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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-27640
RENAL CARE GROUP, INC.
(EXACT NAME OF COMPANY AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1622383
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
2100 WEST END AVENUE, SUITE 800, NASHVILLE, TENNESSEE 37203
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 345-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Company (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Company's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Company was $957,712,877 as of March 19, 1998, based upon the closing
price of such stock as reported on the Nasdaq National Market System ("Nasdaq
Stock Market") on that day (assuming for purposes of this calculation, without
conceding, that all executive officers and directors are affiliates). There were
26,388,469 shares of common stock, $.01 par value, outstanding at March 19,
1998.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's Proxy Statement for its 1998 Annual Meeting
of Stockholders are incorporated by reference in Part III of this Annual Report.
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a specialized provider of nephrology services to
patients with kidney disease, including patients suffering from chronic kidney
failure, also known as end-stage renal disease ("ESRD"). As of December 31,
1997, the Company provided dialysis and ancillary services to approximately
8,300 patients through 121 outpatient dialysis centers in 15 states. In addition
to its outpatient dialysis center operations, the Company provided acute
dialysis services through contractual relationships with 70 hospitals and
physician practice management services to 45 of the 123 nephrologists who were
affiliated with the Company's outpatient dialysis centers.
The Company's objective is to develop fully integrated nephrology
provider networks to assume and manage the clinical and financial risk
associated with providing renal disease management services on a capitated
basis. The Company seeks to achieve this objective by (i) acquiring, developing
and managing outpatient and medical center-based dialysis centers, (ii)
integrating its dialysis centers with affiliated nephrology practices, (iii)
developing a protocol-driven ESRD management model to enhance clinical outcomes
and (iv) providing appropriate ancillary services to ESRD patients. The Company
believes an integrated network of nephrologists and dialysis centers, combined
with the Company's clinical expertise, management experience and access to
capital, will provide significant advantages to patients and third-party payors
by improving the quality of care while reducing the overall costs associated
with treating patients with all forms of kidney disease, including those with
ESRD.
Nephrology is the specialized practice of medicine dedicated to
providing care to patients with ESRD and other kidney-specific ailments. An
essential component of the nephrologist's practice is the dialysis facility,
where ESRD patients receive their dialysis treatments three times per week in a
technologically advanced outpatient setting. Independent outpatient dialysis
facilities generally are owned by nephrology groups and comprise an integral
component of the nephrologist's practice due to the critical role that dialysis
plays in the treatment of ESRD patients. According to the Health Care Financing
Administration ("HCFA"), there were approximately 2,800 dialysis centers in the
United States at the end of 1995. The Company believes that approximately 50%
were owned by multi-center dialysis companies, 25% were owned by independent
physicians and other companies and 25% were hospital-affiliated centers.
Although nephrology groups have in the past sold their dialysis centers to
entities focused on owning and operating such facilities, the Company believes
that many nephrology groups recognize the benefits of affiliation with an entity
having broader clinical, financial and business capability to help them manage
the increasingly complex and time-consuming aspects of both their dialysis
center operations and their nephrology practices. In addition, many hospitals
increasingly are motivated to sell or outsource management of their dialysis
facilities as they refocus their resources on their core business in response to
increasing competitive pressures.
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ESRD is the state of advanced renal impairment that is irreversible and
imminently lethal. Patients with ESRD eventually require dialysis or kidney
transplantation to sustain life; transplants constituting approximately 6% of
ESRD patients annually. Since 1972, individuals with ESRD who are eligible for
Social Security have been entitled to Medicare benefits regardless of age or
financial circumstances. The United States Renal Data System ("USRDS") estimates
that the total direct medical payments for ESRD were approximately $13.06
billion in 1995. The Company attributes the growth in the number of ESRD
patients principally to the aging of the general population and better treatment
and survival of patients with hypertension, diabetes and other illnesses that
lead to chronic kidney disease. In addition, improved technology has enabled
older patients and those who previously could not tolerate dialysis due to other
illnesses to benefit from this life-sustaining treatment.
The Company is a Delaware corporation which commenced its business in
February 1996, with the simultaneous acquisition of Kidney Care, Inc. and
Medical Enterprises Ltd., D.M.N. Professional Corporation, Tyler Nephrology
Associates, Kansas Nephrology Association; and Renal Care Group, Inc., a
Tennessee corporation (collectively, the "Founding Companies") (the
"Combination"). The Company's principal executive offices are located at 2100
West End Avenue, Suite 800, Nashville, Tennessee 37203.
INDUSTRY OVERVIEW
End-Stage Renal Disease
ESRD is most commonly a result of complications associated with
diabetes, hypertension, certain renal and hereditary diseases, aging and other
factors. In order to sustain life, individuals with ESRD require either dialysis
for the remainder of their lives or successful kidney transplantation.
According to the USRDS, the total estimated direct medical payments for
ESRD exceeded $13.06 billion during 1995. Of the total direct medical payments
for ESRD, approximately $9.74 billion was paid by the federal government through
the Medicare program. As a result of legislation enacted in 1972, the federal
government provides Medicare funding for patients who are diagnosed with ESRD
regardless of their age or financial circumstances if eligible for Social
Security.
Based on Medicare ESRD enrollment data published by HCFA, the number of
ESRD patients in the United States requiring dialysis treatments has grown from
approximately 66,000 at the end of 1982 to approximately 200,000 at the end of
1995. Based on USRDS data, the ESRD incidence rate among Medicare-eligible
patients for all age groups was approximately 253 patients per million in 1995
as compared to 111 patients per million in 1984. Furthermore, USRDS data
indicates that the incidence rate in patients ages 65 to 74 increased 130% from
1984 to 1993, and in patients ages 75 and older the incidence rate increased
189% over the same period.
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Treatment Options for End-Stage Renal Disease
Currently, the three treatment options for ESRD are (i) hemodialysis,
which is performed either in a hospital setting, an outpatient facility or a
patient's home, (ii) peritoneal dialysis, which is generally performed in the
patient's home, and (iii) kidney transplant surgery. According to HCFA data, in
1995 approximately 83% of patients on dialysis in the United States received
outpatient hemodialysis treatment and approximately 17% received hemodialysis or
peritoneal dialysis in their homes.
- Hemodialysis is the most common form of ESRD treatment and is
generally performed either in a freestanding or hospital based
center. The process of hemodialysis uses a dialyzer, essentially
an artificial kidney, to remove certain toxins, fluid and
chemicals from the patient's blood and a device to control
external blood flow and to monitor certain vital signs of the
patient. The dialysis process occurs across a semi-permeable
membrane that divides the dialyzer into two chambers. While the
blood is circulated through one chamber, a pre-mixed dialysis
fluid is circulated through the adjacent chamber. The toxins and
excess fluid contained in the blood cross the membrane into the
dialysis fluid. Hemodialysis treatment usually requires
approximately four hours and is administered three times per week
for the life of the patient pursuant to a nephrologist's plan of
care.
- Peritoneal dialysis is generally performed by the patient at home
and uses the patient's peritoneal, or abdominal, cavity to
eliminate fluids and toxins in the patient's blood. Although there
are several variations of peritoneal dialysis, continuous
ambulatory peritoneal dialysis ("CAPD") and continuous cyclic
peritoneal dialysis ("CCPD") are the most common. CAPD uses a
sterile dialysis solution which is introduced through a surgically
implanted catheter into the patient's peritoneal cavity. Toxins in
the blood continuously cross the peritoneal membrane into the
dialysis solution. After several hours, the patient drains the
used solution and replaces it with fresh solution. CCPD is
performed in a manner similar to CAPD, but utilizes a mechanical
device to cycle dialysis solution through the peritoneal membrane
while the patient is sleeping or at rest. Patients treated at home
are monitored monthly either through a visit from a staff person
from a designated outpatient center or by the patient visiting the
center.
- Kidney transplantation, when successful, is the most desirable
form of therapeutic intervention. However, the shortage of
suitable donors severely limits the availability of this surgical
procedure as a treatment option. Approximately 6% of patients with
ESRD undergo kidney transplantation annually. Typically,
transplant surgery is performed by transplant surgeons and not
nephrologists.
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Ancillary Services
The Company provides a variety of ancillary services necessary for the
treatment of ESRD patients, the most significant of which is the administration
of erythropoietin ("EPO"). EPO is the bio-engineered protein which stimulates
the production of red blood cells and is used in connection with all forms of
dialysis to treat anemia, a medical complication experienced by almost all ESRD
patients. Other ancillary services offered by the Company, depending on medical
appropriateness, includes tests for bone deterioration, electrocardiograms,
nerve conduction studies to test for deterioration of a patient's nerves,
Doppler flow testing for the effectiveness of the patient's vascular access for
dialysis, and blood transfusions.
Nephrology Practice
Caring for ESRD patients is the primary clinical activity of
nephrologists. Other clinical activities of a nephrologist include the
post-surgical care of kidney transplant patients, the diagnosis and treatment of
kidney diseases in patients who are at risk for developing ESRD, and the
diagnosis, treatment, and management of clinical disorders including
hypertension, kidney stones and autoimmune diseases. Because of the complexity
involved in treating patients with chronic kidney disease, the nephrologist
typically assumes the role of primary care physician for the ESRD patient. While
some nephrologists practice independently or are members of multi-specialty
groups, most nephrologists practice in small single-specialty groups. Nephrology
groups typically provide services in relatively large geographic areas, and
frequently a large geographic area is served by a single nephrology group. Most
nephrologists also have a significant office practice, consult on numerous
hospitalized patients who are not on dialysis and follow the clinical outcome of
kidney transplant patients.
ACQUISITION AND DEVELOPMENT ACTIVITIES
In January 1997, the Company exercised an option to acquire the assets
of a laboratory from Kidney Care, Inc.
In March 1997, the Company acquired substantially all of the assets of
seven federated dialysis facilities in Central Indiana: Eastern Indiana Kidney
Center, Richmond Indiana; Southeastern Indiana Kidney Center, Greensburg,
Indiana; Saint Joseph Dialysis Center, Kokomo, Indiana; and Indiana Kidney
Center, Indiana Kidney Center South, St. Vincent Dialysis Center and St. Vincent
Dialysis Center West, all in Indianapolis, Indiana. The facilities provide
treatment to approximately 600 patients as well as acute, inpatient dialysis
treatment services to four local hospitals. The consideration for the purchase
transaction, excluding working capital acquired, consisted of cash and 324,813
shares of restricted common stock.
In April 1997, the Company entered into an agreement with owners of
dialysis operations in Toms River, New Jersey to jointly provide dialysis
services to patients with ESRD. The Company acquired 51% of the assets of the
current operations and provides management services to another dialysis
facility. The joint venture is constructing a state-of-the-art dialysis center
to serve the existing 260 patients. In addition, the Company entered into an
agreement
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with Southern Ocean County Hospital of Manahawkin, New Jersey, to jointly
develop a new dialysis facility. The Company will retain 51% ownership and
provide management services to the joint venture which will serve approximately
40 patients. Acute, in-patient dialysis services will be provided to Community
Medical Center and Southern Ocean County Hospital by the Company.
In June 1997, the Company acquired six outpatient dialysis facilities
known as Bay Area Dialysis Services of Corpus Christi, Texas ("Bay Area
Dialysis"), and entered into a 10-year agreement to manage the practice of the
five associated nephrologists with these facilities. Bay Area Dialysis provides
treatment to approximately 330 patients as well as acute, inpatient dialysis
services to two local hospitals. This transaction was treated as a tax-free
exchange of stock. The Company issued 809,290 shares of restricted common stock.
In October 1997, the Company acquired substantially all of the
assets of Dialysis Services of Florida, Inc. and Dialysis Medical, Inc. and the
In-Patient Agreement from DCA Medical Services, Inc. in exchange for cash and
13,873 shares of restricted common stock and the assumption of certain specified
liabilities. The facility serves approximately 90 patients.
In December 1997, the Company acquired the dialysis, hyperbaric and
wound care business of STAT Healthcare, Inc. ("STAT"), a division of Laidlaw
Inc. for a combination of cash and 2,135,730 shares of the Company's restricted
common stock. STAT operates 11 dialysis facilities located in eastern Texas
which serves approximately 850 patients and provides acute dialysis services to
four hospitals. In addition to providing acute dialysis services, STAT also
provides wound care services to ten hospitals.
In January 1998, the Company acquired in a series of merger
transactions nine dialysis facilities located in Arkansas, Oklahoma and
Missouri. The facilities provide treatment to approximately 625 patients, as
well as acute, in-patient dialysis treatment services to six area hospitals. The
transaction was a tax-free exchange of stock and will be treated as a
pooling-of-interests method of accounting. The Company issued approximately
1,298,000 shares of restricted common stock.
In February 1998, the Company entered into a joint venture with Oregon
Health Sciences University, Legacy Health System, and Comprehensive Kidney
Center to operate six dialysis facilities and a home dialysis program serving
approximately 700 patients.
In February 1998, the Company formed a joint venture with St. Luke's
Hospital to provide services to approximately 100 patients.
OPERATIONS
Location, Capacity and Use of Facilities
The Company operates 121 outpatient dialysis centers in 15 states with
123 affiliated nephrologists and 2,011 certified dialysis stations. The Company
leases 102 centers and owns 19
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centers. The Company also provides inpatient dialysis services to 70 acute care
hospitals. Approximately 1,032,000 hemodialysis treatments were provided at the
Company's facilities during the year ended December 31, 1997.
The Company estimates that on average its centers were operating at
approximately 65% of capacity as of December 31, 1997, based on the assumption
that a dialysis center is able to provide up to three treatments a day per
station, six days a week. The Company believes it may increase the number of
dialysis treatments at the majority of its centers without making additional
capital expenditures.
Operation of Facilities
The Company's dialysis centers provide outpatient hemodialysis and
related services to ESRD patients in a convenient setting. A majority of the
Company's centers utilize volumetric dialysis equipment that accommodates high
flux and high efficiency dialysis treatments. In addition to dialysis stations,
the Company's centers generally contain a nurses' station, a patient waiting
area, examination rooms, a supply room, a water treatment space to purify water
used in hemodialysis treatments, a dialyzer reprocessing room, staff work areas,
offices, and a staff lounge. Many of the Company's centers also have a
designated area for training patients in home dialysis and also offer certain
amenities for the patients.
In accordance with conditions for participation in the Medicare ESRD
program, each of the Company's centers is supervised by a qualified Medical
Director. Each center is managed by an administrator, typically a registered
nurse, who is responsible for the day-to-day operations of the center and its
staff. The staff of each center typically includes registered nurses, licensed
practical or vocational nurses, patient care technicians, social workers,
registered dietitians, a unit clerk, and biomedical equipment technicians. Each
center is staffed in a manner that allows the number of personnel to be adjusted
according to the number of patients receiving treatments.
Home Dialysis
All of the Company's centers offer various forms of peritoneal
dialysis, primarily CAPD or CCPD, and home hemodialysis. As of December 31,
1997, approximately 11% of the patients treated by the Company received home
dialysis. The Company's home dialysis services consist of providing equipment
and supplies, training, patient monitoring and follow-up assistance to patients
who prefer and are able to receive dialysis treatments in their homes. The
Company intends to expand its home dialysis program, which the Company believes
is important to the development of a fully integrated nephrology services
company.
Hospital and Skilled Nursing Facility Care
Certain of the Company's centers provide in-patient dialysis services
through contracts with 70 hospitals located within their respective service
areas. Under these contracts, the Company's centers typically provide equipment,
supplies and personnel required to perform hemodialysis and peritoneal dialysis
in connection with the hospital's inpatient services. Such inpatient dialysis
services are required for patients with acute renal failure resulting from
accidents, medical and
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surgical complications, patients in the early stage of renal failure and ESRD
patients who require hospitalization for other reasons. The terms of these
contracts are individually negotiated and vary by contract. Most of the
Company's hospital contracts specify predetermined fees per dialysis treatment,
although the Company believes that such fees may be subject to negotiation in
the future as the provision of health care services becomes increasingly
influenced by managed care and subject to capitated arrangements.
The Company also provides staff-assisted dialysis services to skilled
nursing facilities in the Phoenix, Arizona metropolitan area. A central office
dispatches equipment, supplies and personnel required to perform dialysis
treatments in connection with the extended care services of skilled nursing
facilities.
University Division
The Company currently manages the dialysis programs at Vanderbilt
University Medical Center, and is the managing partner of programs at the
Cleveland Clinic Foundation, MetroHealth (a hospital affiliated with Case
Western Reserve University), and St. Louis University Hospital. The Company also
provides home dialysis services for a group of patients at the University of
Arkansas. In 1997 the Company developed a dialysis center for the University of
Louisville. The Company expects these affiliations will expand the Company's
patient base and provide opportunities for the development of new centers.
Furthermore, the Company expects these affiliations will provide access to
outcomes research and highly trained nephrologists to act as the Company's
Medical Directors.
Relationships with Nephrologists
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, the
Company relies on its ability to attract and to meet the needs of referring
nephrologists in order to receive and gain new patients.
Medical Directors
The Company has engaged practicing, board-eligible or board-certified
nephrologists to serve as Medical Directors for each of its centers. Each of the
Company's Medical Directors provides services pursuant to an independent
contractor agreement between the Company and the physician or his or her
professional practice group. Medical Directors' responsibilities primarily
consist of the administration and monitoring of the Company's patient care
policies, including patient education, administration of dialysis treatment,
development and training programs and assessment of all patients. Coordination
of the delivery of care is important in maintaining ESRD patients' general level
of health and in avoiding medical complications that might necessitate
hospitalization.
The Company typically enters into Medical Director agreements with
nephrologists at each of its centers containing terms of seven years with
three-year renewal options. The Company's
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Medical Director agreements typically provide for its Medical Directors to be
paid fair market value fees for their supervisory services and include
non-competition clauses with specific limitations on their ability to compete
with the Company for certain periods of time and in certain geographic areas.
Nephrology Practice Management
The Company currently provides certain practice management services to
the practices of 45 of the Company's 123 affiliated nephrologists. Under these
arrangements, in exchange for a fair market value management fee, the Company
typically provides certain equipment, supplies and administrative services,
including billing, collection, accounting, human resources and information
systems. Each physician retains exclusive control of the provision of medical
services to his or her patients.
QUALITY ASSURANCE
In order to optimize therapy and improve outcomes, the Company
establishes and maintains quality criteria for its clinical operations, monitors
patient outcomes in all of its centers, utilizes a Medical Advisory Board to
develop a protocol-driven clinical management model and involves its patients in
their own care.
Medical Advisory Board
The Company's Medical Advisory Board meets quarterly to monitor the
development and implementation of clinical protocols and to review patient
outcomes. The Medical Advisory Board is chaired by the Company's Chief Medical
Officer, and is composed of affiliated nephrologists and other allied health
professionals. In addition, the Medical Advisory Board is responsible for
establishing, implementing and monitoring the Company's quality assurance
policies and procedures, identifying therapy deficiencies, and evaluating
technological changes. The Medical Advisory Board's principal task is the
development of a protocol-driven clinical management model that will enable the
Company to manage effectively the financial risk associated with ESRD
capitation.
Quality Criteria
The Company actively involves its Medical Advisory Board in the
oversight of quality criteria for both owned centers and its acquisition
candidates. Regular evaluation of the prescribed dialysis treatments and the key
physiological parameters of patients constitutes part of the continuous quality
improvement that is the Company's primary clinical objective. The Company
employs a registered nurse as a corporate Quality Assurance Coordinator to
oversee the Company's continuous quality assurance program. In addition, each
center has a quality assurance committee that typically includes the Medical
Director, the center administrator and nurses, as well as other technical
personnel. This committee meets regularly to monitor the quality of care in the
center and to assure compliance with applicable regulations.
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Outcomes Data
The Company believes that an important factor in the successful
management of ESRD is access to a broad database of treatment-specific outcomes
information from which clinical pathways may be defined. The Quality Assurance
Coordinator oversees the collection of patient outcomes and cost data in the
Company's centers to assist in implementing clinical pathways to enhance patient
outcomes while reducing the cost of care. The Company believes that the
implementation of such clinical pathways is necessary to improve the overall
quality and operating efficiencies of its dialysis centers and to contract more
effectively with payors in a health care environment increasingly influenced by
managed care.
Patient Involvement
The Company also attempts to ensure quality care by instructing all
ESRD patients before and after the initiation of dialytic therapy on methods for
participating in their own care to the fullest extent possible. In addition, in
some of the Company's centers, "self-care" units are formed in which
self-reliance is fostered through instruction and support.
CORPORATE COMPLIANCE PROGRAM
The Company is developing and implementing a system-wide corporate
compliance program as part of its commitment to comply fully with all
applicable laws and regulations and to maintain high standards of conduct by
employees throughout the organization. A purpose of the program is to heighten
the awareness of employees and affiliated professionals of the importance of
complying with all applicable laws and regulations in an increasingly
complicated regulatory environment and to ensure that steps are taken to
resolve instances of non-compliance promptly as they are identified.
The program has been authorized and mandated by the Company's Board of
Directors and will combine existing Company policies and practices with new
procedures designed to address areas of particular sensitivity. As part of the
program, the Company will publish a code of conduct setting forth standards of
conduct and principles of business ethics to be followed by the Company and
each employee and affiliated professional. The program will be administered by
a Compliance Officer and Compliance Committee consisting of officers and senior
managers of the Company. The Compliance Committee and Compliance Officer report
to the Board of Directors.
There can be no assurance that the Company's practices will not be
challenged by governmental authorities, or that the Company will not be subject
to sanctions under such laws or be required to alter or discontinue certain of
its practices.
REIMBURSEMENT
Sources of Net Patient Revenue
The following table sets forth information regarding the percentages of
Company net patient revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
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<S> <C> <C> <C>
Medicare 64% 68% 63%
Medicaid 7 6 7
Private and other payors 24 21 25
Hospital inpatient dialysis services 5 5 5
--- --- ---
Total 100% 100% 100%
=== === ===
</TABLE>
The Social Security 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 Social Security 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 Social
Security 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. Medicare coverage is secondary for some
patients who have qualifying employer group health insurance. The Balanced
Budget Act of 1997 extended the period during which Medicare is secondary to
patient's qualified employer group
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health plan from 18 months to 30 months effective for items and services
provided on or after August 5, 1997.
Under the Medicare ESRD program, the reimbursement rates per treatment
are fixed but have been adjusted from time to time by legislation. Although this
form of reimbursement limits the allowable charge per treatment, it provides the
Company with predictable and recurring per treatment revenue. The Medicare
composite rate, set by HCFA, governs the Medicare reimbursement available for a
designated group of dialysis services, including the dialysis treatment,
supplies used for such treatment, certain laboratory tests and medications. The
Medicare composite rate is subject to regional differences based on certain
factors, including labor costs. Certain other services and drugs are eligible
for separate reimbursement under Medicare and are not part of the composite
rate, including specific drugs such as EPO and some physician ordered tests
provided to dialysis patients. The Company generally submits Medicare claims
monthly and is usually paid within 30 days of the submission.
Medicare Reimbursement Rates
The Medicare composite rate for outpatient dialysis services currently
averages $126 per treatment in freestanding facilities and may vary depending
on regional wage differences. Medicare reimbursement rates are adjusted
periodically based on certain factors, including legislation, executive and
congressional budget reduction and control processes, inflation and costs
incurred in rendering the services. In the past, adjustments in the composite
rate have had little relationship to the cost of conducting business.
The Medicare ESRD composite reimbursement rate was unchanged from
commencement of the program in 1972 until 1983. From 1983 through December 1990,
numerous congressional actions resulted in net reductions of the average
composite reimbursement rate from a fixed fee of $138 per treatment in 1983 to
approximately $125 per treatment in 1986. Congress increased the ESRD composite
reimbursement rate, effective January 1991, resulting in an average rate of $126
per treatment.
The Medicare ESRD composite reimbursement rate has been the subject of
a number of reports and studies. In April 1991, the Institute of Medicine, an
organization chartered by the National Academy of Sciences and an advisor to the
federal government, released a report recommending that the composite rate be
adjusted for the effects of inflation. In March 1996, the Prospective Payment
Assessment Commission ("PROPAC") recommended that the ESRD composite
reimbursement rate be increased by 2.0% for freestanding facilities for fiscal
year 1997. In August 1996, and in response to the March 1996 report of PROPAC,
HCFA announced that an increase in the composite rate may be appropriate within
the next few years. In making this announcement HCFA also stated that any rate
increase must be considered in the context of Medicare budgetary concerns.
Nevertheless, HCFA stated that it may recommend an update to the composite rate
for fiscal year 1998. In January 1996, HCFA announced a three-year demonstration
project involving the enrollment of ESRD patients in managed care organizations.
The demonstration project would adjust payment rates based upon treatment
status, age groups, and the cause of renal failure. Based upon the results of
the demonstration project, HCFA has stated it
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would make recommendations to Congress concerning the appropriateness of paying
for ESRD services on a capitated basis. Congress is not required to implement
these recommendations and could either raise or lower the reimbursement rate.
During the last congressional session, there were various proposals for the
reform of numerous aspects of Medicare. The Company is unable to predict what,
if any, future changes may occur in the Medicare composite reimbursement rate.
Any reductions in the Medicare composite reimbursement rate could have a
material adverse effect on the Company's results of operations, financial
condition and business.
From June 1989 through December 1990, the Medicare ESRD program added
$40 per administration of EPO to the dialysis center's allowable composite rate
for dosages of up to 9,999 units per administration. For higher dosages, an
additional $30 per treatment was allowed. Effective January 1991, the Medicare
allowable prescribed rate for EPO was changed to $11 per 1,000 units, rounded to
the nearest 100 units. Subsequently, legislation was enacted to reduce the
Medicare prescribed rate for EPO by $1 to $10 per 1,000 units for administration
of EPO in 1994. For subsequent periods, the Secretary of the Department of
Health and Human Services ("Secretary of HHS") is authorized to determine an
appropriate rate, which currently is $10 per 1,000 units administered. The
Department of Health and Human Services Office of Inspector General ("OIG"),
published in November 1997 its review of EPOGEN reimbursement. The objective of
the review was to determine if Medicare's reimbursement for the drug EPOGEN
should be reduced to reflect current market prices. The OIG found that the
current EPO reimbursement rate of $10 per 1,000 units administered, exceeds the
current cost of purchasing EPO by approximately $1. Section 1881 (b) (11) (B) of
the Social Security Act provides that the Secretary of HHS can set an
appropriate reimbursement level for EPO beginning January 1, 1995. Accordingly,
a memorandum recommended that the Secretary consider reducing Medicare
reimbursement to $9.00 per 1,000 units administered resulting in savings to
Medicare of approximately $94,000,000 and to it's beneficiaries of approximately
$24,000,000 per year beginning in 1998. HCFA concurred with the OIG finding
and recommendation, and incorporated the same in the President's Fiscal Year
1999 Budget.
HCFA has also restored the medical justification exception so that the
patient's attending physician, or dialysis facility, can submit documentation
establishing the medical justification for the higher hematocrit. Payment will
be based on the actual dosage billed. Program Memorandum (PM) AB 97-2 dated
February 1997 and AB 97-8 dated May 1997, instructed that no payment be made for
EPO during a month when the 90 day average hematocrit exceeded 36.5%, and
described how the three month rolling average hematocrit was to be determined.
PM AB-98-10 expressly changed the policy contained in AB 97-2 and AB 97-8, and
permitted payment for EPO therapy in a month when the average hematocrit exceeds
36.5%. Effective on claims for monthly billing periods beginning on or after
March 10, 1998, payment is permitted when the three month rolling average
exceeds 36.5%. Payment is based on the lower of the actual dosage billed for the
current month, or 80% of the prior month's allowable EPO dosage. The Fiscal
Intermediaries (FIs) and Carriers, are to fully reimburse the dialysis facility
for hematocrits above 36.5% if the dialysis facility has reduced the number of
units of EPO by 20% from the previous month. However, if the patient's
hematocrit is close to 36%, and the dialysis facility does not reduce the
patient's EPO dosage by 20%, then the FI or Carrier is to reduce the payment by
20% so that the facility will receive 80% of the cost of the number of EPO units
administered the preceding month. In other words, the FI or Carrier
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will reimburse the dialysis facility as if it had reduced the number of EPO
units administered to the patient by 20%.
Medicaid Reimbursement
Medicaid programs are state-administered programs partially funded by
the federal government. These programs are intended to provide coverage for
patients whose income and assets fall below state defined levels and who are
otherwise uninsured. The programs also serve as supplemental insurance programs
for the Medicare co-insurance portion and provide certain coverages (e.g., oral
medications) that are not covered by Medicare. State regulations generally
follow Medicare reimbursement levels and coverages without any coinsurance
amounts. Certain states, however, require beneficiaries to pay a monthly share
of the cost based upon levels of income or assets. The Company is a licensed
ESRD Medicaid provider in all states in which it does business.
Private Reimbursement/Acute Care Contracts
The Company receives reimbursement from private payors for ESRD
treatments prior to Medicare becoming a patient's primary payor at rates
significantly higher than the per treatment rate set by Medicare. After Medicare
becomes a patient's primary payor, private secondary payors generally reimburse
the Company for 20% of the Medicare per treatment rate. The Company has
negotiated managed care contracts with certain payors at rates that are higher
than the Medicare rate. The Company also receives payments from hospitals under
70 acute care contracts at rates significantly higher than the Medicare
composite rate.
GOVERNMENT REGULATION
General
The Company's dialysis center operations are subject to extensive
governmental regulation at the federal, state and local levels. These
regulations require the Company to meet various standards relating to, among
other things, the management of centers, personnel, maintenance of proper
records, equipment and quality assurance programs. The dialysis centers are
subject to periodic inspection by state agencies and other governmental
authorities to determine if the premises, equipment, personnel and patient care
meet applicable standards. To receive Medicare reimbursement, the Company's
dialysis centers must be certified by HCFA as meeting certain Medicare
conditions of coverage. All of the Company's dialysis centers are so certified.
HCFA has announced that it is in the process of revising the current Medicare
Conditions of Coverage for ESRD services. The Company is unable to predict what,
if any, future changes may occur in the Medicare Conditions of Coverage for ESRD
facilities.
Any changes to the Medicare Conditions of Coverage, or any loss by the
Company of its federal certifications, its authorization to participate in the
Medicare or Medicaid programs or its licenses under the laws of any state or
other governmental authority from which a substantial portion of its revenues is
derived or a change resulting from health care reform reducing dialysis
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reimbursement or reducing or eliminating coverage for dialysis services would
have a material adverse effect on the Company's operations, revenues and net
earnings. To date, the Company and its subsidiaries have maintained their
licenses and their Medicare and Medicaid authorizations. The Company believes
that the health care services industry will continue to be subject to intense
regulation at the federal, state and local levels, the scope and effect of which
cannot be predicted. No assurance can be given that the activities of the
Company will not be reviewed and challenged by government regulators or that
health care reform will not result in a material adverse change to the Company.
Furthermore, the Company potentially could be held responsible for
actions previously taken by entities it has acquired. As part of its announced
regulatory agenda for 1996, HHS intends to issue a proposed rule that would
automatically assign to the new owner of a Medicare provider or supplier
liability for any Medicare overpayments, violations, or sanctions incurred by or
imposed on, the previous owner. There can be no assurance that previous
operating practices of the Company's acquisitions will not be reviewed and
challenged by government regulators or that the Company will not be liable for
such practices.
Fraud and Abuse
The Company's operations are subject to the illegal remuneration
provisions of the Social Security Act (sometimes referred to as the
"Anti-Kickback Statute") and similar state laws that impose criminal and civil
sanctions on persons who knowingly and willfully solicit, offer, receive or pay
any remuneration, whether directly or indirectly, in return for, or to induce,
the referral of a patient for treatment, or, among other things, the ordering,
purchasing, or leasing, of items or services that may be paid for in whole or in
part by Medicare, Medicaid or similar state programs.
Violations of the federal Anti-Kickback Statute are punishable by
criminal penalties including, but not limited to, imprisonment, civil penalties,
fines and exclusion of the provider from future participation in the Medicare or
Medicaid programs. Civil suspension from participation in Medicare or Medicaid
for Anti-Kickback violations also can be imposed through an administrative
process, without the imposition of civil monetary penalties. Some state statutes
also include civil and criminal penalties. While the federal Anti-Kickback
Statute expressly prohibits transactions that have traditionally had criminal
implications, such as kickbacks, rebates or bribes for patient referrals, its
language has been construed broadly and has not been limited to such obviously
wrongful transactions. Court decisions state that, under certain circumstances,
the statute is also violated when one purpose (as opposed to the "primary" or a
"material" purpose) of a payment is to induce referrals. Congress has frequently
considered federal legislation that would expand the federal Anti-Kickback
Statute to include the same broad prohibitions regardless of payer source. In
fact, the Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
expanded the Anti-Kickback Statute to certain other "Federal Health Care
Programs," such as CHAMPUS.
In July 1991 and in November 1992, the Secretary of HHS published
regulations that create exceptions, or "safe harbors", for certain business
transactions. Transactions that satisfy the criteria under applicable safe
harbors will be deemed not to violate the federal Anti-Kickback Statute.
Transactions that do not satisfy all elements of a relevant safe harbor do not
necessarily violate the
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statute, although such transactions may be subject to scrutiny by enforcement
agencies. The Company seeks to structure its various business arrangements to
satisfy as many safe harbor elements as possible under the circumstances,
although not all of the Company's arrangements satisfy all of the elements of a
safe harbor. Although the Company has never been challenged under any
Anti-Kickback Statute and the Company believes it has a reasonable basis for
concluding that it complies in all material respects with the federal
Anti-Kickback Statute and all other applicable related laws and regulations,
there can be no assurance that the OIG within HHS or other governmental agency
will not take a contrary position or that the Company will not be required to
change its practices in a manner which will cause, or will not otherwise
experience, a material adverse effect as a result of any such challenge or any
sanction which might be imposed.
In July 1994, the Secretary of HHS proposed a rule that would modify
the original set of safe harbor provisions to give greater clarity to the rule
making's original intent. The proposed rule would make changes to the safe
harbors on personal services and management contracts, small entity investment
interests and space rentals, among others. The Company does not believe that its
current operations, as set forth above, would change if the proposed rule were
adopted in the form proposed. However, the Company cannot predict the outcome of
the rule making process or whether changes in the safe harbors rule will affect
the Company's position with respect to the federal Anti-Kickback Statute.
The Company believes that the current arrangements of the Company with
nephrologist owners, Medical Directors, laboratories, IDPN suppliers, hospitals,
and other persons or entities who either refer patients to the Company's
dialysis centers or from whom the Company purchases items or services generally
are in material compliance with the federal Anti-Kickback Statute. Specifically,
the Company believes that such arrangements now generally provide, and will
provide, for reasonable compensation to or by the Company for the items and
services it buys from or furnishes to such persons or entities. Moreover, the
Company intends that IDPN therapy will be furnished in accordance with specified
utilization protocols consistent with Medicare coverage guidelines, and only to
patients for whom it is deemed medically necessary, as demonstrated by
physician-authorized Certificates of Medical Necessity. However, there can be no
assurance that the Company's arrangements will not be challenged or subject to
sanctions for any of the past arrangements of acquired companies. Any such
challenge or change, including any related sanctions which might be assessed,
could have a material adverse effect on the Company's operations, net revenue
and earnings.
The Stark Law
Significant prohibitions against physician referrals have been enacted
by Congress. These prohibitions are commonly known as the "Stark Law". As
originally enacted, the Stark Law ("Stark I") restricted physician investments
in, and referrals to, clinical laboratory services provided after January 1,
1992 to Medicare patients. Effective January 1, 1995, the Stark Law was expanded
to include, among other restricted services: physical/occupational therapy,
radiology services and supplies, including magnetic resonanace imaging,
computerized axial tomography scans, radiation therapy and ultrasound scans;
durable medical equipment and supplies; prosthetics, orthotics, and
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prosthetic devices and supplies; home health services and supplies; and
outpatient prescription drugs ("Stark II").
The Stark Law prohibits physician referrals for certain designated
health services to entities with which a physician or an immediate family member
has a "financial relationship." The entity is prohibited from claiming payment
under the Medicare or Medicaid programs for services rendered pursuant to a
prohibited referral and is liable for the refund of amounts received pursuant to
prohibited claims. The entity also can incur civil penalties and can be excluded
from participation in the Medicare or Medicaid programs. A "financial
relationship" under the Stark Law is defined as an ownership or investment
interest in, or a compensation arrangement between, the physician (or an
immediate family member) and the entity. The Company has entered into
compensation agreements with its Medical Directors or their respective
professional practices. The Medical Directors or their professional practices
also will own shares, and options to purchase shares, of common stock.
Accordingly, the Medical Directors will have a "financial relationship" with the
Company for purposes of the Stark Law.
Dialysis is not a designated health service under the Stark Law.
However, 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 and services are considered separately
rather than collectively as dialysis. Under the final Stark I rules published in
August 1995, HCFA provided an exception from Stark I for clinical laboratory
services reimbursed under the Medicare "composite rate" for dialysis. In the
proposed Stark II rules, the Department of Health and Human Services ("DHHS")
proposes to extend the ESRD facility exception to all designated health
services. Accordingly, if the rules are adopted as proposed, all designated
health services furnished in an ESRD facility that are included in the ESRD
composite payment rate will be excepted from the referral prohibition. Further,
the proposed Stark II rules exclude from the definition of "inpatient hospital
services" (a designated health service under the Stark Law) dialysis furnished
by a hospital that is not certified to provide ESRD services. In the preamble to
the proposed rules, DHHS states that it does not believe there would be a risk
of program or patient abuse where dialysis is furnished by a hospital not
certified to provide ESRD services because dialysis would be provided only under
emergency circumstances when there is no other appropriate treatment. The
proposed rules also exclude from the definition of "outpatient prescription
drugs" (another designated health service) EPO and other drugs furnished as part
of a dialysis treatment for an individual who dialyzes at home or in a facility.
In the preamble to the proposed rules, DHHS states that it would be
inappropriate to include as outpatient prescription drugs for purposes of the
Stark Law referral prohibition EPO and other drugs furnished under these
circumstances, even though these drugs are not included in the ESRD composite
payment rate but are billed separately, because the opportunity for program
abuse is extremely unlikely.
Until such rules are final, however, designated health services, other
than clinical laboratory services, provided in an ESRD facility are subject to
the Stark Law prohibitions. Accordingly, all clinical laboratory services billed
outside the ESRD composite payment rate and all other designated health
services, regardless of how billed, that are furnished in an ESRD facility fall
within the referral prohibition. Should any of the services to be provided at
the ESRD facilities be construed to be proscribed by the Stark Law, the Company
would need to take steps necessary to
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cause the operation of the ESRD facilities to comply with the law. Even if the
final Stark II rules contain these exceptions, the Company's provision of, or
arrangement and assumption of financial responsibility for, services and items
including, but not limited to, outpatient prescription drugs, including EPO,
enteral and parenteral nutrients, such as IDPN, clinical laboratory services,
center dialysis services and supplies, home dialysis supplies and equipment, and
services to hospital inpatients and outpatients, that are reimbursed separate
from the Medicare composite rate may be construed as "designated health
services" within the meaning of the Stark Law.
The Stark Law contains exceptions for ownership interests or
compensation arrangements that meet certain specific criteria set forth in the
statute. With respect to ownership interests, certain qualifying in-office
physician or ancillary services provided by or under the supervision of
physicians in a single group practice are exempt from both ownership and
compensation arrangement restrictions. With respect to compensation
arrangements, exceptions are available for certain qualifying arrangements in
the following areas: (i) bona fide employment relationships; (ii) personal
services contracts; (iii) space and equipment leasing arrangements; (iv) certain
group practice arrangements with a hospital that were in existence prior to
December 1989; and (v) purchases by physicians of laboratory services, or of
other items and services at fair market value. In order to be exempt from the
Stark Law self-referral prohibition, it is necessary to meet all of the criteria
of a particular exception for each financial relationship existing between an
entity and a referring physician. The Company believes that several of its
financial relationships with referring physicians will meet the criteria for an
exception. For example, the Company believes, based on the language of the Stark
Law, that its agreements with Medical Directors or their professional practices
materially satisfy the exception for compensation pursuant to a personal
services contract. Similarly, the Company believes, based in part on the
legislative history of the Stark Law, that it has a reasonable basis for
concluding that its contractual relationships with hospitals for acute inpatient
dialysis services should be deemed to satisfy the criteria for the exceptions
for personal services or leased equipment arrangements. In the case of certain
other financial arrangements, however, there may be no exception available.
The Stark Law also includes an exception for a physician's ownership or
investment interest in securities listed on an exchange or quoted on the Nasdaq
Stock Market which, in either case, meet certain criteria. Such criteria include
a requirement that the issuer of such securities have at least $75.0 million in
stockholders' equity at the end of the issuer's most recent fiscal year or on
average during the previous three fiscal years. Upon closing of the secondary
offering on November 22, 1996, the Company exceeded and continues to exceed
stockholders' equity of $75.0 million.
Because physicians under contract with the Company may refer patients
to hospitals with which the Company has an acute inpatient dialysis service
arrangement, the Stark Law may be interpreted by HHS to apply to the Company's
acute dialysis arrangements with hospitals. However, the Stark Law contains
exceptions for certain equipment rental and personal services arrangements, and
the Company believes it has a reasonable basis for concluding that its
contractual arrangements with such physicians and such hospitals for acute
inpatient dialysis services are in material compliance with the requirements of
such exceptions to the Stark Law.
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Consequently, if it were to apply, the Stark Law may require the
Company to restructure certain existing compensation agreements with its Medical
Directors or, in the alternative, to refuse to accept referrals for designated
health services from such physicians. Moreover, since the Stark Law prohibits
Medicare or Medicaid reimbursement of items or services provided pursuant to a
prohibited referral, and imposes substantial civil monetary penalties on
entities which present or cause to be presented claims for reimbursement in such
cases, the Company could be required to repay amounts reimbursed for items and
services that HCFA determines to have been furnished in violation of the Stark
Law, and could be subject to substantial civil monetary penalties, either or
both of which could have a material adverse effect on the Company's operations,
net revenue or earnings. The Company believes that if the Stark Law is
interpreted to apply to the Company's operations, the Company will be able on a
prospective basis to bring its financial relationships with referring physicians
into material compliance with the provisions of the Stark Law, including
relevant exceptions, although prospective compliance would not affect amounts or
penalties determined to be owed for past conduct, and there can be no assurance
that such prospective compliance, if possible, will not have a material adverse
effect on the Company's operations, net revenue or earnings. If the Stark Law is
interpreted by HHS to apply to the Company and the Company is determined to be
liable for past violations of the Stark Law by itself or one or more of the
entities it has acquired, the application of the Stark Law could have a material
adverse effect on the Company.
The Health Insurance Portability and Accountability Act of 1996
The Health Insurance Portability and Accountability Act of 1996
("HIPAA"), among other things, provides for insurance portability for
individuals who lose or change jobs, limits exclusions for preexisting
conditions, and establishes a pilot program for medical savings accounts. In
addition, HIPAA also greatly expands federal efforts at combating health care
fraud and abuse by making numerous amendments to the Social Security Act and the
federal criminal code. Among other things, HIPAA creates a new "Health Care
Fraud and Abuse Control Account," which provides for the issuance of "advisory
opinions" by the OIG regarding the application of the Anti-Kickback Statute,
extends certain criminal penalties for Medicare and Medicaid fraud to other
federal health care programs, expands the exclusion authority of the OIG,
extends Medicare and Medicaid civil monetary penalty provisions to other federal
health care programs, increases the amounts of civil monetary penalties, and
establishes a criminal health care fraud statute.
The False Claims Act
The federal False Claims Act ("FCA") is an additional means of policing
false bills or requests for payment in the health care delivery system. In part,
the FCA imposes a civil penalty on any person who (i) knowingly presents, or
causes to be presented, to the federal government a false or fraudulent claim
for payment or approval; (ii) knowingly makes, uses, or causes to be made or
used, a false record or statement to get a false or fraudulent claim paid or
approved by the federal government; (iii) conspires to defraud the federal
government by getting a false or fraudulent claim allowed or paid; or (iv)
knowingly makes, uses or causes to be made or used, a false record or statement
to conceal, avoid, or decrease an obligation to pay or transmit money or
property to the federal government. The penalty for a violation of the FCA
ranges from $5,000 to $10,000 for each
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fraudulent claim plus three times the amount of damages caused by each such
claim. The FCA has been used widely by the federal government to prosecute
Medicare fraud in areas such as coding errors, billing for services not
rendered, submitting false cost reports, billing services at a higher
reimbursement rate than is appropriate, billing services under a comprehensive
code as well as under one or more component codes, and billing for care which is
not medically necessary. Although subject to some dispute, at least two federal
district courts have also determined that alleged violations of the federal
Anti-Kickback Statute or the Stark Law are sufficient to state a claim for
relief under the FCA. In addition to the civil provisions of the FCA, the
federal government can avail itself of several criminal statues to prosecute the
submission of false or fraudulent claims for payment to the federal government.
Health Care Legislation
Because the Medicare program represents a substantial portion of the
federal budget, Congress takes action in almost every legislative session to
modify the Medicare program for the purpose of reducing the amounts otherwise
payable by the program to health care providers for a number of reasons,
including deficit reduction. Legislation or regulations may be enacted in the
future that may significantly modify the Medicare ESRD program or substantially
reduce the amount paid for the Company's services. The President has included in
his budget for 1999 a proposal to decrease Medicare reimbursement for EPO from
$10.00 to $9.00 per 1,000 units administered. The conference report to the
reconciliation bill called for HHS to report to Congress not later than December
31, 1999 with recommendations on expanding the definition of individuals
eligible to enroll in the bill's proposed MedicarePlus managed care plans to
include ESRD patients, and the President's response would have immediately made
such persons eligible for participation in such plans.
From time to time, the Company pays Medicare supplemental insurance
premiums for patients with financial need. The provisions of HIPAA may limit the
Company's ability to pay for policy premiums for patients even with proven
financial hardship. However, the Company believes that the bill did not intend
to limit the Company's ability to pay premiums for insurance coverage to
third-party or governmental payors. Furthermore, the Company believes that the
bill may be amended to include provisions for the payment of premiums on behalf
of ESRD patients or allow the Company to make grants to a foundation that may
provide for such premium payments on behalf of ESRD patients.
Furthermore, state and federal statutes or regulations may be enacted
which impose additional requirements on the Company to continue to provide
services, to provide new services, or to maintain eligibility to participate in
the federal and state payment programs. Such new legislation or regulations, or
any new interpretations of existing statues and regulations, may have a material
adverse effect on the Company's operations, revenue or earnings.
NMC (National Medical Care), v. Shalala on secondary payor claims, the
Court has issued an order that permanently enjoins HCFA from enforcing or
applying the April 24, 1995 rule on Medicare Primary Payor status for certain
ESRD secondary payor claims. Specifically, HCFA is permanently enjoined from
applying the OBRA 1993 rule on any transaction among
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and between providers, employer group health plans, and third parties that
occurred between August 10, 1993 and April 24, 1995 for duly entitled
beneficiaries whose group health plans coverage is secondary to Medicare for
reasons unrelated to ESRD. On April 24, 1995, HCFA issued a memorandum to all
HCFA regional administrators "clarifying" HCFA's construction of OBRA 1993
concerning the Medicare ESRD secondary payor provision. The memorandum required
that Medicare was once again to be the primary payor for duly entitled
beneficiaries whose group health plans coverage is secondary to Medicare for
reasons unrelated to ESRD. The changes were to be effective from August 10, 1993
through April 24, 1995 when National Medical Care filed suit in federal court.
The court granted NMC a preliminary injunction soon after the filing. The
permanent enjoinment of HCFA from enforcing or applying the April 1995 rule
retroactively means that NMC's motion for partial summary judgement on claims
for relief from retroactive application of the April 1995 rule has been granted
to all dialysis facilities. There has been no court action to date that the
Company is aware of on the issue of which payor is to be primary and secondary
on claims covered under OBRA 1993 after December 24, 1995. There can be no
assurance that such a court action may be filed, or if filed, will prevail in
favor of dialysis providers. Legislative or regulatory action may be enacted in
the future that may significantly modify this ruling or otherwise effect the
amount paid for the company's services. Any such action could have a material
adverse effect on the Company's results of operations, financial condition and
business.
COMPETITION
The dialysis industry is fragmented and highly competitive. Competition
for qualified physicians to act as Medical Directors is also significant.
According to HCFA, there were in excess of 2,800 dialysis centers in the United
States at the end of 1995. The Company believes that approximately 50% were
owned by multi-center dialysis companies, 25% were owned by independent
physicians and other companies and 25% were hospital-affiliated centers. The
largest multi-center dialysis company is Fresenius Medical Care ("Fresenius").
Other larger competitors of the Company include Total Renal Care Holdings, Inc.,
which recently acquired Renal Treatment Centers, Inc., and a privately-held
company, Gambro Healthcare, Inc. ("Gambro"), which recently acquired VIVRA
Incorporated. In addition, Fresenius and Gambro are both vertically integrated
providers of dialysis services. There are also a number of health care providers
that have entered or may decide to enter the dialysis business. Certain of the
Company's competitors have substantially greater financial resources than the
Company and may compete with the Company for acquisitions, development and/or
management of dialysis centers and nephrology practices. The Company believes
that competition for acquisitions has increased the cost of acquiring dialysis
centers and will likely increase the cost of acquiring nephrology practices. The
Company may also experience competition from centers established by former
Medical Directors or other referring physicians. There can be no assurance that
the Company will be able to compete effectively with any such competitors.
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INSURANCE
The Company maintains a general liability insurance policy for all of
its operations. To date no payments have been made under the Company's general
liability insurance policies because of any action brought as a result of the
operations of any of its facilities. The Company also maintains insurance in
amounts it deems adequate to cover professional liability, property and casualty
risks, workers' compensation and directors and officers liability. There can be
no assurance that the aggregate amount and kinds of the Company's insurance are
adequate to cover all risks it may incur or that insurance will be available in
the future.
EMPLOYEES
At December 31, 1997 the Company employed 2,639 full-time employees and
265 part-time employees. Of such full-time employees 45 were employed at the
Company's headquarters and 2,594 were employed at the Company's facilities. In
the opinion of management, employee relations are considered good.
RISK FACTORS
In evaluating the Company and its business, prospective investors
should carefully consider the following risk factors in addition to the other
information contained herein. This annual report, press releases and other
public statements by the company contain "forward-looking statements," within
the meaning of various provisions of the federal securities laws, that address
activities, events or developments that will or may occur in the future. These
statements are based on assumptions and analyses made by the Company in light of
its experience and perception of historical trends, current conditions and
expected future developments, and other factors believed appropriate in the
circumstances. Actual results and developments are subject to a number of risks
and uncertainties, including general economic, market or business conditions;
opportunities (or lack thereof) that may be presented to and pursued by the
Company; competitive actions by other companies; changes in laws or regulations;
and other factors as may be discussed from time to time in the Company's SEC
reports and other filings, many of which are beyond the control of the company.
Accordingly, readers are cautioned not to place undue reliance on such forward
looking statements, which speak only as of the date made and which the company
undertakes no obligation to revise to reflect events after the date made.
Limited Combined Operating History. The Company has conducted
operations as a combined entity only since February 1996, upon the closing of
its initial public offering. Since the initial public offering, the Company has
made several additional acquisitions of entities that, in some cases, have been
part of the Company's combined operations for only a few weeks or months. There
can be no assurance that the Company will be able to integrate the dialysis
centers, information systems and related operations of the entities acquired by
it or to continue operating them profitably. Nor can there be any assurance that
the Company's management group will be able to implement effectively the
Company's operating and growth strategy while it is engaged in acquisition
activity. Failure to integrate successfully the centers and other operations
acquired by the Company or to implement effectively the Company's operating and
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growth strategy could have a material adverse effect on the Company's results of
operations, financial condition or business.
Dependence On Government Reimbursement. The Company estimates that
approximately 64%, 68%, and 63% of the Company's net revenue for the years ended
December 31, 1995 and 1996, and 1997 consisted of reimbursements from Medicare
under the ESRD program, including revenue for the reimbursement of the
administration of a bio-engineered hormone, EPO, to treat anemia. Since 1983,
Congressional actions have resulted in occasional changes in the Medicare
composite reimbursement rate, and the Company is not able to predict whether
future rate changes will be made. Legislation or regulations may be enacted in
the future that may significantly modify the ESRD program or otherwise affect
the amount paid for the Company's services. Any such action could have a
material adverse effect on the Company's results of operations, financial
condition and business. Furthermore, increases in operating costs that are
subject to inflation, such as labor and supply costs, without a compensating
increase in prescribed rates, may have a material adverse effect on the
Company's earnings in the future. The Company is also unable to predict whether
certain ancillary services, for which the Company currently is reimbursed
separately, may in the future be included in the Medicare composite rate.
Revenues from the administration of EPO (the substantial majority of
which are reimbursed through Medicare and Medicaid programs) were approximately
17%, 19%, and 21% of the net revenue of the Company for the years ended December
31, 1995, 1996, and 1997, respectively. EPO reimbursement significantly affects
the Company's earnings. The President has included in his 1999 budget a proposal
to decrease Medicare reimbursement for EPO by $1 (see Medicare Reimbursement
Rates). Any reduction in reimbursement rates for EPO could have a material
adverse effect on the Company's results of operations, financial condition or
business. EPO is produced by a single manufacturer, and any interruption of
supply or product cost increases could have a material adverse effect on the
Company's results of operations, financial condition or business.
The Company estimates that approximately 7%, 6%, and 7% of the
Company's net revenue for the years ended December 31, 1995 and 1996, and 1997,
respectively, were funded by Medicaid or comparable state programs. The Medicaid
programs are subject to statutory and regulatory changes, administrative
rulings, interpretations of policy and governmental funding restrictions, all of
which may have the effect of decreasing program payments, increasing costs or
modifying the way the Company operates its dialysis business.
Dependence On Other Sources Of Reimbursement. The Company estimates
that approximately 29%, 26%, and 30% of its net revenue for the years ended
December 31, 1995 and 1996, and 1997, respectively, were derived from sources
other than Medicare and Medicaid. Substantially all of this revenue comes from
private insurance for chronic dialysis treatments and payments from hospitals
with which the Company has contracts for the provision of acute dialysis
services. In general, private insurance reimbursement and payments for
treatments performed at hospitals are at rates significantly higher than
Medicare and Medicaid rates. The Company believes that if Medicare reimbursement
for dialysis treatment is reduced in the future, these private payors may be
required to assume a greater percentage of the costs of dialysis care
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and, as a result, may focus on reducing dialysis payments as their overall costs
increase. In addition, the Company believes that health maintenance
organizations ("HMOs") and other managed care providers may have a strong
incentive to reduce further the costs of specialty care and may seek to reduce
amounts paid for dialysis. The Company is unable to predict whether and to what
extent changes in these private reimbursement rates may be made in the future.
Any reduction in the rates paid by private insurers and hospitals or a
significant change in the Company's payor mix toward additional Medicare or
Medicaid reimbursement could have a material adverse effect on the Company's
results of operations, financial condition and business. Similarly, increases in
operating costs that are subject to inflation, such as labor and supply costs,
without a compensating increase in private reimbursement rates, could have a
material adverse effect on the Company's results of operations, financial
condition or business.
Risks Associated With Growth Strategy. The Company's strategy includes
expanding its dialysis business through the acquisition and development of
dialysis centers and the management of nephrology practices. Competition for
acquisitions in the dialysis industry has increased significantly in recent
years and, as a result, the cost of acquiring dialysis centers has increased.
There can be no assurance that the Company will be able to identify, acquire or
profitably integrate acquired dialysis centers and nephrology practices.
Acquisitions involve a number of risks related to integration, including adverse
short-term effects on the Company's reported operating results, diversion of
management's attention, dependence on retention, hiring and training of key
personnel, including Medical Directors for each dialysis center, some or all of
which could have a material adverse effect on the Company's results of
operations, financial condition or business. In addition, there can be no
assurance that acquired or managed dialysis centers will achieve net revenue and
earnings that justify the Company's investment therein or expenses related
thereto. In order to implement its growth strategy, the Company may require
substantial capital resources and need to incur, from time to time, short- and
long-term bank indebtedness. The Company also may need to issue in public or
private transactions, equity or debt securities, the terms of which will depend
on market and other conditions. There can be no assurance that any such
additional financing will be available on terms acceptable to the Company, if at
all. To the extent that the Company is unable to acquire dialysis centers or
acquire or manage nephrology practices, to integrate such centers and practices
successfully, or to obtain financing on terms acceptable to the Company, its
ability to expand its business could be reduced significantly.
Risks Associated With Liabilities Of Acquired Businesses. The Company
has acquired and will continue to acquire businesses with prior operating
histories. Acquired companies may have unknown or contingent liabilities,
including liabilities for failure to comply with health care laws and
regulations, such as billing and reimbursement, fraud and abuse and similar
anti-referral laws. The Company has from time to time identified certain past
practices of acquired companies that do not conform to its standards. Although
the Company institutes policies designed to conform such practices to its
standards following completion of acquisitions, there can be no assurance that
the Company will not become liable for past activities that may later be
asserted to be improper by private plaintiffs or government agencies. Although
the Company generally seeks to obtain indemnification from prospective sellers
covering such matters, there can be no assurance that any such matter will be
covered by indemnification or, if covered, that
23
<PAGE> 24
the liability sustained will not exceed contractual limits or the financial
capacity of the indemnifying party.
Dependence On Physician Referrals. The Company's dialysis centers
depend upon local nephrologists for referrals of ESRD patients for treatment and
one or a few physicians typically account for all or a significant portion of
the patient referral base at a center. The loss of one or more referring
physicians at a particular center could have a material adverse effect on the
operations of such center, and the loss of a significant number of referring
physicians could have a material adverse effect on the Company's results of
operations, financial conditions and business. In many instances stockholders of
the Company are the primary referral sources for the dialysis centers operated
by the Company. If such ownership is deemed to violate applicable federal or
state law, such as the illegal remuneration provisions of the Social Security
Act and similar state laws which prohibit the payment of remuneration to induce
referrals, such physician owners may be forced to dispose of their stock in the
Company.
Operations Subject To Extensive Government Regulation. The Company is
subject to extensive federal, state and local regulation regarding, among other
things, fraud and abuse, patient referral, false claims, health and safety,
environmental compliance and toxic waste disposal. Much of this regulation,
particularly in the areas of fraud and abuse and patient referral, is complex
and open to differing interpretations. First, the illegal remuneration
provisions of the Anti-Kickback Statute make it illegal for any person to, among
other things, solicit, offer, receive or pay any remuneration in exchange for
referring, or to induce the referral of, a patient for treatment which may be
paid for by Medicare, Medicaid or a similar state program. Second, the Stark Law
prohibits physician referrals for "designated health services" (including some
of the specific services offered by the Company) to entities with which a
physician or an immediate family member has a "financial relationship." These
laws contain certain statutory exemptions, and federal agencies have promulgated
regulations clarifying certain of these provisions and exceptions and creating
certain additional exceptions or "safe harbors" from such prohibitions. Many
states have enacted similar provisions of law, which may not have identical
prohibitions or exceptions, but which may apply regardless of whether Medicare
or Medicaid funds are involved. However, due to the breadth of the statutory
provisions and the absence in many instances of regulations or court decisions
addressing the specific arrangements by which the Company conducts its business,
it is possible that some of the Company's practices might be challenged under
these laws. Sanctions for violating these federal and state laws may include
civil monetary fines, disqualification from participation in the Medicare or
Medicaid programs, and criminal sanctions. There can be no assurance that the
Company's practices will not be challenged by governmental authorities, or that
the Company will not be subject to sanctions under such laws or be required to
alter or discontinue certain of its practices. In addition, there can be no
assurance that if the Company is required to alter its practices, that it will
be able to do so successfully. The occurrence of any of these events could
result in a material adverse effect on the Company's results of operations,
financial condition or business.
24
<PAGE> 25
A number of proposals for health care reform have been made recently to
provide greater governmental control of health care spending and to provide
broader access to health care services. For example, HIPAA, among other things,
provides for insurance portability for individuals who lose or change jobs,
limits exclusions for pre-existing conditions, and establishes a pilot program
for medical savings accounts. HIPAA also amends existing crimes and criminal
penalties for Medicare fraud and enacts new federal health care fraud crimes. It
is uncertain what additional health care reform legislation, if any, ultimately
will be implemented or whether other changes in the administration or
interpretation of governmental health care programs will occur. The Company
cannot predict what effect future health care legislation or other changes in
the administration or interpretation of governmental health care statutes,
regulations, or programs may have on the Company's operations.
Substantial Competition. The dialysis industry is fragmented and is
consolidating rapidly. Accordingly, the industry is highly competitive,
particularly from the standpoint of competition for the acquisition of existing
dialysis centers and the development of relationships with referring physicians.
Many of the Company's competitors have substantially greater financial resources
and more established operations and infrastructure than the Company and may
compete with the Company for acquisitions of dialysis centers and nephrology
practices. In addition, the Company may also experience competition from
referring physicians who open their own dialysis centers. There can be no
assurance that the Company will be able to compete effectively with any such
competitors.
Dependence On Key Personnel. The Company is dependent upon the services
of certain key executive officers. The Company's growth will depend in part upon
its ability to attract and retain skilled employees, for whom competition is
intense. The Company believes that its future success will also depend on its
ability to attract and retain qualified physicians to serve as Medical Directors
of its dialysis centers. The Company does not carry key-man life insurance on
any of its officers. The loss by the Company of any of its executive officers,
or the inability to attract and retain qualified management personnel and
Medical Directors, could have a material adverse effect on the Company's results
of operations, financial condition or business.
25
<PAGE> 26
ITEM 2. PROPERTIES
PROPERTIES
The Company operates dialysis centers in 15 states, of which 102 are
located in leased facilities and 19 are owned. The following is a summary of the
Company's outpatient dialysis centers by state.
<TABLE>
<CAPTION>
-----------------------------------------------------
OUTPATIENT FACILITIES BY STATE
-----------------------------------------------------
<S> <C>
Alabama 3
-----------------------------------------------------
Arkansas 2
-----------------------------------------------------
Arizona 23
-----------------------------------------------------
Florida 5
-----------------------------------------------------
Indiana 14
-----------------------------------------------------
Kansas 11
-----------------------------------------------------
Kentucky 1
-----------------------------------------------------
Louisiana 1
-----------------------------------------------------
Missouri 1
-----------------------------------------------------
Mississippi 22
-----------------------------------------------------
New Jersey 2
-----------------------------------------------------
Ohio 6
-----------------------------------------------------
Oklahoma 1
-----------------------------------------------------
Pennsylvania 5
-----------------------------------------------------
Texas 24
-----------------------------------------------------
Total 121
-----------------------------------------------------
</TABLE>
Certain of the premises are leased from physicians who practice at the
center and who are stockholders of the Company. The Company's leases generally
have terms ranging from one to 15 years and typically contain renewal options.
The size of the Company's centers range from approximately 400 to 17,000 square
feet. The Company leases office space in Nashville, Tennessee for its corporate
headquarters and university division under leases that expire in 2002 and 1999,
respectively. The Company considers its physical properties to be in good
operating condition and suitable for the purposes for which they are being used.
Expansion or relocation of the Company's dialysis centers would be
subject to compliance with conditions relating to participation in the Medicare
ESRD program. In states that require a certificate of need, approval of an
application submitted by the Company would be necessary for expansion or
development of a new dialysis center. The Company generally owns the equipment
used in its outpatient centers. The Company considers its equipment to generally
be in good operating condition and suitable for the purposes for which it is
being used.
26
<PAGE> 27
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of
business, including those arising from patient treatment which the Company
believes will be covered by malpractice insurance. The Company is not currently
a party to any material legal actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of stockholders during the fourth
quarter of 1997.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Company's common stock has been traded on the Nasdaq National
Market System under the symbol "RCGI" since February 7, 1996. The following
table sets forth the quarterly high and low closing sales prices as reported on
the Nasdaq National Market System from February 7, 1996 through December 31,
1997.
On June 13, 1997, the Board of Directors approved a three-for-two stock
split to be effected in the form of a 50% stock dividend. One additional share
of common stock was issued for every two shares held by shareholders of record
at the close of business on July 7, 1997. The additional shares were distributed
on July 25, 1997. All financial and share data included in this report has been
adjusted for the stock split.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
1996 HIGH LOW
-------------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $18.83 $15.67
-------------------------------------------------------------------------------------------
Second Quarter $23.83 $19.50
-------------------------------------------------------------------------------------------
Third Quarter $25.33 $17.50
-------------------------------------------------------------------------------------------
Fourth Quarter $25.00 $20.42
-------------------------------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------------------------------
1997 HIGH LOW
-------------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $24.50 $21.00
-------------------------------------------------------------------------------------------
Second Quarter $27.80 $19.83
-------------------------------------------------------------------------------------------
Third Quarter $36.25 $25.50
-------------------------------------------------------------------------------------------
Fourth Quarter $36.13 $26.13
-------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 28
HOLDERS
As of March 19, 1998, the approximate number of registered stockholders
was 3,579 including 229 stockholders of record and approximately 3,350 persons
or entities holding common stock in nominee name.
DIVIDEND POLICY
The Company has never paid any cash dividend on its capital stock. The
Company currently anticipates that all of its earnings will be retained to
finance the growth and development of its business, and therefore, does not
anticipate that any cash dividend will be declared or paid on the common stock
in the foreseeable future. Any future declaration of dividends will be subject
to the discretion of the Company's Board of Directors and its review of the
Company's results of operations, financial condition, capital requirements and
surplus, contractual restrictions to pay such dividends and other factors it
deems relevant.
SALES OF UNREGISTERED SECURITIES
The Company issued the following securities during the 1997 calendar
year in transactions that were not registered under the Securities Act of 1933,
as amended (the "Securities Act"):
(a) In January 1997, the Company issued 10,221 shares of common
stock to Jess R. Lambujon, M.D. in a private placement
pursuant to the exemption from registration set forth in
Section 4(2) of the Securities Act.
(b) In March 1997, the Company issued 324,813 shares of common
stock to the former owners of Indiana Dialysis Services, P.C.
and related entities in a private placement pursuant to the
exemption from registration set forth in Section 4(2) of the
Securities Act.
(c) In June 1997, the Company issued 809,290 shares of common
stock to the former owners of Bay Area Nephrologists in a
private placement pursuant to the exemption from registration
set forth in Section 4(2) of the Securities Act.
(d) In October 1997, the Company issued 13,873 shares of common
stock to Dialysis Corporation of America in a private
placement pursuant to the exemption from registration set
forth in Section 4(2) of the Securities Act.
(e) In December 1997, the Company issued 2,135,730 shares of
common stock to Laidlaw Inc. in a private placement pursuant
to the exemption from registration set forth in Section 4(2)
of the Securities Act.
28
<PAGE> 29
ITEM 6. SELECTED FINANCIAL DATA
The Selected Historical Financial Data -- Renal Care Group, Inc. on
page 30 represents the historical results of operations of the Company and
includes the results of operations of certain businesses that were acquired
during 1996 in pooling-of-interests transactions. This information does not
include the results of operations for the Founding Companies for any periods
prior to the date of the initial public offering.
The Selected Combined and Pro Forma Financial Data -- Renal Care Group,
Inc. and Founding Companies on page 31 represents the results of operations had
the Founding Companies and the Company been combined for all periods presented
without giving effect to the initial public offering for periods prior to
February 1, 1996 except on a pro forma basis.
The Combination was accounted for using historical cost, in accordance
with Securities and Exchange Commission Staff Accounting Bulletin No. 48,
because no single owner group from any of the Founding Companies held more than
50% equity interest in the Company as of the closing of the Company's initial
public offering. Accordingly, the Company has recorded the net assets acquired
at the Founding Companies' historical cost basis, as determined by generally
accepted accounting principles.
The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. For further discussion of earnings per share and the impact
of Statement No. 128, see the notes to the consolidated financial statements
beginning on page F-8.
The Selected Historical Financial Data -- Renal Care Group, Inc. are
derived from audited financial statements. The unaudited combined financial data
has been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, contain all adjustments consisting
of normal, recurring accruals necessary for a fair presentation of the combined
financial position and the combined results of operations for the periods
presented. The following data should be read in conjunction with the financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that appear elsewhere in this
Form 10-K.
29
<PAGE> 30
SELECTED HISTORICAL FINANCIAL DATA -- RENAL CARE GROUP, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,(1)
--------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue......................................... $18,126 $41,627 $42,971 $129,518 $214,009
Patient care costs.................................. 13,034 25,003 26,908 90,122 145,922
General and administrative expenses................. 3,649 8,721 8,701 13,364 21,806
Provision for doubtful accounts..................... 584 1,418 2,355 2,446 4,824
Depreciation and amortization....................... 601 1,484 1,580 4,541 9,016
Merger expenses..................................... -- -- -- 1,960 300
------- ------- ------- -------- --------
Total operating costs and expenses.................. 17,868 36,626 39,544 112,433 181,868
------- ------- ------- -------- --------
Income from operations.............................. 258 5,001 3,427 17,085 32,141
Interest income (expense), net...................... (128) (363) (452) 619 583
------- ------- ------- -------- --------
Income before minority interest and income taxes.... 130 4,638 2,975 17,704 32,724
Minority interest................................... -- -- -- -- 955
------- ------- ------- -------- --------
Income before income taxes.......................... $ 130 $ 4,638 $ 2,975 17,704 31,769
======= ======= =======
Provision for income taxes.......................... 6,958 11,791
-------- --------
Net income.......................................... $ 10,746 $ 19,978
======== ========
Basic net income per share.......................... $ 0.61 $ 0.89
======== ========
Basic weighted average shares outstanding........... 17,654 22,450
======== ========
Diluted net income per share........................ $ 0.56 $ 0.84
======== ========
Diluted weighted average shares outstanding......... 19,109 23,730
======== ========
<CAPTION>
DECEMBER 31, (1)
----------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................... $ 3,519 $ 3,171 $ (1,418) $ 49,462 $ 24,469
Total assets........................................ 14,393 17,318 20,765 131,812 248,083
Total debt.......................................... 5,248 5,420 7,340 -- 16,262
Stockholders' equity................................ 4,901 5,919 4,566 93,325 174,759
</TABLE>
- ----------
(1) The financial information for the years ended December 31, 1993 1994 and
1995 does not include the Founding Companies. The financial information for
the year ended December 31, 1996 includes the results of operations for the
Founding Companies since February 1996 when they were acquired by the
Company simultaneously with its initial public offering.
(2) Earnings per share amounts are not presented for the years ended December
31, 1993, 1994, and 1995 as the historical results of operations of the
Company for these years consisted of non-taxed earnings from Main Line and
RenalWest which were S corporations and therefore all taxes were payable
personally by the stockholders of the respective entities. Additionally,
the entities had different equity structure from the Company and earnings
per share is not considered meaningful.
30
<PAGE> 31
SELECTED COMBINED AND PRO FORMA FINANCIAL DATA --
RENAL CARE GROUP, INC. AND FOUNDING COMPANIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (1)
---------------------------
1993 1994 1995(2) 1996(3) 1997
---- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue......................................... $80,442 $110,670 $115,329 $135,894 $214,009
Patient care costs.................................. 58,314 75,366 80,417 94,849 145,922
General and administrative expenses................. 6,799 12,616 12,866 13,797 21,806
Provision for doubtful accounts..................... 2,010 2,914 3,995 2,571 4,824
Depreciation and amortization....................... 2,416 3,414 3,661 4,715 9,016
Merger expenses..................................... -- -- -- 1,960 300
------- -------- -------- -------- --------
Total operating costs and expenses.................. 69,539 94,310 100,939 117,892 181,868
------- -------- -------- -------- --------
Income from operations.............................. 10,903 16,360 14,390 18,002 32,141
Interest income (expense), net...................... (460) (646) 1,013 525 583
------- -------- -------- -------- --------
Income before minority interest and income taxes.... 10,443 15,714 13,377 18,527 32,724
Minority interest................................... -- -- -- -- 955
------- -------- -------- -------- --------
Income before income taxes.......................... $10,443 $ 15,714 $ 13,377 18,527 31,769
======= ======== ========
Provision for income taxes.......................... 7,025 11,791
-------- --------
Net income................................... $ 11,502 $ 19,978
======== ========
Basic net income per share.......................... $ 0.61 $ 0.89
======== ========
Basic weighted average shares outstanding........... 18,789 22,450
======== ========
Diluted net income per share........................ $ 0.57 $ 0.84
======== ========
Diluted weighted average shares outstanding......... 20,244 23,730
======== ========
<CAPTION>
DECEMBER 31, (1)
----------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital (deficit) .......................... $14,761 $18,158 $12,237 $ 49,462 $ 24,469
Total assets........................................ 42,770 49,918 60,899 131,812 248,083
Total debt.......................................... 8,265 8,620 15,915 -- 16,262
Stockholders' equity................................ 24,211 26,825 25,358 93,325 174,759
</TABLE>
- ----------
(1) The financial information for each of the years presented represents the
results of operations of Renal Care Group and Founding Companies combined
without giving effect to the Company's initial public offering for periods
prior to February 1996.
(2) Pro forma information for the year ended December 31, 1995 excludes the
following adjustments: (a) the provision for federal and state income taxes
as if not-for-profit and S-corporations had been subject to such taxes; (b)
additional estimated corporate overhead of approximately $2.6 million that
would have been incurred had the Combination occurred at the beginning of
1995; and (c) certain other adjustments to reflect the Combination and the
initial public offering.
(3) Pro forma information for the year ended December 31, 1996 gives effect to
the provision for federal and state income taxes as if not-for-profit and
S-corporations had been subject to such taxes and includes the results of
operations for the Founding Companies for the month of January. Pro forma
net income and diluted earnings per share before merger expenses for the
year ended December 31, 1996 would have been $12,738,000 and $0.63,
respectively.
31
<PAGE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements, including the notes thereto,
contained elsewhere in this Annual Report on Form 10-K.
OVERVIEW
Renal Care Group is a specialized provider of nephrology services to
patients with kidney disease, including patients suffering from chronic kidney
failure. The Company commenced operations in February 1996 when it acquired the
Founding Companies simultaneous with the completion of its initial public
offering. As of December 31, 1997 the Company provided dialysis and ancillary
services to approximately 8,300 patients through 121 outpatient dialysis centers
in 15 states, in addition to providing acute dialysis services in 70 hospitals.
For the comparison discussion that follows, the Selected Combined Financial and
Pro Forma Statements include the financial information of the Founding
Companies, and previously reported acquisitions accounted for as poolings of
interests. One such pooling of interests, RenalWest, was organized in September
1993; consequently, the Selected Combined Financial and Pro Forma Statements do
not include a full year of operating results for that period. Because the
Founding Companies and acquired entities were independent and not operated by
Company's management prior to their respective dates of acquisition, the
historical results prior to such times may not be indicative of future
performance. In addition, the Selected Combined and Pro Forma Financial
Statements do not give effect to any operating efficiencies prior to such dates
of acquisition that the Company believes typically would be obtainable in an
integrated organization.
The Company's net revenue has been derived primarily from the following
sources: (i) outpatient hemodialysis services; (ii) ancillary services
associated with dialysis, primarily the administration of EPO; (iii) home
dialysis services; (iv) inpatient hemodialysis services provided pursuant to
contracts with acute care hospitals and skilled nursing facilities; (v)
management contracts with hospital-based and medical university dialysis
programs; and (vi) laboratory services. ESRD patients typically receive 156
dialysis treatments per year, with reimbursement for services provided primarily
by the Medicare ESRD program based on rates that are established by HCFA. For
the year ended December 31, 1997, approximately 70% of the Company's net revenue
was derived from reimbursement under the Medicare and Medicaid programs.
Medicare reimbursement is subject to rate and other legislative changes by
Congress and periodic changes in regulations, including changes that may reduce
payments under the ESRD program. For patients with private health insurance,
dialysis had been historically reimbursed at rates higher than Medicare during
the first 18 months of treatment, after which time Medicare becomes the primary
payor. However, effective September 1, 1997, the health insurance coordination
period has been extended to 30 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
32
<PAGE> 33
dialysis is a life-sustaining therapy used to treat this chronic disease,
utilization is predictable and is not subject to seasonal fluctuations.
RESULTS OF OPERATIONS
As indicated elsewhere, in February 1996 the Company commenced its
business with the simultaneous acquisition of the five Founding Companies. As a
result of this Combination, a comparison of the current operations of the
Company to its historical operations prior to the Combination is not considered
meaningful. Therefore, the results of operations for all periods in the table
below and in the period comparisons that follow reflect the historical
operations of the Company combined with the operations of the Founding Companies
had the Combination occurred for all periods presented.
The following table sets forth, results of operations, before interest
income (expense), for the periods indicated and the percentage of net revenue
represented by the respective financial line items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Revenue $115,329 100.0% $135,894 100.0% $214,009 100.0%
Patient care costs 80,417 69.7 94,849 69.8 145,922 68.2
General and administrative
expenses 12,866 11.1 13,797 10.2 21,806 10.2
Provision for doubtful accounts 3,995 3.5 2,571 1.9 4,824 2.3
Depreciation and amortization 3,661 3.2 4,715 3.5 9,016 4.2
Merger expenses -- -- 1,960 1.4 300 .1
-------- ------ -------- ------ -------- ------
Total operating costs and
expenses 100,939 87.5 117,892 86.8 181,868 85.0
-------- ------ -------- ------ -------- ------
Income from operations 14,390 12.5% 18,002 13.2% 32,141 15.0%
Minority interest -- -- -- -- 955 .5
-------- ------ -------- ------ -------- ------
Income before interest and income taxes $ 14,390 12.5% $ 18,002 13.2% $ 31,186 14.5%
======== ====== ======== ====== ======== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Revenue. Net revenue increased from $135,894,000 for the year ended
December 31, 1996 to $214,009,000 for the year ended December 31, 1997, an
increase of $78,115,000, or 57.5%. This increase resulted primarily from a 46.6%
increase in the number of treatments from 703,549 in the 1996 period to
1,031,507 in the 1997 period. This growth in treatments is a result of the
acquisition and development of various dialysis facilities and an 8.1% increase
in same-center treatments for the 1997 period over the 1996 period. In addition,
average revenue per treatment increased 7.8% from $191 in the 1996 period to
$206 in the 1997 period. The remaining revenue increase is a result of higher
management fees and earnings of 50% owned partnerships in the 1997 period
compared to the 1996 period. The revenue per treatment increase is due to an
improvement in the Company's payor mix, increases in erythropoietin (EPO) and
other drug utilization, and the implementation of the Company's in-house
laboratory services.
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.
33
<PAGE> 34
Patient care costs increased from $94,849,000 for the year ended December 31,
1996 to $145,922,000 for the year ended December 31, 1997, an increase of
$51,073,000, or 53.8%. This increase resulted primarily from an increase in the
number of treatments performed during the period, which caused a corresponding
increase in the use of drugs, supplies and labor. Patient care costs as a
percentage of net revenue decreased from 69.8% in the 1996 period to 68.2% in
the 1997 period primarily due to the increase in net revenue per treatment.
Patient care cost per treatment increased from $135 in the 1996 period to $141
in the 1997 period, or 4.4%. This increase is due to EPO and other drug
utilization costs, the cost of providing in-house laboratory services, and
normal health care inflation.
General and Administrative Expenses. General and administrative
expenses include corporate office costs and facility costs not directly related
to the care of patients, including facility administration, accounting, billing
and information systems. General and administrative expenses increased from
$13,797,000 for the year ended December 31, 1996 to $21,806,000 for the year
ended December 31, 1997, an increase of $8,009,000, or 58%. General and
administrative expenses as a percentage of revenue remained constant at 10.2% in
the 1996 and 1997 periods.
Provision for Doubtful Accounts. The provision for doubtful accounts is
a function of patient mix, billing practices, and other factors. It is the
Company's practice to reserve for doubtful accounts in the period in which the
revenue is recognized based on management's estimate of the net collectibility
of the accounts receivable. The provision for doubtful accounts increased from
$2,571,000 in the 1996 period to $4,824,000 in the 1997 period. The provision
for doubtful accounts as a percent of net revenue increased from 1.9% in the
1996 period to 2.3% in the 1997 period, or 0.4%. This increase in provision for
doubtful accounts was influenced by the amount of net operating revenues
generated from non-governmental payor sources.
Depreciation and Amortization. Depreciation and amortization increased
from $4,715,000 for the year ended December 31, 1996 to $9,016,000 for the year
ended December 31, 1997, an increase of $4,301,000, or 91.2%. This increase was
due to the start-up of dialysis facilities, the normal replacement costs of
dialysis facilities and equipment, the purchase of information systems, and the
amortization of the goodwill associated with the acquisitions accounted for
under the purchase method of accounting.
Merger Expenses. Merger expenses of $300,000 represented legal,
accounting and employee severance and related benefits in connection with the
Corpus Christi acquisition.
Income from Operations. Income from operations increased from
$18,002,000 for the year ended December 31, 1996 to $32,141,000 for the year
ended December 31, 1997, an increase of $14,139,000, or 78.5%. Income from
operations as a percentage of net revenue increased from 13.2% in the 1996
period to 15% in the 1997 period.
Minority Interest. Minority interest represents the proportionate
equity interest of other partners in the Company's consolidated entities which
are not wholly-owned. As of December 31, 1997, this was primarily comprised of
three joint venture partnerships.
34
<PAGE> 35
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Revenue. Net revenue increased from $115,329,000 for the year ended
December 31, 1995 to $135,894,000 for the year ended December 31, 1996, an
increase of $20,565,000, or 17.8%. This increase resulted primarily from a 12.6%
increase in the number of treatments from 624,988 in the 1995 period to 703,549
in the 1996 period and a 3.2% increase in the average revenue per treatment from
$185 in the 1995 period to $191 in the 1996 period. The revenue per treatment
increase was due to an increase in EPO utilization and higher-revenue generating
acute treatments. The remaining revenue increase resulted from management fee
income.
Patient Care Costs. Patient care costs consist of costs directly
related to the care of patients, including direct labor, drugs, and other
medical supplies and operational costs of facilities. Patient care costs
increased from $80,417,000 for the year ended December 31, 1995 to $94,849,000
for the year ended December 31, 1996, an increase of $14,432,000, or 17.9%. This
increase was due to the increase in the number of treatments, which caused a
corresponding increase in the use of drugs, supplies and labor. Patient care
costs as a percentage of net revenue increased from 69.7% in the 1995 period to
69.8% in the 1996 period. Average patient care cost per treatment increased from
$129 in the 1995 period to $135 in the 1996 period. This increase was due to
normal health care inflation, increased EPO utilization and the increase in
higher cost acute treatments.
General and Administrative Expenses. General and administrative
expenses include corporate office costs and clinic costs not directly related to
the care of patients, including clinic administration, accounting, billing and
information systems. General and administrative expenses increased from
$12,866,000 for the year ended December 31, 1995 to $13,797,000 for the year
ended December 31, 1996, an increase of $931,000, or 7.2%. The net increase was
a result of increased corporate overhead expenses partially offset by reduced
compensation to prior physician owners. General and administrative expenses as a
percentage of revenue decreased from 11.1% in the 1995 period to 10.2% in the
1996 period.
Provision for Doubtful Accounts. The provision for doubtful accounts
decreased from $3,995,000 for the year ended December 31, 1995 to $2,571,000 for
the year ended December 31, 1996. The provision for doubtful accounts as a
percentage of net revenue decreased from 3.5% in the 1995 period to 1.9% in the
1996 period. This decrease represented a return to a normal level of provision
for doubtful accounts in the 1996 period from the 1995 period when additional
expense was recorded due to a deterioration in the aging of certain accounts
receivable. The provision for doubtful accounts is a function of patient mix,
billing practices and other factors. It is the Company's practice to reserve for
doubtful accounts in the period in which revenue is recognized based on
management's estimate of the net collectibility of accounts receivable.
Depreciation and Amortization. Depreciation and amortization increased
from $3,661,000 for the year ended December 31, 1995 to $4,715,000 for the year
ended December 31, 1996, an increase of $1,054,000, or 28.8%. This increase was
due to the purchase of patient care facilities previously leased, higher than
normal replacement cost of dialysis machines and the purchase of a clinical
computer system.
35
<PAGE> 36
Merger Expenses. Merger expenses of $1,960,000 represented legal,
accounting and employee severance and related benefits in connection with the
Main Line, RenalWest and other acquisitions.
Income from Operations. Income from operations increased from
$14,390,000 for the year ended December 31, 1995 to $18,002,000 for the year
ended December 31, 1996, an increase of $3,612,000, or 25.1%. Income from
operations as a percentage of net revenue increased from 12.5% in the 1995
period to 13.2% in the 1996 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for the acquisition and the
development of dialysis centers, the purchase of property and equipment for
existing centers and to finance working capital requirements. At December 31,
1997, the Company's working capital was $24,469,000, cash and cash equivalents
were $9,138,000 and the Company's current ratio was 1.6:1. The working capital
of the Company has decreased during the year primarily due to acquisitions, the
construction of de nova centers, purchases of property, plant, and equipment,
including computer system, and funding of joint ventures.
The Company's net cash provided by operating activities was $18,247,000
in the year ended December 31, 1997. Cash provided by operating activities
consists of net income before depreciation and amortization expense, partially
offset by increases in accounts receivable and other current assets. The
Company's net cash used in investing activities was $70,329,000 for the 1997
period. Cash used in investing activities resulted primarily from $38,569,000 of
cash paid for acquisitions, net of cash acquired, and $27,360,000 of capital
expenditures, and a payment of approximately $5,600,000 as full satisfaction of
the contingent obligation with Kidney Care as a result of the Combination. Cash
provided by financing activities was $13,596,000 for the 1997 period. Cash
provided by financing activities resulted primarily from $11,280,000 in net
borrowings under the line of credit in connection with certain acquisitions and
$2,606,000 in proceeds from the exercise of stock options.
On August 5, 1997, the Company executed a First Amended and Restated
Loan Agreement for a $125,000,000 credit facility. Borrowings under the credit
facility may be used for acquisitions, capital expenditures, working capital and
general corporate purposes. No more than $25,000,000 of the credit facility may
be used for working capital purposes. Within the working capital sublimit, the
Company may borrow up to $5,000,000 in swing line loans.
The Company has negotiated loan pricing based on a LIBO rate margin
pursuant to leverage tiers. These leverage tiers extend from 0.75 to 2.25 times
and are priced at a LIBO rate margin of .60% to 1.35%, respectively. Commitment
fees are also priced pursuant to leverage ratio tiers. Commitment fees range
from .20% to .30% pursuant to leverage ratios ranging between 0.75 and 2.25
respectively. Under the loan agreement, commitments range in amounts and dates
from the closing date through August 2003. The Company has obtained total lender
commitments of $125,000,000 through August 2000. Lender commitments are then
reduced to
36
<PAGE> 37
$106,250,000 through August 2001, $87,500,000 through August 2002 and
$68,750,000 through August 2003. All loans under the loan agreement are due and
payable on August 4, 2003. On December 31, 1997, there were $13,848,000
outstanding under this agreement.
Pursuant to the loan agreement, each of the Company's subsidiaries is
required to provide a joint and several unconditional guarantee of all
obligations of the Company under the loan agreement, including all loans
thereunder. Further, the Company's obligations under the loan agreement, and the
obligations of each of the subsidiaries under their guaranty are secured by a
pledge of the equity interests held by the Company in each of the subsidiaries.
Financial covenants are those customary for the amount and duration of this
commitment.
A significant component of the Company's growth strategy is the
acquisition and development of dialysis facilities. The Company believes that
existing cash and funds from operations, together with funds available under the
line of credit, will be sufficient to meet the Company's acquisition, expansion,
capital expenditure and working capital needs for the foreseeable future.
However, in order to finance certain large strategic acquisition opportunities,
the Company may incur from time to time additional short- and long-term bank
indebtedness and may issue equity or debt securities, the availability and terms
of which will depend on market and other conditions. There can be no assurance
that such additional financing, if required, will be available on terms
acceptable to the Company.
Capital expenditures of approximately $28 million, primarily for
equipment replacement, expansion of existing dialysis facilities and
construction of de novo facilities are planned in 1998. The Company expects
that such capital expenditures will be funded with cash provided by operating
activities and available lines of credit. The Company believes that capital
resources available to it will be sufficient to meet the needs of its business,
both on a short- and long-term basis.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement
130 establishes standards for reporting and displaying comprehensive income and
its components in a full set of general purpose financial statements. Statement
130 is effective for interim and annual periods in 1998. Comprehensive income
encompasses all changes in stockholders' equity (except those arising from
transactions with owners) and includes net income, net unrealized capital gains
or losses on available for sale securities and foreign currency translation
adjustments. Management of the Company does not expect the adoption of Statement
130 to have a material impact on the Company's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("Statement 131"). Statement
131 establishes standards for the way public business enterprises are to report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for
37
<PAGE> 38
related disclosures about products and services, geographic areas, and major
customers. Statement 131 is effective for the fiscal years beginning after
December 15, 1997. Management of the Company is currently reviewing the impact
of Statement 131. The Company will adopt Statement 131 on December 31,1998 and
will report interim information effective in the first quarter of 1999.
IMPACT OF YEAR 2000
It is possible that the Company's currently installed computer systems,
computer-aided medical equipment, software products or other business systems,
or those of the Company's suppliers, will not always accept input of, store,
manipulate and output dates in the years 2000 or thereafter without error or
interruption. The Company has conducted a review of its business systems,
including its computer systems, to attempt to identify ways in which its systems
could be affected by problems in correctly processing date information. In
addition, the Company is requesting assurances from all software vendors from
which it has purchased or from which it may purchase software that the software
sold to the Company will correctly process all date information at all times.
The Company is querying its suppliers as to their progress in identifying and
addressing problems that their computer systems will face in correctly
processing date information as the year 2000 approaches and is reached. However,
there can be no assurance that the Company will identify all date-handling
problems in its business systems or those of its suppliers in advance of their
occurrence or that the Company will be able to successfully remedy problems that
are discovered. The total costs to address the Year 2000 issues and the impact
on the Company's financial condition and results of operations have not yet been
determined.
IMPACT OF INFLATION
A substantial portion of the Company's net revenue is subject to
reimbursement rates that are regulated by the federal government and do not
automatically adjust for inflation. The Company is unable to increase the amount
it receives for the services provided by its dialysis business that are
reimbursed under the Medicare composite rate. Increased operating costs due to
inflation, such as labor and supply costs, without a corresponding increase in
reimbursement rates, may adversely affect the Company's earnings in the future.
FORWARD-LOOKING INFORMATION
Certain of the matters discussed in the preceding pages of this Form
10-K, particularly regarding implementation of the Company's strategy,
development of the dialysis and nephrology industries, anticipated growth and
revenues, anticipated working capital and sources of funding for growth
opportunities and construction, expenditures, interest, costs and income
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (See "Risk Factors").
38
<PAGE> 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and financial statement
schedules in Part IV, Item 14(a) (1) and (2) of the report are incorporated by
reference into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item will appear in, and is
incorporated by reference from, the sections entitled "Proposals for Stockholder
Action - Proposal 1. Election of Directors" and "Management - Directors and
Executive Officers" included in the Company's definitive Proxy Statement
relating to the 1998 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will appear in the sections
entitled "Executive Compensation", included in the Company's definitive Proxy
Statement relating to the 1998 Annual Meeting of Stockholders, which
information, other than the Compensation Committee Report and Performance Graph
required by Items 402(k) and (l) of Regulation S-K, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will appear in, and is
incorporated by reference from, the section entitled "Security Ownership of
Directors, Officers and Principal Stockholders" included in the Company's
definitive Proxy Statement relating to the 1998 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will appear in, and is
incorporated by reference from, the sections entitled "Certain Relationships and
Related Transactions" included in the Company's definitive Proxy Statement
relating to the 1998 Annual Meeting of Stockholders.
39
<PAGE> 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
<TABLE>
<CAPTION>
Page
<S> <C>
(1) Index To Financial Statements
Report of Independent Auditors F-1
Consolidated Balance Sheets at December 31, 1996
and 1997 F-2
Consolidated Income Statements for the years
ended December 31, 1995, 1996, and 1997 F-4
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1995, 1996,
and 1997 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1996, and 1997 F-6
Notes to Consolidated Financial Statements F-8
(2) Index to Financial Statement Schedules.
Report of Independent Auditors F-27
Schedule II - Valuation and Qualifying Accounts F-28
(3) The Exhibits are listed in the Index of Exhibits
Required by Item 601 of Regulation S-K included
herewith, which is incorporated herein by reference.
</TABLE>
(b) Form 8-K dated November 4, 1997 relating to the agreement
entered into with STAT HealthCare, a division of Laidlaw, Inc.
Form 8-K dated December 8, 1997 relating to the acquisition of
all of the issued and outstanding stock of STAT Dialysis
Corporation and STAT Management Corporation.
Form 8-K/A dated December 8, 1997 relating to the acquisition
of all of the issued and outstanding stock of STAT Dialysis
Corporation and STAT Management Corporation.
40
<PAGE> 41
Report of Independent Auditors
The Board of Directors
Renal Care Group, Inc.
We have audited the accompanying consolidated balance sheets of Renal Care
Group, Inc. as of December 31, 1996 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Renal
Care Group, Inc. at December 31, 1996 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Nashville, Tennessee
March 5, 1998
F-1
<PAGE> 42
Renal Care Group, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
------------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 47,624 $ 9,138
Investments 5,814 3,625
Accounts receivable, less allowance for doubtful
accounts of $6,703 in 1996 and $14,318 in 1997 28,842 45,199
Inventories 2,658 4,516
Prepaid expenses and other current assets 1,540 3,327
-----------------------
Total current assets 86,478 65,805
Property, plant and equipment, net 30,739 60,974
Goodwill, net 13,018 116,721
Intangible assets, net 797 1,266
Other assets 780 3,317
-----------------------
Total assets $131,812 $248,083
=======================
</TABLE>
F-2
<PAGE> 43
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
------------------------------------
(In thousands, except per share data)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,984 $ 9,580
Accrued compensation 6,263 10,314
Due to third-party payors 6,593 9,285
Due to related parties 7,000 -
Accrued expenses and other current liabilities 6,588 9,712
Income taxes payable 2,588 1,653
Current portion of long-term debt - 792
-----------------------
Total current liabilities 37,016 41,336
Long-term debt, net of current portion - 15,470
Deferred income taxes 1,471 1,921
Minority interest - 14,597
-----------------------
Total liabilities 38,487 73,324
-----------------------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000 shares
authorized, none issued - -
Common stock, $.01 par value, 60,000 shares
authorized; 21,273 and 24,897 shares issued
and outstanding at December 31, 1996 and
1997, respectively 213 249
Additional paid-in capital 89,328 150,748
Retained earnings 3,784 23,762
-----------------------
Total stockholders' equity 93,325 174,759
-----------------------
Total liabilities and stockholders' equity $131,812 $248,083
=======================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 44
Renal Care Group, Inc.
Consolidated Income Statements
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
---------------------------------------
(In thousands, except per share)
<S> <C> <C> <C>
Net revenue $ 42,971 $129,518 $214,009
Operating costs and expenses:
Patient care costs 26,908 90,122 145,922
General and administrative expenses 8,701 13,364 21,806
Provision for doubtful accounts 2,355 2,446 4,824
Depreciation and amortization 1,580 4,541 9,016
Merger expenses - 1,960 300
--------------------------------------
Total operating costs and expenses 39,544 112,433 181,868
--------------------------------------
Income from operations 3,427 17,085 32,141
Interest, net (452) 619 583
--------------------------------------
Income before taxes and minority interest 2,975 17,704 32,724
Minority interest - - 955
--------------------------------------
Income before taxes 2,975 17,704 31,769
Provision for income taxes - 6,958 11,791
--------------------------------------
Net income $ 2,975 $ 10,746 $ 19,978
======================================
Net income per share:
Basic $ 0.61 $ 0.89
======== ========
Diluted $ 0.56 $ 0.84
======== ========
Weighted average shares outstanding:
Basic 17,654 22,450
======== ========
Diluted 19,109 23,730
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 45
Renal Care Group, Inc.
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------------------ PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
-----------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 4,392 $ 44 $ 4,471 $ 1,404 $ 5,919
-----------------------------------------------------------------------------
Capital contributions - - 768 - 768
Net income - - - 2,975 2,975
Distributions to owners - - - (5,096) (5,096)
-----------------------------------------------------------------------------
Balance at
December 31, 1995 4,392 44 5,239 (717) 4,566
-----------------------------------------------------------------------------
Issuance of common
stock in Initial
Public Offering 6,728 67 71,730 - 71,797
Issuance of common
stock to Founders 7,251 73 14,793 - 14,866
Issuance of common
stock in acquisitions 554 6 2,322 - 2,328
Issuance of common
stock in Secondary
Offering 2,017 20 40,314 - 40,334
Conversion of
subordinated notes 296 3 1,474 - 1,477
Exercise of stock
options 35 - 155 - 155
Net income - - - 10,746 10,746
Distributions to owners - - - (6,245) (6,245)
Dividends to Founders - - (46,699) - (46,699)
-----------------------------------------------------------------------------
Balance at
December 31, 1996 21,273 213 89,328 3,784 93,325
-----------------------------------------------------------------------------
Issuance of common
stock in acquisitions 3,294 33 58,313 - 58,346
Net income - - - 19,978 19,978
Exercise of stock
options 330 3 2,603 - 2,606
Equity acquired in
business combination - - 504 - 504
-----------------------------------------------------------------------------
Balance at
December 31, 1997 24,897 $249 $150,748 $23,762 $ 174,759
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 46
Renal Care Group, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
-----------------------------------------------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,975 $ 10,746 $ 19,978
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,580 4,541 9,016
Loss (gain) on sale of property
and equipment 20 (118) (37)
Equity in earnings of subsidiaries - (311) 955
Deferred income taxes - 310 154
Changes in assets and liabilities net
of effects from acquisitions:
Accounts receivable 781 (8,127) (11,829)
Inventories 40 (8) (1,277)
Prepaid expenses and other assets 185 1,190 (1,327)
Intangibles and other assets (277) (1,133) (1,359)
Accounts payable 2,639 1,773 (83)
Accrued compensation 38 3,042 3,124
Due to third-party payors - - 1,710
Due to related parties 20 (1,392) -
Accrued expenses and other
liabilities 184 3,983 311
Income taxes payable - 2,588 (1,089)
-------- -------- --------
Net cash provided by operating activities 8,185 17,084 18,247
INVESTING ACTIVITIES
Proceeds from sale of property
and equipment 171 395 147
Purchases of property and equipment (4,804) (11,365) (27,360)
Cash paid for acquisitions, net of
cash acquired - (8,201) (38,569)
Advance to unconsolidated subsidiary - - (1,111)
Distributions received from affiliate - 325 -
Purchases of investments, net - (5,814) 2,189
Cash distribution to founders,
net of cash contributions - (37,852) (5,625)
-------- -------- --------
Net cash used in investing activities (4,633) (62,512) (70,329)
</TABLE>
F-6
<PAGE> 47
Renal Care Group, Inc.
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
-------------------------------------------------
(In thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net borrowings under line of credit $ 741 $ (157) $ 13,848
Payments on long-term debt (1,765) (14,713) (2,568)
Proceeds from long-term debt 2,844 540 -
Capital contribution 767 - -
Proceeds from exercise of stock options - 155 2,606
Net proceeds from issuance of
common stock - 112,131 -
Distributions to owners (5,096) (6,245) -
Distributions to minority shareholders - - (290)
-------- -------- --------
Net cash (used in) provided by financing
activities (2,509) 91,711 13,596
-------- -------- --------
Increase (decrease) in cash and cash
equivalents 1,043 46,283 (38,486)
Cash and cash equivalents, at beginning
of year 298 1,341 47,624
======== ======== ========
Cash and cash equivalents, at end of year $ 1,341 $ 47,624 $ 9,138
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 469 $ 673 $ 316
======== ======== ========
Income taxes $ - $ 4,697 $ 12,726
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
NON-CASH TRANSACTIONS:
Common stock to Founders $ - $ 14,866 $ -
======== ======== ========
Conversion of subordinated notes $ - $ 1,477 $ -
======== ======== ========
Issuance of common stock
in acquisitions $ - $ 2,328 $ 58,346
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 48
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
December 31, 1997
1. ORGANIZATION
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"), collectively, known as the "Founding
Companies," in exchange for shares of its common stock, cash, notes payable and
the assumption of certain debt (the "Combination"). On February 6, 1996, the
Company closed an initial public offering of 6,728 shares of its common stock
and simultaneously consummated the Combination. The four unrelated businesses
acquired in the Combination, which are comprised of numerous legal entities,
conduct business as Kidney Care, Inc. and certain operating divisions of Medical
Enterprises, Ltd. and Health Care Suppliers, Inc. ("KCI"), DMN Professional
Corporation ("DMN"), Tyler Nephrology Associates, P.A. ("Tyler"), and Kansas
Nephrology Associates, P.A. ("KNA") and Kansas Dialysis Supply, Inc. ("KDS,"
combined, "Kansas"). Tennessee and the four unrelated businesses acquired are
based in Tennessee, Mississippi, Indiana, Texas, and Kansas.
The Company is a specialized provider of nephrology services to patients with
kidney disease, including patients suffering from chronic kidney failure, also
known as end-state renal disease ("ESRD"). As of December 31, 1997, the
Company provided dialysis and ancillary services to approximately 8,300 patients
through 121 outpatient dialysis centers in 15 states. In addition to its
outpatient dialysis center operations, the Company provided acute dialysis
services through contractual relationships with 70 hospitals and physician
practice management services to 45 of the 123 nephrologists who were affiliated
with the Company's outpatient dialysis centers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned and majority-owned corporate subsidiaries and partnership
interests. All significant intercompany transactions and accounts have been
eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly-liquid investments with original maturities of
three months or less to be cash equivalents. The Company places its cash in
financial institutions that are federally insured and limits the amount of
credit exposure with any one financial institution.
F-8
<PAGE> 49
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
The Company's investments consist primarily of debt securities. The Company has
both the positive intent and ability to hold these investments to maturity and;
therefore, carry them at amortized cost.
ACCOUNTS RECEIVABLE
The Company's primary concentration of credit risk is accounts receivable, which
consist of amounts owed by various governmental agencies, insurance companies
and private patients. The Company manages the receivable by regularly reviewing
its accounts and contracts and by providing appropriate allowances for
uncollectible amounts. Significant concentrations of gross accounts receivable
at December 31, 1996 and 1997, consist of receivables from Medicare and Medicaid
of 68% and 62%, respectively. Concentration of credit risk relating to accounts
receivable is limited to some extent by the diversity of number of patient and
payors and the geographic dispersion of the Company's operations.
INVENTORIES
Inventories consist of drugs, supplies and parts consumed in dialysis treatments
and are stated at the lower of cost (using the average cost method and the
first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Depreciation is
provided by the straight-line method over the useful lives of the related
assets, ranging from 3 to 40 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.
INTANGIBLE ASSETS
The cost in excess of aggregate purchase price over the fair value of net assets
of businesses acquired is recorded as goodwill. Goodwill is amortized over 35
years using the straight-line method. Accumulated amortization of goodwill is
approximately $378 and $2,727 at December 31, 1996 and 1997, respectively.
F-9
<PAGE> 50
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company reviews its long-lived and intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. The measurement of possible impairment is based upon determining
whether projected undiscounted future cash flows of the acquired business or
from the use of the asset over the remaining amortization period is less than
the carrying amount of the asset. As of December 31, 1997, in the opinion of
management, there has been no such impairment.
MINORITY INTEREST
Minority interest represents the proportionate equity interest of other partners
and stockholders in the Company's consolidated entities which are not wholly
owned. As of December 31, 1997, this was primarily comprised of three joint
venture partnerships.
INCOME TAXES
Income taxes are provided under the liability method. Under the liability
method, deferred income taxes are recognized for the tax consequences of
differences between amounts reported for financial reporting and income tax
purposes by applying enacted statutory tax rates applicable to future years to
such differences. Deferred taxes result from temporary differences in the market
value of assets acquired in business combinations accounted for as purchases and
their tax bases.
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NET REVENUE
Net revenue are recorded at the estimated net realizable amount from Medicare,
Medicaid, and certain commercial insurers and other third-party payors for
services rendered. The Medicare and Medicaid programs, and certain commercial
and other third-party payors reimburse the Company at amounts that are different
from the Company's established rates. Contractual adjustments under these
programs represent the difference between the amounts billed for these services
and the amounts
F-10
<PAGE> 51
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that are reimbursable by third party payors. A summary of the basis for
reimbursement with these payors follows:
Medicare
The Company is paid by the Medicare program on a prospective payment system for
dialysis services. Each facility receives a composite rate per treatment that is
adjusted to account for geographic differences in the cost of labor.
Medicaid
Medicaid is a state administered program with reimbursements varying by state.
The Medicaid programs administered in each state in which the Company operates
reimburse the Company for dialysis services rendered.
Other
Other payments from patients, commercial insurers and other third-party payors
are received pursuant to a variety of reimbursement arrangements, which are
generally higher than those payments received from the Medicare and Medicaid
programs.
Reimbursements from Medicare and Medicaid at established rates approximated 71%,
74% and 70% of net revenue for the years ended December 31, 1995, 1996 and
1997, respectively.
ESTIMATED MEDICAL PROFESSIONAL LIABILITY CLAIMS
The Company is insured for medical professional liability claims through
retrospectively rated commercial insurance policies. It is the Company's policy
that provision for estimated premium adjustments to medical professional
liability costs be made for asserted and unasserted claims based on its
experiences. Provision for such professional liability claims includes estimates
of the ultimate costs of such claims. To date, the Company's experience with
such claims has not been significant; accordingly, no such provision has been
made.
F-11
<PAGE> 52
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) No. 128, "Earnings per Share." SFAS No. 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented and, where appropriate, restated to conform to
the SFAS No.128 requirements.
Earnings per share amounts are not presented for 1995 as the historical results
of operations of the Company consisted primarily of non-taxed S Corporation
earnings resulting from 1996 transactions accounted for as pooling of interests.
STOCK BASED COMPENSATION
The Company, from time to time, grants stock options for a fixed number of
common shares to employees. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and accordingly, recognizes no compensation expense for the stock option grants
when the exercise price of the options equals, or is greater than, the market
price of the underlying stock on the date of grant.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents and Investments
The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents and investments approximate fair value.
Accounts Receivable, Accounts Payable and Accrued Liabilities
The carrying amounts reported in the consolidated balance sheets for accounts
receivable, accounts payable, and accrued liabilities approximate fair value.
Accounts receivable and notes receivable are usually unsecured.
F-12
<PAGE> 53
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Term Debt and Related Party Notes Payable
Based upon the borrowing rates currently available to the Company, the carrying
amounts reported in the consolidated balance sheets for long-term debt and
related party notes payable approximate fair value.
CONCENTRATION OF CREDIT RISKS
The administration of erythropoietin ("EPO") is beneficial in the treatment of
anemia, a medical complication frequently experienced by dialysis patients.
Revenues from the administration of EPO were 17%, 19%, and 21% of the net
revenue of the Company for the years ended December 31, 1995, 1996, and 1997,
respectively. EPO is produced by a single manufacturer.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement
130 establishes standards for reporting and displaying comprehensive income and
its components in a full set of general purpose financial statements. Statement
130 is effective for interim and annual periods in 1998. Comprehensive income
encompasses all changes in stockholders' equity (except those arising from
transactions with owners) and includes net income, net unrealized capital gains
or losses on available for sale securities and foreign currency translation
adjustments. Management of the Company does not expect the adoption of Statement
130 to have a material impact on the Company's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("Statement 131"). Statement 131
establishes standards for the way public business enterprises are to report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. Statement 131 is effective for the fiscal years beginning after
December 15, 1997. Management of the Company is currently reviewing the impact
of Statement 131. The Company will adopt Statement 131 on December 31, 1998 and
will report interim information effective in the first quarter of 1999.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the current
year presentation.
3. INVESTMENTS
The amortized cost and estimated fair value of the investments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 75 $ - $ - $ 75
Corporate bonds and notes 3,550 - 3 3,547
-----------------------------------------------------------------
Total $ 3,625 $ - $ 3 $ 3,622
=================================================================
</TABLE>
F-13
<PAGE> 54
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
3. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 100 $ 2 $ - $ 102
Corporate bonds and notes 5,714 9 (19) 5,704
---------------------------------------------------------------------
Total $ 5,814 $ 11 $ (19) $ 5,806
=====================================================================
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
------------------------
<S> <C> <C>
Medical equipment $ 20,763 $ 34,543
Furniture and nonmedical equipment 5,693 15,136
Leasehold improvements 6,298 11,579
Buildings 5,322 9,984
Construction-in-progress 714 3,948
-------- --------
38,790 75,190
Less accumulated depreciation (8,051) (14,216)
-------- --------
$ 30,739 $ 60,974
======== ========
</TABLE>
Depreciation expense is $1,580, $4,163 and $7,163 for the years ended December
31, 1995, 1996 and 1997, respectively.
5. LONG-TERM DEBT
Long-term debt consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
------------------------
<S> <C> <C>
Line of credit, bearing interest at LIBO rate (6.60% at
December 31, 1997) $ - $ 13,848
Other - 2,414
-----------------------
- 16,262
Less current portion - (792)
-----------------------
$ - $ 15,470
=======================
</TABLE>
F-14
<PAGE> 55
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
5. LONG-TERM DEBT (CONTINUED)
LINE OF CREDIT
On August 5, 1997, the Company executed a First Amended and Restated Loan
Agreement for a $125,000 credit facility. Borrowings under the credit facility
may be used for acquisitions, capital expenditures, working capital, and general
corporate purposes.
Under the loan agreement, commitments range in amounts and dates from the
closing date through August 2003. The Company has obtained total lender
commitments of $125,000 through August 2000. Lender commitments are then reduced
to $106,250 through August 2001, $87,500 through August 2002 and $68,750 through
August 2003. All loans under the loan agreement are due and payable on August
4, 2003. At December 31, 1997, there was $13,848 outstanding under this
agreement. The Company has $111,152 available under this agreement at December
31, 1997.
Pursuant to the loan agreement, each of the Company's subsidiaries is required
to provide a joint and several unconditional guarantee of all obligations of the
Company under the loan agreement. Further, the Company's obligations under the
loan agreement, and the obligations of each of the subsidiaries under their
guaranty are secured by a pledge of the equity interests held by the Company in
each of the subsidiaries. Financial covenants are those customary for the amount
and duration of this commitment. The Company is in compliance with all covenants
at December 31, 1997.
OTHER
The other long term debt consist of two term notes maturing in various stages
through April 2000 and capital leases for certain dialysis equipment.
The aggregate maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 792
1999 1071
2000 551
2001 -
2002 -
Thereafter 13,848
----------
$ 16,262
==========
</TABLE>
F-15
<PAGE> 56
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
6. INCOME TAXES
The provision for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
-----------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ - $ 5,542 $ 10,915
State and local - 1,106 722
-----------------------------------------------------
$ $ 6,648 $ 11,637
=====================================================
Deferred:
Federal $ - $ 261 $ 144
State and local - 49 10
-----------------------------------------------------
$ - $ 310 $ 154
=====================================================
Provision for income taxes $ - $ 6,958 $ 11,791
=====================================================
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards of $2,900
for federal income tax purposes that expire in years 2009 through 2011. The
utilization of the federal net operating loss may be limited in future years due
to the profitability of certain subsidiary corporations.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Components of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1997
-----------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 765 $ 1,214
Allowance for doubtful accounts 2,281 -
Accrued vacation 861 1,188
Contingent reserves - 1,293
Other 5 21
Less: Valuation allowance (1,214) (1,214)
-----------------------------------------
2,698 2,502
-----------------------------------------
</TABLE>
F-16
<PAGE> 57
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
INCOME TAXES (CONTINUED)
<TABLE>
<S> <C> <C>
Deferred tax liabilities:
Allowance for doubtful accounts - 480
Depreciation 913 936
Cash to accrual adjustments (Section 481) 3,247 1,303
Amortization 9 1,704
-----------------------------------------
4,169 4,423
-----------------------------------------
Net deferred tax liability $ 1,471 $ 1,921
=========================================
</TABLE>
The following is a reconciliation of the statutory federal and state income tax
rates to the effective rates as a percentage of income before provision for
income taxes as reported in the financial statements:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
--------------------------------------------------
<S> <C> <C> <C>
U.S. federal income tax rate 34.0% 35.0% 35.0%
State income tax, net of federal
income tax benefit 6.1 5.5 1.5
Cash to accrual adjustments - 6.8 -
Federal and State income tax benefit
from S corporations (40.1) (8.8) -
Other - .8 .6
--------------------------------------------------
Effective income tax rate -% 39.3% 37.1%
==================================================
</TABLE>
7. STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
On February 6, 1996, the Company completed an initial public offering of 5,850
shares of common stock and on February 20, 1996, the underwriters of the
offering fully exercised their over allotment option for an additional 878
shares, all of which were issued at $12 per share. Simultaneously the Company
exchanged 7,251 shares of common stock, plus cash, notes payable, contingent
payments 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 Company received net proceeds of $71,797
after the deduction of underwriting discounts, commissions and other expenses.
F-17
<PAGE> 58
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
7. STOCKHOLDERS' EQUITY (CONTINUED)
SECONDARY STOCK OFFERING
On November 22, 1996 the Company completed a secondary offering of 3,750 shares
at a price of $21. The Company offered 1,596 of the shares with the remaining
shares being offered by certain stockholders of the Company. On December 19,
1996 the underwriters of the offering exercised their over allotment option for
an additional 563 shares of which 421 were offered by the Company and the
balance offered by certain stockholders.
CONVERSION OF SUBORDINATED NOTES
In December 1995, the Company sold an aggregate principal amount of $1,380 of
Convertible Senior Subordinated Promissory Notes (the "Convertible Notes")
bearing interest at a rate of 7.0% to provide funds to complete the Offering. On
December 7, 1996, the principal and accrued interest thereof was converted into
296 shares of common stock.
DIVIDENDS TO FOUNDERS
The Company used net proceeds from the initial public offering of $39,699 as the
cash portion of the consideration paid to the owners of Tennessee and the four
unrelated businesses to be acquired and accrued $7,000 pursuant to its agreement
with KCI in connection with the combination. During 1997, the Company satisfied
the $7,000 obligation and has no other amounts due under the agreement.
WARRANTS
Effective February 14, 1994, the Company issued warrants to purchase an
aggregate of 330 shares of common stock. The warrants have a term of ten years
from the date of issuance.
STOCK OPTION PLANS
In January 1996, the Company adopted the Renal Care Group, Inc. 1996 Stock
Option Plan (the "1996 Employee Plan"), which was amended and restated effective
October 1997. Under the 1996 Employee Plan, options to purchase a total of 3,000
shares of Common Stock were reserved for grant to eligible employees and other
key persons. In 1994, the Company adopted the 1994 Stock Option Plan (the "1994
Plan") which provided for the grant of options to purchase up to 480 shares of
common stock to directors,
F-18
<PAGE> 59
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
7. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
officers and other key persons. In 1995 the Company issued options outside of a
plan ("Free Standing") to key employees, officers, directors and other key
persons. The options vest over various periods up to 5 years and have a term of
ten years from the date of issuance.
The following is a summary of option transactions during the period from January
1, 1995 through December 31, 1997:
<TABLE>
<CAPTION>
1996 WEIGHTED
EMPLOYEE 1994 FREE EXERCISE PRICE AVERAGE
PLAN PLAN STANDING RANGE PRICE
----------- ----------- ----------- -------------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1995 - 128 - $ 1.33-$5.00 $ 3.65
Granted - 46 1,019 5.00-12.00 6.01
Exercised - - - - -
Forfeited - - - - -
----------- ----------- -----------
Balance at
December 31, 1995 - 174 1,019 1.33-5.00 5.77
Granted 1,314 - 315 5.00-20.33 16.99
Exercised (6) - (15) 5.00-12.00 7.05
Forfeited - - - - -
----------- ----------- -----------
Balance at
December 31, 1996 1,308 174 1,319 1.33-20.33 11.91
Granted 1,257 - - 20.00-32.63 22.35
Exercised (64) (64) (78) 5.00-23.00 8.72
Forfeited (52) (1) (13) 5.00-26.13 21.09
----------- ----------- -----------
Balance at
December 31, 1997 2,449 109 1,228 $ 1.33-$32.63 $15.54
=========== =========== =========== =======
Available for Grant at
December 31, 1997 481 308 39
=========== =========== ===========
Exercisable at
December 31, 1997 572 84 772 $11.48
=========== =========== =========== =======
</TABLE>
The weighted-average fair value of options granted during 1996 and 1997 is $5.73
and $8.58, respectively.
F-19
<PAGE> 60
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
7. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices As of 12/31/97 Contractual Life Exercise Price As of 12/31/97 Exercise Price
- ------------------- ---------------- ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 1.33-$5.00 952 7.64 $ 4.82 698 $ 4.83
12.00-20.00 1,516 8.56 15.85 446 15.30
20.33-32.63 1,318 9.20 22.93 284 22.28
---------------- ----------------- ---------------- --------------- -----------------
$ 1.33-$32.63 3,786 8.55 $15.54 1,428 $11.48
================ ================= ================ ================ =================
</TABLE>
Pro forma information regarding net income and earnings per share is required by
FAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1997, respectively; risk-free interest rates of 5.50 % and 5.50 %; dividend
yields of 0% and 0%; volatility factor of the expected market price of the
Company's common stock of 33% and 30%, and a weighted average expected life of
the option of approximately 4 and 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-20
<PAGE> 61
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
7. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the option's vesting period. The Company's pro forma
information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1997
-------------------- --------------------
<S> <C> <C>
Net income $ 10,746 $19,978
Pro forma compensation expense from
Stock options, net of taxes 1,241 1,619
-------------------- --------------------
Pro forma net income $ 9,505 $18,359
==================== ====================
Pro forma net income per share:
Basic $ .54 $ .82
==================== ====================
Diluted $ .50 $ .77
==================== ====================
</TABLE>
STOCK SPLIT
On June 13, 1997, the Board of Directors approved a three-for-two stock split
effected in the form of a 50% dividend distributed on July 25, 1997, to
shareholders of record on July 7, 1997. The Company's par value remained
unchanged at $.01. In addition, all references in the financial statements to
number of shares, per share amounts, and stock option data have been adjusted
for the stock split.
CHANGE IN AUTHORIZED SHARES
On June 24, 1997, the Company filed an amendment to the Certificate of
Incorporation increasing the authorized shares of Common Stock from 22,000 to
60,000.
F-21
<PAGE> 62
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted income per
share in accordance with SFAS 128.
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Numerator:
Numerator for basic and diluted
income per share $10,746 $19,978
Denominator:
Denominator for basic net income per
share-weighted-average shares 17,654 22,450
Effect of dilutive securities:
Stock options 1,204 1,011
Warrants 251 269
------- -------
Denominator for diluted net income
per share-adjusted weighted-
average shares and assumed
conversions 19,109 23,730
======= =======
Net income per share:
Basic $ .61 $ .89
======= =======
Diluted $ .56 $ .84
======= =======
</TABLE>
9. OPERATING LEASES
The Company rents office and medical facilities under lease agreements which are
classified as operating leases for financial statement purposes. At December 31,
1997, future minimum rental payments under noncancelable operating leases with
terms of one year or more consist of the following:
<TABLE>
<S> <C>
1998 $ 6,654
1999 5,607
2000 4,388
2001 3,984
2002 3,319
Thereafter 8,430
-----------------
$ 32,382
=================
</TABLE>
Rent expense related to operating leases amounted to $1,648, $3,692 and $6,089
for the years ended December 31, 1995, 1996 and 1997, respectively.
F-22
<PAGE> 63
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
10. BUSINESS ACQUISITIONS
1997 ACQUISITIONS
In 1997, the Company acquired and developed 42 facilities providing care to ESRD
patients, 19 programs providing acute hospital in-patient dialysis services and
a laboratory.
The following is a summary of acquisitions activity:
<TABLE>
<S> <C>
Number of shares issued 3,294
Estimated fair value of shares issued $ 58,346
Cash consideration 38,569
---------
Aggregate purchase price $ 96,915
=========
</TABLE>
The majority of these acquisitions were accounted for as purchases and,
accordingly, the assets and liabilities of the acquired entities were recorded
at their estimated fair values at the dates of acquisition. The allocation of
the purchase price resulted in goodwill and intangible assets of $89,086. The
results of operations of the acquisitions have been included in the Company's
financial statements from their respective acquisition dates. The results of
operations have not been restated for a 1997 pooling transaction as the effect
of the pooling on prior periods were not considered material to the Company.
In 1997, the Company formed two joint ventures that resulted in goodwill and
intangible assets of $14,188. The Company's contribution to these joint ventures
will be used for working capital and to construct dialysis facilities.
The following summary, prepared on a pro forma basis, combines the results of
operations as if the acquisitions had been consummated as of the beginning of
the period, giving effect to adjustments such as amortization of intangibles,
interest expense and related income taxes.
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Pro forma net revenues $169,955 $244,410
Pro forma net income 12,826 23,204
Pro forma net income per share:
Basic .62 .94
Diluted .58 .89
</TABLE>
The unaudited pro forma results of operations are not necessarily indicative of
what actually would have occurred if the acquisitions had been completed prior
to the beginning of the periods presented.
1996 ACQUISITIONS
In 1996, the Company completed mergers with Main Line Suburban Dialysis Centers,
Inc. ("Main Line") and Renal West, L.C. ("Renal West") in exchange for 4,407
shares of stock. The mergers were accounted for as poolings-of-interests, and
accordingly, the consolidated financial statements give retroactive effect to
the combined operations of Renal Care Group, Inc. for all periods presented.
F-23
<PAGE> 64
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
11. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLAN
The Company has qualified defined contribution plans covering substantially all
employees which permit participants to make voluntary contributions. The Company
pays all general and administrative expenses of the plans and makes matching
contributions on behalf of the employees. The Company made contributions
relating to these plans totaling $157, $599 and $837 for the years ended
December 31, 1995, 1996 and 1997, respectively.
EMPLOYEE STOCK PURCHASE PLAN
Effective April 1996, the Company adopted an Employee Stock Purchase Plan
("Stock Purchase Plan") to provide substantially all employees an opportunity to
purchase shares of its common stock to the extent of 10% of eligible
compensation limited to $25 of common stock each calendar year. Annually, on
December 31, participant account balances are used to purchase shares of stock
at the lesser of 85% of the fair market value of shares at the beginning of the
year (grant date) or December 31 (exercise date). A total of 450 shares are
available for purchase under the plan. At December 31, 1996 and December 31,
1997, approximately $1,100 and $915, respectively, were included in accrued
compensation relating to the Stock Purchase Plan.
12. CONTINGENCIES
The Company is involved in litigation and regulatory investigations arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, these matters will be resolved without material
adverse effect on the Company's consolidated financial position or results of
operations.
13. RELATED PARTY TRANSACTIONS
PHYSICIAN SERVICES, MEDICAL DIRECTOR FEES AND MANAGEMENT FEE REVENUE
Physician and medical director services are provided to the Company by
shareholders, partners or legal entities owned by shareholders or partners of
the Company. Physician and medical director fees included in patient care costs
were $787, $1,581 and $4,062 for the years ended December 31, 1995, 1996 and
1997, respectively. Management fee revenues for services provided by the Company
to physicians, shareholders, partners or legal entities owned by shareholders or
partners of the Company were $902 and $2,450 for the years ended December 31,
1996 and 1997, respectively.
F-24
<PAGE> 65
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
OTHER RELATED PARTY BALANCES AND TRANSACTIONS
Expenses for leases and other services provided through entities owned by
shareholders or other related parties are at fair market value and aggregated
$116, $613, and $1,978 for the years ended December 31, 1995, 1996 and 1997,
respectively.
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary unaudited quarterly data has been restated from the Company's filings on
Form 10-Q to reflect the 1996 mergers accounted for as a pooling-of-interests
transaction. The Company believes that the following information includes all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation.
<TABLE>
<CAPTION>
1997
---------------- ---------------- ---------------- ----------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net revenue $ 46,109 $ 51,666 $ 54,038 $ 62,196
Operating expenses 37,678 42,071 43,323 49,480
Depreciation and amortization 1,964 2,141 2,238 2,673
Merger expenses - 300 - -
---------------- ---------------- ---------------- ----------------
Income from operations 6,467 7,154 8,477 10,043
Minority interest - (218) (290) (447)
Interest income, net 404 99 88 (8)
---------------- ---------------- ---------------- ----------------
Income before income taxes 6,871 7,035 8,275 9,588
Income taxes 2,577 2,603 3,062 3,549
---------------- ---------------- ---------------- ----------------
Net income $ 4,294 $ 4,432 $ 5,213 $ 6,039
================ ================ ================ ================
Net income per share:
Basic $ .20 $ .20 $ .23 $ .26
================ ================ ================ ================
Diluted $ .19 $ .19 $ .22 $ .24
================ ================ ================ ================
</TABLE>
F-25
<PAGE> 66
Renal Care Group, Inc.
Notes to Consolidated Financial Statements (continued)
(In thousands, except for per share data)
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
1996
---------------- ---------------- ---------------- -----------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net revenue $ 24,533 $ 31,827 $ 34,627 $ 38,531
Operating expenses 19,967 26,244 28,323 31,398
Depreciation and amortization 873 1,111 1,212 1,345
Merger expenses - 680 1,280 -
---------------- ---------------- ---------------- -----------------
Income from operations 3,693 3,792 3,812 5,788
Interest income, net 39 202 153 225
---------------- ---------------- ---------------- -----------------
Income before income taxes 3,732 3,994 3,965 6,013
Income taxes 998 1,096 2,517 2,347
---------------- ---------------- ---------------- -----------------
Net income $ 2,734 $ 2,898 $ 1,448 $ 3,666
================ ================ ================ =================
Net income per share:
Basic $ .19 $ .15 $ .09 $ .18
================ ================ ================ =================
Diluted $ .17 $ .14 $ .08 $ .17
================ ================ ================ =================
</TABLE>
15. SUBSEQUENT EVENTS
ACQUISITIONS
In January 1998, the Company completed a merger for the operation of nine
dialysis facilities located in Arkansas, Oklahoma and Missouri. The facilities
provide treatment to approximately 625 patients, as well as acute, in-patient
dialysis treatment services to six area hospitals. The transaction was a
tax-free exchange in stock and will be treated as a pooling-of-interests for
accounting purposes. The Company issued approximately 1,298 shares of
common stock.
In February 1998, the Company formed a joint venture with Oregon Health Sciences
University, Legacy Health System, and Comprehensive Kidney Center for purposes
of operating six dialysis facilities and a home dialysis program serving
approximately 700 patients. The Company acquired an 80% interest in the joint
venture in exchange for cash.
F-26
<PAGE> 67
Report of Independent Auditors
The Board of Directors
Renal Care Group, Inc.
We have audited the consolidated financial statements of Renal Care Group, Inc.
as of December 31, 1996 and 1997, and for each of the three years in the period
ended December 31, 1997, and have issued our report thereon dated March 5, 1998
(included elsewhere in thhis Form 10-K). Our audits also included the financial
statement schedule listed in Item 14(a) of this Form 10-K. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Nashville, Tennessee
March 5, 1998
F-27
<PAGE> 68
Schedule II
Renal Care Group, Inc.
Consolidated Schedule - Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
AMOUNT
BALANCE CHARGED BALANCE
BEGINNING ALLOWANCES TO WRITE- AT END OF
OF PERIOD ACQUIRED EXPENSE OFFS PERIOD
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowances for
doubtful accounts:
Year ended
December 31, 1995 $1,829 $ - $2,355 $ (203) $ 3,981
===================================================================
Year ended
December 31, 1996 $3,981 $4,344 $2,446 $(4,068) $ 6,703
===================================================================
Year ended
December 31, 1997 $6,703 $3,949 $4,824 $(1,158) $14,318
===================================================================
</TABLE>
F-28
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Nashville, State of Tennessee, on the 30th day of March, 1998.
RENAL CARE GROUP, INC.
By: /s/ SAM A. BROOKS, JR.
-------------------------------------
Sam A. Brooks, Jr., President
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Sam A. Brooks, Jr. and Ronald Hinds and
each of them his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and, in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ SAM A. BROOKS, JR. Chairman of the Board, March 30, 1998
- ------------------------------------------ President, Chief Executive
Sam A. Brooks, Jr. Officer and Director
(Principal Executive Officer)
/s/ RONALD HINDS Executive Vice President, March 30, 1998
- ------------------------------------------ Chief Financial Officer
Ronald Hinds Secretary/Treasurer (Principal
Financial Officer and Principal
Accounting Officer)
</TABLE>
<PAGE> 70
<TABLE>
<S> <C> <C>
/s/ JOSEPH C. HUTTS
- ------------------------------------------ Director March 30, 1998
Joseph C. Hutts
/s/ HARRY R. JACOBSON
- ------------------------------------------ Director March 30, 1998
Harry R. Jacobson, M.D.
/s/ THOMAS A. LOWERY
- ------------------------------------------ Director March 30, 1998
Thomas A. Lowery, M.D.
/s/ JOHN D. BOWER
- ------------------------------------------ Director March 30, 1998
John D. Bower, M.D.
/s/ STEPHEN D. McMURRAY
- ------------------------------------------ Director March 30, 1998
Stephen D. McMurray, M.D.
/s/ W. TOM MEREDITH
- ------------------------------------------ Director March 30, 1998
W. Tom Meredith, M.D.
/s/ KENNETH E. JOHNSON, JR.
- ------------------------------------------ Director March 30, 1998
Kenneth E. Johnson, Jr., M.D.
</TABLE>
<PAGE> 71
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page
- ------- ----------------------- ----
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company (1)
3.1.2 Certificate of Amendment of Certificate of Incorporation of the
Company (7)
3.1.3 Certificate of Designation, Preferences, and Rights of Series A Junior
Participating Preferred Stock of the Company (7)
3.2 Amended and Restated Bylaws of the Company (1)
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Certificate of Incorporation and Bylaws of the Company defining rights
of holders of Common Stock of the Company (1)
4.2 Specimen stock certificate for the Common Stock of the Company (1)
4.3 Shareholder Rights Protection Agreement, dated May 2, 1997 between the
Company and First Union National Bank of North Carolina, as Rights
Agent(7)
10.1 Employment Agreement, dated January 15, 1998, between the Company and
Sam A. Brooks
10.2 Employment Agreement, dated January 15, 1998, between the Company and
Ron Hinds
10.3 Employment Agreement, dated January 15, 1998, between the Company and
Raymond Hakim, M.D. (3)
10.4 Employment Agreement, dated April 1, 1994, between the Company and
Joseph A. Cashia (2)*
10.5 Employment Agreement, dated February 12, 1996, between the Company and
Anne N. Bower (2)*
10.6 Medical Director Services Agreement, dated February 12, 1996, between
the Company and Kansas Nephrology Physicians, P.A. (2)
10.7 Medical Director Services Agreement, dated February 12, 1996, between
the Company and Indiana Dialysis Management, P.C. (2)
10.8 Medical Director Services Agreement, dated February 12, 1996, between
the Company and Tyler Dialysis & Transplant Associates, P.A. (2)
10.9 Lease Agreement, dated February 5, 1996, between the Company and MEL,
Inc. relating to approximately 20,000 square feet of space. (2)
10.10 Lease Agreement, dated February 12, 1996, among the Company and Thomas
A. Lowery, M.D., James R. Cotton, M.D., Roy D. Gerard, M.D. and Kevin
A. Curran, M.D., relating to property in Carthage, Texas. (2)
10.11 Lease Agreement, dated February 12, 1996, among the Company and Thomas
A. Lowery, M.D., James R. Cotton, M.D., Roy D. Gerard, M.D., and Kevin
A. Curran, M.D., relating to property in Tyler, Texas. (2)
</TABLE>
<PAGE> 72
<TABLE>
<S> <C> <C>
10.12 Sublease Agreement between M-W-R Investment and Kansas Nephrology
Associates, P.A. dated February 1, 1990, to be assumed by the Company,
and related Lease Agreement between Dodge City Medical Center Building,
Inc. and M-W-R Investment (1)
10.13 Sublease Agreement, dated February 12, 1996, with Tyler Nephrology
Associates, Inc. (2)
10.14 Dialysis Center Management Agreement, dated May 11, 1994, between Renal
Care Group, Inc. (of Tennessee) and Vanderbilt University (1)*
10.15 1996 Stock Option Plan for Outside Directors (1)*
10.16 Amended and Restated 1996 Stock Option Plan (9)*
10.17 Amended and Restated Employee Stock Purchase Plan (8)*
10.18 Agreement between the Company and Healthcare Suppliers, Inc. dated
December 7, 1995 (1)
10.19 Chief Medical Officer Agreement, dated February 12, 1996, between the
Company and John D. Bower, M.D.(4)
10.20 Medical Director Services Agreement, dated September 30, 1996, between
the Company and a group of individual physicians (4)
10.21 Employment Agreement, dated January 15, 1998, between the Company and
Gary Brukardt
10.22 Management Agreement, dated March 1, 1996, between the Company and The
Cleveland Clinic Foundation (4)*
10.23 Asset Purchase Agreement with an effective date of February 1, 1997
among the Company, RCG Indiana, LLC, Eastern Indiana Kidney Center,
Indiana Kidney Center, Indiana Kidney Center South, LLC, St. Vincent
Dialysis Center, Saint Joseph Dialysis Center and Indiana Dialysis
Services PC and Community Hospitals of Indiana, Inc., Seton Health
Corporation of Central Indiana, Inc., Reid Hospital & Health Care
Services, Inc., and Saint Joseph Hospital and Health Care Center of
Kokomo, Indiana, Inc. and Indiana Dialysis Services, PC, Reid Hospital
Physicians, Greenwood Dialysis Services, PC and certain individuals
named on the signature pages thereto and Indiana Nephrology & Internal
Medicine, P.C. (5)
10.24 Asset Purchase Agreement and Bill of Sale, dated effective as of
January 1, 1997, among the Company, RCG Laboratory, Inc., and Kidney
Care, Inc.(5)
10.25 First Amended and Restated Loan Agreement, dated as of August 4, 1997,
among the Company, its subsidiaries and NationsBank of Tennessee, N.A.
(8)
10.26 Stock Option Agreement between the Company and Sam A. Brooks (8)
10.27 Stock Option Agreement between the Company and Ronald Hinds (8)
10.28 Stock Option Agreement between the Company and Gary Brukardt (8)
10.29 Stock Purchase Agreement, dated November 4, 1997 by and among the
Company, Laidlaw, Inc., and STAT Healthcare, Inc. (10)
10.30 Restricted Stock Award Agreement between the Company and Harry R.
Jacobson, M.D.
10.31 Restricted Stock Award Agreement between the Company and Sam A. Brooks
10.32 Restricted Stock Award Agreement between the Company and Gary Brukardt
10.33 Restricted Stock Award Agreement between the Company and Raymond Hakim, M.D.
</TABLE>
<PAGE> 73
<TABLE>
<S> <C> <C>
10.34 Restricted Stock Award Agreement between the Company and Ronald Hinds,
M.D.
10.35 Restricted Stock Award Agreement between the Company and Thomas Lowery,
M.D.
10.36 Restricted Stock Award Agreement between the Company and Stephen D.
McMurray, M.D.
10.37 Independent Contractor Agreement, dated November 20, 1997, between
Stephen D. McMurray, M.D. and the Company
21.1 List of subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (contained on the signature page of this report)
27.1 Financial Data Schedule for the year ended December 31, 1997 (for SEC use only).
27.2 Financial Data Schedule for the year ended December 31, 1996 (for SEC use only).
</TABLE>
- ------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Reg. No. 333-80221) effective February 6, 1996.
(2) Incorporated by reference to the Company's Form 10-Q for the Quarter
ended March 31, 1996 (Commission File No. 0-27640).
(3) Incorporated by reference to the Company's Form 10-Q for the Quarter
ended September 30, 1996 (Commission File 0-27640).
(4) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Reg. No. 333-13813) effective October 30, 1996.
(5) Incorporated by reference to the Company's Form 10-K for the year
ended December 31, 1996 (Commission File No. 0-27640).
(6) Incorporated by reference to Appendix A to the Company's definitive
Proxy Statement filed May 1, 1997 relating to the 1998 Annual Meeting
of Stockholders (Commission File No. 0-27640).
(7) Incorporated by reference to the Company's Current Report on Form 8-K
filed May 5, 1997 (Commission File No. 0-27640).
(8) Incorporated by reference to the Company's Form 10-Q for the Quarter
ended June 30, 1997 (Commission File No. 0-27640).
(9) Incorporated by reference to the Company's Registration Statement
(Reg. No. 333-37299) on Form S-8 filed October 6, 1997.
(10) Incorporated by reference to the Company's Current Report on Form 8-K
filed December 16, 1997 (Commission File No. 0-27640).
*Management contract or executive compensation plan or arrangement.
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of January 15, 1998, by and
between RENAL CARE GROUP, INC., a Delaware corporation (the "Company"), and Sam
A. Brooks, Jr. (hereinafter "Employee"), and supersedes and replaces that
certain Employment Agreement between the parties hereto dated as of February 6,
1996.
WITNESSETH:
WHEREAS, the Company desires to employ Employee, and Employee desires
to be employed by the Company, on the terms and conditions contained herein;
and
NOW, THEREFORE, in consideration of the compensation payable to
Employee by the Company pursuant to this Agreement, and the mutual promises,
covenants, representations and warranties contained herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do agree as
follows:
1. Employment.
Effective as of January 15, 1998 (the "Effective Date"), the
Company employs Employee and Employee accepts employment with the Company under
the terms of this Agreement.
2. Term.
This Agreement shall begin on the Effective Date, and shall
continue for an initial period of thirty-six (36) months from the Effective Date
(the "Initial Period"), subject to earlier termination by Employee or the
Company as hereinafter provided. This Agreement shall renew for additional
terms of twelve (12) months each, subject to earlier termination as hereinafter
provided, on the same terms and conditions (subject to mutually agreeable
modifications, if any).
3. Compensation and Benefits.
(a) Base Compensation: The Company shall pay Employee an
annual salary of Three Hundred Thousand Dollars ($300,000), as may be adjusted
as provided herein (the "Base Compensation"), payable according to the pay
periods of the Company as may be in effect from time to time. Such payments
shall be prorated for periods less than a full pay period. The Base
Compensation shall be subject to withholding for federal, state and local
payroll and all other taxes or withholdings applicable to Employee. Any
increases of the Base Compensation shall be at the discretion of the Company,
provided that any decreases to the then current Base Compensation shall require
the consent of Employee.
(b) Benefits: During the term of this Agreement, Employee
shall also be entitled to participate in the insurance and other fringe benefits
made available generally to similar employees of the Company, as such benefits
may be determined from time to time by the Company, provided that Employee shall
have at least four (4) weeks of paid vacation time. In addition, during the
term of this Agreement, the Company will provide term life insurance coverage of
three Million Dollars ($3,000,000) on Employee's life with the death benefit to
be payable to Employee's estate or as otherwise directed in writing by Employee.
<PAGE> 2
(c) Bonuses: In addition to the Base Compensation
payable to Employee pursuant to Section 3(a) above, the Employee is entitled to
an annual bonus equal to seventy-five percent (75%) of the Employee's annual
Base Compensation payable within sixty (60) days of the end of each fiscal year
of the Company based on whether the Company met or exceeded the earnings per
share projection specified by the Compensation Committee of the Board of
Directors of the Company for such fiscal year, or based upon such other
criteria as may be specified by the Compensation Committee of the Board of
Directors (the "Annual Bonus").
(d) Expenses: The Company shall reimburse Employee for
any and all expenses reasonably incurred by employee incident to the
performance of the duties imposed upon Employee hereunder.
4. Duties, Extent of Services:
Employee is engaged as President and Chief Executive Officer
and shall perform such duties and responsibilities as are typically incident
thereto, and shall perform in a faithful and competent manner such additional
duties as may be reasonably assigned from time to time by the Company. Such
duties shall be performed on a full-time basis for the Company at the Company's
offices in Nashville, Tennessee. Employee may be required, from time to time,
to perform his duties temporarily hereunder at such other place or places as the
Company shall reasonably require, provided that such period does not exceed
thirty (30) consecutive days without Employee's consent and that during any such
period Employee is able to return to Nashville, Tennessee at the Company's
expense for weekends.
Employee shall devote all of Employee's business time,
attention, knowledge, and skill solely to the business and interest of the
Company, and the Company shall be entitled to all the benefits, profits, and
other issues arising from, or incident to, all work, services, and advice of
Employee provided, however, that the Company agrees and acknowledges that
Employee may continue to serve as a member of the board of directors of other
companies, including serving as Chairman of National Imaging Affiliates, Inc.,
and may continue to devote a reasonable amount of time to such services, without
violating the terms of this Agreement.
5. Termination.
This Agreement may be terminated by the parties in the manners
specified below:
(a) Termination without Cause. Either the Company or the
Employee may terminate Employee's employment under this Agreement at any time
for any reason upon thirty (30) day's prior written notice to the other party.
(b) Termination for Cause
The Company may terminate this Agreement on written
notice at any time for "cause". For purposes of this Agreement, "cause" shall
mean: (i) Employee is convicted of, pleads guilty to, or confesses to a felony
or any crime involving any act of dishonesty, fraud, misappropriation,
embezzlement or moral turpitude, in which event the Company may terminate this
Agreement immediately, (ii) the misconduct or gross negligence by Employee in
connection with the performance of Employee's duties hereunder, (iii) the
engaging by Employee in any fraudulent, disloyal or unprofessional conduct
which results in an injury to the Company, its affiliates or any of its or
their centers, monetarily or otherwise, (iv) Employee breaches any provisions of
Section 6 of this Agreement, or (v) the failure by Employee to otherwise
substantially perform his duties with the Company (other than any such failure
resulting from the disability of Employee under Section 5(c)(i)) or the breach
of any provision of this Agreement other than Section 6. In the event of any
termination for cause pursuant to the provisions of (ii), (iii), (iv) or (v) of
this subsection, the Company shall give Employee written notice prior to such
termination detailing the specific acts, actions, failures, or events upon
which the forecast termination is based, and Employee shall have fifteen (15)
days after such written notice to
- 2 -
<PAGE> 3
cease such actions or otherwise correct any such failure or breach. If
Employee does not cease such action or otherwise correct such failure or breach
within such fifteen day time period, or having once received such written
notice and ceased such actions or corrected such failure or breach, Employee at
any time thereafter again so acts, fails or breaches, the Company may terminate
this Agreement immediately.
(c) Involuntary Termination.
The employment of Employee hereunder shall be
automatically terminated by the death or disability of Employee as outlined
below.
(i) Disability. The Company may terminate this
Agreement at the time Employee shall have been Disabled for a continuous period
of six (6) months during any continuous twelve month period. For purposes of
this Paragraph 5(c)(i), the term "Disabled" shall mean Employee's inability to
perform the essential functions of his duties, with or without reasonable
accommodation. During Employee's six month period of Disability, the Company
agrees to continue to pay Employee's Base Compensation (less regular
withholdings for payroll or other taxes and other required or proper items, and
less proceeds from all disability insurance policies or plans provided or made
available by the Company). In the event of a termination of Employee on
account of Disability, the Company shall be obligated to pay Employee's Base
Compensation for a period of six months following the effective date of
termination (less regular withholdings for payroll or other taxes and other
required or proper times, and less proceeds from all disability insurance
policies or plans provided or made available by the Company). In addition, any
provisions in the relevant stock option agreements notwithstanding, all
outstanding stock options granted to Employee pursuant to a Company stock
option plan shall vest immediately upon termination pursuant to this Section
5(c)(i).
(ii) Death. In the event Employee shall die
during the term of this Agreement, this Agreement shall terminate and
Employee's estate shall receive the remainder of the Base Compensation set
forth in Section 3(a) hereof accrued to the last day of the month in which
death occurs. In addition, any provisions in the relevant stock option
agreements notwithstanding, all outstanding stock options granted to Employee
pursuant to a Company stock option plan shall vest immediately upon termination
pursuant to this Section 5(c)(ii).
(d) Post-Termination Compensation. Except as provided in
Section 5(c) above, upon termination of this Agreement, Employer shall be
relieved of all of its obligations hereunder notwithstanding any period of time
remaining under the initial or any renewal term, subject to the following:
(i) Termination without Cause. In the event that the
Company terminates Employee's employment hereunder without Cause under Section
5(a) above, then Employee shall, after the effective date of such termination,
as Employee's sole and exclusive remedy, receive an amount equal to the annual
Base Compensation (as then in effect) plus an amount of Annual Bonus for the
current year (the amount of Annual Bonus for the current year shall be equal in
amount to any Annual Bonus paid or to be paid to Employee in connection with the
Company's last completed fiscal year), payable without interest in equal amounts
according to the pay periods of the Company for a period of twelve (12) months
after the termination date. If the Employee's employment is terminated by the
Company without Cause, the Employee shall be under no duty to seek or accept
other employment; but if he shall do so, any compensation he shall receive
therefrom shall not diminish the Company's obligation to make payments required
to the Employee hereunder In the event that Employee terminates his or her
employment under Section 5(a) above, the Company's obligation to pay Employee's
Base Compensation shall terminate as of the date of termination.
- 3 -
<PAGE> 4
(ii) Termination for Cause. In the event that the
Company terminates Employee's employment hereunder with Cause under Section
5(b) above, then Employee shall, after the effective date of such termination,
receive the Base Compensation (as then in effect) for a period of one (1) month
after the termination date.
(iii) Termination following Change in Control. If
within twelve (12) months following a Change in Control (as defined below),
either (A) the Company terminates the employment of Employee hereunder without
Cause under Section 5(a) above or (B) Employee resigns from a declined
reassignment of a job that is not reasonably equivalent in responsibility or
compensation or that is not in the same geographic area, then, in lieu of any
other compensation that may be specified herein, Employee shall receive an
amount equal to three (3) multiplied by the sum of the Annual Base Compensation
(as then in effect) plus an amount of Annual Bonus for the current year (the
amount of Annual Bonus for the current year shall be equal in amount to any
Annual Bonus paid or to be paid to Employee in connection with the Company's
last completed fiscal year), payable by the Company in a single lump-sum
payment, to be paid not later than thirty (30) days after termination. In the
event such payment obligation arises, no compensation received from other
employment (or otherwise) shall reduce the obligation to make the payment(s)
described in this paragraph.
(e) Change in Control. "Change in Control" means a
change in control of the Company 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 of 1934 (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 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, or
(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; or
(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, or
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.
- 4 -
<PAGE> 5
6. Nondisclosure, Confidentiality; Competition.
(a) Subject to Section 6(f) below, Employee agrees that,
during the term of this Agreement and of Employee's employment by the Company,
and for a period twelve (12) months after the termination of Employee's
employment with the Company, Employee will not in any manner, directly or
indirectly, by himself or in conjunction with any other person, (i) conduct any
of the activities or perform any of the responsibilities or duties that
Employee provided the Company during his employment by the Company for any
business entity that is competitive with the business of the Company or its
affiliates or (ii) 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 those of the business of the
Company or its affiliates, in either case within a geographic territory defined
as the greater of (i) a seventy-five (75) mile radius of any renal dialysis
center, unit or facility owned or operated by the Company or an affiliate of
the Company (an "RCG Center"), or (ii) the geographic area, as narrowly
construed as is practicable, from which the Company received patients at each
of the RCG Centers. For purposes of this Section, the "business of the Company
or its affiliates" shall mean owning or operating a renal dialysis center, unit
or facility, and providing practice management services to nephrologists.
(b) Subject to Section 6(f) below, Employee further
agrees that, for a period of three (3) years after the termination of
Employee's employment with the Company, Employee will keep confidential and not
directly divulge, or allow through a lack of reasonable care to be divulged to
anyone, or use or otherwise appropriate for Employee's own benefit or for the
benefit of others, any knowledge or information of a confidential nature with
respect to the Company's and its affiliates' current business, the Company
itself, or any of its 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.
Employee 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 the Company 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 the Company of its rights and
remedies pursuant hereto shall not be construed as a waiver of any other rights
or available remedies which the Company may possess in law or equity. Employee
acknowledges that the Company has taken reasonable and appropriate steps to
ensure the confidentiality and non-disclosure of all such Confidential Data.
For purposes of this Section the Company's and its affiliates' "current
business" shall mean owning or opening a renal dialysis center, unit or
facility.
(c) Subject to Section 6(f) below, Employee further
agrees that, for a period of three (3) years after the termination of
Employee's employment with the Company, Employee will not, for his own benefit
or the benefit of others, solicit any person or entity that has or has had, or
disrupt or attempt to disrupt, any relationship, contractual or otherwise, with
the Company or an affiliate of the Company (including any patient, payor,
physician, provider, managed care organization or supplier) at any time during
Employee's employment with the Company, for the purpose of assisting, or
creating such a relationship for, any business entity that is competitive with
the Company or an affiliate of the Company. For purposes of this Section, a
business entity is competitive with the Company or an affiliate of the
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<PAGE> 6
Company if it provides or offers any renal dialysis service that is provided by
the Company or an affiliate of the Company.
(d) Subject to Section 6(f) below, Employee further
agrees that, for a period of three (3) years after the termination of
Employee's employment with the Company, Employee shall not induce, nor attempt
to induce, any employee of the Company, or any of its affiliates, to terminate
such employee's association with the Company or any of its affiliates.
(e) These post-employment covenants are considered by the
parties hereto to be fair, reasonable and integral for the protection of the
Company. The parties mutually agree that if a violation of any of these
covenants occurs, such violation or any threatened violation will cause
irreparable injury to the Company and the remedy at law for any such violation
or threatened violation will be inadequate. The parties acknowledge that these
covenants will survive, and remain in effect and enforceable after, termination
of this Agreement.
(f) The Company agrees that the forgoing covenants in
paragraphs 6(a) through (d) shall be null and void as to any period following
termination of employment in the event such termination occurs within twelve
(12) months following a Change in Control through either (A) a termination by
the Company without Cause under Section 5(a) above or (B) a resignation by
Employee for any reason.
(g) Employee agrees to indemnify and hold harmless the
Company from and against any and all claims, causes of action, damages and/or
any other losses suffered or incurred by the Company as a result of any breach
or purported breach by Employee of any agreement applicable to Employee which
existed prior to the time of the entering into of this Agreement. Such
obligations of Employee to indemnify and hold the Company harmless shall
include any and all costs of defense of any such claim or threatened claim,
including reasonable attorneys' fees.
7. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by the Company to or for the
benefit of Employee (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section 7) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by Employee with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then Employee shall
be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by Employee of all taxes (including any interest
or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Employee
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP or such other certified public accounting firm as may be
designated by Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee within 15 business
days of the receipt of notice from Employee that there has
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<PAGE> 7
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, Employee shall
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 7, shall be paid by the Company to Employee within
five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the Company and
Employee. It is possible (due to the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder) that Gross-Up Payments will not have been made by the Company
which it is ultimately determined should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. Consequently,
in the event that the Company exhausts its remedies pursuant to Section 7(c)
and Employee thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to or
for the benefit of Employee.
(c) Employee shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after Employee
is informed in writing of such claim and shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid.
Employee shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies Employee in writing prior to the
expiration of such period that it desires to contest such claim, Employee
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions
of this Section 7(c), the Company shall control all
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<PAGE> 8
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct Employee to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and Employee agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs
Employee to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to Employee, on an interest-free basis and shall
indemnify and hold Employee harmless, on an after-tax basis, from any Excise
Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of Employee
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Employee shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(d) If, after the receipt by Employee of an amount
advanced by the Company pursuant to Section 7(c), Employee becomes entitled to
receive any refund with respect to such claim, Employee shall (subject to the
Company's complying with the requirements of Section 7(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by Employee of
an amount advanced by the Company pursuant to Section 7(c), a determination is
made that Employee shall not be entitled to any refund with respect to such
claim and the Company does not notify Employee in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
8. Severability.
The parties hereto hereby expressly agree and contract that it
is not the intention of either party to violate any public policy, or any
statutory or common law, and that if any paragraph, sentence, clause or
combination of the same of this Agreement shall be in violation of the laws of
any state where applicable, such paragraph, sentence, clause or the combination
of the same shall be void in the jurisdictions where it is unlawful, and the
remainder thereof shall remain binding on the parties hereto. It is the
intention of the parties to make the covenants of this Agreement binding only
to the extent that they may be lawfully done under existing applicable laws.
In the event that any part of any term or covenant of this Agreement is
determined by a court of law or equity to be overly broad or otherwise
unenforceable, the parties hereto agree that such court shall be empowered to
substitute, and it is the intent of the parties hereto that such court
substitute, a reasonably judicially enforceable term or limitation in the place
of such unenforceable term or covenant, and that as so modified this Agreement
shall be fully enforceable.
9. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the
parties and supersedes any and all prior understandings or agreements, and any
changes or additions hereto must be in writing and signed by both parties.
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<PAGE> 9
10. Assignment.
(a) The rights and benefits of Employee under this
Agreement, other than accrued and unpaid amounts due under Section 3(a) hereof,
are personal to Employee and shall not be assignable.
(b) This Agreement may not be assigned by the Company
except to an affiliate of the Company, provided that such affiliate assumes the
Company's obligations under this Agreement; provided, further, that if the
Company shall merge or effect a consolidation or share exchange with or into,
or sell or otherwise transfer substantially all its assets to, another business
entity, the Company may assign its rights hereunder to that business entity
without the consent of the Employee provided that it causes such business
entity to assume the Company's obligations under this Agreement.
11. Notice.
The references to the notice periods of certain "days"
contained in this Agreement shall mean calendar days. Any notice provided for
in this Agreement shall be delivered to Employee at the most recent address of
employee listed in the Company's then current employment records. Notice to
the Company shall be delivered to the following address: c/o Renal Care Group,
Inc., 2100 West End Avenue, Suite 800, Nashville, Tennessee 37203, Attention:
President.
12. Waiver.
The waiver by any party to this Agreement of a breach of any
of the provisions contained herein shall not operate or be construed as a
waiver of any subsequent breach.
13. Disputes and Governing Law.
The Company and employee agree that any dispute arising in
connection with, or relating to, this Agreement or the termination of this
Agreement, to the maximum extent allowed by applicable law, shall be subject to
resolution through informal methods and, failing such efforts, through
arbitration. Either party may notify the other party of the existence of a
dispute by written notice to the address indicated above in Section 11. The
parties shall thereafter attempt in good faith to resolve their differences
within thirty (30) days after the receipt of such notice. If the dispute
cannot be resolved within such 30-day period, either party may file a written
demand for arbitration with the other party. The arbitration shall proceed in
accordance with the terms of the Federal Arbitration Act and the rules and
procedures of the American Arbitration Association. A single arbitrator shall
be appointed through the American Arbitration Association's procedures to
resolve the dispute.
The parties agree that in the event arbitration is necessary,
the laws of the State of Tennessee and any applicable federal law shall apply.
The place of the arbitration shall be Nashville, Tennessee.
The award of the arbitrator shall be binding and conclusive
upon the parties. Either party shall have the right to have the award made the
judgment of a court of competent jurisdiction in the State of Tennessee.
In the event of a dispute arising under this Agreement, the
prevailing party shall be entitled to all reasonable attorneys' fees incurred
in connection with such dispute. The Company agrees, to the maximum extent
permitted by law and the Bylaws and Certificate of Incorporation of the
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<PAGE> 10
Company, to defend and indemnify the Employee against and to hold the Employee
harmless from any and all claims, suits, losses, liabilities, and expenses
(including disputes arising under this Agreement and including reasonable
attorneys' fees and payment of reasonable expenses incurred in defending
against such claim or suit as such expenses are incurred) asserted against the
Employee for actions taken or omitted to be taken by the Employee in good faith
and within the scope of his responsibilities as an officer or employee of the
Company. If requested by the Employee, the Company shall advance to the
Employee, promptly following the Company's receipt of any such request, any and
all expenses for which indemnification is available hereunder, subject to the
requirements of applicable law and the Company's Bylaws and Certificate of
Incorporation.
IN WITNESS WHEREOF, the Company and Employee have executed
this Agreement on the day and year first above written.
COMPANY:
RENAL CARE GROUP, INC.
By: /s/ RONALD HINDS
-----------------------------------------------
Ronald Hinds
Chief Financial Officer
[Corporate Seal]
EMPLOYEE:
/s/ SAM A. BROOKS, JR. (Seal)
---------------------------------------------
Sam A. Brooks, Jr.
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of January 15, 1998, by and
between RENAL CARE GROUP, INC., a Delaware corporation (the "Company"), and RON
HINDS (hereinafter "Employee"), and supersedes and replaces that certain
Employment Agreement between the parties hereto dated as of February 6, 1996.
WITNESSETH:
WHEREAS, the Company desires to employ Employee, and Employee desires
to be employed by the Company, on the terms and conditions contained herein; and
NOW, THEREFORE, in consideration of the compensation payable to
Employee by the Company pursuant to this Agreement, and the mutual promises,
covenants, representations and warranties contained herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do agree as
follows:
1. Employment.
Effective as of January 15, 1998 (the "Effective Date"), the
Company employs Employee and Employee accepts employment with the Company under
the terms of this Agreement.
2. Term.
This Agreement shall begin on the Effective Date, and shall
continue for an initial period of thirty-six (36) months from the Effective
Date(the "Initial Period"), subject to earlier termination by employee or the
Company as hereinafter provided. This Agreement shall renew for additional terms
of twelve (12) months each, subject to earlier termination as hereinafter
provided, on the same terms and conditions (subject to mutually agreeable
modifications, if any).
3. Compensation and Benefits.
(a) Base Compensation: The Company shall pay Employee an
annual salary of Two Hundred Twenty Five Thousand Dollars ($225,000), as may be
adjusted as provided herein (the "Base Compensation"), payable according to the
pay periods of the Company as may be in effect from time to time. Such payments
shall be prorated for periods less than a full pay period. The Base Compensation
shall be subject to withholding for federal, state and local payroll and all
other taxes or withholdings applicable to Employee. Any increases of the Base
Compensation shall be at the discretion of the Company, provided that any
decreases to the then current Base Compensation shall require the consent of
Employee.
(b) Benefits: During the term of this Agreement, Employee
shall also be entitled to participate in the insurance and other fringe benefits
made available generally to similar employees of the Company, as such benefits
may be determined from time to time by the Company, provided that Employee shall
have at least four (4) weeks of paid vacation time. In addition, during the term
of this Agreement, the Company will provide term life insurance coverage of One
Million Dollars ($1,000,000) on Employee's life with the death benefit to be
payable to Employee's estate or as otherwise directed in writing by Employee.
<PAGE> 2
(c) Bonuses: In addition to the Base Compensation payable to
Employee pursuant to Section 3(a) above, from time to time Employee may be
entitled to an annual bonus as determined in the sole discretion of the Company.
(d) Expenses: The Company shall reimburse Employee for any and
all expenses reasonably incurred by employee incident to the performance of the
duties imposed upon Employee hereunder.
4. Duties, Extent of Services.
Employee is engaged as Executive Vice President and Chief
Financial Officer and shall perform such duties and responsibilities as are
typically incident thereto, and shall perform in a faithful and competent manner
such additional duties as may be reasonably assigned from time to time by the
Company. Such duties shall be performed on a full-time basis for the Company at
the Company's offices in Nashville, Tennessee. Employee may be required, from
time to time, to perform his duties temporarily hereunder at such other place or
places as the Company shall reasonably require, provided that such period does
not exceed thirty (30) consecutive days without Employee's consent and that
during any such period Employee is able to return to Nashville, Tennessee at the
Company's expense for weekends.
Employee shall devote all of Employee's business time,
attention, knowledge, and skill solely to the business and interest of the
Company, and the Company shall be entitled to all the benefits, profits, and
other issues arising from, or incident to, all work, services, and advice of
Employee.
5. Termination.
This Agreement may be terminated by the parties in the manners
specified below:
(a) Termination without Cause. Either the Company or the
employee may terminate Employee's employment under this Agreement at any time
for any reason upon thirty (30) day's prior written notice to the other party.
(b) Termination for Cause
The Company may terminate this Agreement on written
notice at any time for "cause".
For purposes of this Agreement, "cause" shall mean: (i) Employee is convicted
of, pleads guilty to, or confesses to a felony or any crime involving any act of
dishonesty, fraud, misappropriation, embezzlement or moral turpitude, in which
event the Company may terminate this Agreement immediately, (ii) the misconduct
or gross negligence by Employee in connection with the performance of Employee's
duties hereunder, (iii) the engaging by Employee in any fraudulent, disloyal or
unprofessional conduct which results in an injury to the Company, its affiliates
or any of its or their centers, monetarily or otherwise, (iv) Employee breaches
any provision of Section 6 of this Agreement, or (v) the failure by Employee to
otherwise substantially perform his duties with the Company (other than any such
failure resulting from the disability of Employee under Section 5(c)(i)) or the
breach of any provision of this Agreement other than Section 6. In the event of
any termination for cause pursuant to the provisions of (ii), (iii), (iv) or (v)
of this subsection, the Company shall give Employee written notice prior to such
termination detailing the specific acts, actions, failures, or events upon which
the forecast termination is based, and Employee shall have fifteen (15) days
after such written notice to
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<PAGE> 3
cease such actions or otherwise correct any such failure or breach. If Employee
does not cease such action or otherwise correct such failure or breach within
such fifteen day time period, or having once received such written notice and
ceased such actions or corrected such failure or breach, Employee at any time
thereafter again so acts, fails or breaches, the Company may terminate this
Agreement immediately.
(c) Involuntary Termination.
The employment of Employee hereunder shall be
automatically terminated by the death or disability of Employee as outlined
below.
(i) Disability. The Company may terminate this
Agreement at the time Employee shall have been Disabled for a continuous period
of six (6) months during any continuous twelve month period. For purposes of
this Paragraph 5(c)(i), the term "Disabled" shall mean Employee's inability to
perform the essential functions of his duties, with or without reasonable
accommodation. During Employee's six month period of Disability, the Company
agrees to continue to pay Employee's Base Compensation (less regular
withholdings for payroll or other taxes and other required or proper items, and
less proceeds from all disability insurance policies or plans provided or made
available by the Company). In the event of a termination of Employee on account
of Disability, the Company shall be obligated to pay Employee's Base
Compensation for a period of six months following the effective date of
termination (less regular withholdings for payroll or other taxes and other
required or proper times, and less proceeds from all disability insurance
policies or plans provided or made available by the Company). In addition, any
provisions in the relevant stock option agreements notwithstanding, all
outstanding stock options granted to Employee pursuant to a Company stock option
plan shall vest immediately upon termination pursuant to this Section 5(c)(i).
(ii) Death. In the event Employee shall die during
the term of this Agreement, this Agreement shall terminate and Employee's estate
shall receive the remainder of the Base Compensation set forth in Section 3(a)
hereof accrued to the last day of the month in which death occurs. In addition,
any provisions in the relevant stock option agreements notwithstanding, all
outstanding stock options granted to Employee pursuant to a Company stock option
plan shall vest immediately upon termination pursuant to this Section 5(c)(ii).
(d) Post-Termination Compensation. Except as provided in
Section 5(c) above, upon termination of this Agreement, the Company shall be
relieved of all of its obligations hereunder notwithstanding any period of time
remaining under the initial or any renewal term, subject to the following:
(i) Termination without Cause. In the event that the
Company terminates Employee's employment hereunder without Cause under Section
5(a) above, then Employee shall, after the effective date of such termination,
as Employee's sole and exclusive remedy, receive the Base Compensation (as then
in effect) for a period of twelve (12) months after the termination date. If the
Employee's employment is terminated by the Company without Cause, the Employee
shall be under no duty to seek or accept other employment; but if he shall do
so, any compensation he shall receive therefrom shall not diminish the Company's
obligation to make payments required to the Employee hereunder. In the event
that Employee terminates his or her employment under Section 5(a) above, the
Company's obligation to pay Employee's Base Compensation shall terminate as of
the date of termination.
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<PAGE> 4
(ii) Termination for Cause. In the event that the
Company terminates Employee's employment hereunder with Cause under Section 5(b)
above, then Employee shall, after the effective date of such termination,
receive the Base Compensation (as then in effect) for a period of one (1) month
after the termination date.
(iii) Termination following Change in Control. If
within twelve (12) months following a Change in Control (as defined below),
either (A) the Company terminates the employment of Employee hereunder without
Cause under Section 5(a) above or (B) Employee resigns from a declined
reassignment of a job that is not reasonably equivalent in responsibility or
compensation or that is not in the same geographic area, then, in lieu of any
other compensation that may be specified herein, Employee shall receive an
amount equal to three (3) multiplied by the Base Compensation (as then in
effect) plus an amount of Annual Bonus for the current year (the amount of
Annual Bonus for the current year shall be equal in amount to any Annual Bonus
paid or to be paid to Employee in connection with the Company's last completed
fiscal year), payable by the Company in a single lump-sum payment, to be paid
not later than thirty (30) days after termination. In the event such payment
obligation arises, no compensation received from other employment (or otherwise)
shall reduce the obligation to make the payment(s) described in this paragraph.
(e) Change in Control. "Change in Control" means a change in
control of the Company 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 of 1934 (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 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, or
(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; or
(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, or 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.
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<PAGE> 5
6. Nondisclosure, Confidentiality; Competition.
(a) Subject to Section 6(f) below, Employee agrees that,
during the term of this Agreement and of Employee's employment by the Company,
and for a period twelve (12) months after the termination of Employee's
employment with the Company, Employee will not in any manner, directly or
indirectly, by himself or in conjunction with any other person, (i) conduct any
of the activities or perform any of the responsibilities or duties that Employee
provided the Company during his employment by the Company for any business
entity that is competitive with the business of the Company or its affiliates or
(ii) 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 those of the business of the
Company or its affiliates, in either case within a geographic territory defined
as the greater of (I) a seventy-five (75) mile radius of any renal dialysis
center, unit or facility owned or operated by the Company or an affiliate of the
Company (an "RCG Center"), or (II) the geographic area, as narrowly construed as
is practicable, from which the Company received patients at each of the RCG
Centers. For purposes of this Section, the "business of the Company or its
affiliates" shall mean owning or operating a renal dialysis center, unit or
facility, and providing practice management services to nephrologists.
(b) Subject to Section 6(f) below, Employee further agrees
that, for a period of three (3) years after the termination of Employee's
employment with the Company, Employee will keep confidential and not directly
divulge, or allow through a lack of reasonable care to be divulged to anyone, or
use or otherwise appropriate for Employee's own benefit or for the benefit of
others, any knowledge or information of a confidential nature with respect to
the Company's and its affiliates' current business, the Company itself, or any
of its 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; or (iii) information that
has become part of the public domain through no fault of the Employee; and (iv)
was known to the Employee prior to June 1995. Employee 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 the
Company 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 the Company of its rights and remedies pursuant hereto shall not be construed
as a waiver of any other rights or available remedies which the Company may
possess in law or equity. Employee acknowledges that the Company has taken
reasonable and appropriate steps to ensure the confidentiality and
non-disclosure of all such Confidential Data. For purposes of this Section the
Company's and its affiliates' "current business" shall mean owning or opening a
renal dialysis center, unit or facility.
(c) Subject to Section 6(f) below, Employee further agrees
that, for a period of three (3) years after the termination of Employee's
employment with the Company, Employee will not, for his own benefit or the
benefit of others, solicit any person or entity that has or has had, or disrupt
or attempt to disrupt, any relationship, contractual or otherwise, with the
Company or an affiliate of the Company (including any patient, payor, physician,
provider, managed care organization or supplier) at any time during Employee's
employment with the Company, for the purpose of assisting, or creating such a
relationship for, any business entity that is competitive with the Company or an
affiliate of the Company. For purposes of this Section, a business entity is
competitive with the Company or an affiliate of the
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<PAGE> 6
Company if it provides or offers any renal dialysis service that is provided by
the Company or an affiliate of the Company.
(d) Subject to Section 6(f) below, Employee further agrees
that, for a period of three (3) years after the termination of Employee's
employment with the Company, Employee shall not induce, nor attempt to induce,
any employee of the Company, or any of its affiliates, to terminate such
employee's association with the Company or any of its affiliates.
(e) These post-employment covenants are considered by the
parties hereto to be fair, reasonable and integral for the protection of the
Company. The parties mutually agree that if a violation of any of these
covenants occurs, such violation or any threatened violation will cause
irreparable injury to the Company and the remedy at law for any such violation
or threatened violation will be inadequate. The parties acknowledge that these
covenants will survive, and remain in effect and enforceable after, termination
of this Agreement.
(f) The Company agrees that the forgoing covenants in
paragraphs 6(a) through (d) shall be null and void as to any period following
termination of employment in the event such termination occurs within twelve
(12) months following a Change in Control through either (A) a termination by
the Company without Cause under Section 5(a) above or (B) a resignation by
Employee for any reason.
(g) Employee agrees to indemnify and hold harmless the Company
from and against any and all claims, causes of action, damages and/or any other
losses suffered or incurred by the Company as a result of any breach or
purported breach by Employee of any agreement applicable to Employee which
existed prior to the time of the entering into of this Agreement. Such
obligations of Employee to indemnify and hold the Company harmless shall include
any and all costs of defense of any such claim or threatened claim, including
reasonable attorneys' fees.
7. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of Employee
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 7) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by Employee with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Employee shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Employee
of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP or such other certified public accounting firm as may be
designated by Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee within 15 business days
of the receipt of notice from Employee that there has
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<PAGE> 7
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, Employee shall
appoint another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 7, shall be paid by the Company to Employee within five days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and Employee. It is possible
(due to the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder) that
Gross-Up Payments will not have been made by the Company which it is ultimately
determined should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. Consequently, in the event that the
Company exhausts its remedies pursuant to Section 7(c) and Employee thereafter
is required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Employee.
(c) Employee shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after Employee is informed in
writing of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. Employee shall not pay
such claim prior to the expiration of the 30-day period following the date on
which it gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies Employee in writing prior to the expiration of such period that
it desires to contest such claim, Employee shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions of
this Section 7(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
Employee to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more
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<PAGE> 8
appellate courts, as the Company shall determine; provided, however, that if the
Company directs Employee to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to Employee, on an interest-free basis
and shall indemnify and hold Employee harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of Employee
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Employee shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(d) If, after the receipt by Employee of an amount advanced by
the Company pursuant to Section 7(c), Employee becomes entitled to receive any
refund with respect to such claim, Employee shall (subject to the Company's
complying with the requirements of Section 7(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by Employee of an amount
advanced by the Company pursuant to Section 7(c), a determination is made that
Employee shall not be entitled to any refund with respect to such claim and the
Company does not notify Employee in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
8. Severability.
The parties hereto hereby expressly agree and contract that it
is not the intention of either party to violate any public policy, or any
statutory or common law, and that if any paragraph, sentence, clause or
combination of the same of this Agreement shall be in violation of the laws of
any state where applicable, such paragraph, sentence, clause or the combination
of the same shall be void in the jurisdictions where it is unlawful, and the
remainder thereof shall remain binding on the parties hereto. It is the
intention of the parties to make the covenants of this Agreement binding only to
the extent that they may be lawfully done under existing applicable laws. In the
event that any part of any term or covenant of this Agreement is determined by a
court of law or equity to be overly broad or otherwise unenforceable, the
parties hereto agree that such court shall be empowered to substitute, and it is
the intent of the parties hereto that such court substitute, a reasonably
judicially enforceable term or limitation in the place of such unenforceable
term or covenant, and that as so modified this Agreement shall be fully
enforceable.
9. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the
parties and supersedes any and all prior understandings or agreements, and any
changes or additions hereto must be in writing and signed by both parties.
10. Assignment.
(a) The rights and benefits of Employee under this Agreement,
other than accrued and unpaid amounts due under Section 3(a) hereof, are
personal to Employee and shall not be assignable.
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<PAGE> 9
(b) This Agreement may not be assigned by the Company except
to an affiliate of the Company, provided that such affiliate assumes the
Company's obligations under this Agreement; provided, further, that if the
Company shall merge or effect a consolidation or share exchange with or into, or
sell or otherwise transfer substantially all its assets to, another business
entity, the Company may assign its rights hereunder to that business entity
without the consent of the Employee provided that it causes such business entity
to assume the Company's obligations under this Agreement.
11. Notice.
The references to the notice periods of certain "days"
contained in this Agreement shall mean calendar days. Any notice provided for in
this Agreement shall be delivered to Employee at the most recent address of
employee listed in the Company's then current employment records. Notice to the
Company shall be delivered to the following address: c/o Renal Care Group, Inc.,
2100 West End Avenue, Suite 800, Nashville, Tennessee 37203, Attention:
President.
12. Waiver.
The waiver by any party to this Agreement of a breach of any
of the provisions contained herein shall not operate or be construed as a waiver
of any subsequent breach.
13. Disputes and Governing Law.
The Company and employee agree that any dispute arising in
connection with, or relating to, this Agreement or the termination of this
Agreement, to the maximum extent allowed by applicable law, shall be subject to
resolution through informal methods and, failing such efforts, through
arbitration. Either party may notify the other party of the existence of a
dispute by written notice to the address indicated above in Section 11. The
parties shall thereafter attempt in good faith to resolve their differences
within thirty (30) days after the receipt of such notice. If the dispute cannot
be resolved within such 30-day period, either party may file a written demand
for arbitration with the other party. The arbitration shall proceed in
accordance with the terms of the Federal Arbitration Act and the rules and
procedures of the American Arbitration Association. A single arbitrator shall be
appointed through the American Arbitration Association's procedures to resolve
the dispute.
The parties agree that in the event arbitration is necessary,
the laws of the State of Tennessee and any applicable federal law shall apply.
The place of the arbitration shall be Nashville, Tennessee.
The award of the arbitrator shall be binding and conclusive
upon the parties. Either party shall have the right to have the award made the
judgment of a court of competent jurisdiction in the State of Tennessee.
In the event of a dispute arising under this Agreement, the
prevailing party shall be entitled to all reasonable attorneys' fees incurred in
connection with such dispute. The Company agrees, to the maximum extent
permitted by law and the Bylaws and Certificate of Incorporation of the Company,
to defend and indemnify the Employee against and to hold the Employee harmless
from any and all claims, suits, losses, liabilities, and expenses (including
disputes arising under this Agreement and including reasonable attorneys' fees
and payment of reasonable expenses incurred in defending against such claim or
suit as such expenses are incurred) asserted against the Employee for actions
taken or omitted to be taken by the Employee in good faith and within the scope
of his responsibilities as an
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<PAGE> 10
officer or employee of the Company. If requested by the Employee, the Company
shall advance to the Employee, promptly following the Company's receipt of any
such request, any and all expenses for which indemnification is available
hereunder, subject to the requirements of applicable law and the Company's
Bylaws and Certificate of Incorporation.
IN WITNESS WHEREOF, the Company and Employee have executed
this Agreement on the day and year first above written.
COMPANY:
RENAL CARE GROUP, INC.
By: /s/ SAM A. BROOKS
----------------------------------------
Sam A. Brooks
President
[Corporate Seal]
EMPLOYEE:
/s/ RON HINDS
--------------------------------------------(Seal)
Ron Hinds
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<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of January 15, 1998, by and
between RENAL CARE GROUP, INC., a Delaware corporation (the "Company"), and GARY
BRUKARDT (hereinafter "Employee"), and supersedes and replaces that certain
Employment Agreement between the parties dated as of June 30, 1996.
WITNESSETH:
WHEREAS, the Company desires to employ Employee, and Employee desires
to be employed by the Company, on the terms and conditions contained herein; and
NOW, THEREFORE, in consideration of the compensation payable to
Employee by the Company pursuant to this Agreement, and the mutual promises,
covenants, representations and warranties contained herein, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do agree as
follows:
1. Employment.
Effective as of January 15, 1998 (the "Effective Date"), the
Company employs Employee and Employee accepts employment with the Company under
the terms of this Agreement.
2. Term.
This Agreement shall begin on the Effective Date, and shall
continue for an initial period of thirty-six (36) months from the Effective Date
(the "Initial Period"), subject to earlier termination by employee or the
Company as hereinafter provided. This Agreement shall renew automatically for
additional terms of twelve (12) months each, subject to earlier termination as
hereinafter provided, on the same terms and conditions (subject to mutually
agreeable modifications, if any).
3. Compensation and Benefits.
(a) Base Compensation: The Company shall pay Employee an
annual salary of Two Hundred Fifty Thousand Dollars ($250,000), as may be
adjusted as provided herein (the "Base Compensation"), payable according to the
pay periods of the Company as may be in effect from time to time. Such payments
shall be prorated for periods less than a full pay period. The Base Compensation
shall be subject to withholding for federal, state and local payroll and all
other taxes or withholdings applicable to Employee. Any increases of the Base
Compensation shall be at the discretion of the Company, provided that any
decreases to the then current Base Compensation shall require the consent of
Employee.
(b) Benefits: During the term of this Agreement, Employee
shall also be entitled to participate in the insurance and other fringe benefits
made available generally to similar employees of the Company, as such benefits
may be determined from time to time by the Company, provided that Employee shall
have at least four (4) weeks of paid vacation time. In addition, during the term
of this Agreement, the Company will provide term life insurance coverage of One
Million Fifty Nine Thousand Dollars ($1,059,000) on Employee's life with the
death benefit to be payable to Employee's estate or as otherwise directed in
writing by Employee.
<PAGE> 2
(c) Bonuses: In addition to the Base Compensation payable to
Employee pursuant to Section 3(a) above, from time to time Employee may be
entitled to an annual bonus as determined in the sole discretion of the Company.
(d) Expenses: The Company shall reimburse Employee for any and
all expenses reasonably incurred by employee incident to the performance of the
duties imposed upon Employee hereunder.
4. Duties, Extent of Services:
Employee is engaged as Executive Vice President and Chief
Operating Officer and shall perform such duties and responsibilities as are
typically incident thereto, and shall perform in a faithful and competent manner
such additional duties as may be reasonably assigned from time to time by the
Company. Such duties shall be performed on a full-time basis for the Company at
the Company's offices in Nashville, Tennessee. Employee may be required, from
time to time, to perform his duties temporarily hereunder at such other place or
places as the Company shall reasonably require, provided that such period does
not exceed thirty (30) consecutive days without Employee's consent and that
during any such period Employee is able to return to Nashville, Tennessee at the
Company's expense for weekends.
Employee shall devote all of Employee's business time, attention,
knowledge, and skill solely to the business and interest of the Company, and the
Company shall be entitled to all the benefits, profits, and other issues arising
from, or incident to, all work, services, and advice of Employee.
5. Termination.
This Agreement may be terminated by the parties in the manners
specified below:
(a) Termination without Cause. Either the Company or the
employee may terminate Employee's employment under this Agreement at any time
for any reason upon thirty (30) day's prior written notice to the other party.
(b) Termination for Cause
The Company may terminate this Agreement on written notice
at any time for "cause". For purposes of this Agreement, "cause" shall mean: (i)
Employee is convicted of, pleads guilty to, or confesses to a felony or any
crime involving any act of dishonesty, fraud, misappropriation, embezzlement or
moral turpitude, in which event the Company may terminate this Agreement
immediately, (ii) the gross misconduct or gross negligence by Employee in
connection with the performance of Employee's duties hereunder, (iii) the
engaging by Employee in any fraudulent, disloyal or unprofessional conduct which
results in a material injury to the Company, its affiliates or any of its or
their centers, monetarily or otherwise, (iv) Employee breaches any provision of
Section 6 of this Agreement, or (v) the failure by Employee to otherwise
substantially perform his duties with the Company (other than any such failure
resulting from the disability of Employee under Section 5(c)(i)) or the breach
of any provision of this Agreement other than Section 6. In the event of any
termination for cause pursuant to the provisions of (ii), (iii), (iv) or (v) of
this subsection, the Company shall give Employee written notice prior to such
termination detailing the specific acts, actions, failures, or events upon which
the forecast termination is based, and Employee shall have fifteen (15) days
after such written notice to cease such actions or otherwise correct any such
failure or breach. If Employee does not cease such action or otherwise correct
such failure or breach within such fifteen day time period, or
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<PAGE> 3
having once received such written notice and ceased such actions or corrected
such failure or breach, Employee at any time thereafter again so acts, fails or
breaches, the Company may terminate this Agreement immediately.
(c) Involuntary Termination.
The employment of Employee hereunder shall be
automatically terminated by the death or disability of Employee as outlined
below.
(i) Disability. The Company may terminate this
Agreement at the time Employee shall have been Disabled for a continuous period
of six (6) months during any continuous twelve month period. For purposes of
this Paragraph 5(c)(i), the term "Disabled" shall mean Employee's inability to
perform the essential functions of his duties, with or without reasonable
accommodation. During Employee's six month period of Disability, the Company
agrees to continue to pay Employee's Base Compensation (less regular
withholdings for payroll or other taxes and other required or proper items, and
less proceeds from all disability insurance policies or plans provided or made
available by the Company). In the event of a termination of Employee on account
of Disability, the Company shall be obligated to pay Employee's Base
Compensation for a period of six months following the effective date of
termination (less regular withholdings for payroll or other taxes and other
required or proper times, and less proceeds from all disability insurance
policies or plans provided or made available by the Company). In addition, any
provisions in the relevant stock option agreements notwithstanding, all
outstanding stock options granted to Employee pursuant to a Company stock option
plan shall vest immediately upon termination pursuant to this Section 5(c)(i).
(ii) Death. In the event Employee shall die during
the term of this Agreement, this Agreement shall terminate and Employee's estate
shall receive the remainder of the Base Compensation set forth in Section 3(a)
hereof accrued to the last day of the month in which death occurs. In addition,
any provisions in the relevant stock option agreements notwithstanding, all
outstanding stock options granted to Employee pursuant to a Company stock option
plan shall vest immediately upon termination pursuant to this Section 5(c)(ii).
(d) Post-Termination Compensation. Except as provided in
Section 5(c) above, upon termination of this Agreement, the Company shall be
relieved of all of its obligations hereunder notwithstanding any period of time
remaining under the initial or any renewal term, subject to the following:
(i) Termination without Cause. In the event that the
Company terminates Employee's employment hereunder without Cause under Section
5(a) above, then Employee shall, after the effective date of such termination,
as Employee's sole and exclusive remedy, receive the Base Compensation (as then
in effect) for a period of twelve (12) months after the termination date. If the
Employee's employment is terminated by the Company without Cause, the Employee
shall be under no duty to seek or accept other employment; but if he shall do
so, any compensation he shall receive therefrom shall not diminish the Company's
obligation to make payments required to the Employee hereunder. In the event
that Employee terminates his or her employment under Section 5(a) above, the
Company's obligation to pay Employee's Base Compensation shall terminate as of
the date of termination.
(ii) Termination for Cause. In the event that the
Company terminates Employee's employment hereunder with Cause under Section 5(b)
above, then Employee shall, after the
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<PAGE> 4
effective date of such termination, receive the Base Compensation (as then in
effect) for a period of one (1) month after the termination date.
(iii) Termination following Change in Control. If
within twelve (12) months following a Change in Control (as defined below),
either (A) the Company terminates the employment of Employee hereunder without
Cause under Section 5(a) above or (B) Employee resigns from a declined
reassignment of a job that is not reasonably equivalent in responsibility or
compensation or that is not in the same geographic area, then, in lieu of any
other compensation that may be specified herein, Employee shall receive an
amount equal to three (3) multiplied by the Base Compensation (as then in
effect) plus an amount of Annual Bonus for the current year (the amount of
Annual Bonus for the current year shall be equal in amount to any Annual Bonus
paid or to be paid to Employee in connection with the Company's last completed
fiscal year), payable by the Company in a single lump-sum payment, to be paid
not later than thirty (30) days after termination. In the event such payment
obligation arises, no compensation received from other employment (or otherwise)
shall reduce the obligation to make the payment(s) described in this paragraph.
(e) Change in Control. "Change in Control" means a change in
control of the Company 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 of 1934 (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 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, or
(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; or
(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, or 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.
6. Nondisclosure, Confidentiality; Competition.
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<PAGE> 5
(a) Subject to Section 6(f) below, Employee agrees that,
during the term of this Agreement and of Employee's employment by the Company,
and for a period twelve (12) months after the termination of Employee's
employment with the Company, Employee will not in any manner, directly or
indirectly, by himself or in conjunction with any other person, (i) conduct any
of the activities or perform any of the responsibilities or duties that Employee
provided the Company during his employment by the Company for any business
entity that is competitive with the business of the Company or its affiliates or
(ii) 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 those of the business of the
Company or its affiliates, in either case within a geographic territory defined
as the greater of (i) a seventy-five (75) mile radius of any renal dialysis
center, unit or facility owned or operated by the Company or an affiliate of the
Company (an "RCG Center"), or (ii) the geographic area, as narrowly construed as
is practicable, from which the Company received patients at each of the RCG
Centers. For purposes of this Section, the "business of the Company or its
affiliates" shall mean owning or operating a renal dialysis center, unit or
facility, and providing practice management services to nephrologists.
(b) Subject to Section 6(f) below, Employee further agrees
that, for a period of three (3) years after the termination of Employee's
employment with the Company, Employee will keep confidential and not directly
divulge, or allow through a lack of reasonable care to be divulged to anyone, or
use or otherwise appropriate for Employee's own benefit or for the benefit of
others, any knowledge or information of a confidential nature with respect to
the Company's and its affiliates' current business, the Company itself, or any
of its 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; or (iii) information that
has become part of the public domain through no fault of the Employee; and (iv)
was known to the Employee prior to June 1996. Employee 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 the
Company 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 the Company of its rights and remedies pursuant hereto shall not be construed
as a waiver of any other rights or available remedies which the Company may
possess in law or equity. Employee acknowledges that the Company has taken
reasonable and appropriate steps to ensure the confidentiality and
non-disclosure of all such Confidential Data. For purposes of this Section the
Company's and its affiliates' "current business" shall mean owning or opening a
renal dialysis center, unit or facility.
(c) Subject to Section 6(f) below, Employee further agrees
that, for a period of three (3) years after the termination of Employee's
employment with the Company, Employee will not, for his own benefit or the
benefit of others, solicit any person or entity that has or has had, or disrupt
or attempt to disrupt, any relationship, contractual or otherwise, with the
Company or an affiliate of the Company (including any patient, payor, physician,
provider, managed care organization or supplier) at any time during Employee's
employment with the Company, for the purpose of assisting, or creating such a
relationship for, any business entity that is competitive with the Company or an
affiliate of the Company. For purposes of this Section, a business entity is
competitive with the Company or an affiliate of the Company if it provides or
offers any renal dialysis service that is provided by the Company or an
affiliate of the Company.
(d) Subject to Section 6(f) below, Employee further agrees
that, for a period of three (3) years after the termination of Employee's
employment with the Company, Employee shall not
-5-
<PAGE> 6
induce, nor attempt to induce, any employee of the Company, or any of its
affiliates, to terminate such employee's association with the Company or any of
its affiliates.
(e) These post-employment covenants are considered by the
parties hereto to be fair, reasonable and integral for the protection of the
Company. The parties mutually agree that if a violation of any of these
covenants occurs, such violation or any threatened violation will cause
irreparable injury to the Company and the remedy at law for any such violation
or threatened violation will be inadequate. The parties acknowledge that these
covenants will survive, and remain in effect and enforceable after, termination
of this Agreement.
(f) The Company agrees that the forgoing covenants in
paragraphs 6(a) through (d) shall be null and void as to any period following
termination of employment in the event such termination occurs within twelve
(12) months following a Change in Control through either (A) a termination by
the Company without Cause under Section 5(a) above or (B) a resignation by
Employee for any reason.
(g) Employee agrees to indemnify and hold harmless the Company
from and against any and all claims, causes of action, damages and/or any other
losses suffered or incurred by the Company as a result of any breach or
purported breach by Employee of any agreement applicable to Employee which
existed prior to the time of the entering into of this Agreement. Such
obligations of Employee to indemnify and hold the Company harmless shall include
any and all costs of defense of any such claim or threatened claim, including
reasonable attorneys' fees.
7. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of Employee
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 7) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by Employee with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Employee shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Employee
of all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(b) Subject to the provisions of Section 7(c), all
determinations required to be made under this Section 7, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP or such other certified public accounting firm as may be
designated by Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and Employee within 15 business days
of the receipt of notice from Employee that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change in Control, Employee shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by
the Company to
-6-
<PAGE> 7
Employee within five days of the receipt of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding upon the Company and
Employee. It is possible (due to the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder) that Gross-Up Payments will not have been made by the Company which
it is ultimately determined should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. Consequently, in the event
that the Company exhausts its remedies pursuant to Section 7(c) and Employee
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Employee.
(c) Employee shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after Employee is informed in
writing of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. Employee shall not pay
such claim prior to the expiration of the 30-day period following the date on
which it gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Company notifies Employee in writing prior to the expiration of such period that
it desires to contest such claim, Employee shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions of
this Section 7(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
Employee to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Employee to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Employee, on an interest-free basis and shall indemnify and hold Employee
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and
-7-
<PAGE> 8
further provided that any extension of the statute of limitations relating to
payment of taxes for the taxable year of Employee with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
Employee shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by Employee of an amount advanced by
the Company pursuant to Section 7(c), Employee becomes entitled to receive any
refund with respect to such claim, Employee shall (subject to the Company's
complying with the requirements of Section 7(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by Employee of an amount
advanced by the Company pursuant to Section 7(c), a determination is made that
Employee shall not be entitled to any refund with respect to such claim and the
Company does not notify Employee in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
8. Severability.
The parties hereto hereby expressly agree and contract that it
is not the intention of either party to violate any public policy, or any
statutory or common law, and that if any paragraph, sentence, clause or
combination of the same of this Agreement shall be in violation of the laws of
any state where applicable, such paragraph, sentence, clause or the combination
of the same shall be void in the jurisdictions where it is unlawful, and the
remainder thereof shall remain binding on the parties hereto. It is the
intention of the parties to make the covenants of this Agreement binding only to
the extent that they may be lawfully done under existing applicable laws. In the
event that any part of any term or covenant of this Agreement is determined by a
court of law or equity to be overly broad or otherwise unenforceable, the
parties hereto agree that such court shall be empowered to substitute, and it is
the intent of the parties hereto that such court substitute, a reasonably
judicially enforceable term or limitation in the place of such unenforceable
term or covenant, and that as so modified this Agreement shall be fully
enforceable.
9. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the
parties and supersedes any and all prior understandings or agreements, and any
changes or additions hereto must be in writing and signed by both parties.
10. Assignment.
(a) The rights and benefits of Employee under this Agreement,
other than accrued and unpaid amounts due under Section 3(a) hereof, are
personal to Employee and shall not be assignable.
(b) This Agreement may not be assigned by the Company except
to an affiliate of the Company, provided that such affiliate assumes the
Company's obligations under this Agreement; provided, further, that if the
Company shall merge or effect a consolidation or share exchange with or into, or
sell or otherwise transfer substantially all its assets to, another business
entity, the Company may assign its rights hereunder to that business entity
without the consent of the Employee provided that it causes such business entity
to assume the Company's obligations under this Agreement.
-8-
<PAGE> 9
11. Notice.
The references to the notice periods of certain "days"
contained in this Agreement shall mean calendar days. Any notice provided for in
this Agreement shall be delivered to Employee at the most recent address of
employee listed in the Company's then current employment records. Notice to the
Company shall be delivered to the following address: c/o Renal Care Group, Inc.,
2100 West End Avenue, Suite 800, Nashville, Tennessee 37203, Attention:
President.
12. Waiver.
The waiver by any party to this Agreement of a breach of any
of the provisions contained herein shall not operate or be construed as a waiver
of any subsequent breach.
13. Disputes and Governing Law.
The Company and employee agree that any dispute arising in
connection with, or relating to, this Agreement or the termination of this
Agreement, to the maximum extent allowed by applicable law, shall be subject to
resolution through informal methods and, failing such efforts, through
arbitration. Either party may notify the other party of the existence of a
dispute by written notice to the address indicated above in Section 11. The
parties shall thereafter attempt in good faith to resolve their differences
within thirty (30) days after the receipt of such notice. If the dispute cannot
be resolved within such 30-day period, then the parties will submit the dispute
for mediation. If mediation efforts are not successful, then either party may
file a written demand for arbitration with the other party. The arbitration
shall proceed in accordance with the terms of the Federal Arbitration Act and
the rules and procedures of the American Arbitration Association. A single
arbitrator shall be appointed through the American Arbitration Association's
procedures to resolve the dispute.
The parties agree that in the event arbitration is necessary,
the laws of the State of Tennessee and any applicable federal law shall apply.
The place of the arbitration shall be Nashville, Tennessee.
The award of the arbitrator shall be binding and conclusive
upon the parties. Either party shall have the right to have the award made the
judgment of a court of competent jurisdiction in the State of Tennessee.
In the event of a dispute arising under this Agreement, the
prevailing party shall be entitled to all reasonable attorneys' fees incurred in
connection with such dispute. The Company agrees, to the maximum extent
permitted by law and the Bylaws and Certificate of Incorporation of the Company,
to defend and indemnify the Employee against and to hold the Employee harmless
from any and all claims, suits, losses, liabilities, and expenses (including
disputes arising under this Agreement and including reasonable attorneys' fees
and payment of reasonable expenses incurred in defending against such claim or
suit as such expenses are incurred) asserted against the Employee for actions
taken or omitted to be taken by the Employee in good faith and within the scope
of his responsibilities as an officer or employee of the Company. If requested
by the Employee, the Company shall advance to the Employee, promptly following
the Company's receipt of any such request, any and all expenses for which
indemnification is available hereunder, subject to the requirements of
applicable law and the Company's Bylaws and Certificate of Incorporation.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the Company and Employee have executed
this Agreement on the day and year first above written.
COMPANY:
RENAL CARE GROUP, INC.
By: /s/ SAM A. BROOKS
----------------------------------------
Sam A. Brooks
President
[Corporate Seal]
EMPLOYEE:
/s/ GARY BRUKARDT
--------------------------------------------(Seal)
Gary Brukardt
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<PAGE> 1
EXHIBIT 10.30
RESTRICTED STOCK AWARD AGREEMENT
under the
RENAL CARE GROUP, INC.
1996 STOCK INCENTIVE PLAN
Grantee: Harry R. Jacobson, M.D.
Number of Shares: 12,200
Effective Date of Grant: December 23, 1997
1. Consulting Agreement. The Grantee named above (the "Grantee") and Renal
Care Group, Inc., a Tennessee corporation (the "Corporation") have a consulting
arrangement (the "Consulting Arrangement") pursuant to which the Grantee
provides financial advisory services, investor relations services and certain
other consulting services for the Corporation.
2. Grant of Shares. In further consideration for the Consulting Services,
and subject to the restrictions and other terms and conditions set forth in this
Agreement (this "Agreement"), the Corporation hereby grants to the Grantee named
above (the "Grantee"), under the Renal Care Group, Inc. Amended and Restated
1996 Stock Incentive Plan (the "Plan"), the number of shares indicated above of
the Corporation's $0.01 par value common stock (the "Shares"). Capitalized terms
used herein and not otherwise defined shall have the meanings assigned such
terms in the Plan.
3. Restrictions. The Shares may not be sold, transferred, exchanged,
assigned, pledged, hypothecated or otherwise encumbered unless and until such
restriction has expired as provided in Section 3 hereof. Any Shares as to which
such restriction has not yet expired are referred to herein as the "Restricted
Shares."
If the Consulting Arrangement terminates for any reason other than as set
forth in paragraphs (a) or (b) of Section 3 hereof, then the Grantee shall
forfeit all of the Grantee's right, title and interest in and to the Restricted
Shares.
The restrictions imposed under this Section shall apply to all shares of
capital stock or other securities that may be issued with respect to Restricted
Shares hereunder in connection with any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the common stock of the Corporation.
4. Expiration and Termination of Restrictions. The restrictions imposed
under Section 3 will expire on the earliest to occur of the following:
<PAGE> 2
(a) As to the following numbers of Restricted Shares awarded hereunder
(adjusted proportionately in the event of any change in the total numbers
of Restricted Shares) on the following respective dates:
Date of Termination
Number of Shares of Restrictions
---------------- ---------------
12,200 December 23, 2002
(b) On the first day of the calendar month next following the
Grantee's death or a determination that the Consulting Arrangement must be
terminated due to the Grantee's Disability; or
(c) If in the sole discretion of the Committee, the Grantee (i)
terminated the Consulting Arrangement for good cause; or (ii) the
Corporation terminated the Consulting Arrangement without cause; or
(d) On the date of any acceleration of vesting in accordance with
Article 9 of the Plan.
4. Delivery of Shares. The Shares will be issued in the name of the Grantee
as Restricted Stock and will be held by the Corporation during the Restricted
Period. Stock certificates shall be delivered as soon as practicable after
vesting of the Shares, but may be postponed for such period as may be required
for the Corporation with reasonable diligence to comply if deemed advisable by
the Corporation, with registration requirements under the Securities Act,
listing requirements under the rules of any stock exchange, and requirements
under any other law or regulation applicable to the issuance or transfer of the
Shares.
5. Voting and Dividend Rights. The Grantee, as beneficial owner of the
Shares, shall have full voting and dividend rights with respect to the Shares
during the Restricted Period.
6. Restrictions on Transfer and Pledge. The Restricted Shares may not be
pledged, encumbered, or hypothecated to or in favor of any party other than the
Corporation or a Subsidiary, or be subject to any lien, obligation, or liability
of the Grantee to any other party other than the Corporation or a Subsidiary.
The Restricted Shares are not assignable or transferable by the Grantee other
than by will or the laws of descent and distribution.
7. No Right of Continued Services or Compensation. Nothing in this
Agreement shall interfere with or limit in any way the right of the Corporation
or any Subsidiary to terminate the Consulting Arrangement.
-2-
<PAGE> 3
8. Amendment. This Agreement may not be amended except in writing, signed
by the parties hereto, provided that the Plan may be amended in the manner
provided in the Plan.
9. Plan Controls. The terms contained in the Plan are incorporated into and
made a part of this Agreement and this Agreement shall be governed by and
construed in accordance with the Plan. In the event of any actual or alleged
conflict between the provisions of the Plan and the provisions of this
Agreement, the provisions of the Plan shall be controlling and determinative.
10. Successors. This Agreement shall be binding upon any successor of the
Corporation, in accordance with the terms of this Agreement and the Plan.
11. Severability. If any one or more of the provisions contained in this
Agreement are invalid, illegal or unenforceable, the other provisions of this
Agreement will be construed and enforced as if the invalid, illegal or
unenforceable provision had never been included.
12. Notice. Notices and communications under this Agreement must be in
writing and either personally delivered or sent by registered or certified
United States mail, return receipt requested, postage prepaid. Notices to the
Corporation must be addressed to:
Renal Care Group, Inc.
Attn: Chief Financial Officer
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
or any other address designated by the Corporation in a written notice to the
Grantee. Notices to the Grantee will be directed to the address of the Grantee
then currently on file with the Corporation, or at any other address given by
the Grantee in a written notice to the Corporation.
IN WITNESS WHEREOF, Renal Care Group, Inc., acting by and through its duly
authorized officers, has caused this Agreement to be executed, and the Grantee
has executed this Agreement, all as of the day and year first above written.
RENAL CARE GROUP, INC.
By: /s/ Sam A. Brooks
-------------------------------
Title: President
-------------------------------
I hereby accept the above Shares grant in accordance with and subject to
the terms and conditions set forth above.
-3-
<PAGE> 4
I agree that any shares of common stock received by me hereunder will not
be sold or otherwise disposed of by me except in a manner in compliance with
applicable securities laws.
GRANTEE:
/s/ Harry R. Jacobson
--------------------------------------
Print Name: Harry R. Jacobson
------------------------
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<PAGE> 1
EXHIBIT 10.31
RESTRICTED STOCK AWARD AGREEMENT
under the
RENAL CARE GROUP, INC.
1996 STOCK INCENTIVE PLAN
Grantee: Sam A. Brooks
Number of Shares: 8,700
Effective Date of Grant: December 23, 1997
1. Grant of Shares. Renal Care Group, Inc. (the "Corporation") hereby
grants to the Grantee named above (the "Grantee"), under the Renal Care Group,
Inc. Amended and Restated 1996 Stock Incentive Plan (the "Plan"), as additional
compensation for services rendered, and subject to the restrictions and the
other terms and conditions set forth in this agreement (this "Agreement"), the
number of shares indicated above of the Corporation's $0.01 par value common
stock (the "Shares"). Capitalized terms used herein and not otherwise defined
shall have the meanings assigned such terms in the Plan.
2. Restrictions. The Shares may not be sold, transferred, exchanged,
assigned, pledged, hypothecated or otherwise encumbered unless and until such
restriction has expired as provided in Section 3 hereof. Any Shares as to which
such restriction has not yet expired are referred to herein as the "Restricted
Shares."
If the Grantee's employment with the Corporation or any Subsidiary
terminates for any reason other than as set forth in any of paragraphs (b)
through (d) of Section 3 hereof, then the Grantee shall forfeit all of the
Grantee's right, title and interest in and to the Restricted Shares as of the
date of employment termination.
The restrictions imposed under this Section shall apply to all shares of
capital stock or other securities that may be issued with respect to Restricted
Shares hereunder in connection with any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the common stock of the Corporation.
3. Expiration and Termination of Restrictions. The restrictions imposed
under Section 2 will expire on the earliest to occur of the following:
(a) As to the following numbers of Restricted Shares awarded hereunder
(adjusted proportionately in the event of any change in the total numbers
of Restricted Shares) on the following respective dates:
<PAGE> 2
Date of Termination
Number of Shares of Restrictions
---------------- ---------------
8,700 December 23, 2002
(b) On the first day of the calendar month next following the
termination of the Grantee's employment with the Corporation or any
Subsidiary because of his or her death or Disability; or
(c) On the date the Grantee's employment with the Corporation or any
Subsidiary is terminated either (i) by the Company or any Subsidiary
without "Cause," as defined in Appendix A, or (ii) by the Grantee for "Good
Reason," as defined in Appendix A; or
(d) On the date specified by the Committee as it may deem appropriate
in connection with a termination of the Grantee's employment with the
Corporation or any Subsidiary in a manner not covered by paragraph (c) of
this Section; or
(e) On the date of any acceleration of vesting in accordance with
Article 9 of the Plan.
4. Delivery of Shares. The Shares will be issued in the name of the Grantee
as Restricted Stock and will be held by the Corporation during the Restricted
Period. Stock certificates shall be delivered as soon as practicable after
vesting of the Shares, but may be postponed for such period as may be required
for the Corporation with reasonable diligence to comply if deemed advisable by
the Corporation, with registration requirements under the Securities Act,
listing requirements under the rules of any stock exchange, and requirements
under any other law or regulation applicable to the issuance or transfer of the
Shares.
5. Voting and Dividend Rights. The Grantee, as beneficial owner of the
Shares, shall have full voting and dividend rights with respect to the Shares
during the Restricted Period.
6. Restrictions on Transfer and Pledge. The Restricted Shares may not be
pledged, encumbered, or hypothecated to or in favor of any party other than the
Corporation or a Subsidiary, or be subject to any lien, obligation, or liability
of the Grantee to any other party other than the Corporation or a Subsidiary.
The Restricted Shares are not assignable or transferable by the Grantee other
than by will or the laws of descent and distribution.
7. No Right of Continued Employment. Nothing in this Agreement shall
interfere with or limit in any way the right of the Corporation or any
Subsidiary to
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<PAGE> 3
terminate the Grantee's employment at any time, nor confer upon
the Grantee any right to continue in the employ of the Corporation or any
Subsidiary.
8. Payment of Taxes. The Grantee will, no later than the date as of which
any amount related to the Shares first becomes includable in the Grantee's gross
income for federal income tax purposes, pay to the Corporation, or make other
arrangements satisfactory to the Committee regarding payment of, any federal,
state and local taxes of any kind required by law to be withheld with respect to
such amount. The obligations of the Corporation under this Agreement will be
conditional on such payment or arrangements, and the Corporation, and, where
applicable, its Subsidiaries will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Grantee.
9. Amendment. This Agreement may not be amended except in writing, signed
by the parties hereto, provided that the Plan may be amended in the manner
provided in the Plan.
10. Plan Controls. The terms contained in the Plan are incorporated into
and made a part of this Agreement and this Agreement shall be governed by and
construed in accordance with the Plan. In the event of any actual or alleged
conflict between the provisions of the Plan and the provisions of this
Agreement, the provisions of the Plan shall be controlling and determinative.
11. Successors. This Agreement shall be binding upon any successor of the
Corporation, in accordance with the terms of this Agreement and the Plan.
12. Severability. If any one or more of the provisions contained in this
Agreement are invalid, illegal or unenforceable, the other provisions of this
Agreement will be construed and enforced as if the invalid, illegal or
unenforceable provision had never been included.
13. Notice. Notices and communications under this Agreement must be in
writing and either personally delivered or sent by registered or certified
United States mail, return receipt requested, postage prepaid. Notices to the
Corporation must be addressed to:
Renal Care Group, Inc.
Attn: Chief Financial Officer
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
or any other address designated by the Corporation in a written notice to the
Grantee. Notices to the Grantee will be directed to the address of the Grantee
then currently on file with the Corporation, or at any other address given by
the Grantee in a written notice to the Corporation.
-3-
<PAGE> 4
IN WITNESS WHEREOF, Renal Care Group, Inc., acting by and through its duly
authorized officers, has caused this Agreement to be executed, and the Grantee
has executed this Agreement, all as of the day and year first above written.
RENAL CARE GROUP, INC.
By: /s/ Ronald Hinds
---------------------------------
Title: Executive Vice President
----------------------------
I hereby accept the above Shares grant in accordance with and subject to
the terms and conditions set forth above.
I agree that any shares of common stock received by me hereunder will not
be sold or otherwise disposed of by me except in a manner in compliance with
applicable securities laws.
GRANTEE:
/s/ Sam A. Brooks
--------------------------------
Print Name: Sam A. Brooks
-----------------------
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<PAGE> 5
APPENDIX A
1. For purposes of this Restricted Stock Award Agreement, "Cause" shall
mean any one of the following:
(i) the willful and continued failure of the Grantee to substantially
perform his or her duties with the Company or one of its affiliates (other than
any such failure resulting from incapacity due to Disability, and specifically
excluding any failure by the Grantee, after reasonable efforts, to meet
performance expectations), after a written demand for substantial performance is
delivered to the Grantee by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Grantee has not substantially performed the
Grantee's duties, or
(ii) the willful engaging by the Grantee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Grantee, shall be considered "willful" unless it is done, or omitted to be done,
by the Grantee in bad faith or without reasonable belief that the Grantee's
action or omission was in the best interests of the Company. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Chief Executive Officer or a senior
officer of the Company or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Grantee in
good faith and in the best interests of the Company. The cessation of employment
of the Grantee shall not be deemed to be for Cause unless and until there shall
have been delivered to the Grantee a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Grantee and the Grantee is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Grantee is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
2. For purposes of this Restricted Stock Award Agreement, "Good Reason"
shall mean one of the following:
(i) the assignment to the Grantee of any duties inconsistent in any
respect with the Grantee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities with the Company
as in effect on the date hereof, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Grantee;
(ii) any reduction in the Grantee's base salary as in effect on the
date hereof, or as subsequently increased;
(iii) the failure by the Company, without the Grantee's consent, to
pay to him any portion of his current compensation, except pursuant to a
compensation deferral elected by the Grantee, or to pay to the Grantee any
portion of an installment of deferred compensation under any deferred
compensation program of the Company within thirty days of the date such
compensation is due; other
<PAGE> 6
than an isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Grantee;
(iv) The failure by the Company to continue in effect any compensation
plan (or substitute or alternative plan) in which the Grantee is entitled to
participate as of the date hereof which is material to the Grantee's total
compensation, including, but not limited to, the Company's annual bonus plan and
equity incentive plan, or the failure by the Company to continue the Grantee's
participation therein on a basis that is materially as favorable both in terms
of the amount of benefits provided and the level of the Grantee's participation
relative to other participants at the Grantee's grade level;
(v) The failure by the Company to continue to provide the Grantee with
benefits substantially similar to those enjoyed by him under the Company's
pension and deferred compensation plans, if any, except as required by law, and
the life insurance, medical, health and accident, and disability plans in which
the Grantee is entitled to participate as of the date hereof, or the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits or deprive the Grantee of any material fringe benefit
enjoyed by the Grantee as of the date hereof, or the failure by the Company to
provide the Grantee with the number of paid vacation days to which the Grantee
is entitled;
(vi) The relocation of the Company's principal executive offices where
the Grantee is working to a location more than 35 miles from the location of
such offices on the date of this Agreement, or the Company's requiring the
Grantee to be based anywhere other than the location of the Company's principal
offices where the Grantee is working on the date of this Agreement except for
required travel on the Company's business to an extent substantially consistent
with the Grantee's present business travel obligations; or
(vii) The failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement.
The Grantee's right to terminate his employment pursuant to this
Agreement for Good Reason shall not be affected by the Grantee's inability to
satisfactorily perform the duties required by the Grantee's current job
description due to physical or mental limitations or illness. The Grantee's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder.
-2-
<PAGE> 1
EXHIBIT 10.32
RESTRICTED STOCK AWARD AGREEMENT
under the
RENAL CARE GROUP, INC.
1996 STOCK INCENTIVE PLAN
Grantee: Gary Brukardt
Number of Shares: 4,350
Effective Date of Grant: December 23, 1997
1. Grant of Shares. Renal Care Group, Inc. (the "Corporation") hereby
grants to the Grantee named above (the "Grantee"), under the Renal Care Group,
Inc. Amended and Restated 1996 Stock Incentive Plan (the "Plan"), as additional
compensation for services rendered, and subject to the restrictions and the
other terms and conditions set forth in this agreement (this "Agreement"), the
number of shares indicated above of the Corporation's $0.01 par value common
stock (the "Shares"). Capitalized terms used herein and not otherwise defined
shall have the meanings assigned such terms in the Plan.
2. Restrictions. The Shares may not be sold, transferred, exchanged,
assigned, pledged, hypothecated or otherwise encumbered unless and until such
restriction has expired as provided in Section 3 hereof. Any Shares as to which
such restriction has not yet expired are referred to herein as the "Restricted
Shares."
If the Grantee's employment with the Corporation or any Subsidiary
terminates for any reason other than as set forth in any of paragraphs (b)
through (d) of Section 3 hereof, then the Grantee shall forfeit all of the
Grantee's right, title and interest in and to the Restricted Shares as of the
date of employment termination.
The restrictions imposed under this Section shall apply to all shares of
capital stock or other securities that may be issued with respect to Restricted
Shares hereunder in connection with any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the common stock of the Corporation.
3. Expiration and Termination of Restrictions. The restrictions imposed
under Section 2 will expire on the earliest to occur of the following:
(a) As to the following numbers of Restricted Shares awarded hereunder
(adjusted proportionately in the event of any change in the total numbers
of Restricted Shares) on the following respective dates:
<PAGE> 2
Date of Termination
Number of Shares of Restrictions
---------------- ---------------
4,350 December 23, 2002
(b) On the first day of the calendar month next following the
termination of the Grantee's employment with the Corporation or any
Subsidiary because of his or her death or Disability; or
(c) On the date the Grantee's employment with the Corporation or any
Subsidiary is terminated either (i) by the Company or any Subsidiary
without "Cause," as defined in Appendix A, or (ii) by the Grantee for "Good
Reason," as defined in Appendix A; or
(d) On the date specified by the Committee as it may deem appropriate
in connection with a termination of the Grantee's employment with the
Corporation or any Subsidiary in a manner not covered by paragraph (c) of
this Section; or
(e) On the date of any acceleration of vesting in accordance with
Article 9 of the Plan.
4. Delivery of Shares. The Shares will be issued in the name of the Grantee
as Restricted Stock and will be held by the Corporation during the Restricted
Period. Stock certificates shall be delivered as soon as practicable after
vesting of the Shares, but may be postponed for such period as may be required
for the Corporation with reasonable diligence to comply if deemed advisable by
the Corporation, with registration requirements under the Securities Act,
listing requirements under the rules of any stock exchange, and requirements
under any other law or regulation applicable to the issuance or transfer of the
Shares.
5. Voting and Dividend Rights. The Grantee, as beneficial owner of the
Shares, shall have full voting and dividend rights with respect to the Shares
during the Restricted Period.
6. Restrictions on Transfer and Pledge. The Restricted Shares may not be
pledged, encumbered, or hypothecated to or in favor of any party other than the
Corporation or a Subsidiary, or be subject to any lien, obligation, or liability
of the Grantee to any other party other than the Corporation or a Subsidiary.
The Restricted Shares are not assignable or transferable by the Grantee other
than by will or the laws of descent and distribution.
7. No Right of Continued Employment. Nothing in this Agreement shall
interfere with or limit in any way the right of the Corporation or any
Subsidiary to
-2-
<PAGE> 3
terminate the Grantee's employment at any time, nor confer upon the Grantee any
right to continue in the employ of the Corporation or any Subsidiary.
8. Payment of Taxes. The Grantee will, no later than the date as of which
any amount related to the Shares first becomes includable in the Grantee's gross
income for federal income tax purposes, pay to the Corporation, or make other
arrangements satisfactory to the Committee regarding payment of, any federal,
state and local taxes of any kind required by law to be withheld with respect to
such amount. The obligations of the Corporation under this Agreement will be
conditional on such payment or arrangements, and the Corporation, and, where
applicable, its Subsidiaries will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Grantee.
9. Amendment. This Agreement may not be amended except in writing, signed
by the parties hereto, provided that the Plan may be amended in the manner
provided in the Plan.
10. Plan Controls. The terms contained in the Plan are incorporated into
and made a part of this Agreement and this Agreement shall be governed by and
construed in accordance with the Plan. In the event of any actual or alleged
conflict between the provisions of the Plan and the provisions of this
Agreement, the provisions of the Plan shall be controlling and determinative.
11. Successors. This Agreement shall be binding upon any successor of the
Corporation, in accordance with the terms of this Agreement and the Plan.
12. Severability. If any one or more of the provisions contained in this
Agreement are invalid, illegal or unenforceable, the other provisions of this
Agreement will be construed and enforced as if the invalid, illegal or
unenforceable provision had never been included.
13. Notice. Notices and communications under this Agreement must be in
writing and either personally delivered or sent by registered or certified
United States mail, return receipt requested, postage prepaid. Notices to the
Corporation must be addressed to:
Renal Care Group, Inc.
Attn: Chief Financial Officer
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
or any other address designated by the Corporation in a written notice to the
Grantee. Notices to the Grantee will be directed to the address of the Grantee
then currently on file with the Corporation, or at any other address given by
the Grantee in a written notice to the Corporation.
-3-
<PAGE> 4
IN WITNESS WHEREOF, Renal Care Group, Inc., acting by and through its duly
authorized officers, has caused this Agreement to be executed, and the Grantee
has executed this Agreement, all as of the day and year first above written.
RENAL CARE GROUP, INC.
By: /s/ Sam A. Brooks
--------------------------------
Title: President
-----------------------------
I hereby accept the above Shares grant in accordance with and subject to
the terms and conditions set forth above.
I agree that any shares of common stock received by me hereunder will not
be sold or otherwise disposed of by me except in a manner in compliance with
applicable securities laws.
GRANTEE:
/s/ Gary Brukardt
--------------------------------
Print Name: Gary Brukardt
-----------------------
-4-
<PAGE> 5
APPENDIX A
1. For purposes of this Restricted Stock Award Agreement, "Cause" shall
mean any one of the following:
(i) the willful and continued failure of the Grantee to substantially
perform his or her duties with the Company or one of its affiliates (other than
any such failure resulting from incapacity due to Disability, and specifically
excluding any failure by the Grantee, after reasonable efforts, to meet
performance expectations), after a written demand for substantial performance is
delivered to the Grantee by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Grantee has not substantially performed the
Grantee's duties, or
(ii) the willful engaging by the Grantee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Grantee, shall be considered "willful" unless it is done, or omitted to be done,
by the Grantee in bad faith or without reasonable belief that the Grantee's
action or omission was in the best interests of the Company. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Chief Executive Officer or a senior
officer of the Company or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Grantee in
good faith and in the best interests of the Company. The cessation of employment
of the Grantee shall not be deemed to be for Cause unless and until there shall
have been delivered to the Grantee a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Grantee and the Grantee is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Grantee is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
2. For purposes of this Restricted Stock Award Agreement, "Good Reason"
shall mean one of the following:
(i) the assignment to the Grantee of any duties inconsistent in any
respect with the Grantee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities with the Company
as in effect on the date hereof, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Grantee;
(ii) any reduction in the Grantee's base salary as in effect on the
date hereof, or as subsequently increased;
(iii) the failure by the Company, without the Grantee's consent, to pay
to him any portion of his current compensation, except pursuant to a
compensation deferral elected by the Grantee, or to pay to the Grantee any
portion of an installment of deferred compensation under any deferred
compensation program of the Company within thirty days of the date such
compensation is due; other
<PAGE> 6
than an isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Grantee;
(iv) The failure by the Company to continue in effect any compensation
plan (or substitute or alternative plan) in which the Grantee is entitled to
participate as of the date hereof which is material to the Grantee's total
compensation, including, but not limited to, the Company's annual bonus plan and
equity incentive plan, or the failure by the Company to continue the Grantee's
participation therein on a basis that is materially as favorable both in terms
of the amount of benefits provided and the level of the Grantee's participation
relative to other participants at the Grantee's grade level;
(v) The failure by the Company to continue to provide the Grantee with
benefits substantially similar to those enjoyed by him under the Company's
pension and deferred compensation plans, if any, except as required by law, and
the life insurance, medical, health and accident, and disability plans in which
the Grantee is entitled to participate as of the date hereof, or the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits or deprive the Grantee of any material fringe benefit
enjoyed by the Grantee as of the date hereof, or the failure by the Company to
provide the Grantee with the number of paid vacation days to which the Grantee
is entitled;
(vi) The relocation of the Company's principal executive offices where
the Grantee is working to a location more than 35 miles from the location of
such offices on the date of this Agreement, or the Company's requiring the
Grantee to be based anywhere other than the location of the Company's principal
offices where the Grantee is working on the date of this Agreement except for
required travel on the Company's business to an extent substantially consistent
with the Grantee's present business travel obligations; or
(vii) The failure of the Company to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement.
The Grantee's right to terminate his employment pursuant to this Agreement
for Good Reason shall not be affected by the Grantee's inability to
satisfactorily perform the duties required by the Grantee's current job
description due to physical or mental limitations or illness. The Grantee's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder.
-2-
<PAGE> 1
EXHIBIT 10.33
RESTRICTED STOCK AWARD AGREEMENT
under the
RENAL CARE GROUP, INC.
1996 STOCK INCENTIVE PLAN
Grantee: Raymond Hakim, M.D.
Number of Shares: 4,350
Effective Date of Grant: December 23, 1997
1. Grant of Shares. Renal Care Group, Inc. (the "Corporation") hereby
grants to the Grantee named above (the "Grantee"), under the Renal Care Group,
Inc. Amended and Restated 1996 Stock Incentive Plan (the "Plan"), as additional
compensation for services rendered, and subject to the restrictions and the
other terms and conditions set forth in this agreement (this "Agreement"), the
number of shares indicated above of the Corporation's $0.01 par value common
stock (the "Shares"). Capitalized terms used herein and not otherwise defined
shall have the meanings assigned such terms in the Plan.
2. Restrictions. The Shares may not be sold, transferred, exchanged,
assigned, pledged, hypothecated or otherwise encumbered unless and until such
restriction has expired as provided in Section 3 hereof. Any Shares as to which
such restriction has not yet expired are referred to herein as the "Restricted
Shares."
If the Grantee's employment with the Corporation or any Subsidiary
terminates for any reason other than as set forth in any of paragraphs (b)
through (d) of Section 3 hereof, then the Grantee shall forfeit all of the
Grantee's right, title and interest in and to the Restricted Shares as of the
date of employment termination.
The restrictions imposed under this Section shall apply to all shares of
capital stock or other securities that may be issued with respect to Restricted
Shares hereunder in connection with any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the common stock of the Corporation.
3. Expiration and Termination of Restrictions. The restrictions imposed
under Section 2 will expire on the earliest to occur of the following:
(a) As to the following numbers of Restricted Shares awarded hereunder
(adjusted proportionately in the event of any change in the total numbers
of Restricted Shares) on the following respective dates:
<PAGE> 2
Date of Termination
Number of Shares of Restrictions
---------------- ---------------
4,350 December 23, 2002
(b) On the first day of the calendar month next following the
termination of the Grantee's employment with the Corporation or any
Subsidiary because of his or her death or Disability; or
(c) On the date the Grantee's employment with the Corporation or any
Subsidiary is terminated either (i) by the Company or any Subsidiary
without "Cause," as defined in Appendix A, or (ii) by the Grantee for "Good
Reason," as defined in Appendix A; or
(d) On the date specified by the Committee as it may deem appropriate
in connection with a termination of the Grantee's employment with the
Corporation or any Subsidiary in a manner not covered by paragraph (c) of
this Section; or
(e) On the date of any acceleration of vesting in accordance with
Article 9 of the Plan.
4. Delivery of Shares. The Shares will be issued in the name of the Grantee
as Restricted Stock and will be held by the Corporation during the Restricted
Period. Stock certificates shall be delivered as soon as practicable after
vesting of the Shares, but may be postponed for such period as may be required
for the Corporation with reasonable diligence to comply if deemed advisable by
the Corporation, with registration requirements under the Securities Act,
listing requirements under the rules of any stock exchange, and requirements
under any other law or regulation applicable to the issuance or transfer of the
Shares.
5. Voting and Dividend Rights. The Grantee, as beneficial owner of the
Shares, shall have full voting and dividend rights with respect to the Shares
during the Restricted Period.
6. Restrictions on Transfer and Pledge. The Restricted Shares may not be
pledged, encumbered, or hypothecated to or in favor of any party other than the
Corporation or a Subsidiary, or be subject to any lien, obligation, or liability
of the Grantee to any other party other than the Corporation or a Subsidiary.
The Restricted Shares are not assignable or transferable by the Grantee other
than by will or the laws of descent and distribution.
7. No Right of Continued Employment. Nothing in this Agreement shall
interfere with or limit in any way the right of the Corporation or any
Subsidiary to
-2-
<PAGE> 3
terminate the Grantee's employment at any time, nor confer upon the Grantee any
right to continue in the employ of the Corporation or any Subsidiary.
8. Payment of Taxes. The Grantee will, no later than the date as of which
any amount related to the Shares first becomes includable in the Grantee's gross
income for federal income tax purposes, pay to the Corporation, or make other
arrangements satisfactory to the Committee regarding payment of, any federal,
state and local taxes of any kind required by law to be withheld with respect to
such amount. The obligations of the Corporation under this Agreement will be
conditional on such payment or arrangements, and the Corporation, and, where
applicable, its Subsidiaries will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Grantee.
9. Amendment. This Agreement may not be amended except in writing, signed
by the parties hereto, provided that the Plan may be amended in the manner
provided in the Plan.
10. Plan Controls. The terms contained in the Plan are incorporated into
and made a part of this Agreement and this Agreement shall be governed by and
construed in accordance with the Plan. In the event of any actual or alleged
conflict between the provisions of the Plan and the provisions of this
Agreement, the provisions of the Plan shall be controlling and determinative.
11. Successors. This Agreement shall be binding upon any successor of the
Corporation, in accordance with the terms of this Agreement and the Plan.
12. Severability. If any one or more of the provisions contained in this
Agreement are invalid, illegal or unenforceable, the other provisions of this
Agreement will be construed and enforced as if the invalid, illegal or
unenforceable provision had never been included.
13. Notice. Notices and communications under this Agreement must be in
writing and either personally delivered or sent by registered or certified
United States mail, return receipt requested, postage prepaid. Notices to the
Corporation must be addressed to:
Renal Care Group, Inc.
Attn: Chief Financial Officer
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
or any other address designated by the Corporation in a written notice to the
Grantee. Notices to the Grantee will be directed to the address of the Grantee
then currently on file with the Corporation, or at any other address given by
the Grantee in a written notice to the Corporation.
-3-
<PAGE> 4
IN WITNESS WHEREOF, Renal Care Group, Inc., acting by and through its duly
authorized officers, has caused this Agreement to be executed, and the Grantee
has executed this Agreement, all as of the day and year first above written.
RENAL CARE GROUP, INC.
By: /s/ Sam A. Brooks
---------------------------------
Title: President
-----------------------------
I hereby accept the above Shares grant in accordance with and subject to
the terms and conditions set forth above.
I agree that any shares of common stock received by me hereunder will not
be sold or otherwise disposed of by me except in a manner in compliance with
applicable securities laws.
GRANTEE:
/s/ Raymond Hakim, M.D.
--------------------------------------
Print Name: Raymond Hakim, M.D.
-----------------------
-4-
<PAGE> 5
APPENDIX A
1. For purposes of this Restricted Stock Award Agreement, "Cause" shall
mean any one of the following:
(i) the willful and continued failure of the Grantee to substantially
perform his or her duties with the Company or one of its affiliates (other than
any such failure resulting from incapacity due to Disability, and specifically
excluding any failure by the Grantee, after reasonable efforts, to meet
performance expectations), after a written demand for substantial performance is
delivered to the Grantee by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Grantee has not substantially performed the
Grantee's duties, or
(ii) the willful engaging by the Grantee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Grantee, shall be considered "willful" unless it is done, or omitted to be done,
by the Grantee in bad faith or without reasonable belief that the Grantee's
action or omission was in the best interests of the Company. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Chief Executive Officer or a senior
officer of the Company or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Grantee in
good faith and in the best interests of the Company. The cessation of employment
of the Grantee shall not be deemed to be for Cause unless and until there shall
have been delivered to the Grantee a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Grantee and the Grantee is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Grantee is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
2. For purposes of this Restricted Stock Award Agreement, "Good Reason"
shall mean one of the following:
(i) the assignment to the Grantee of any duties inconsistent in any
respect with the Grantee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities with the Company
as in effect on the date hereof, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Grantee;
(ii) any reduction in the Grantee's base salary as in effect on the date
hereof, or as subsequently increased;
(iii) the failure by the Company, without the Grantee's consent, to pay
to him any portion of his current compensation, except pursuant to a
compensation deferral elected by the Grantee, or to pay to the Grantee any
portion of an installment of deferred compensation under any deferred
compensation program of the Company within thirty days of the date such
compensation is due; other
<PAGE> 6
than an isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Grantee;
(iv) The failure by the Company to continue in effect any compensation
plan (or substitute or alternative plan) in which the Grantee is entitled to
participate as of the date hereof which is material to the Grantee's total
compensation, including, but not limited to, the Company's annual bonus plan and
equity incentive plan, or the failure by the Company to continue the Grantee's
participation therein on a basis that is materially as favorable both in terms
of the amount of benefits provided and the level of the Grantee's participation
relative to other participants at the Grantee's grade level;
(v) The failure by the Company to continue to provide the Grantee with
benefits substantially similar to those enjoyed by him under the Company's
pension and deferred compensation plans, if any, except as required by law, and
the life insurance, medical, health and accident, and disability plans in which
the Grantee is entitled to participate as of the date hereof, or the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits or deprive the Grantee of any material fringe benefit
enjoyed by the Grantee as of the date hereof, or the failure by the Company to
provide the Grantee with the number of paid vacation days to which the Grantee
is entitled;
(vi) The relocation of the Company's principal executive offices where
the Grantee is working to a location more than 35 miles from the location of
such offices on the date of this Agreement, or the Company's requiring the
Grantee to be based anywhere other than the location of the Company's principal
offices where the Grantee is working on the date of this Agreement except for
required travel on the Company's business to an extent substantially consistent
with the Grantee's present business travel obligations; or
(vii) The failure of the Company to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement.
The Grantee's right to terminate his employment pursuant to this Agreement
for Good Reason shall not be affected by the Grantee's inability to
satisfactorily perform the duties required by the Grantee's current job
description due to physical or mental limitations or illness. The Grantee's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder.
-2-
<PAGE> 1
EXHIBIT 10.34
RESTRICTED STOCK AWARD AGREEMENT
under the
RENAL CARE GROUP, INC.
1996 STOCK INCENTIVE PLAN
Grantee: Ronald Hinds
Number of Shares: 7,000
Effective Date of Grant: December 23, 1997
1. Grant of Shares. Renal Care Group, Inc. (the "Corporation") hereby
grants to the Grantee named above (the "Grantee"), under the Renal Care Group,
Inc. Amended and Restated 1996 Stock Incentive Plan (the "Plan"), as additional
compensation for services rendered, and subject to the restrictions and the
other terms and conditions set forth in this agreement (this "Agreement"), the
number of shares indicated above of the Corporation's $0.01 par value common
stock (the "Shares"). Capitalized terms used herein and not otherwise defined
shall have the meanings assigned such terms in the Plan.
2. Restrictions. The Shares may not be sold, transferred, exchanged,
assigned, pledged, hypothecated or otherwise encumbered unless and until such
restriction has expired as provided in Section 3 hereof. Any Shares as to which
such restriction has not yet expired are referred to herein as the "Restricted
Shares."
If the Grantee's employment with the Corporation or any Subsidiary
terminates for any reason other than as set forth in any of paragraphs (b)
through (d) of Section 3 hereof, then the Grantee shall forfeit all of the
Grantee's right, title and interest in and to the Restricted Shares as of the
date of employment termination.
The restrictions imposed under this Section shall apply to all shares of
capital stock or other securities that may be issued with respect to Restricted
Shares hereunder in connection with any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the common stock of the Corporation.
3. Expiration and Termination of Restrictions. The restrictions imposed
under Section 2 will expire on the earliest to occur of the following:
(a) As to the following numbers of Restricted Shares awarded hereunder
(adjusted proportionately in the event of any change in the total numbers
of Restricted Shares) on the following respective dates:
<PAGE> 2
Date of Termination
Number of Shares of Restrictions
---------------- ---------------
7,000 December 23, 2002
(b) On the first day of the calendar month next following the
termination of the Grantee's employment with the Corporation or any
Subsidiary because of his or her death or Disability; or
(c) On the date the Grantee's employment with the Corporation or any
Subsidiary is terminated either (i) by the Company or any Subsidiary
without "Cause," as defined in Appendix A, or (ii) by the Grantee for "Good
Reason," as defined in Appendix A; or
(d) On the date specified by the Committee as it may deem appropriate
in connection with a termination of the Grantee's employment with the
Corporation or any Subsidiary in a manner not covered by paragraph (c) of
this Section; or
(e) On the date of any acceleration of vesting in accordance with
Article 9 of the Plan.
4. Delivery of Shares. The Shares will be issued in the name of the Grantee
as Restricted Stock and will be held by the Corporation during the Restricted
Period. Stock certificates shall be delivered as soon as practicable after
vesting of the Shares, but may be postponed for such period as may be required
for the Corporation with reasonable diligence to comply if deemed advisable by
the Corporation, with registration requirements under the Securities Act,
listing requirements under the rules of any stock exchange, and requirements
under any other law or regulation applicable to the issuance or transfer of the
Shares.
5. Voting and Dividend Rights. The Grantee, as beneficial owner of the
Shares, shall have full voting and dividend rights with respect to the Shares
during the Restricted Period.
6. Restrictions on Transfer and Pledge. The Restricted Shares may not be
pledged, encumbered, or hypothecated to or in favor of any party other than the
Corporation or a Subsidiary, or be subject to any lien, obligation, or liability
of the Grantee to any other party other than the Corporation or a Subsidiary.
The Restricted Shares are not assignable or transferable by the Grantee other
than by will or the laws of descent and distribution.
7. No Right of Continued Employment. Nothing in this Agreement shall
interfere with or limit in any way the right of the Corporation or any
Subsidiary to
-2-
<PAGE> 3
terminate the Grantee's employment at any time, nor confer upon the Grantee any
right to continue in the employ of the Corporation or any Subsidiary.
8. Payment of Taxes. The Grantee will, no later than the date as of which
any amount related to the Shares first becomes includable in the Grantee's gross
income for federal income tax purposes, pay to the Corporation, or make other
arrangements satisfactory to the Committee regarding payment of, any federal,
state and local taxes of any kind required by law to be withheld with respect to
such amount. The obligations of the Corporation under this Agreement will be
conditional on such payment or arrangements, and the Corporation, and, where
applicable, its Subsidiaries will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Grantee.
9. Amendment. This Agreement may not be amended except in writing, signed
by the parties hereto, provided that the Plan may be amended in the manner
provided in the Plan.
10. Plan Controls. The terms contained in the Plan are incorporated into
and made a part of this Agreement and this Agreement shall be governed by and
construed in accordance with the Plan. In the event of any actual or alleged
conflict between the provisions of the Plan and the provisions of this
Agreement, the provisions of the Plan shall be controlling and determinative.
11. Successors. This Agreement shall be binding upon any successor of the
Corporation, in accordance with the terms of this Agreement and the Plan.
12. Severability. If any one or more of the provisions contained in this
Agreement are invalid, illegal or unenforceable, the other provisions of this
Agreement will be construed and enforced as if the invalid, illegal or
unenforceable provision had never been included.
13. Notice. Notices and communications under this Agreement must be in
writing and either personally delivered or sent by registered or certified
United States mail, return receipt requested, postage prepaid. Notices to the
Corporation must be addressed to:
Renal Care Group, Inc.
Attn: Chief Financial Officer
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
or any other address designated by the Corporation in a written notice to the
Grantee. Notices to the Grantee will be directed to the address of the Grantee
then currently on file with the Corporation, or at any other address given by
the Grantee in a written notice to the Corporation.
-3-
<PAGE> 4
IN WITNESS WHEREOF, Renal Care Group, Inc., acting by and through its duly
authorized officers, has caused this Agreement to be executed, and the Grantee
has executed this Agreement, all as of the day and year first above written.
RENAL CARE GROUP, INC.
By: /s/ Sam A. Brooks
---------------------------------
Title: President
------------------------------
I hereby accept the above Shares grant in accordance with and subject to
the terms and conditions set forth above.
I agree that any shares of common stock received by me hereunder will not
be sold or otherwise disposed of by me except in a manner in compliance with
applicable securities laws.
GRANTEE:
/s/ Ronald Hinds
----------------------------------
Print Name: Ronald Hinds
-------------------------
-4-
<PAGE> 5
APPENDIX A
1. For purposes of this Restricted Stock Award Agreement, "Cause" shall
mean any one of the following:
(i) the willful and continued failure of the Grantee to substantially
perform his or her duties with the Company or one of its affiliates (other than
any such failure resulting from incapacity due to Disability, and specifically
excluding any failure by the Grantee, after reasonable efforts, to meet
performance expectations), after a written demand for substantial performance is
delivered to the Grantee by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Grantee has not substantially performed the
Grantee's duties, or
(ii) the willful engaging by the Grantee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Grantee, shall be considered "willful" unless it is done, or omitted to be done,
by the Grantee in bad faith or without reasonable belief that the Grantee's
action or omission was in the best interests of the Company. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Chief Executive Officer or a senior
officer of the Company or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Grantee in
good faith and in the best interests of the Company. The cessation of employment
of the Grantee shall not be deemed to be for Cause unless and until there shall
have been delivered to the Grantee a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Grantee and the Grantee is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Grantee is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
2. For purposes of this Restricted Stock Award Agreement, "Good Reason"
shall mean one of the following:
(i) the assignment to the Grantee of any duties inconsistent in any
respect with the Grantee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities with the Company
as in effect on the date hereof, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Grantee;
(ii) any reduction in the Grantee's base salary as in effect on the date
hereof, or as subsequently increased;
(iii) the failure by the Company, without the Grantee's consent, to pay
to him any portion of his current compensation, except pursuant to a
compensation deferral elected by the Grantee, or to pay to the Grantee any
portion of an installment of deferred compensation under any deferred
compensation program of the Company within thirty days of the date such
compensation is due; other
<PAGE> 6
than an isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Grantee;
(iv) The failure by the Company to continue in effect any compensation
plan (or substitute or alternative plan) in which the Grantee is entitled to
participate as of the date hereof which is material to the Grantee's total
compensation, including, but not limited to, the Company's annual bonus plan and
equity incentive plan, or the failure by the Company to continue the Grantee's
participation therein on a basis that is materially as favorable both in terms
of the amount of benefits provided and the level of the Grantee's participation
relative to other participants at the Grantee's grade level;
(v) The failure by the Company to continue to provide the Grantee with
benefits substantially similar to those enjoyed by him under the Company's
pension and deferred compensation plans, if any, except as required by law, and
the life insurance, medical, health and accident, and disability plans in which
the Grantee is entitled to participate as of the date hereof, or the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits or deprive the Grantee of any material fringe benefit
enjoyed by the Grantee as of the date hereof, or the failure by the Company to
provide the Grantee with the number of paid vacation days to which the Grantee
is entitled;
(vi) The relocation of the Company's principal executive offices where
the Grantee is working to a location more than 35 miles from the location of
such offices on the date of this Agreement, or the Company's requiring the
Grantee to be based anywhere other than the location of the Company's principal
offices where the Grantee is working on the date of this Agreement except for
required travel on the Company's business to an extent substantially consistent
with the Grantee's present business travel obligations; or
(vii) The failure of the Company to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement.
The Grantee's right to terminate his employment pursuant to this Agreement
for Good Reason shall not be affected by the Grantee's inability to
satisfactorily perform the duties required by the Grantee's current job
description due to physical or mental limitations or illness. The Grantee's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder.
-2-
<PAGE> 1
EXHIBIT 10.35
RESTRICTED STOCK AWARD AGREEMENT
under the
RENAL CARE GROUP, INC.
1996 STOCK INCENTIVE PLAN
Grantee: Thomas Lowery, M.D.
Number of Shares: 3,500
Effective Date of Grant: December 23, 1997
1. Grant of Shares. Renal Care Group, Inc. (the "Corporation") hereby
grants to the Grantee named above (the "Grantee"), under the Renal Care Group,
Inc. Amended and Restated 1996 Stock Incentive Plan (the "Plan"), as additional
compensation for services rendered, and subject to the restrictions and the
other terms and conditions set forth in this agreement (this "Agreement"), the
number of shares indicated above of the Corporation's $0.01 par value common
stock (the "Shares"). Capitalized terms used herein and not otherwise defined
shall have the meanings assigned such terms in the Plan.
2. Restrictions. The Shares may not be sold, transferred, exchanged,
assigned, pledged, hypothecated or otherwise encumbered unless and until such
restriction has expired as provided in Section 3 hereof. Any Shares as to which
such restriction has not yet expired are referred to herein as the "Restricted
Shares."
If the Grantee's employment with the Corporation or any Subsidiary
terminates for any reason other than as set forth in any of paragraphs (b)
through (d) of Section 3 hereof, then the Grantee shall forfeit all of the
Grantee's right, title and interest in and to the Restricted Shares as of the
date of employment termination.
The restrictions imposed under this Section shall apply to all shares of
capital stock or other securities that may be issued with respect to Restricted
Shares hereunder in connection with any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the common stock of the Corporation.
3. Expiration and Termination of Restrictions. The restrictions imposed
under Section 2 will expire on the earliest to occur of the following:
(a) As to the following numbers of Restricted Shares awarded hereunder
(adjusted proportionately in the event of any change in the total numbers
of Restricted Shares) on the following respective dates:
<PAGE> 2
Date of Termination
Number of Shares of Restrictions
---------------- -------------------
3,500 December 23, 2002
(b) On the first day of the calendar month next following the
termination of the Grantee's employment with the Corporation or any
Subsidiary because of his or her death or Disability; or
(c) On the date the Grantee's employment with the Corporation or any
Subsidiary is terminated either (i) by the Company or any Subsidiary
without "Cause," as defined in Appendix A, or (ii) by the Grantee for "Good
Reason," as defined in Appendix A; or
(d) On the date specified by the Committee as it may deem appropriate
in connection with a termination of the Grantee's employment with the
Corporation or any Subsidiary in a manner not covered by paragraph (c) of
this Section; or
(e) On the date of any acceleration of vesting in accordance with
Article 9 of the Plan.
4. Delivery of Shares. The Shares will be issued in the name of the Grantee
as Restricted Stock and will be held by the Corporation during the Restricted
Period. Stock certificates shall be delivered as soon as practicable after
vesting of the Shares, but may be postponed for such period as may be required
for the Corporation with reasonable diligence to comply if deemed advisable by
the Corporation, with registration requirements under the Securities Act,
listing requirements under the rules of any stock exchange, and requirements
under any other law or regulation applicable to the issuance or transfer of the
Shares.
5. Voting and Dividend Rights. The Grantee, as beneficial owner of the
Shares, shall have full voting and dividend rights with respect to the Shares
during the Restricted Period.
6. Restrictions on Transfer and Pledge. The Restricted Shares may not be
pledged, encumbered, or hypothecated to or in favor of any party other than the
Corporation or a Subsidiary, or be subject to any lien, obligation, or liability
of the Grantee to any other party other than the Corporation or a Subsidiary.
The Restricted Shares are not assignable or transferable by the Grantee other
than by will or the laws of descent and distribution.
7. No Right of Continued Employment. Nothing in this Agreement shall
interfere with or limit in any way the right of the Corporation or any
Subsidiary to
-2-
<PAGE> 3
terminate the Grantee's employment at any time, nor confer upon the Grantee any
right to continue in the employ of the Corporation or any Subsidiary.
8. Payment of Taxes. The Grantee will, no later than the date as of which
any amount related to the Shares first becomes includable in the Grantee's gross
income for federal income tax purposes, pay to the Corporation, or make other
arrangements satisfactory to the Committee regarding payment of, any federal,
state and local taxes of any kind required by law to be withheld with respect to
such amount. The obligations of the Corporation under this Agreement will be
conditional on such payment or arrangements, and the Corporation, and, where
applicable, its Subsidiaries will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Grantee.
9. Amendment. This Agreement may not be amended except in writing, signed
by the parties hereto, provided that the Plan may be amended in the manner
provided in the Plan.
10. Plan Controls. The terms contained in the Plan are incorporated into
and made a part of this Agreement and this Agreement shall be governed by and
construed in accordance with the Plan. In the event of any actual or alleged
conflict between the provisions of the Plan and the provisions of this
Agreement, the provisions of the Plan shall be controlling and determinative.
11. Successors. This Agreement shall be binding upon any successor of the
Corporation, in accordance with the terms of this Agreement and the Plan.
12. Severability. If any one or more of the provisions contained in this
Agreement are invalid, illegal or unenforceable, the other provisions of this
Agreement will be construed and enforced as if the invalid, illegal or
unenforceable provision had never been included.
13. Notice. Notices and communications under this Agreement must be in
writing and either personally delivered or sent by registered or certified
United States mail, return receipt requested, postage prepaid. Notices to the
Corporation must be addressed to:
Renal Care Group, Inc.
Attn: Chief Financial Officer
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
or any other address designated by the Corporation in a written notice to the
Grantee. Notices to the Grantee will be directed to the address of the Grantee
then currently on file with the Corporation, or at any other address given by
the Grantee in a written notice to the Corporation.
-3-
<PAGE> 4
IN WITNESS WHEREOF, Renal Care Group, Inc., acting by and through its duly
authorized officers, has caused this Agreement to be executed, and the Grantee
has executed this Agreement, all as of the day and year first above written.
RENAL CARE GROUP, INC.
By: /s/ Sam A. Brooks
------------------------------
Title: President
---------------------------
I hereby accept the above Shares grant in accordance with and subject to
the terms and conditions set forth above.
I agree that any shares of common stock received by me hereunder will not
be sold or otherwise disposed of by me except in a manner in compliance with
applicable securities laws.
GRANTEE:
/s/ Thomas Lowery, M.D.
-------------------------------
Print Name: Thomas Lowery, M.D.
-----------------------
-4-
<PAGE> 5
APPENDIX A
1. For purposes of this Restricted Stock Award Agreement, "Cause" shall
mean any one of the following:
(i) the willful and continued failure of the Grantee to substantially
perform his or her duties with the Company or one of its affiliates (other than
any such failure resulting from incapacity due to Disability, and specifically
excluding any failure by the Grantee, after reasonable efforts, to meet
performance expectations), after a written demand for substantial performance is
delivered to the Grantee by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Grantee has not substantially performed the
Grantee's duties, or
(ii) the willful engaging by the Grantee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Grantee, shall be considered "willful" unless it is done, or omitted to be done,
by the Grantee in bad faith or without reasonable belief that the Grantee's
action or omission was in the best interests of the Company. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Chief Executive Officer or a senior
officer of the Company or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Grantee in
good faith and in the best interests of the Company. The cessation of employment
of the Grantee shall not be deemed to be for Cause unless and until there shall
have been delivered to the Grantee a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Grantee and the Grantee is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Grantee is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
2. For purposes of this Restricted Stock Award Agreement, "Good Reason"
shall mean one of the following:
(i) the assignment to the Grantee of any duties inconsistent in any
respect with the Grantee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities with the Company
as in effect on the date hereof, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Grantee;
(ii) any reduction in the Grantee's base salary as in effect on the date
hereof, or as subsequently increased;
(iii) the failure by the Company, without the Grantee's consent, to pay
to him any portion of his current compensation, except pursuant to a
compensation deferral elected by the Grantee, or to pay to the Grantee any
portion of an installment of deferred compensation under any deferred
compensation program of the Company within thirty days of the date such
compensation is due; other
<PAGE> 6
than an isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Grantee;
(iv) The failure by the Company to continue in effect any compensation
plan (or substitute or alternative plan) in which the Grantee is entitled to
participate as of the date hereof which is material to the Grantee's total
compensation, including, but not limited to, the Company's annual bonus plan and
equity incentive plan, or the failure by the Company to continue the Grantee's
participation therein on a basis that is materially as favorable both in terms
of the amount of benefits provided and the level of the Grantee's participation
relative to other participants at the Grantee's grade level;
(v) The failure by the Company to continue to provide the Grantee with
benefits substantially similar to those enjoyed by him under the Company's
pension and deferred compensation plans, if any, except as required by law, and
the life insurance, medical, health and accident, and disability plans in which
the Grantee is entitled to participate as of the date hereof, or the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits or deprive the Grantee of any material fringe benefit
enjoyed by the Grantee as of the date hereof, or the failure by the Company to
provide the Grantee with the number of paid vacation days to which the Grantee
is entitled;
(vi) The relocation of the Company's principal executive offices where
the Grantee is working to a location more than 35 miles from the location of
such offices on the date of this Agreement, or the Company's requiring the
Grantee to be based anywhere other than the location of the Company's principal
offices where the Grantee is working on the date of this Agreement except for
required travel on the Company's business to an extent substantially consistent
with the Grantee's present business travel obligations; or
(vii) The failure of the Company to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement.
The Grantee's right to terminate his employment pursuant to this Agreement
for Good Reason shall not be affected by the Grantee's inability to
satisfactorily perform the duties required by the Grantee's current job
description due to physical or mental limitations or illness. The Grantee's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder.
-2-
<PAGE> 1
EXHIBIT 10.36
RESTRICTED STOCK AWARD AGREEMENT
under the
RENAL CARE GROUP, INC.
1996 STOCK INCENTIVE PLAN
Grantee: Stephen D. McMurray, M.D.
Number of Shares: 8,700
Effective Date of Grant: December 23, 1997
1. Grant of Shares. Renal Care Group, Inc. (the "Corporation") hereby
grants to the Grantee named above (the "Grantee"), under the Renal Care Group,
Inc. Amended and Restated 1996 Stock Incentive Plan (the "Plan"), as additional
compensation for services rendered, and subject to the restrictions and the
other terms and conditions set forth in this agreement (this "Agreement"), the
number of shares indicated above of the Corporation's $0.01 par value common
stock (the "Shares"). Capitalized terms used herein and not otherwise defined
shall have the meanings assigned such terms in the Plan.
2. Restrictions. The Shares may not be sold, transferred, exchanged,
assigned, pledged, hypothecated or otherwise encumbered unless and until such
restriction has expired as provided in Section 3 hereof. Any Shares as to which
such restriction has not yet expired are referred to herein as the "Restricted
Shares."
If the Grantee's employment with the Corporation or any Subsidiary
terminates for any reason other than as set forth in any of paragraphs (b)
through (d) of Section 3 hereof, then the Grantee shall forfeit all of the
Grantee's right, title and interest in and to the Restricted Shares as of the
date of employment termination.
The restrictions imposed under this Section shall apply to all shares of
capital stock or other securities that may be issued with respect to Restricted
Shares hereunder in connection with any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the common stock of the Corporation.
3. Expiration and Termination of Restrictions. The restrictions imposed
under Section 2 will expire on the earliest to occur of the following:
(a) As to the following numbers of Restricted Shares awarded hereunder
(adjusted proportionately in the event of any change in the total numbers
of Restricted Shares) on the following respective dates:
<PAGE> 2
Date of Termination
Number of Shares of Restrictions
---------------- ---------------
8,700 December 23, 2002
(b) On the first day of the calendar month next following the
termination of the Grantee's employment with the Corporation or any
Subsidiary because of his or her death or Disability; or
(c) On the date the Grantee's employment with the Corporation or any
Subsidiary is terminated either (i) by the Company or any Subsidiary
without "Cause," as defined in Appendix A, or (ii) by the Grantee for "Good
Reason," as defined in Appendix A; or
(d) On the date specified by the Committee as it may deem appropriate
in connection with a termination of the Grantee's employment with the
Corporation or any Subsidiary in a manner not covered by paragraph (c) of
this Section; or
(e) On the date of any acceleration of vesting in accordance with
Article 9 of the Plan.
4. Delivery of Shares. The Shares will be issued in the name of the Grantee
as Restricted Stock and will be held by the Corporation during the Restricted
Period. Stock certificates shall be delivered as soon as practicable after
vesting of the Shares, but may be postponed for such period as may be required
for the Corporation with reasonable diligence to comply if deemed advisable by
the Corporation, with registration requirements under the Securities Act,
listing requirements under the rules of any stock exchange, and requirements
under any other law or regulation applicable to the issuance or transfer of the
Shares.
5. Voting and Dividend Rights. The Grantee, as beneficial owner of the
Shares, shall have full voting and dividend rights with respect to the Shares
during the Restricted Period.
6. Restrictions on Transfer and Pledge. The Restricted Shares may not be
pledged, encumbered, or hypothecated to or in favor of any party other than the
Corporation or a Subsidiary, or be subject to any lien, obligation, or liability
of the Grantee to any other party other than the Corporation or a Subsidiary.
The Restricted Shares are not assignable or transferable by the Grantee other
than by will or the laws of descent and distribution.
7. No Right of Continued Employment. Nothing in this Agreement shall
interfere with or limit in any way the right of the Corporation or any
Subsidiary to
-2-
<PAGE> 3
terminate the Grantee's employment at any time, nor confer upon the Grantee any
right to continue in the employ of the Corporation or any Subsidiary.
8. Payment of Taxes. The Grantee will, no later than the date as of which
any amount related to the Shares first becomes includable in the Grantee's gross
income for federal income tax purposes, pay to the Corporation, or make other
arrangements satisfactory to the Committee regarding payment of, any federal,
state and local taxes of any kind required by law to be withheld with respect to
such amount. The obligations of the Corporation under this Agreement will be
conditional on such payment or arrangements, and the Corporation, and, where
applicable, its Subsidiaries will, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Grantee.
9. Amendment. This Agreement may not be amended except in writing, signed
by the parties hereto, provided that the Plan may be amended in the manner
provided in the Plan.
10. Plan Controls. The terms contained in the Plan are incorporated into
and made a part of this Agreement and this Agreement shall be governed by and
construed in accordance with the Plan. In the event of any actual or alleged
conflict between the provisions of the Plan and the provisions of this
Agreement, the provisions of the Plan shall be controlling and determinative.
11. Successors. This Agreement shall be binding upon any successor of the
Corporation, in accordance with the terms of this Agreement and the Plan.
12. Severability. If any one or more of the provisions contained in this
Agreement are invalid, illegal or unenforceable, the other provisions of this
Agreement will be construed and enforced as if the invalid, illegal or
unenforceable provision had never been included.
13. Notice. Notices and communications under this Agreement must be in
writing and either personally delivered or sent by registered or certified
United States mail, return receipt requested, postage prepaid. Notices to the
Corporation must be addressed to:
Renal Care Group, Inc.
Attn: Chief Financial Officer
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
or any other address designated by the Corporation in a written notice to the
Grantee. Notices to the Grantee will be directed to the address of the Grantee
then currently on file with the Corporation, or at any other address given by
the Grantee in a written notice to the Corporation.
-3-
<PAGE> 4
IN WITNESS WHEREOF, Renal Care Group, Inc., acting by and through its
duly authorized officers, has caused this Agreement to be executed, and the
Grantee has executed this Agreement, all as of the day and year first above
written.
RENAL CARE GROUP, INC.
By: /s/ Sam A. Brooks
-------------------------------
Title: President
-----------------------------
I hereby accept the above Shares grant in accordance with and subject to
the terms and conditions set forth above.
I agree that any shares of common stock received by me hereunder will not
be sold or otherwise disposed of by me except in a manner in compliance with
applicable securities laws.
GRANTEE:
/s/ Stephen D. McMurray, M.D.
---------------------------------------
Print Name: Stephen D. McMurray, M.D.
---------------------------
-4-
<PAGE> 5
APPENDIX A
1. For purposes of this Restricted Stock Award Agreement, "Cause" shall
mean any one of the following:
(i) the willful and continued failure of the Grantee to substantially
perform his or her duties with the Company or one of its affiliates (other than
any such failure resulting from incapacity due to Disability, and specifically
excluding any failure by the Grantee, after reasonable efforts, to meet
performance expectations), after a written demand for substantial performance is
delivered to the Grantee by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Grantee has not substantially performed the
Grantee's duties, or
(ii) the willful engaging by the Grantee in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Grantee, shall be considered "willful" unless it is done, or omitted to be done,
by the Grantee in bad faith or without reasonable belief that the Grantee's
action or omission was in the best interests of the Company. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board or upon the instructions of the Chief Executive Officer or a senior
officer of the Company or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Grantee in
good faith and in the best interests of the Company. The cessation of employment
of the Grantee shall not be deemed to be for Cause unless and until there shall
have been delivered to the Grantee a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Grantee and the Grantee is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Grantee is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
2. For purposes of this Restricted Stock Award Agreement, "Good Reason"
shall mean one of the following:
(i) the assignment to the Grantee of any duties inconsistent in any
respect with the Grantee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities with the Company
as in effect on the date hereof, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Grantee;
(ii) any reduction in the Grantee's base salary as in effect on the date
hereof, or as subsequently increased;
(iii) the failure by the Company, without the Grantee's consent, to pay
to him any portion of his current compensation, except pursuant to a
compensation deferral elected by the Grantee, or to pay to the Grantee any
portion of an installment of deferred compensation under any deferred
compensation program of the Company within thirty days of the date such
compensation is due; other
<PAGE> 6
than an isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Grantee;
(iv) The failure by the Company to continue in effect any compensation
plan (or substitute or alternative plan) in which the Grantee is entitled to
participate as of the date hereof which is material to the Grantee's total
compensation, including, but not limited to, the Company's annual bonus plan and
equity incentive plan, or the failure by the Company to continue the Grantee's
participation therein on a basis that is materially as favorable both in terms
of the amount of benefits provided and the level of the Grantee's participation
relative to other participants at the Grantee's grade level;
(v) The failure by the Company to continue to provide the Grantee with
benefits substantially similar to those enjoyed by him under the Company's
pension and deferred compensation plans, if any, except as required by law, and
the life insurance, medical, health and accident, and disability plans in which
the Grantee is entitled to participate as of the date hereof, or the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits or deprive the Grantee of any material fringe benefit
enjoyed by the Grantee as of the date hereof, or the failure by the Company to
provide the Grantee with the number of paid vacation days to which the Grantee
is entitled;
(vi) The relocation of the Company's principal executive offices where
the Grantee is working to a location more than 35 miles from the location of
such offices on the date of this Agreement, or the Company's requiring the
Grantee to be based anywhere other than the location of the Company's principal
offices where the Grantee is working on the date of this Agreement except for
required travel on the Company's business to an extent substantially consistent
with the Grantee's present business travel obligations; or
(vii) The failure of the Company to obtain a satisfactory agreement from
any successor to assume and agree to perform this Agreement.
The Grantee's right to terminate his employment pursuant to this Agreement
for Good Reason shall not be affected by the Grantee's inability to
satisfactorily perform the duties required by the Grantee's current job
description due to physical or mental limitations or illness. The Grantee's
continued employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder.
-2-
<PAGE> 1
EXHIBIT 10.37
INDEPENDENT CONTRACTOR AGREEMENT
THIS IS AN INDEPENDENT CONTRACTOR AGREEMENT (the "Agreement"), entered into and
effective this 20th day of November, 1997, by and between the following parties:
Renal Care Group, Inc., a Delaware Corporation ("Renal Care"), having its
principal place of business at Nashville, Tennessee, and Dr. Stephen D.
McMurray, M.D. ("Contractor") having a principal place of business at Fort
Wayne, Indiana.
WHEREAS, Renal Care desires to engage Contractor as an independent
contractor to perform services for Renal Care as described hereunder; AND
WHEREAS, Contractor desires to act as an independent contractor for Renal
Care on a non-exclusive basis performing the Services as described herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties agree as follows:
1. ENGAGEMENT. Renal Care hereby engages the services of Contractor and
Contractor accepts such engagement upon the terms and conditions of this
Agreement. Contractor will determine the method, details, and means of
performing the services and Renal Care shall not have the right to, and shall
not, control the manner or determine the method of accomplishing the services.
Contractor represents and warrants that Contractor is not subject to any
restrictive agreement, order, or other legal obstacle which prohibits Contractor
from entering into and performing this Agreement, and in the event of a breach
of this warranty, Contractor agrees to indemnify and hold harmless Renal Care
from any and all claims, costs, lawsuits, or otherwise arising from such breach.
2. CONTRACTOR RELATIONSHIP.
a. Intent. It is the intent and purpose of the parties hereto that the
relationship of Contractor to Renal Care shall be that of an independent
contractor. Contractor shall have no authority to bind Renal Care and shall not
represent or lead any person to believe that Contractor or any representative
thereof has the power or authority to bind Renal Care to any agreement or
obligation.
b. Benefits. No "fringe benefits" (such as medical insurance, life
insurance, worker's compensation, etc.) will be provided by Renal Care to
Contractor.
c. Hours of Service. Renal Care is only interested in the results
achieved by Contractor and not the hours worked, which shall be within the sole
discretion of Contractor. Contractor will direct the manner and method in which
results are to be accomplished. Contractor shall perform all Contractor's
services as contemplated herein as an independent contractor, and nothing in
this Agreement is intended to create a relationship of employer-employee,
principal-agent or master-servant between the parties.
<PAGE> 2
d. Contractor Affirmations. Contractor affirms and represents that:
(1) Contractor maintains a separate business with his/her own facility, vehicle,
equipment, materials or similar accommodations which are neither owned by Renal
Care nor controlled or used by Renal Care; (2) Contractor holds or has applied
for a federal tax identification number or is a sole proprietor and is not
required to obtain such identification; (3) Contractor agrees to perform the
specific Services defined herein and Contractor controls the means of performing
the Services; (4) Contractor shall be responsible for all expenses related to
the Services that he/she has agreed to perform; (5) Contractor is wholly
responsible for the satisfactory completion of the Services and will be held
liable for failure to complete the Services; (6) Contractor may realize a profit
or loss in connection with performing the Services; (7) Contractor has
continuing or recurring business liabilities or obligations; (8) the success or
failure of the Contractor's business depends on the relationship of the business
receipts to expenditures; and (9) Contractor maintains all occupational
licenses, if any, required by its local jurisdiction, and has satisfied all
other legal prerequisites to the performance of his performance hereunder which
are imposed by all applicable federal, state and local laws.
3. TAX LIABILITY. Contractor agrees as an independent contractor to be
solely responsible for all taxes and other costs and expenses attributable to
the compensation payable to and Services provided by Contractor hereunder, and
has taken any and all action to comply with all applicable federal, state and
local laws pertaining to the same. Contractor hereby agrees to indemnify Renal
Care and agrees to hold Renal Care harmless from any claim(s) arising from any
taxing or other authority. CONTRACTOR ACKNOWLEDGES AND AGREES THAT CONTRACTOR IS
NOT ENTITLED TO WORKERS COMPENSATION INSURANCE BENEFITS OR UNEMPLOYMENT
COMPENSATION INSURANCE BENEFITS FROM Renal Care AND MAY ONLY RECEIVE SUCH
UNEMPLOYMENT COMPENSATION COVERAGE IF PROVIDED BY CONTRACTOR OR SOME ENTITY
OTHER THAN Renal Care. FURTHER, CONTRACTOR IS OBLIGATED TO PAY FEDERAL, STATE ,
AND LOCAL INCOME TAX, IF ANY, ON ANY MONIES PAID TO CONTRACTOR PURSUANT TO THIS
AGREEMENT.
4. CONTRACTOR'S AGENTS. Contractor may, at Contractor's own expense, employ
agents (whether as agents, assistants, employees of Contractor or as independent
contractors or in any other capacity )as Contractor deems necessary to assist
Contractor in the performance of the Services. Renal Care has no right to
control, direct, or supervise Contractor's agents in the performance of the
Services. Contractor assumes full and sole responsibility for all acts and
omissions of Contractor's agents, and payment of all compensation and expenses
of these agents and for any and all state and federal income tax, workers'
compensation insurance, unemployment insurance, Social Security, disability
insurance and other applicable withholdings.
5. COMPENSATION. Contractor shall be compensated on the following basis for
all services provided pursuant to this agreement: $10,000 per month. (Assumes
five (5) consulting days per month.)
<PAGE> 3
6. SERVICES. Contractor's services to Renal Care shall consist of:
- Working with the COO of RCG to improve overall performance of the
operating units by identifying clinical and operational
opportunities.
- Helping to identify core dialysis operating components and then
assisting in developing best demonstrated practices to improve
operations through these components.
- Assisting RenalPartners in enhancing physician practices managed
or owned by RCG.
- Assisting RenalPartners and the Chief Medical Officer to recruit
physicians to meet identified needs within RCG.
- Work with COO of RenalNet to develop and implement the underlying
systems required for a case management/disease management
initiative.
- Assist in the preparation and presentation of materials to payors
and third party administrators.
- Represent RCG, RenalPartners and RenalNet to various targeted
audiences.
7. ENTIRE AGREEMENT. This Agreement represents the entire agreement between
the parties and supersedes any and all other agreements, whether oral or in
writing, between the parties.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Independent Contractor and the Company, their successors, assigns, and
licensees.
9. GOVERNING LAW. This Agreement shall be governed and enforced under the
laws of the State of Tennessee.
INDEPENDENT CONTRACTOR RENAL CARE GROUP, INC.
By: /s/ Stephen D. McMurray, M.D. By: /s/ Gary Brukardt
----------------------------- -------------------------------
Chief Operating Officer and
Executive Vice President
<PAGE> 1
Exhibit 21.1 - List of Subsidiaries
RCG Mississippi, Inc.
Renal Care Group of the Midwest, Inc.
Renal Care Group Texas, Inc.
D.M.N. of Indiana Corporation
RCG of Indiana, LLC
Renal Care Group of the Southeast, Inc.
Renal Care Group East, Inc.
RCG University Division, Inc.
RenalWest, L.C.
3-Co., Inc.
4-Co., Inc.
9-Co., Inc.
Northeast Alabama Kidney Clinic, Inc.
RCG Finance, Inc.
RenalNet, Inc.
RenaLab, Inc.
RenalPartners, Inc.
RenalNet Florida, Inc.
R.C. G. Supply Company
Kansas Dialysis Supply, Inc.
RenalWest Health Supply, L.C.
Dialysis Management Corporation
STAT Dialysis Corporation
STAT Management Corporation
Renal Care Group of Michigan, Inc.
Renal Care Group Northwest, Inc.
KDCO, Inc.
Lawton Dialysis, Inc.
Little Rock Dialysis, Inc.
Northwest Dialysis, Inc.
Jefferson County Dialysis, Inc.
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-33949) of Renal Care Group, Inc. and in the related
Prospectus and Registration Statement (Form S-8 No. 333-37299) pertaining to
the Renal Care Group, Inc. Third Amended and Restated 1996 Stock Incentive Plan
of our reports dated March 5, 1998, with respect to the consolidated financial
statements and schedule of Renal Care Group, Inc. included in the Annual Report
(Form 10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
Nashville, Tennessee
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RENAL CARE GROUP, INC. FOR THE YEAR ENDED
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 9,138
<SECURITIES> 3,625
<RECEIVABLES> 45,199
<ALLOWANCES> 0
<INVENTORY> 4,516
<CURRENT-ASSETS> 65,805
<PP&E> 60,974
<DEPRECIATION> 0
<TOTAL-ASSETS> 248,083
<CURRENT-LIABILITIES> 41,336
<BONDS> 0
0
0
<COMMON> 249
<OTHER-SE> 174,510
<TOTAL-LIABILITY-AND-EQUITY> 248,083
<SALES> 214,009
<TOTAL-REVENUES> 214,009
<CGS> 145,922
<TOTAL-COSTS> 145,922
<OTHER-EXPENSES> 32,077
<LOSS-PROVISION> 4,824
<INTEREST-EXPENSE> 583
<INCOME-PRETAX> 31,769
<INCOME-TAX> 11,791
<INCOME-CONTINUING> 19,978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,978
<EPS-PRIMARY> .89
<EPS-DILUTED> .84
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF RENAL CARE GROUP, INC. FOR THE YEAR ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 47,624
<SECURITIES> 5,814
<RECEIVABLES> 28,842
<ALLOWANCES> 0
<INVENTORY> 2,658
<CURRENT-ASSETS> 86,478
<PP&E> 30,739
<DEPRECIATION> 0
<TOTAL-ASSETS> 131,812
<CURRENT-LIABILITIES> 37,016
<BONDS> 0
0
0
<COMMON> 213
<OTHER-SE> 93,112
<TOTAL-LIABILITY-AND-EQUITY> 131,812
<SALES> 129,518
<TOTAL-REVENUES> 129,518
<CGS> 90,122
<TOTAL-COSTS> 90,122
<OTHER-EXPENSES> 19,865
<LOSS-PROVISION> 2,446
<INTEREST-EXPENSE> 619
<INCOME-PRETAX> 17,704
<INCOME-TAX> 6,958
<INCOME-CONTINUING> 10,746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,746
<EPS-PRIMARY> .61
<EPS-DILUTED> .56
</TABLE>
