercise.

(i) The Committee shall determine the time or times at which an
Option may be exercised in whole or in part. The Committee also shall
determine the performance or other conditions, if any, that must be
satisfied before all or part of an Option may be exercised.

(ii) In connection with the grant of any Options, the Committee may
provide in the Option Agreement for the termination of all or any
portion of the Options under certain circumstances, including, without
limitation, termination of a Participant's employment, provided that the
Committee may distinguish among various causes of termination as the
Committee deems appropriate. In

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addition, the Committee may provide, through the Option Agreement or
otherwise, that if a Participant's employment is terminated: (i) such
Participant's Option(s) may be exercised for specified periods
thereafter but no later than the expiration date of such Option; (ii) to
the extent not fully exercisable on the date of termination of
employment, such Option may continue to become exercisable within the
term of the Option; or (iii) some or all of the Options not fully
exercisable on the date of termination of employment may be deemed fully
exercisable. A Participant's employment shall be deemed to terminate on
the last date for which he or she receives a regular wage or salary
payment (excluding severance payments unless otherwise provided in the
Option Agreement). Whether military, government or other service or
other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee at its discretion, and
any determination by the Committee shall be final and conclusive. A
termination of employment shall not occur where the Participant
transfers from the Company to one of its Subsidiaries, transfers from a
Subsidiary to the Company or transfers from one Subsidiary to another
Subsidiary.

(c) Payment. The Committee shall determine the methods by which the
exercise price of an Option may be paid, the form of payment, including,
without limitation, cash, shares of Stock, or other property (including
"cashless exercise" arrangements), and the methods by which shares of Stock
shall be delivered or deemed to be delivered to Participants. Without
limiting the power and discretion conferred on the Committee pursuant to
the preceding sentence, the Committee may, in the exercise of its
discretion, but need not, allow a Participant to pay the exercise price of
an Option by directing the Company to withhold from the shares of Stock
that would otherwise be issued upon exercise of the Option that number of
shares having a Fair Market Value on the exercise date equal to the
exercise price, all as determined pursuant to rules and procedures
established by the Committee.

(d) Evidence of Grant. All Options shall be evidenced by a written
Option Agreement between the Company and the Participant. The Option
Agreement shall include such provisions as may be specified by the
Committee.

7.2. INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:

(a) Exercise Price. The exercise price per share of Stock shall be
set by the Committee, provided that the exercise price for any Incentive
Stock Option shall not be less than the Fair Market Value as of the date of
the grant.

(b) Exercise. In no event may any Incentive Stock Option be
exercisable for more than ten years from the date of its grant.

(c) Individual Dollar Limitation. The aggregate Fair Market Value
(determined as of the time an Option is made) of all shares of Stock with
respect to which Incentive Stock Options are first exercisable by a
Participant in any calendar year may not exceed $100,000.

(d) Ten Percent Owners. No Incentive Stock Option shall be granted to
any individual who, at the date of grant, owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of
the Company or any Subsidiary unless the exercise price per share of such
Option is at least 110% of the Fair Market Value per share of Stock at the
date of grant and the Option expires no later than five years after the
date of grant.

(e) Expiration of Incentive Stock Options. No award of an Incentive
Stock Option may be made pursuant to the Plan on or after the tenth
anniversary of the Effective Date.

(f) Right To Exercise. During a Participant's lifetime, an Incentive
Stock Option may be exercised only by the Participant.

(g) Interpretation of Incentive Stock Options. In interpreting this
Section 7.2 of the Plan and the provisions of individual Option Agreements
granting Incentive Stock Options, the Committee shall be

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governed by the principles and requirements of Sections 421, 422 and 424 of
the Code, and applicable Treasury Regulations.

ARTICLE 8

GENERAL PROVISIONS APPLICABLE TO OPTIONS

8.1. STAND-ALONE, TANDEM, AND SUBSTITUTE OPTIONS. Options granted under
the Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any other Option granted
under the Plan. If an Option is granted in substitution for another Option, the
Committee may require the surrender of such other Option in consideration of the
grant of the new Option. Options granted in addition to or in tandem with other
Options may be granted either at the same time as or at a different time from
the grant of such other Options.

8.2. EXCHANGE PROVISIONS. The Committee may at any time offer to exchange
or buy out any previously granted Option for a payment in cash, Stock, or
another Option (subject to Section 8.1), based on the terms and conditions the
Committee determines and communicates to the Participant at the time the offer
is made.

8.3. TERM OF OPTION. The term of each Option shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option exceed a period of ten years from the date of grant.

8.4. LIMITS ON TRANSFER. No right or interest of a Participant in any
Option may be pledged, encumbered, or hypothecated to or in favor of any party
other than the Company or a Subsidiary, or shall be subject to any lien,
obligation, or liability of such Participant to any other party other than the
Company or a Subsidiary. No Option shall be assignable or transferable by a
Participant other than by will or the laws of descent and distribution or,
except in the case of an Incentive Stock Option, pursuant to a domestic
relations order as defined in Section 414(p)(1)(B) of the Code, if the order
satisfies Section 414(p)(1)(A) of the Code.

8.5. STOCK CERTIFICATES. All Stock certificates delivered under the Plan
are subject to any stop-transfer orders and other restrictions as the Committee
deems necessary or advisable to comply with federal or state securities laws,
rules and regulations and the rules of any national securities exchange or
automated quotation system on which the Stock is listed, quoted, or traded. The
Committee may place legends on any Stock certificate to reference restrictions
applicable to the Stock.

8.6. CHANGES IN CONTROL.

(a) Change in Control Followed by Employment Termination. In the
event that a Change in Control shall occur and an employee Participant's
employment shall terminate, except as provided in the next sentence, within
twelve (12) months after the Change in Control, then (i) all unexercised
Options (whether vested or not vested) shall automatically become one
hundred percent (100%) vested immediately, (ii) no other terms, conditions,
restrictions or limitations shall be imposed upon any such Options after
such date, and in no circumstance shall an Option be forfeited on or after
such date, and (iii) all such Options shall be valued on the basis of the
greater of the Change in Control Price or the Fair Market Value on the date
of such termination, and such value shall promptly be paid to the
Participant in cash by the Company or its successor. The foregoing shall
not apply if employment termination is due to (i) death, (ii) disability
entitling the Participant to benefits under the Company's or its
successor's long-term disability plan, (iii) Cause, or (iv) resignation
(other than (A) resignation from a declined reassignment to a job that is
not reasonably equivalent in responsibility or compensation or that is not
in the same geographic area, or (B) resignation within 30 days following a
reduction in base pay).

(b) Automatic Acceleration and Cash-Out. Upon a Change in Control
that results directly or indirectly in the Stock (or the stock of any
successor to the Company received in exchange for Stock) ceasing to be
publicly traded in a national securities market, (i) all unexercised
Options (whether vested or not vested) shall automatically become one
hundred percent (100%) vested immediately, (ii) no other

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terms, conditions, restrictions or limitations shall be imposed upon any
such Options after such date, and in no circumstance shall an Option be
forfeited on or after such date, and (iii) all such Options shall be valued
on the basis of the Change in Control Price, and such value shall promptly
be paid to the Participant in cash by the Company or its successor.

(c) Miscellaneous. Upon a Change in Control, no action, including,
without limitation, the amendment, suspension or termination of the Plan,
shall be taken that would adversely affect the rights of any Participant or
the operation of the Plan with respect to any Option to which a Participant
may have become entitled hereunder on or prior to the date of the Change in
Control or to which such Participant may become entitled as a result of
such Change in Control.

8.7. MODIFICATION, EXTENSION AND RENEWAL. The Committee may modify, renew
or accept the surrender of outstanding Options issued under the Plan (or the
surrender of similar grants issued under any other plan of the Company or a
Subsidiary), including the acceleration or waiver of any vesting or other
restrictions or limitations, or the conversion of such Options (with appropriate
adjustments) to be applicable to the securities of any successor corporation to
the Company, and the Committee may authorize new Options pursuant to the Plan in
substitution for any outstanding Options. Any substituted, modified or converted
Options may bear such different or additional terms and conditions as the
Committee shall deem appropriate within the limitations of the Plan. The
determination of the Committee as to the terms of any of the foregoing may be
made without regard to whether a Change in Control has or has not occurred (or
whether the Committee has determined that any event shall not be considered to
be a Change in Control) and shall be conclusive and binding notwithstanding the
provisions of the respective agreements regarding exercisability. Any fractional
shares resulting from any of the foregoing adjustments under this Section shall
be disregarded and eliminated. However, no modification of an Option shall,
without the consent of the Participant holding the Option, adversely affect the
rights or obligations of such Participant with respect to such Option.

ARTICLE 9

CHANGES IN CAPITAL STRUCTURE

9.1. GENERAL. If the Company's outstanding shares of Stock are increased
or decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of any recapitalization,
reclassification, stock split, combination of shares, stock dividend, or
transaction having similar effect, the Board shall proportionately and
appropriately adjust (i) the number of shares of Stock authorized and reserved
for grants under the Plan as set forth in Section 5.1, (ii) the number of shares
of Stock that may be subject to one or more Options granted to any one
Participant in any one taxable year as set forth in Section 5.4, and (iii) the
number and kind of shares that are subject to each Option and the exercise price
per share, without any change in the aggregate price to be paid therefor upon
exercise of each Option.

ARTICLE 10

AMENDMENT, MODIFICATION AND TERMINATION

10.1. AMENDMENT, MODIFICATION AND TERMINATION. With the approval of the
Board, at any time and from time to time, the Committee may terminate, amend or
modify the Plan without stockholder approval; provided, however, that the
Committee may condition any amendment on the approval of stockholders of the
Company if such approval is necessary or deemed advisable with respect to tax,
securities or other applicable laws, policies or regulations.

10.2 OPTIONS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect any Option previously granted
under the Plan, without the written consent of the Participant.

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ARTICLE 11

GENERAL PROVISIONS

11.1. NO RIGHTS TO OPTIONS. No Participant or employee shall have any
claim to be granted any Option under the Plan, and neither the Company nor the
Committee is obligated to treat Participants and employees uniformly.

11.2. NO STOCKHOLDER RIGHTS. No Option gives the Participant any of the
rights of a stockholder of the Company unless and until shares of Stock are in
fact issued to such person in connection with such Option.

11.3. WITHHOLDING. The Company or any Subsidiary shall have the authority
and the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy federal, state, and local taxes
(including the Participant's FICA obligation) required by law to be withheld
with respect to any taxable event arising as a result of the Plan. With respect
to withholding required upon any taxable event under the Plan, the Committee
may, at the time the Option is granted or thereafter, require that any such
withholding requirement be satisfied, in whole or in part, by withholding shares
of Stock having a Fair Market Value on the date of withholding equal to the
amount to be withheld for tax purposes, all in accordance with such procedures
as the Committee establishes.

11.4. NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any Option Agreement
shall interfere with or limit in any way the right of the Company or any
Subsidiary to terminate any Participant's employment at any time, nor confer
upon any Participant any right to continue in the employ of the Company or any
Subsidiary.

11.5. UNFUNDED STATUS. The Plan is intended to be an "unfunded" plan for
incentive and deferred compensation. With respect to any payments not yet made
to a Participant pursuant to the Plan, nothing contained in the Plan or any
Option Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Company or any Subsidiary.

11.6. RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the Company
or any Subsidiary.

11.7. EXPENSES. The expenses of administering the Plan shall be borne by
the Company and its Subsidiaries.

11.8. TITLES AND HEADINGS. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.

11.9. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.

11.10. FRACTIONAL SHARES. No fractional shares of Stock shall be issued
and the Committee shall determine, in its discretion, whether cash shall be
given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.

11.11. SECURITIES LAW COMPLIANCE. It is intended that the provisions of
the Plan and any grant of Options hereunder shall comply in all respects with
the terms and conditions of Rule 16b-3 under the Exchange Act, or any successor
provisions, as it relates to persons subject to the reporting requirements of
Section 16(a) of the Exchange Act. Any agreement granting any Options shall
contain such provisions as are necessary or appropriate to assure such
compliance. To the extent that any provision hereof is found not to be in
compliance with such Rule as it relates to such Act, such provision shall be
deemed to be modified so as to be in compliance with such Rule, or if such
modification is not possible, shall be deemed to be null and void, as it relates
to such Participant.

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11.12. GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to
make payment of awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by government agencies as
may be required. The Company shall be under no obligation to register under the
Securities Act any of the shares of Stock paid under the Plan. If the shares
paid under the Plan may in certain circumstances be exempt from registration
under the Securities Act, the Company may restrict the transfer of such shares
in such manner as it deems advisable to ensure the availability of any such
exemption.

11.13. GOVERNING LAW. To the extent not governed by federal law, the Plan
and all Option Agreements shall be construed in accordance with and governed by
the laws of the State of Delaware.

IN WITNESS WHEREOF, Renal Care Group, Inc., acting by and through its duly
authorized officers, has executed this instrument as of the day of
, 1996.

<TABLE>
<S> <C>
ATTEST: RENAL CARE GROUP, INC.

By: By:
------------------------------------- -----------------------------------
Ronald Hinds Sam A. Brooks, Jr.
Secretary President and
Chief Executive Officer
</TABLE>

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APPENDIX D

RENAL CARE GROUP, INC.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Sam A. Brooks, Jr. and Ronald Hinds as
Proxies, each with the power to appoint his substitute, and hereby authorizes
either one or both of them to represent and to vote, as designated below, all
the shares of Common Stock of Renal Care Group, Inc. held of record by the
undersigned on August 26, 1996, at the Special Meeting of Stockholders to be
held on September 27, 1996.

I. PROPOSAL TO: approve and adopt an Agreement and Plan of Merger (the
"Agreement"), dated as of August 7, 1996, among Renal Care Group, Inc.,
three of its wholly owned subsidiaries (the "Merger Corps."), RenalWest,
L.C. and 3-CO, Inc., 4-CO, Inc. and 9-CO, Inc., the three members of
RenalWest, L.C. (the "Members"), and the shareholders of the Members,
providing for the merger of the Merger Corps. with and into the Members,
pursuant to which RenalWest will become a wholly owned second-tier
subsidiary of Renal Care Group, Inc., and Renal Care Group, Inc. will issue
an aggregate of 2,400,000 shares of RCG Common Stock pursuant to the terms
of the Agreement.
/ / FOR / / AGAINST / / ABSTAIN

II. PROPOSAL TO: approve an amendment to the Renal Care Group, Inc. 1996 Stock
Option Plan that would (i) increase the number of shares of RCG Common
Stock reserved for issuance under the Option Plan from 488,448 shares to
1,000,000 shares and (ii) effect certain technical changes in light of
recent amendments to the rules of the Securities and Exchange Commission
promulgated under Section 16 of the Exchange Act.
/ / FOR / / AGAINST / / ABSTAIN

III. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.

(Continued and to be dated and signed on reverse side)

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS I AND II ABOVE.

Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.

If a corporation, please sign
in full corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership name
by authorized person.

DATED: , 1996
-------------------

-------------------------------
Signature

-------------------------------
Signature if held jointly