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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission File No. 0-27640
RENAL CARE GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 62-1622383
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
2100 West End Ave., Suite 800, Nashville, Tennessee 37203
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (615) 345-5500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days).
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at May 7, 1999
---------------------------- --------------------------
Common Stock, $.01 par value 44,350,898
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RENAL CARE GROUP, INC.
INDEX
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<CAPTION>
PAGE NO.
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PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
Consolidated Balance Sheets -
December 31, 1998 and March 31, 1999 (unaudited) 1
Consolidated Income Statements - (unaudited)
For the three months ended March 31, 1998 and 1999 2
Consolidated Statements of Cash Flows - (unaudited)
For the three months ended March 31, 1998 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Risk Factors 12
PART II - OTHER INFORMATION
Item 2. Changes in Securities 18
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
Note: Items 1, 3, 4, and 5 of Part II are omitted because they are not
applicable
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RENAL CARE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
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(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,943 $ 22,717
Accounts receivable, net 84,795 92,495
Inventories 8,553 8,388
Prepaid expenses and other current assets 8,329 11,613
Deferred income taxes 3,381 3,381
-------- --------
Total current assets 125,001 138,594
Property, plant and equipment, net 96,256 105,013
Goodwill and other intangibles, net 205,765 212,826
Other assets 6,355 6,221
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Total assets $433,377 $462,654
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,109 $ 15,334
Income taxes payable 1,579 6,153
Current portion of long-term debt 10,742 693
Other current liabilities 46,776 45,695
-------- --------
Total current liabilities 79,206 67,875
Long-term debt, net of current portion 79,507 106,705
Minority interest 25,517 26,050
Deferred income taxes 3,467 3,467
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Total liabilities 187,697 204,097
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Stockholders' equity:
Preferred stock, $.01 par value, 10,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 60,000 shares authorized,
43,995 and 44,266 shares issued and outstanding at
December 31, 1998 and March 31, 1999, respectively 440 443
Additional paid-in capital 183,817 188,584
Retained earnings 61,423 69,530
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Total stockholders' equity 245,680 258,557
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Total liabilities and stockholders' equity $433,377 $462,654
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
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RENAL CARE GROUP, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1999
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<S> <C> <C>
Net revenue $91,542 $120,861
Operating costs and expenses:
Patient care costs 61,813 78,247
General and administrative expenses 9,127 11,294
Provision for doubtful accounts 2,720 3,201
Depreciation and amortization 4,613 6,163
Merger expenses 700 4,300
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Total operating costs and expenses 78,973 103,205
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Income from operations 12,569 17,656
Interest expense, net 1,246 1,405
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Income before minority interest and income taxes 11,323 16,251
Minority interest 547 1,500
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Income before income taxes 10,776 14,751
Provision for income taxes 4,114 6,644
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Net income $ 6,662 $ 8,107
======= ========
Net income per share:
Basic $ 0.16 $ 0.18
======= ========
Diluted $ 0.15 $ 0.17
======= ========
Weighted average shares outstanding:
Basic 42,523 44,193
======= ========
Diluted 45,035 46,400
======= ========
</TABLE>
See accompanying notes to consolidated financial statements
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RENAL CARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,662 $ 8,107
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,613 6,163
Income applicable to minority interest 547 1,500
Payment of merger expenses 700 3,800
Change in assets and liabilities net of effects from acquisitions (8,892) (14,052)
-------- --------
Net cash provided by operating activities 3,630 5,518
INVESTING ACTIVITIES
Purchases of property and equipment (3,923) (12,704)
Cash paid for acquisitions, net of cash acquired (32,583) (7,898)
Investments, net 3,625 --
Decrease in other assets 1,336 134
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Net cash used in investing activities (31,545) (20,468)
FINANCING ACTIVITIES
Net borrowings under line of credit 37,348 17,116
Payments on long-term debt (3,284) (195)
Proceeds from exercise of stock options 3,213 1,770
Distributions to minority shareholders (100) (967)
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Net cash provided by financing activities 37,177 17,724
-------- --------
Increase in cash and cash equivalents 9,262 2,774
Cash and cash equivalents, at beginning of period 9,138 19,943
-------- --------
Cash and cash equivalents, at end of period $ 18,400 $ 22,717
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 677 $ 1,175
======== ========
Income taxes $ 301 $ 2,069
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SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Issuance of common stock in acquisition $ 1,696 $ 2,000
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
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RENAL CARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 1999
(in thousands, except per share and operating data)
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
Overview
Renal Care Group, Inc. ("RCG or the "Company") provides dialysis
services to patients with chronic kidney failure also known as end-stage renal
disease ("ESRD"). As of March 31, 1999, the Company provided dialysis and
ancillary services to approximately 13,400 patients through 177 outpatient
dialysis centers in 22 states. In addition to its outpatient dialysis center
operations, the Company provides acute dialysis services through contractual
relationships with 102 hospitals. The Company also operates a business
providing wound care and diabetes services.
RCG's net revenue has been derived primarily from the following
sources:
- outpatient hemodialysis services;
- ancillary services associated with dialysis, primarily the
administration of erythopoietin (EPO);
- home dialysis services;
- inpatient hemodialysis services provided pursuant to contracts
with acute care hospitals and skilled nursing facilities;
- management contracts with hospital-based and medical
university dialysis programs;
- laboratory services; and
- wound care and diabetes services.
ESRD patients typically receive three dialysis treatments each week,
with reimbursement for services provided primarily by the Medicare ESRD program
based on rates established by the Health Care Financing Administration
("HCFA"). For the three months ended March 31, 1999, approximately 62% 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.
The Medicare ESRD composite rate applies to a designated group of
dialysis services, including the dialysis treatment, supplies used for such
treatment, certain laboratory tests and medications, and most of the home
dialysis services provided by RCG. Certain other services and drugs are
eligible for
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separate reimbursement under Medicare and are not part of the ESRD composite
rate, including specific drugs such as EPO and some physician-ordered tests
provided to dialysis patients.
For patients with private health insurance, dialysis was historically
reimbursed at rates higher than Medicare during the first 18 months of
treatment, and after that time Medicare became the primary payor. Effective
August 5, 1997, however, the Balanced Budget Act extended to 30 months of
treatment the health insurance coordination period during which private
insurance must pay for dialysis; after that period Medicare now 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 composite rate.
Because dialysis is a life-sustaining therapy used to treat this chronic
disease, utilization is predictable and is not subject to seasonal
fluctuations.
Interim Financial Statements
In the opinion of management, the information contained herein
reflects all adjustments necessary to make the results of operations for the
interim periods a fair statement of such operations. All such adjustments are
of a normal recurring nature. Operating results for interim periods are not
necessarily indicative of results which may be expected for the year as a
whole. The Company suggests that persons read these financial statements in
conjunction with the consolidated financial statements and the related notes
thereto included in the Company's Form 10-K, as filed with the SEC on March 31,
1999, and the supplemental consolidated financial statements and the related
notes thereto included in the Company's Form 8-K, as filed with the SEC on
April 22, 1999.
NOTE 2 - SIGNIFICANT EVENTS
In January 1999, RCG completed a merger with Dialysis Centers of
America, Inc. ("DCA"), an operator of 12 dialysis facilities located in
metropolitan Chicago. The facilities also provide acute, in-patient dialysis
treatment services to six area hospitals. RCG issued approximately 3,073 shares
of common stock in the merger. The DCA Merger has been accounted for as a
pooling of interests, and as such, the Company's consolidated financial
statements and Management's Discussion and Analysis of Financial Condition
included herein give retroactive effect to the DCA merger for all periods
presented. The results of operations for the separate companies and the
combined results presented in the condensed consolidated financial statements
for prior periods follow:
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<CAPTION>
Three Months
Ended March 31,
1998
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<S> <C>
Net revenue
RCG $80,463
DCA 11,079
-------
$91,542
=======
Net income
RCG $ 7,073
DCA (411)
-------
$ 6,662
=======
</TABLE>
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NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
income per share in accordance with SFAS 128.
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<CAPTION>
THREE MONTHS ENDED MARCH
1998 1999
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<S> <C> <C>
Numerator:
Numerator for basic and diluted income per share $ 6,662 $ 8,107
Denominator:
Denominator for basic net income per share -
weighted-average shares 42,523 44,193
Effect of dilutive securities:
Stock options 1,993 1,678
Warrants 519 529
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Denominator for diluted net income per share -
adjusted weighted-average shares and assumed
conversions 45,035 46,400
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Net income per share:
Basic $ 0.16 $ 0.18
======= =======
Diluted $ 0.15 $ 0.17
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</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net revenue. Net revenue increased from $91.5 million for the three
months ended March 31, 1998 to $120.9 million for the three months ended March
31, 1999, an increase of $29.4 million, or 32.1%. This increase resulted
primarily from a 19.7% increase in the number of treatments from 417,863 in the
1998 period to 500,177 in the 1999 period. This growth in treatments is the
result of the acquisition and development of various dialysis facilities and a
9.0% increase in same-center treatments for the 1999 period over the 1998
period. In addition, average net revenue per dialysis treatment increased 9.3%
from $214 in the 1998 period to $234 in the 1999 period. The remaining revenue
increase is a result of wound care and diabetes revenues following RCG's
entrance into that business with the December 1997 acquisition of Integrated
Wound Care Systems, Inc. (formerly known as STAT Management, Inc.), higher
management fees and increased earnings of unconsolidated partnerships in the
1999 period compared to the 1998 period. The increase in revenue per treatment
was due to an improvement in RCG's payor mix, increases in the utilization of
erythropoietin (EPO) and other drugs, increases in acute hospital services, the
implementation of RCG's in-house laboratory services and the positive impact on
commercial payments of the Medicare secondary payor provisions of the Balanced
Budget Act.
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 $61.8 million for the three months ended March 31, 1998 to $78.2
million for the three months ended March 31, 1999, an increase of $16.4
million, or 26.5%. This increase resulted primarily from an increase in the
number of treatments performed during the period, which caused a corresponding
increase in the cost of labor, drugs and supplies. Patient care costs as a
percentage of net revenue decreased from 67.5% in the 1998 period to 64.7% in
the 1999 period primarily due to the increase in net revenue per treatment.
Patient care costs per treatment increased from $148 in the 1998 period to $156
in the 1999 period, an increase of $8, or 5.4%. This increase is due to costs
associated with the utilization of EPO and other drugs, the cost of providing
acute hospital services, 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 $9.1 million for the three months ended March 31, 1998 to $11.3 million
for the three months ended March 31, 1999, an increase of $2.2 million, or
24.2%. General and administrative expenses as a percentage of revenue decreased
from 10.0% in the 1998 period to 9.3% in the 1999 period, primarily as the
result of the increase of net revenue for the 1999 period.
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Provision for Doubtful Accounts. The provision for doubtful accounts
is a function of payor mix, billing practices, and other factors. RCG reserves
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.
Management estimates the net collectibility of accounts receivable based upon
an analysis of payor mix, billing practices and other factors. The provision
for doubtful accounts increased from $2.7 million for the three months ended
March 31, 1998 to $3.2 million for the three months ended March 31, 1999. The
provision for doubtful accounts as a percentage of net revenue decreased from
3.0% in the 1998 period to 2.6% in 1999 period, or 40 basis points. This
decrease in the provision for doubtful accounts resulted primarily from
improved collection of accounts receivable assumed in the merger with Dialysis
Centers of America, Inc. in January 1999.
Depreciation and Amortization. Depreciation and amortization increased
from $4.6 million for the three months ended March 31, 1998 to $6.2 million for
the three months ended March 31, 1999, an increase of $1.6 million, or 34.8%.
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
acquisitions accounted for as purchases.
Merger Expenses. Merger expenses of $4.3 million for the three months
ended March 31, 1999 represent legal, accounting, employee severance costs and
related benefits and other costs associated with the assimilation and transition
of the merger with DCA.
Income from Operations. Income from operations increased from $12.6
million for the three months ended March 31, 1998 to $17.7 million for the
three months ended March 31, 1999, an increase of $5.1 million, or 40.5%.
Income from operations as a percentage of net revenue increased from 13.7% in
the 1998 period to 14.6% in the 1999 period as a result of the factors
discussed above.
Interest Expense, Net. Interest expense increased from $1.2 million
for the three months ended March 31, 1998 to $1.4 million for the three months
ended March 31, 1999, an increase of $200,000 or 16.7%. This increase is
attributable to increased borrowings under the Company's $125.0 million credit
facility. Such borrowings were used for a combination of acquisitions, capital
expenditures and working capital requirements.
Minority Interest. Minority interest represents the proportionate
equity interest of other partners in RCG's consolidated entities that are not
wholly-owned. As of March 31, 1999, this was primarily comprised of three joint
venture partnerships.
LIQUIDITY AND CAPITAL RESOURCES
RCG requires capital primarily to acquire and develop dialysis
facilities, to purchase property and equipment for existing facilities, and to
finance working capital needs. At March 31, 1999, RCG's working capital was
$70.7 million, cash and cash equivalents were $22.7 million, and RCG's current
ratio was 2.0 to 1.0.
Net cash provided by operating activities was $5.5 million for the
three months ended March 31, 1999. 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 net of
liabilities. Net cash used in investing activities was $20.5 million for the
three months ended March 31, 1999. Cash
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used in investing activities consisted primarily of $7.9 million of cash paid
for acquisitions, net of cash acquired, and $12.7 million of purchases of
property and equipment. Cash provided by financing activities was $17.7 million
for the three months ended March 31, 1999. Cash provided by financing
activities resulted primarily from $17.1 million in net borrowings under the
line of credit to fund certain acquisitions and an aggregate of $1.8 million
from the proceeds, and the related income tax benefit, of stock option
exercises and was partially offset by payments on long-term debt and
distributions to minority shareholders of joint ventures.
RCG is a party to a First Amended and Restated Loan Agreement for a
$125.0 million credit facility. Borrowings under the credit facility may be
used for acquisitions, capital expenditures, working capital and general
corporate purposes. No more than $25.0 million of the credit facility may be
used for working capital purposes. Within the working capital sublimit, RCG may
borrow up to $5.0 million in swing line loans.
RCG 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 0.60% to 1.35%. Commitment fees are also priced
pursuant to leverage ratio tiers. Commitment fees range from 0.20% to 0.30%
pursuant to leverage ratios ranging between 0.75 and 2.25. Under the loan
agreement, commitments range in amounts and dates from the closing date through
August 2003. RCG has obtained total lender commitments of $125.0 million
through August 2000. Lender commitments are then reduced to $106.3 million
through August 2001, $87.5 million through August 2002 and $68.8 million
through August 2003. All loans under the loan agreement are due and payable on
August 4, 2003. On March 31, 1999, there was $106.7 million outstanding under
this agreement. In connection with the merger with Dialysis Centers of America,
Inc. in January 1999, RCG incurred approximately $32.7 million in indebtedness
under this agreement to repay certain DCA indebtedness and fund DCA's working
capital needs.
Under the loan agreement, each of RCG's subsidiaries has guaranteed of
all of RCG's obligations under the loan agreement. Further, RCG's obligations
under the loan agreement, and the obligations of each of its subsidiaries under
its guaranty, are secured by a pledge of the equity interests held by RCG in
each of the subsidiaries. Financial covenants are customary based on the amount
and duration of this commitment. RCG has reached a verbal agreement with its
banks to increase this credit facility from $125.0 million to $185.0 million
and is negotiating the final terms of an amendment for such increase.
Management believes the amendment will be in place by the end of the second
quarter, but no assurances can be given that the amendment will be completed or
on what terms it may be completed.
A significant component of RCG's growth strategy is the acquisition and
development of dialysis facilities. Management of RCG believes that existing
cash and funds from operations, together with funds available under the line of
credit, and the aforementioned verbal agreement to increase the line of credit,
will be sufficient to meet RCG's acquisition, expansion, capital expenditure and
working capital needs for the foreseeable future. However, in order to finance
certain large strategic acquisition opportunities, RCG 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 RCG.
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Capital expenditures of approximately $33.5 million, primarily for
equipment replacement, expansion of existing dialysis facilities and
construction of de novo facilities are planned in 1999. RCG has made capital
expenditures of $12.7 million through March 31, 1999. 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.
IMPACT OF YEAR 2000
Introduction. The term "year 2000 issue" is a general term used to
describe various problems that may result from the improper processing of dates
and date-sensitive calculations by computers and other machinery as the year
2000 is approached and reached. These problems arise from hardware and software
unable to distinguish dates in the "2000's" from dates in the "1900's" and from
other sources such as the use of special codes and conventions in software that
make use of a date field.
RCG's State of Readiness. RCG's efforts in addressing the year 2000
issue are focused in the following four areas:
- developing awareness and educating employees regarding the
year 2000 issue;
- implementing procedures to determine whether RCG's software
systems and hardware platforms are year 2000 compliant and
communicating with suppliers and third party payors to
determine whether there will be any interruption in their
systems that could affect RCG's ability to receive timely
shipments of inventory or payment for services as a result of
the year 2000 issue;
- evaluating and making necessary modifications to RCG's
software and hardware systems and other systems that contain
imbedded chips, such as phone systems, which process dates
and date sensitive materials; and
- testing of systems for year 2000 compliance.
The Company has substantially completed its assessment of key computer
systems and electronic devices and expects to complete a more detailed
inventory of each facility by May 31, 1999. The Company is developing and
implementing plans to remediate year 2000 issues identified in the assessment
phase. RCG expects to complete the remediation phase by June 30, 1999 and the
testing phase by August 31, 1999. The education phase will be an on-going
process throughout 1999.
RCG is in the process of obtaining written confirmation from vendors
that RCG's software applications and hardware platforms acquired from such
vendors will correctly manipulate dates and date-related data as the year 2000
is approached and reached. Based on an initial assessment of its core clinical
and financial systems, the Company has determined the following: (1) over 90%
of RCG's core systems are packaged applications licensed from third-party
vendors, thus less than 10% were developed internally; and (2) substantially
all of such third-party applications have been certified to RCG by their
manufacturers as fully Year 2000 compliant, or as upgradable to become
compliant with minor upgrades.
Furthermore, to improve its operating performance and efficiency, RCG
has undertaken a number of significant information system initiatives. These
initiatives include the selection and
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implementation of a new laboratory system, a new human resources and payroll
system, a new universal patient index and registration system, and a new
practice management system. RCG expects these systems to be put into use in
1999. The manufacturers of these new systems have certified that these systems
are year 2000 compliant. The Company currently believes that with upgrades or
replacements of certain software and hardware, RCG's internal systems will be
substantially year 2000 compliant. Nevertheless, there can be no assurance that
the software applications and hardware platforms on which RCG's business relies
will correctly manipulate dates and date-related data as the year 2000 is
approached and reached. Such failures could have a material adverse effect on
RCG's financial condition, results of operations and business.
RCG's business relies heavily upon its ability to obtain reimbursement
from third party payors, including Medicare, Medicaid and private insurers, and
to obtain water, power and other supplies from vendors. RCG is in the process
of obtaining written verification from its major suppliers, and certain
significant third party payors, to determine whether there will be any
interruption in the provision of supplies or reimbursement for services
performed resulting from the year 2000 issue. RCG expects to complete this
process by May 15, 1999. At this time, RCG has received confirmations from a
number of HCFA intermediaries and other third party payors stating that they
are now, or plan soon to be, year 2000 compliant. HCFA has publicly indicated
that it plans to be year 2000 compliant and to be able to process and pay
claims without interruption. HCFA has, however, also indicated that it still
has year 2000 issues with third party systems and that it is working to address
such issues. The failure of HCFA, Medicare intermediaries, Medicaid payors or
any of RCG's other significant third party payors to remedy year 2000 related
problems could result in a delay in RCG's receipt of payments for services
which could have a material adverse impact on the Company's earnings, financial
condition and business. Furthermore, a delay in receiving supplies from certain
vendors could hinder RCG's ability to provide services to patients which could
have a material adverse impact on RCG's earnings, financial condition and
business.
RCG is aware that certain of its systems, such as dialysis and other
medical equipment, phone systems, facsimile machines, heating and air
conditioning, security systems and other non-data processing oriented systems
may include imbedded chips that process dates and date-sensitive material.
These imbedded chips are both difficult to identify in all instances and
difficult to repair; often, total replacement of the chips is necessary. RCG is
performing an evaluation of its systems to determine whether RCG needs to
repair or replace any chips to avoid year 2000 problems. If RCG fails to
identify or remediate any imbedded chips (either on an individual or an
aggregate basis) on which significant business operations depend, such as phone
systems, there could be a material adverse impact on RCG's earnings, financial
condition and business.
Costs to Address RCG's Year 2000 Issues. RCG will utilize both
internal and external resources to complete its year 2000 project. RCG
estimates that the cost to remediate year 2000 issues that have been identified
and to test systems to verify year 2000 compliance will be between $250,000 and
$500,000 and will be incurred primarily in the first and second quarters of
1999. The total cost of the year 2000 effort is not known at this time, but
will be determined when the assessment phase of the plan is completed.
Risks Presented by Year 2000 Issues. RCG is still in the process of
evaluating potential disruptions or complications that might result from year
2000-related problems. At this time, RCG has not identified any specific
business functions that will suffer material disruption as a result of year
2000-
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related events. The Company may, however, identify business functions in the
future that are specifically at risk of year 2000 disruption. RCG's failure at
this point to identify year 2000 risks should not be construed to mean that
there is no risk of year 2000-related disruption. Moreover, due to the unique
and pervasive nature of the year 2000 issue, RCG cannot anticipate each of the
wide variety of year 2000 events, particularly outside of the Company, that
might arise in a worst case scenario and might have a material adverse effect
on RCG's results of operations and business.
RCG's Contingency Plans. Since RCG has not identified any specific
business function that will be materially at risk of significant year 2000
related disruptions, and because a full assessment of the Company's risk from
potential year 2000 failures is still in process, RCG has not yet developed
detailed contingency plans specific to year 2000 problems. RCG has scheduled an
evaluation of the status of completion of its year 2000 initiatives in March
1999 and will determine at that time whether a contingency plan will be
developed.
RISK FACTORS
You should carefully consider the risks described below before
investing in RCG. The risks and uncertainties described below ARE NOT the only
ones facing RCG. Other risks and uncertainties that we have not predicted or
assessed may also adversely affect our company.
If any of the following risks occur, our earnings, financial condition
or business could be materially harmed, and the trading price of our common
stock could decline, resulting in the loss of all or part of your investment.
FAILURE TO INTEGRATE ACQUIRED COMPANIES WILL ADVERSELY AFFECT OUR PROFITABILITY
RCG has been in business only since February 1996 and has grown
significantly by acquisitions since then. Some of our acquisitions have
occurred within the past few weeks or months. We also intend to acquire more
companies in the future. We may be unable to integrate the acquired businesses
successfully or achieve anticipated economic, operational and other benefits in
a timely manner, which could lead to substantial costs and delays or other
operational, technical or financial problems, including diverting management's
attention from our existing business. The failure to integrate acquisitions
successfully will damage our earnings, financial condition or business.
CHANGES IN THE MEDICARE OR MEDICAID PROGRAMS COULD ADVERSELY AFFECT OUR BUSINESS
Changes in the Medicare, Medicaid or similar government programs or
the rates paid by those programs for our services may adversely affect our
earnings. We estimate that approximately 62% of our net revenue for 1997, 59%
of our net revenue for 1998, and 57% of our net revenue for the three months
ended March 31, 1999 consisted of reimbursements from Medicare, including the
administration of EPO to treat anemia. We also estimate that approximately 7%
of our net revenue for 1997, 5% of our net revenue for 1998, and 5% of our net
revenue for the three months ended March 31, 1999 consisted of reimbursements
from Medicaid or comparable state programs. Any of the following actions in
connection with these programs could adversely affect our earnings, financial
condition or business:
- the amount paid to us under government programs for our
services could be reduced;
12
<PAGE> 15
- the costs associated with performing our services that are
subject to inflation, such as labor and supply costs, could
increase without a corresponding increase in reimbursement
rates;
- certain ancillary services, for which we are reimbursed
separately, may become included in the flat composite rate,
thereby reducing our revenue; or
- changes in laws, or the interpretations of laws, could cause
us to modify our operations.
ERYTHROPOIETIN REIMBURSEMENT DECREASES, COST INCREASES OR SUPPLY SHORTAGES WILL
ADVERSELY AFFECT OUR EARNINGS
Any decrease in the reimbursement of EPO, for which we are reimbursed
separately outside the flat composite rate, could significantly affect our
revenue and earnings. EPO is a bio-engineered hormone that is used to treat
anemia. Our revenues from EPO, much of which are reimbursed through government
programs, were approximately 20% of net revenue for 1997, 23% of net revenue
for 1998, and 25% of net revenue for the three months ended March 31, 1999.
President Clinton has included a proposal to decrease the reimbursement for EPO
by $1 per thousand units in his fiscal year 2000 budget. Further, EPO is
produced by a single manufacturer, and any interruption of supply or cost
increases could adversely affect our earnings, financial condition or business.
DECREASES IN PAYMENTS BY PRIVATE INSURERS, HOSPITALS OR MANAGED CARE
ORGANIZATIONS COULD ADVERSELY AFFECT OUR EARNINGS
Any reduction in the rates paid by private insurers, hospitals or
managed care organizations or a significant shift in our revenue mix toward
additional Medicare or Medicaid reimbursement could have a material adverse
effect on our earnings, financial condition or business. We estimate that
approximately 31% of our net revenue for 1997, 36% of our net revenue for 1998,
and 38% of our net revenue for the three months ended March 31, 1999 were
derived from sources other than Medicare and Medicaid. In general, payments by
private insurers and hospitals for our services are at rates significantly
higher than the Medicare or Medicaid rates. As a result, any of the following
events could have a material adverse effect on our earnings, financial
condition or business:
- an increase in the dialysis procedures reimbursed by private
insurers, hospitals or managed care companies could cause
such organizations to reduce the rates they pay us;
- a portion of our business that is currently reimbursed by
private insurers or hospitals may become reimbursed by
managed care organizations, which currently have lower rates
for our services; or
- the scope of coverage by Medicare or Medicaid under the flat
composite rate could expand and, as a result, reduce the
extent of our services being reimbursed at the higher
private-insurance rates.
13
<PAGE> 16
OUR RATE OF GROWTH IS SUBJECT TO OUR ABILITY TO MAKE FUTURE ACQUISITIONS
Much of our historical growth has come from acquisitions, and we
expect to continue to pursue growth through the acquisition and development of
dialysis centers. However, we may be unable to continue to identify and
complete suitable acquisitions or obtain the necessary financing. We also
compete with other companies to identify and complete suitable acquisitions. We
expect this competition to intensify, making it more difficult to acquire
suitable companies on favorable terms. Further, the businesses that we acquire
may not perform well enough to justify our investment or may not be integrated
successfully into our existing business. If we are unable to make additional
acquisitions on suitable terms, we may not meet our expectations for revenue
growth.
ACQUISITIONS MAY DILUTE OWNERSHIP AND REQUIRE ADDITIONAL DEBT
We may issue equity securities in future acquisitions that could be
dilutive to our shareholders. We also may incur additional debt and
amortization expense related to goodwill and other intangible assets in future
acquisitions. Further, amortization and other expenses may arise from previous
acquisitions due to changes in accounting requirements. This additional debt
and amortization expense may significantly reduce our profitability and
materially and adversely affect our earnings, financial condition or business.
LIABILITIES MAY ARISE FROM ACQUIRED BUSINESSES
We have acquired and intend to continue to pursue acquiring businesses
that may have unknown or contingent liabilities, including liabilities for
failure to comply with health care laws. Although we generally attempt to
identify any practices that may give rise to unknown or contingent liabilities
and thereafter conform them to our standards, private plaintiffs or
governmental agencies may still assert claims. Even though we generally seek to
obtain indemnification from prospective sellers, unknown and contingent
liabilities may not be covered by indemnification or may exceed contractual
limits or the financial capacity of the indemnifying party.
REDUCTIONS IN PHYSICIAN REFERRALS MAY ADVERSELY AFFECT OUR EARNINGS
Our dialysis centers depend on referrals from local nephrologists.
Typically, one or a few physicians account for all or a significant portion of
the patient base at a center, and the loss of one or more referring physicians
could have a material adverse effect on the operations of that center. The loss
of a significant number of referring physicians could have a material adverse
effect on our earnings, financial condition and business. In many instances,
the primary referral sources for our centers are physicians who are also
stockholders and serve as medical directors of our centers. If stock ownership
or the medical director relationship were deemed to violate applicable federal
or state law, including fraud and abuse laws and laws prohibiting
self-referrals, such physicians may be forced to stop referring to our centers.
Further, we may not be able to renew or renegotiate our medical director
agreements successfully, which could result in a loss of patients.
14
<PAGE> 17
GOVERNMENT REGULATION CAN HAVE A LARGE IMPACT ON OUR BUSINESS
If our business is alleged or found to violate heath care or other
applicable laws, our earnings, financial condition or business may be adversely
affected. We are subject to extensive federal, state and local regulation
regarding the following:
- fraud and abuse prohibitions under health care reimbursement
laws,
- patient referrals prohibitions and limitations,
- false claims prohibitions under health care reimbursement
laws,
- facility licensure,
- health and safety requirements,
- environmental compliance, and
- medical 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. Due to the
broad application of the statutory provisions and the absence in many instances
of regulations or court decisions addressing the specific arrangements by which
we conduct our business, it is possible that some of our practices might be
challenged under these laws. If any of our operations are found to violate
these laws, we may be subject to severe sanctions or be required to alter or
discontinue the challenged conduct. If we are required to alter our practices,
we may not be able to do so successfully. The occurrence of any of these events
could result in a material adverse effect on our earnings, financial condition
or business. These matters are discussed in more detail under the subheading of
"Government Regulation" within the "Business" section of our annual report on
Form 10-K, as filed with the SEC on March 31, 1999.
INDUSTRY CHANGES COULD ADVERSELY AFFECT OUR BUSINESS
The health care industry in the United States is in a period of rapid
change and uncertainty. Health care organizations, public or private, may
dramatically change the way they operate and pay for services. Our business is
designed to function within the current health care financing and reimbursement
system. During the past several years, the health care industry has been
subject to increasing levels of government regulation of, among other things,
reimbursement rates and capital expenditures. In addition, proposals to reform
the health care system have been considered by Congress. These proposals, if
enacted, may further increase government regulation of or other involvement in
health care, lower reimbursement rates and otherwise change the operating
environment for health care companies. We cannot predict the likelihood of
those events or what impact they may have on our earnings, financial condition
or business.
15
<PAGE> 18
OUR BUSINESS IS SUBJECT TO SUBSTANTIAL COMPETITION
The dialysis industry is fragmented and rapidly consolidating. There
are several large dialysis companies that compete for the acquisition of
existing dialysis centers and the development of relationships with referring
physicians. Several of our competitors are part of larger companies that also
manufacture dialysis equipment. Several of our competitors, including these
equipment manufacturers, have substantially greater financial resources and
more established operations and infrastructure than RCG. We also experience
competition from referring physicians who open their own dialysis centers.
There can be no assurance that we will be able to compete effectively with any
of our competitors.
WE ARE DEPENDENT ON A FEW KEY PEOPLE
We are dependent upon the services of our executive officers Sam A.
Brooks, Jr., our Chairman, Chief Executive Officer and President, Raymond
Hakim, M.D., Ph.D., Ronald Hinds and Gary Brukhardt, each an Executive Vice
President. Further, our growth will depend in part upon our ability to attract
and retain skilled employees, for whom competition is intense. We also believe
that our future success will depend on our ability to attract and retain
qualified physicians to serve as medical directors of our dialysis centers. We
do not carry key-man life insurance on any of our officers. The loss by us of
any of our executive officers, or the inability to attract and retain qualified
management personnel and medical directors, could have a material adverse
effect on our earnings, financial condition or business.
BUSINESS RELATIONSHIPS WITH DIRECTORS COULD CREATE CONFLICTS OF INTEREST
We are a party to medical director agreements with the following
members of our Board of Directors or their physician practices: Stephen D.
McMurray, M.D., W. Tom Meredith, M.D., Thomas A. Lowery, M.D., John D. Bower,
M.D. and Kenneth E. Johnson, M.D., each of whom is also a stockholder of the
Company. In addition, we lease space from Dr. Bower, Dr. Lowery and an entity
in which Dr. Meredith owns an interest. Another of our directors, Harry R.
Jacobson, M.D., serves as the Chancellor of Health Affairs at Vanderbilt
University, with which we have an agreement to manage its Medical Center's
outpatient dialysis facility. These interests of our directors may give rise to
conflicts of interest concerning the fulfillment of their responsibilities as
directors, and could result in decisions that may not reflect the interests of
all stockholders equally.
INHIBITIONS AGAINST A TAKEOVER
Our Certificate of Incorporation and Bylaws contain a number of
provisions that may delay, deter or inhibit a future acquisition or change in
control of RCG that is not first approved by our Board of Directors. This could
occur even if our stockholders are offered an attractive value for their shares
or if a substantial number or even a majority of our stockholders believe the
takeover may be in their best interest. These provisions are intended to
encourage any person interested in acquiring RCG to negotiate with and obtain
approval from our Board of Directors prior to pursuing the transaction.
Provisions that could delay, deter or inhibit a future acquisition or change in
control of RCG include the following:
- a staggered Board of Directors that would require two annual
meetings to replace a majority of the Board of Directors;
16
<PAGE> 19
- restrictions on calling special meetings at which an
acquisition or change in control of RCG might be brought to a
vote of the stockholders;
- blank check preferred stock that may be issued by our Board of
Directors without stockholder approval and that may be
substantially dilutive or contain preferences or rights
objectionable to an acquiror; and
- a poison pill that would substantially dilute the interest
sought by an acquiror.
These provisions could also discourage bids for our common stock at a premium
and have a material adverse effect on the market price of our common stock.
VOLATILITY OF STOCK PRICE
Our common stock is traded on the Nasdaq National Market. The market
price of our common stock has been volatile and could fluctuate substantially
based on a variety of factors, including the following:
- future announcements concerning us, our competitors or the
health care market;
- changes in government regulations; and
- changes in earnings estimates by analysts.
Furthermore, stock prices for many companies fluctuate widely for
reasons that may be unrelated to their operating results. These fluctuations,
coupled with changes in demand or reimbursement levels for our services and
general economic, political and market conditions, may adversely affect the
market price of our common stock.
YEAR 2000 ISSUES MAY RESULT IN LOSS OF REVENUE OR INCREASE IN COSTS
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century and, if not
corrected, could fail or create erroneous results by or at the year 2000. We
have undertaken, but not completed, an assessment of our year 2000 issues.
Until we have completed our assessment, we cannot be sure that our efforts to
address our year 2000 issues are appropriate, adequate or complete. Our year
2000 issues could reside in our own systems and in the systems of third parties
with whom we have relationships that are material to our operations, such as
reimbursement to us from fiscal intermediaries and governmental agencies and
the provision of significant utilities and supplies to our centers. Year 2000
issues could cause significant disruptions in our cash flow and operations,
which could have a material adverse effect on our earnings, financial condition
and business. Matters related to our year 2000 issues are discussed in further
detail under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Impact of Year 2000."
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<PAGE> 20
FORWARD LOOKING STATEMENTS
Some of the information in this annual report contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "intend," "estimate" and "continue" or similar words.
You should read statements that contain these words carefully for the following
reasons:
- the statements discuss our future expectations;
- the statements contain projections of our future earnings or
of our financial condition; and
- the statements state other "forward-looking" information.
We believe it is important to communicate our expectations to our
investors. There may be events in the future, however, that we are not
accurately able to predict or over which we have no control. The risk factors
listed above, as well as any other cautionary language in this quarterly
report, provide examples of risks, uncertainties and events that may cause our
actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should
be aware that the occurrence of any of the events described in the above risk
factors, elsewhere in this quarterly report and other events that we have not
predicted or assessed could have a material adverse effect on our earnings,
financial condition and business. In such case, the trading price of our common
stock could decline and you may lose all or part of your investment.
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<PAGE> 21
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
(a) None
(b) None
(c) In January 1999, the Company issued approximately 3,226,546 shares of
Common Stock to the former owners of Dialysis Centers of America, Inc.
in a private placement pursuant to the exemption from registration set
forth in Section 4(2) of the Securities Act.
In February 1999, the Company issued approximately 95,511 shares of
Common Stock to the former owner of Alaska Kidney Centers, Inc., in a
private placement from registration set forth in Section 4(2) of the
Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.42 Restricted Stock Award Agreement between the Company and
Sam A. Brooks*
10.43 Restricted Stock Award Agreement between the Company and
Harry R. Jacobson*
10.44 Restricted Stock Award Agreement between the Company and
Ronald Hinds*
10.45 Restricted Stock Award Agreement between the Company and
Stephen D. McMurray*
27.1 Financial Data Schedule for the three months ended March 31,
1999 (filed via Edgar on May 14, 1999) (for SEC use only)
(b) Reports on Form 8-K
Form 8-K filed February 10, 1999 relating to the merger with Dialysis
Centers of America, Inc.
* Management contract or executive compensation plan or arrangement.
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<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RENAL CARE GROUP, INC.
-----------------------------------------
(Registrant)
May 14, 1999 BY: /s/ Ronald Hinds
- ------------------ -----------------------------------------
Ronald Hinds
Executive Vice President, Chief Financial
Officer, Treasurer and Principal Financial
Officer and Principal Accounting Officer
20
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits Page No.
- ------- ----------------------- --------
<S> <C> <C>
10.42 Restricted Stock Award Agreement between the Company and Sam A. Brooks*
10.43 Restricted Stock Award Agreement between the Company and Harry R. Jacobson*
10.44 Restricted Stock Award Agreement between the Company and Ronald Hinds*
10.45 Restricted Stock Award Agreement between the Company and Stephen D. McMurray*
27.1 Financial Data Schedule for the three months ended March 31, 1999 (for SEC use only)
</TABLE>
* Management contract or executive compensation plan or arrangement.
21
<PAGE> 1
EXHIBIT 10.42
RESTRICTED STOCK AWARD AGREEMENT
under the
RENAL CARE GROUP, INC.
1996 STOCK INCENTIVE PLAN
Grantee: Sam A. Brooks, Jr.
Number of Shares: 3,500
Effective Date of Grant: January 25, 1999
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
<TABLE>
<CAPTION>
Date of Termination
Number of Shares of Restrictions
---------------- -------------------
<S> <C>
3,500 January 25, 2004
</TABLE>
(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 terminate the Grantee's employment at any time, or confer upon the
Grantee any right to continue in the employ of the Corporation or any
Subsidiary.
-2-
<PAGE> 3
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.
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
Attn: Chief Financial Officer and General Counsel
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.
[the remainder of this page intentionally left blank, signatures follow]
-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
-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 any of the following: (i) without the express written consent of the
Grantee, a material diminution of his position, duties, responsibilities and
status with the Company as in effect as of the Date of Grant, a change in the
Grantee's reporting responsibilities, a material reduction of Grantee's titles
or offices as in effect on the Date of Grant, or the removal of the Grantee
from, or failure to re-elect the Grantee to, any office with the Company that
Grantee served in as of the Date of Grant, except in connection with promotions
to higher office or except in connection with the termination of this Agreement
for Cause; (ii) the reduction of the base compensation of the Grantee; (iii) the
requirement that the Grantee relocate outside of the Nashville, Tennessee
metropolitan area; (iv) the material breach by the Company of any material
provision of any employment agreement or other agreement with the Grantee, which
breach continues uncorrected and uncured for fifteen (15) days after the Grantee
gives notice of such breach to the Company; or (v) the termination of this
Agreement by written notice from the Grantee to the Company during the thirty
(30) day period immediately following the first anniversary of a Change in
Control (as defined below).
<PAGE> 6
For purposes of this Restricted Stock Award Agreement, "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 l3d-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.
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 10.43
RESTRICTED STOCK AWARD AGREEMENT
under the
RENAL CARE GROUP, INC.
1996 STOCK INCENTIVE PLAN
Grantee: Harry R. Jacobson, M.D.
Number of Shares: 8,750
Effective Date of Grant: January 25, 1999
1. Consulting Arrangement. The Grantee named above (the "Grantee") and
Renal Care Group, Inc., a Delaware 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 of the consulting services
provided under the Consulting Arrangement, and subject to the restrictions and
other terms and conditions set forth in this Agreement (this "Agreement"), the
Corporation hereby grants to 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 4 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 any of paragraphs (b) through (d) of Section 4 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:
<TABLE>
<CAPTION>
Date of Termination
Number of Shares of Restrictions
---------------- -------------------
<S> <C>
8,750 January 25, 2004
</TABLE>
(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, (i)
the Grantee terminates the Consulting Arrangement for good reason; or
(ii) the Corporation terminates the Consulting Arrangement without
cause; or
(d) On the date of any acceleration of vesting in
accordance with Article 9 of the Plan.
5. 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.
6. 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.
7. 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.
8. 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.
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.
-2-
<PAGE> 3
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.
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
Attn: Chief Financial Officer and General Counsel
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.
[the remainder of this page intentionally left blank, signatures follow]
-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/ Harry R. Jacobson, M.D.
------------------------------------
Print Name: Harry R. Jacobson, M.D.
-------------------------
-4-
<PAGE> 1
EXHIBIT 10.44
RESTRICTED STOCK AWARD AGREEMENT
under the
RENAL CARE GROUP, INC.
1996 STOCK INCENTIVE PLAN
Grantee: Ronald Hinds
Number of Shares: 5,250
Effective Date of Grant: January 25, 1999
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
<TABLE>
<CAPTION>
Date of Termination
Number of Shares of Restrictions
---------------- -------------------
<S> <C>
5,250 January 25, 2004
</TABLE>
(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 terminate the Grantee's employment at any time, or confer upon the
Grantee any right to continue in the employ of the Corporation or any
Subsidiary.
-2-
<PAGE> 3
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.
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
Attn: Chief Financial Officer and General Counsel
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.
[the remainder of this page intentionally left blank, signatures follow]
-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 any of the following: (i) without the express written consent of the
Grantee, a material diminution of his position, duties, responsibilities and
status with the Company as in effect as of the Date of Grant, a change in the
Grantee's reporting responsibilities, a material reduction of Grantee's titles
or offices as in effect on the Date of Grant, or the removal of the Grantee
from, or failure to re-elect the Grantee to, any office with the Company that
Grantee served in as of the Date of Grant, except in connection with promotions
to higher office or except in connection with the termination of this Agreement
for Cause; (ii) the reduction of the base compensation of the Grantee; (iii) the
requirement that the Grantee relocate outside of the Nashville, Tennessee
metropolitan area; (iv) the material breach by the Company of any material
provision of any employment agreement or other agreement with the Grantee, which
breach continues uncorrected and uncured for fifteen (15) days after the Grantee
gives notice of such breach to the Company; or (v) the termination of this
Agreement by written notice from the Grantee to the Company during the thirty
(30) day period immediately following the first anniversary of a Change in
Control (as defined below).
<PAGE> 6
For purposes of this Restricted Stock Award Agreement, "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 l3d-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.
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 10.45
RESTRICTED STOCK AWARD AGREEMENT
under the
RENAL CARE GROUP, INC.
1996 STOCK INCENTIVE PLAN
Grantee: Stephen D. McMurray, M.D.
Number of Shares: 5,250
Effective Date of Grant: January 25, 1999
1. Consulting Arrangement. The Grantee named above (the "Grantee") and
Renal Care Group, Inc., a Delaware 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 of the consulting services
provided under the Consulting Arrangement, and subject to the restrictions and
other terms and conditions set forth in this Agreement (this "Agreement"), the
Corporation hereby grants to 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 4 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 any of paragraphs (b) through (d) of Section 4 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:
<TABLE>
<CAPTION>
Date of Termination
Number of Shares of Restrictions
---------------- -------------------
<S> <C>
8,750 January 25, 2004
</TABLE>
(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, (i)
the Grantee terminates the Consulting Arrangement for good reason; or
(ii) the Corporation terminates the Consulting Arrangement without
cause; or
(d) On the date of any acceleration of vesting in
accordance with Article 9 of the Plan.
5. 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.
6. 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.
7. 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.
8. 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.
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.
-2-
<PAGE> 3
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.
2100 West End Avenue, Suite 800
Nashville, Tennessee 37203
Attn: Chief Financial Officer and General Counsel
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.
[the remainder of this page intentionally left blank, signatures follow]
-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-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF RENAL CARE GROUP, INC. FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 22,717
<SECURITIES> 0
<RECEIVABLES> 92,495
<ALLOWANCES> 0
<INVENTORY> 8,388
<CURRENT-ASSETS> 139,494
<PP&E> 105,013
<DEPRECIATION> 0
<TOTAL-ASSETS> 462,654
<CURRENT-LIABILITIES> 67,875
<BONDS> 0
0
0
<COMMON> 443
<OTHER-SE> 258,114
<TOTAL-LIABILITY-AND-EQUITY> 462,654
<SALES> 0
<TOTAL-REVENUES> 120,861
<CGS> 0
<TOTAL-COSTS> 78,247
<OTHER-EXPENSES> 23,257
<LOSS-PROVISION> 3,201
<INTEREST-EXPENSE> 1,405
<INCOME-PRETAX> 14,751
<INCOME-TAX> 6,644
<INCOME-CONTINUING> 8,107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,107
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.17
</TABLE>
