-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HQbRjSJ8izNorSykbGDuCGaIOzRBsfFNqcv6m0Pv+MIbh3Uen3Z5yfggQs3H2Vcx dpmeEKK76XZzyuRsy1ddhw== 0000950135-01-501316.txt : 20010516 0000950135-01-501316.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950135-01-501316 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRESENIUS MEDICAL CARE HOLDINGS INC /NY/ CENTRAL INDEX KEY: 0000042872 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 133461988 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03720 FILM NUMBER: 1640360 BUSINESS ADDRESS: STREET 1: TWO LEDGEMONT CENTER STREET 2: 95 HAYDEN AVE CITY: LEXINGTON STATE: MA ZIP: 02420 BUSINESS PHONE: 6174029000 FORMER COMPANY: FORMER CONFORMED NAME: FRESENIUS NATIONAL MEDICAL CARE HOLDINGS INC DATE OF NAME CHANGE: 19961015 FORMER COMPANY: FORMER CONFORMED NAME: GRACE W R & CO /NY/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GRACE W R & CO /CT/ DATE OF NAME CHANGE: 19900423 10-Q 1 b39254fme10-q.txt FRESENIUS MEDICAL CARE HOLDINGS INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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, 2001 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 NUMBER: 1-3720 ------ FRESENIUS MEDICAL CARE HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) New York 13-3461988 - ---------------------------------------------- ------------------------ (State or Other Jurisdiction of Incorporation) (I.R.S. Employer ID No.) 95 Hayden Avenue, Lexington, MA 02420 - --------------------------------------- ---------- (Address of Principal Executive Office) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 781-402-9000 ---------------------------------------------------------------- -------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicated by check 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 ___ 2 APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of the date hereof, 90,000,000 shares of common stock, par value $1.00 per share, are outstanding, all of which are held by Fresenius Medical Care AG. 2 3 FRESENIUS MEDICAL CARE HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES TABLE OF CONTENTS PART I: FINANCIAL INFORMATION
PAGE ITEM 1: FINANCIAL STATEMENTS Unaudited Consolidated Statements of Earnings ................................ 4 Unaudited Consolidated Statements of Comprehensive Income..................... 5 Unaudited Consolidated Balance Sheets......................................... 6 Unaudited Consolidated Statements of Cash Flows............................... 7 Notes to Unaudited Consolidated Financial Statements.......................... 9 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................... 16 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................................................. 18 PART II: OTHER INFORMATION ITEM 1: Legal Proceedings............................................................ 20 ITEM 6: Exhibits and Reports on Form 8-K............................................. 23
3 4 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FRESENIUS MEDICAL CARE HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES UNAUDITED, CONSOLIDATED STATEMENTS OF EARNINGS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, -------------------------- 2001 2000 -------- -------- NET REVENUES Health care services ....................................... $688,401 $626,077 Medical supplies ........................................... 116,740 119,038 -------- -------- 805,141 745,115 -------- -------- EXPENSES Cost of health care services ............................... 476,397 420,403 Cost of medical supplies ................................... 84,221 86,455 General and administrative expenses ........................ 75,088 71,587 Provision for doubtful accounts ............................ 16,335 12,379 Depreciation and amortization .............................. 56,510 54,736 Research and development ................................... 1,084 1,197 Interest expense, net, and related financing costs including $26,764 and $25,164, of interest with affiliates ........ 51,050 53,303 -------- -------- 760,685 700,060 -------- -------- INCOME BEFORE INCOME TAXES ...................................... 44,456 45,055 PROVISION FOR INCOME TAXES ...................................... 21,306 21,961 -------- -------- NET INCOME ...................................................... $ 23,150 $ 23,094 ======== ======== Basic and fully dilutive earnings per share Net Income ................................................... $ 0.26 $ 0.26
See accompanying Notes to Unaudited, Consolidated Financial Statements 4 5 FRESENIUS MEDICAL CARE HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES UNAUDITED, CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, --------------------------- 2001 2000 -------- -------- NET INCOME ..................................... $ 23,150 $23,094 Other comprehensive income Foreign currency translation adjustments..... (408) 120 Derivative instruments ...................... (28,039) -- -------- ------- Total other comprehensive income/(loss)...... (28,447) 120 -------- ------- COMPREHENSIVE INCOME/ (LOSS) ................... $ (5,297) $23,214 ======== =======
See accompanying Notes to Unaudited, Consolidated Financial Statements 5 6 FRESENIUS MEDICAL CARE HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31, 2001 2000 ----------- ------------ (UNAUDITED) ASSETS - ------ Current Assets: Cash and cash equivalents ...................................... $ 33,159 $ 33,327 Accounts receivable, less allowances of $81,283 and $80,466..... 357,568 318,391 Inventories .................................................... 197,029 191,699 Deferred income taxes .......................................... 134,698 123,190 Other current assets ........................................... 156,852 139,082 Net accounts receivable from affiliates......................... 13,490 -- IDPN accounts receivable ....................................... -- 5,189 ----------- ----------- Total Current Assets ...................................... 892,796 810,878 ----------- ----------- Properties and equipment, net ...................................... 471,373 456,936 ----------- ----------- Other Assets: Excess of cost over the fair value of net assets acquired and other intangible assets, net of accumulated amortization of $600,397 and $564,880 ............ 3,190,307 3,222,044 Other assets and deferred charges .............................. 49,588 63,500 ----------- ----------- Total Other Assets ........................................ 3,239,895 3,285,544 ----------- ----------- Total Assets ........................................................ $ 4,604,064 $ 4,553,358 =========== =========== LIABILITIES AND EQUITY - ---------------------- Current Liabilities: Note payable for settlement of investigation ................... $ 51,186 $ 85,920 Current portion of long-term debt and capitalized lease obligations ................................................. 151,251 151,268 Current portion of borrowing from affiliates ................... 331,218 341,643 Accounts payable ............................................... 151,640 139,754 Accrued liabilities ............................................ 211,549 228,025 Net accounts payable (receivable) to affiliates ................ 10,499 6,317 Accrued income taxes ........................................... 41,334 11,525 ----------- ----------- Total Current Liabilities ................................. 948,677 964,452 Long-term debt ...................................................... 631,413 588,526 Non-current borrowings from affiliates .............................. 786,865 786,865 Capitalized lease obligations ....................................... 859 911 Deferred income taxes ............................................... 106,949 122,946 Other liabilities ................................................... 107,246 58,188 ----------- ----------- Total Liabilities ......................................... 2,582,009 2,521,888 ----------- ----------- Mandatorily Redeemable Preferred Securities ......................... 301,511 305,500 ----------- ----------- Equity: Preferred stock, $100 par value .................................. 7,412 7,412 Preferred stock, $.10 par value .................................. 8,906 8,906 Common stock, $1 par value; 300,000,000 shares authorized; outstanding 90,000,000 ............................. 90,000 90,000 Paid in capital .................................................. 1,942,387 1,942,387 Retained deficit ................................................. (299,952) (322,973) Accumulated comprehensive income (loss) .......................... (28,209) 238 ----------- ----------- Total Equity ................................................ 1,720,544 1,725,970 ----------- ----------- Total Liabilities and Equity ........................................ $ 4,604,064 $ 4,553,358 =========== ===========
See accompanying Notes to Unaudited, Consolidated Financial Statements. 6 7 FRESENIUS MEDICAL CARE HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES UNAUDITED, CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ----------------------------- 2001 2000 --------- --------- Cash Flows from Operating Activities: Net income ......................................................... $ 23,150 $ 23,094 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization ................................. 56,510 54,736 Provision for doubtful accounts ............................... 16,335 12,379 Deferred income taxes ......................................... (8,813) 12,515 Loss (gain) on disposal of properties and equipment ........... 210 (137) Changes in operating assets and liabilities, net of effects of purchase acquisitions and foreign exchange: Increase in accounts receivable ............................... (49,912) (61,101) (Increase) decrease in inventories ............................ (5,330) 6,432 (Increase) decrease in other current assets ................... (17,770) 8,958 Decrease in IDPN accounts receivable .......................... 5,189 38,395 Decrease in other assets and deferred charges ................. 12,030 76 Increase (decrease) in accounts payable ....................... 11,888 (2,238) Increase in accrued income taxes .............................. 29,809 7,637 Decrease in accrued liabilities ............................... (16,476) (37,238) Increase in other long-term liabilities ....................... 2,025 2,010 Net changes due to/from affiliates ............................ (9,308) (5,419) Other, net .................................................... (650) 1,078 --------- --------- Net cash provided by operating activities .......................... 48,887 61,177 --------- --------- Cash Flows from Investing Activities: Capital expenditures .......................................... (35,482) (20,261) Payments for acquisitions, net of cash acquired ............... (5,086) (35,545) --------- --------- Net cash used in investing activities .............................. (40,568) (55,806) --------- --------- Cash Flows from Financing Activities: Payments on settlement of investigation ....................... (34,734) (286,402) Net (decrease) increase in borrowings from affiliates ......... (10,425) 297,323 Cash dividends paid ........................................... (130) (130) (Payments) proceeds from receivable financing facility ........ (5,600) 7,800 Net increase/(decrease) on debt and capitalized leases ........ 42,818 (20,665) --------- --------- Net cash used in financing activities ............................... (8,071) (2,074) --------- --------- Effects of changes in foreign exchange rates ............................ (416) 81 --------- --------- Change in cash and cash equivalents ..................................... (168) 3,378 Cash and cash equivalents at beginning of period ........................ 33,327 12,563 --------- --------- Cash and cash equivalents at end of period .............................. $ 33,159 $ 15,941 ========= =========
See accompanying Notes to Unaudited, Consolidated Financial Statements 7 8 FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ------------------------ 2001 2000 ------- ------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net ................................ $41,710 $53,947 Income taxes paid, net ....................... 1,269 2,241 Details for Acquisitions: Assets acquired ................................ 5,086 35,545 ------- ------- Net cash paid for acquisitions ................. $ 5,086 $35,545 ======= =======
See accompanying Notes to Unaudited, Consolidated Financial Statements 8 9 FRESENIUS MEDICAL CARE HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO UNAUDITED, CONSOLIDATED INTERIM FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) NOTE 1. THE COMPANY Fresenius Medical Care Holdings, Inc., a New York corporation ("the Company") is a subsidiary of Fresenius Medical Care AG, a German corporation ("FMC" or "Fresenius Medical Care"). The Company conducts its operations through five principal subsidiaries, National Medical Care, Inc., ("NMC"); Fresenius USA Marketing, Inc., Fresenius USA Manufacturing, Inc., and SRC Holding Company, Inc., ("SRC"), all Delaware corporations and Fresenius USA, Inc., a Massachusetts corporation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, NMC, FUSA, and SRC and those financial statements where the Company controls professional corporations in accordance with Emerging Issues Task Force Issue 97-2. The Company is primarily engaged in (i) providing kidney dialysis services, clinical laboratory testing and renal diagnostic services, and (ii) manufacturing and distributing products and equipment for dialysis treatment. BASIS OF PRESENTATION BASIS OF CONSOLIDATION The consolidated financial statements in this report at March 31, 2001 and 2000 and for the three month interim periods then ended are unaudited and should be read in conjunction with the audited, consolidated financial statements in the Company's 2000 report on Form 10-K. Such interim financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the interim periods presented. Certain amounts in the prior periods' consolidated financial statements have been reclassified to conform to the current periods' basis of presentation. The results of operations for the three month period ended March 31, 2001 are not necessarily indicative of the results of operations for the fiscal year ending December 31, 2001. All intercompany transactions and balances have been eliminated in consolidation. EARNINGS PER SHARE Basic earnings per share are computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the year. Diluted earnings per share includes the effect of all dilutive potential common shares that were outstanding during the year. The number of shares used to compute basic and diluted earnings per share was 90,000 in all periods as there were no potential common shares and no adjustments to income to be considered for purposes of the diluted earnings per shares calculation.
THREE MONTHS ENDED MARCH 31, ---------------------- 2001 2000 ------ ------ The weighted average number of shares of Common Stock were as follows ................ 90,000 90,000 ====== ======
9 10 Net income used in the computation of earnings per share is as follows:
THREE MONTHS ENDED MARCH 31, --------------------------- 2001 2000 -------- -------- CONSOLIDATED Net income .......................................... $ 23,150 $ 23,094 Dividends paid on preferred stocks .................. (130) (130) -------- -------- Income used in per share computation of earnings..... $ 23,020 $ 22,964 ======== ======== Basic and fully dilutive earnings per share ......... $ 0.26 $ 0.26 ======== ========
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Effective January 1, 2001, the Company adopted the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities and the related amendments of SFAS No. 138. The cumulative effect of adopting SFAS 133 as of January 1, 2001 was not material to the Company's consolidated financial statements. The Company is exposed to market risk due to changes in interest rates and foreign currencies. The Company uses derivative financial instruments, including interest rate swaps and foreign exchange contracts, as part of its risk management strategy. These instruments are used as a means of hedging exposure to interest rate and foreign currency fluctuations in connection with debt obligations, forecasted raw material purchases and Euro denominated mandatorily redeemable preferred stock. The interest rate swaps are designated as cash flow hedges effectively converting certain variable interest rate payments into fixed interest rate payments. After tax losses of $28 million ($47 million pretax), were deferred in other comprehensive income during the quarter. Interest payable and interest receivable under the swap terms are accrued and recorded as an adjustment to interest expense at each reporting date. Ineffective amounts had no material impact on earnings for the three months ended March 31, 2001. The Company enters into forward rate agreements that are designated and effective as hedges of forecasted raw material purchases. After tax losses of $0.2 million ($0.3 million pretax), were deferred in other comprehensive income during the quarter and will be reclassified into cost of sales in the period during which the hedged transaction affects earnings. All deferred amounts will be reclassified into earnings within the next twelve months. Ineffective amounts had no impact on earnings for the three months ended March 31, 2001. The Company enters into forward rate agreements that are designated and effective as hedges of changes in the fair value of the Euro denominated mandatorily redeemable preferred stock. Changes in fair value are recorded in earnings and offset against gains and losses resulting from the underlying exposures. Ineffective amounts had no material impact on earnings for the three months ended March 31, 2001. Periodically, the Company enters into derivative instruments with related parties to form a natural hedge for currency exposures on intercompany obligations. These instruments are reflected in the balance sheet at fair value with changes in fair value recognized in earnings. FMC-AG ACQUISITION On January 8, 2001, FMC acquired Everest Healthcare Services Corporation (now known as Everest Healthcare Holdings, Inc. "Everest") through a merger of Everest into a subsidiary of FMC at a purchase price of $343 million, which included assumed debt and the issuance of 2.25 million FMC preference shares. Everest owns, operates or manages approximately 70 clinic facilities providing therapy to approximately 6,800 patients in the United States. Everest also operates extracorporal blood services and acute dialysis businesses that provide acute dialysis, apheresis and hemoperfusion services to approximately 100 hospitals. The Company has entered into agreements with Everest where it provides certain management services on behalf of FMC. The Company sells dialysis products and provides laboratory services to Everest. Net revenues for sales to Everest were approximately $5.5 million for the three months ended March 31, 2001. In addition, the Company provides financing to Everest. At March 31, 2001, the Company has trade accounts receivable of $1.7 million and a net loan receivable of $226.7 million. The net loan receivable is recorded in the current portion of borrowings from affiliates. NEW PRONOUNCEMENTS In September 2000, the Financial Accounting Standards Board issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which replaces SFAS No. 125 and rescinds SFAS No. 127. SFAS No. 140 provides the accounting and reporting standards for securitizations and other transfers of financial assets and collateral. These standards are based on consistent application of a financial-components approach that focuses on control. This Statement also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 140 is effective for transfers after March 31, 2001 and is effective for disclosures about securitizations and collateral for fiscal years ending after December 15, 2000. There is no impact for the adoption of SFAS No. 140. 10 11 NOTE 2. INVENTORIES
MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ Inventories: Raw materials .............................................. $ 42,853 $ 44,787 Manufactured goods in process .............................. 9,808 10,516 Manufactured and purchased inventory available for sale..... 88,541 80,520 -------- -------- 141,202 135,823 Health care supplies ...................................... 55,827 55,876 -------- -------- Total ................................................. $197,029 $191,699 ======== ========
NOTE 3. DEBT
MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ Long-term debt to outside parties consists of: NMC Credit Facility .......................................... $775,400 $732,500 Note payable for settlement .................................. 51,186 85,920 Other ........................................................ 7,066 7,120 -------- -------- 833,652 825,540 Less amounts classified as current ........................... 202,239 237,014 -------- -------- $631,413 $588,526 ======== ========
Borrowings/(receivables) from affiliates consists of:
MARCH 31, DECEMBER 31, 2001 2000 ----------- ------------ Fresenius Medical Care AG borrowings primarily at interest rates approximating 7.75% ................................. $ 235,132 $ 18,850 Fresenius AG borrowing at interest rates approximating 7.34 - 7.38% .................................................. 209,000 209,000 Fresenius Medical Care Trust Finance S.a.r.l. borrowings at interest rates of 8.43% and 9.25% ......................... 786,524 786,524 Franconia Acquisition, LLC at interest rates approximating 6.87% .................................................... 113,121 113,121 Everest Healthcare Holdings, Inc. ............................ (226,707) -- Other ........................................................ 1,013 1,013 --------- --------- 1,118,083 1,128,508 Less amounts classified as current ........................... 331,218 341,643 --------- --------- Total ........................................................ $ 786,865 $ 786,865 ========= =========
NOTE 4. MANDATORILY REDEEMABLE PREFERRED SECURITIES During the fourth quarter of 2000, a wholly-owned subsidiary of the Company issued to NMC 1,000 shares of Series A Preferred Stock and 1,700 shares of Series C Preferred Stock that were then transferred to FMC for proceeds of $113,500 and $192,000, respectively ("Redeemable Preferred Securities"). The Redeemable Preferred Securities are identical in substance except that the Series A shares rank prior to the Series C shares both as to dividends and liquidation, dissolution or winding-up of the subsidiary. 11 12 The Redeemable Preferred Securities have a par value of $.01 per share. The holders of the securities are entitled to receive dividends in amount of dollars per share equal to approximately 8% of the share issuance price. The dividends will be declared and paid in cash at least annually. Upon liquidation or dissolution or winding up of the subsidiary, the holders of the Redeemable Preferred Securities are entitled to an amount equal to the liquidation preference for each share of stock plus an amount equal to all accrued and unpaid dividends thereon through the date of distribution. The liquidation preference is the sum of the issuance price plus, for each year or portion thereof an amount equal to one-half of one percent of the issue price, not to exceed 5%. The Redeemable Preferred Securities will be sold to the Company in two years for an amount equal to Euros 341,385 plus any accrued and unpaid dividends. Accordingly, the mandatorily redeemable preferred securities are deemed to be a Euro liability and the risk of foreign currency fluctuations are hedged through forward currency contracts. The holders of the Redeemable Preferred Securities have the same participation rights of the holders of all other classes of capital stock of the subsidiary. NOTE 5. SETTLEMENT OF INVESTIGATION WITH THE U.S. GOVERNMENT During the quarter, the Company made payments to the U.S. Government of $35.4 million, pursuant to the January 2000 settlement agreement with the U.S. Government. The final two installments of $27.8 million including interest will be paid in April and July 2001. In addition, the Company received a the final payment of $5.2 million in February 2001, from the U.S. Government, related to the Company's claims for outstanding Medicare receivables. NOTE 6. COMMITMENTS AND CONTINGENCIES LEGAL PROCEEDINGS COMMERCIAL LITIGATION In 1997, the Company, NMC, and certain named NMC subsidiaries, were served with a civil complaint filed by Aetna Life Insurance Company in the U.S. District Court for the Southern District of New York. The lawsuit alleges inappropriate billing practices for nutritional therapy, diagnostic and clinical laboratory tests and misrepresentations. In April 1999, Aetna amended its complaint to include its affiliate, Aetna U.S. Healthcare, Inc., as an additional plaintiff, and to make certain other limited changes in its pleading. The amended complaint seeks unspecified damages and costs. Other insurance companies have filed similar claims seeking unspecified damages and costs. The Company, NMC and its subsidiaries believe that there are substantial defenses to the claims asserted, and intend to vigorously defend all lawsuits. Other private payors have contacted the Company and may assert that NMC received excess payment and, similarly, may join the lawsuits or file their own lawsuit seeking reimbursement and other damages. Although the ultimate outcome on the Company of these proceedings cannot be predicted at this time, an adverse result could have a material adverse effect on the Company's business, financial condition and result of operations. The Company has filed counterclaims against the plaintiffs in these matters based on inappropriate claim denials and delays in claim payments. On September 28, 2000, Mesquita, et al. v. W.R. Grace & Company, et al. (Sup. Court of Calif., S.F. County, #315465) was filed as a class action by plaintiffs claiming to be creditors of W. R. Grace & Co.-Conn ("Grace Chemicals") against Grace Chemicals, the Company and other defendants, principally alleging that the Merger which resulted in the original formation of the Company (described in greater detail in "Indemnification by W.R. Grace & Co." below) was a fraudulent transfer, violated the uniform fraudulent transfer act, and constituted a conspiracy. An amended complaint (Abner et al. v. W. R. Grace & Company, et al.) and an additional class action were filed subsequently with substantially similar allegations. These cases have been stayed in connection with 12 13 Grace's Chapter 11 bankruptcy proceedings. The Company has requested indemnification from Grace Chemicals pursuant to the Merger agreements. If the Merger is determined to have been a fraudulent transfer, if material damages are proved by the plaintiffs, and if the Company is not able to collect, in whole or in part on the indemnity, from W.R. Grace & Co. or its affiliates or former affiliates or their insurers, and if the Company is not able to collect against any party that may have received proceeds from W.R. Grace & Co., a judgment could have a material adverse effect on the Company's business, financial condition and results of operations. The Company is confident that no fraudulent transfer or conspiracy occurred and intends to defend the cases vigorously. OBRA 93 The Omnibus Budget Reconciliation Act of 1993 affected the payment of benefits under Medicare and employer health plans for dual-eligible ESRD patients. In July 1994, the Health Care Financing Administration issued an instruction to Medicare claims processors to the effect that Medicare benefits for the patients affected by that act would be subject to a new 18-month "coordination of benefits" period. This instruction had a positive impact on NMC's dialysis revenues because, during the 18-month coordination of benefits period, patients' employer health plans were responsible for payment, which was generally at rates higher than those provided under Medicare. In April 1995, the Health Care Financing Administration issued a new instruction, reversing its original instruction in a manner that would substantially diminish the positive effect of the original instruction on NMC's dialysis business. The Health Care Financing Administration further proposed that its new instruction be effective retroactive to August 1993, the effective date of the Omnibus Budget Reconciliation Act of 1993. NMC ceased to recognize the incremental revenue realized under the original instruction as of July 1, 1995, but it continued to bill employer health plans as primary payors for patients affected by the Omnibus Budget Reconciliation Act of 1993 through December 31, 1995. As of January 1, 1996, NMC commenced billing Medicare as primary payor for dual eligible ESRD patients affected by the act, and then began to re-bill in compliance with the revised policy for services rendered between April 24 and December 31, 1995. On May 5, 1995, NMC filed a complaint in the U.S. District Court for the District of Columbia (National Medical Care, Inc. and Bio-Medical Applications of Colorado, Inc. d/b/a Northern Colorado Kidney Center v. Shalala, C.A. No.95-0860 (WBB)) seeking to preclude the Health Care Financing Administration from retroactively enforcing its April 24, 1995 implementation of the Omnibus Budget Reconciliation Act of 1993 provision relating to the coordination of benefits for dual eligible ESRD patients. On May 9, 1995, NMC moved for a preliminary injunction to preclude the Health Care Financing Administration from enforcing its new policy retroactively, that is, to billing for services provided between August 10, 1993 and April 23, 1995. On June 6, 1995, the court granted NMC's request for a preliminary injunction and in December of 1996, NMC moved for partial summary judgment seeking a declaration from the Court that the Health Care Financing Administration's retroactive application of the April 1995 rule was legally invalid. The Health Care Financing Administration cross-moved for summary judgment on the grounds that the April 1995 rule was validly applied prospectively. In January 1998, the court granted NMC's motion for partial summary judgment and entered a declaratory judgment in favor of NMC, holding the Health Care Financing Administration's retroactive application of the April 1995 rule legally invalid. Based on its finding, the Court also permanently enjoined the Health Care Financing Administration from enforcing and applying the April 1995 rule retroactively against NMC. The Court took no action on the Health Care Financing Administration's motion for summary judgment pending completion of the outstanding discovery. On October 5, 1998, NMC filed its own motion for summary judgment requesting that the Court declare the Health Care Financing Administration's prospective application of the April 1995 rule invalid and permanently enjoin Health Care Financing Administration from prospectively enforcing and applying the April 1995 rule. The Court has not yet ruled on the parties' motions. The Health Care Financing Administration elected not to appeal the Court's June 1995 and January 1998 orders. The Health Care Financing Administration may, however, appeal all rulings at the conclusion of the litigation. If the Health Care Financing Administration should successfully appeal so that the revised interpretation would be applied retroactively, NMC may be required to refund the payment received from employer health plans for services provided after August 10, 1993 under the Health Care Financing Administration's original implementation, and to re-bill Medicare for the same services, which would result in a loss to NMC of approximately $120 million attributable to all periods prior to December 31, 1995. Also, in this event, the Company's business, financial condition and results of operations would be materially adversely affected. In July, 2000, NMC filed a complaint in the U.S. District Court for the Eastern District of Virginia (National Medical Care, Inc. and Bio-Medical Applications of Virginia, Inc. v. Aetna Life Insurance, Co., Inc. Aetna U.S. Healthcare, Inc. and John Does 1-10) seeking recovery against Aetna U.S. Healthcare and health plans administered by Aetna U.S. Healthcare for claims related to primary payor liability for dual eligible ESRD patients under the Omnibus Budget Reconciliation Act of 1993. On January 16, 2001, the Court stayed the action pending resolution of the District of Columbia Court action. 13 14 OTHER LITIGATION AND POTENTIAL EXPOSURES From time to time, the Company is a party to or may be threatened with other litigation arising in the ordinary course of its business. Management regularly analyzes current information including, as applicable, the Company's defenses and insurance coverage and, as necessary, provides accruals for probable liabilities for the eventual disposition of these matters. The ultimate outcome of these matters is not expected to materially affect the Company's financial position, results of operations or cash flows. The Company, like other health care providers, conducts its operations under intense government regulation and scrutiny. The Company must comply with regulations which relate to or govern the safety and efficacy of medical products and supplies, the operation of manufacturing facilities, laboratories and dialysis clinics, and environmental and occupational health and safety. The Company must also comply with the U.S. anti-kickback statute, the False Claims Act, the Stark Law, and other federal and state fraud and abuse laws. Applicable laws or regulations may be amended, or enforcement agencies or courts may make interpretations that differ from the Company's or the manner in which the Company conduct its business. In the U.S., enforcement has become a high priority for the federal government and some states. In addition, the provisions of the False Claims Act authorizing payment of a portion of any recovery to the party bringing the suit encourage private plaintiffs to commence "whistle blower" actions. By virtue of this regulatory environment, as well as our corporate integrity agreement with the government, the Company expects that its business activities and practices will continue to be subject to extensive review by regulatory authorities and private parties, and continuing inquiries, claims and litigation relating to its compliance with applicable laws and regulations. The Company may not always be aware that an inquiry or action has begun, particularly in the case of "whistle blower" actions, which are initially filed under court seal. The Company operates a large number facilities throughout the U.S. In such a decentralized system, it is often difficult to maintain the desired level of oversight and control over the thousands of individuals employed by many affiliate companies. The Company relies upon its management structure, regulatory and legal resources, and the effective operation of its compliance program to direct, manage and monitor the activities of these employees. On occasion, the Company may identify instances where employees, deliberately or inadvertently, have submitted inadequate or false billings. The actions of such persons may subject the Company and its subsidiaries to liability under the False Claims Act, among other laws, and the Company cannot predict whether law enforcement authorities may use such information to initiate further investigations of the business practices disclosed or any of its other business activities. Physicians, hospitals and other participants in the health care industry are also subject to a large number of lawsuits alleging professional negligence, malpractice, product liability, worker's compensation or related claims, many of which involve large claims and significant defense costs. The Company has been subject to these suits due to the nature of its business and the Company expects that those types of lawsuits may continue. Although the Company maintains insurance at a level which it believes to be prudent, the Company cannot assure that the coverage limits will be adequate or that insurance will cover all asserted claims. A successful claim against the Company or any of its subsidiaries in excess of insurance coverage could have a material adverse effect upon the Company and the results of its operations. Any claims, regardless of their merit or eventual outcome, also may have a material adverse effect on the Company's reputation and business. The Company has also had claims asserted against it and has had lawsuits filed against it relating to businesses that it has acquired or divested. These claims and suits relate both to operation of the businesses and to the acquisition and divestiture transactions. The Company has asserted its own claims, and claims for indemnification. Although the ultimate outcome on the Company cannot be predicted at this time, an adverse result could have a material adverse effect upon the Company's business, financial condition, and results of operations. INDEMNIFICATION BY W. R. GRACE & CO. The Company was formed as a result of a series of transactions pursuant to the Agreement and Plan of Reorganization (the "Merger") dated as of February 4, 1996 by and between W.R. Grace & Co. and Fresenius AG. At the time of the Merger, a W.R. Grace & Co. subsidiary known as W.R. Grace & Co.-Conn. had, and continues to have, significant liabilities arising out of product-liability related litigation, pre-merger tax claims and other claims unrelated to NMC, which was Grace's dialysis business prior to the Merger. In connection with the Merger, W.R. Grace & Co.-Conn. agreed to indemnify the Company and NMC against all liabilities of W.R. Grace & Co., whether relating to events occurring before or after the Merger, other than liabilities arising from or relating to NMC's operations. Proceedings have been brought against W.R. Grace & Co. and the Company by plaintiffs claiming to be creditors of W.R. Grace & Co.-Conn., principally alleging that the Merger was a fraudulent conveyance, violated the uniform fraudulent transfer act, and constituted a conspiracy. See "Legal Proceedings" above. In addition, the Merger was consummated as a tax free reorganization. Pre-merger tax claims or tax claims that would arise if events were to violate the tax-free nature of the Merger could be the obligation of the Company. Subject to certain representations made by W.R. Grace & Co.-Conn., the Company and Fresenius AG, W.R. Grace & Co.-Conn. also agreed to indemnify the Company against any such tax liability. W.R. Grace & Co.-Conn. and certain of its subsidiaries have filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. If the Merger is determined to be a fraudulent transfer and if material damages are proved by the plaintiffs, or if the Merger is determined to be a taxable transaction, or if W.R. Grace & Co. is unable to satisfy its merger related or pre-merger tax obligations, and if the Company is not able to collect on the indemnities from W.R. Grace & Co. as a result of the bankruptcy proceedings or otherwise, and if the Company is not able to collect on the indemnities from any affiliates or former affiliates of W.R. Grace & Co. or their insurers, and if the Company is not able to collect against any party that may have received proceeds from W.R. Grace & Co., a judgment could have a material adverse effect on the Company's business, financial condition and results of operations. 14 15 NOTE 7. INDUSTRY SEGMENTS INFORMATION The Company's reportable segments are Dialysis Services and Dialysis Products. For purposes of segment reporting, the Dialysis Services Division and Spectra Renal Management are combined and reported as Dialysis Services. These divisions are aggregated because of their similar economic classifications. These include the fact that they are both health care service providers whose services are provided to a common patient population, and both receive a significant portion of their net revenue from Medicare and other government and non-government third party payors. The Dialysis Products segment reflects the activity of the Dialysis Products Division only. The table below provides information for the three months ended March 31, 2001 and 2000 pertaining to the Company's two industry segments.
LESS DIALYSIS DIALYSIS INTERSEGMENT SERVICES PRODUCTS SALES TOTAL ---------- ---------- ------------ ---------- NET REVENUES FOR THREE MONTHS ENDED 3/31/01 $ 692,471 $178,679 $66,009 $ 805,141 3/31/00 $ 630,002 $174,942 $59,829 $ 745,115 OPERATING EARNINGS FOR THREE MONTHS ENDED 3/31/01 98,975 30,487 -- 129,462 3/31/00 99,101 26,252 -- 125,353 ASSETS AT 3/31/2001 2,233,373 653,571 -- 2,886,944 12/31/2000 2,176,055 644,853 -- 2,820,908
Total assets of $4,604,064 is comprised of total assets for reportable segments, $2,886,944; intangible assets not allocated to segments, $1,916,562; accounts receivable financing agreement ($439,700); and other corporate assets, $240,258. The table below provides the reconciliations of reportable segment operating earnings to the Company's consolidated totals.
THREE MONTHS ENDED SEGMENT RECONCILIATION MARCH 31, ---------------------- ----------------------------- 2001 2000 --------- --------- INCOME BEFORE INCOME TAXES: Total operating earnings for reportable segments $129,462 $125,353 Corporate G&A (32,872) (25,798) Research and development expense (1,084) (1,197) Net interest expense (51,050) (53,303) -------- -------- Income Before Income Taxes $ 44,456 $ 45,055 ======== ========
15 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the financial condition and results of operations of the Company. The discussion should be read in conjunction with the consolidated financial statements included elsewhere in this document. This section contains certain forward-looking statements that are subject to various risks and uncertainties. Such statements include, without limitation, discussions concerning the outlook of the Company, government reimbursement, future plans and management's expectations regarding future performance. Actual results could differ materially from those contained in these forward-looking statements due to certain factors including, without limitation, changes in business, economic and competitive conditions, regulatory reforms, foreign exchange rate fluctuations, uncertainties in litigation or investigative proceedings, the realization of anticipated tax deductions, and the availability of financing. These and other risks and uncertainties, which are more fully described elsewhere in this Item 2 and in the Company's reports filed from time to time with the Security Exchange Commission, could cause the Company's results to differ materially from the results that have been or may be projected by or on behalf of the Company. RESULTS OF OPERATIONS The following table summarizes certain operating results of the Company by principal business unit for the periods indicated. Intercompany eliminations primarily reflect sales of medical supplies by Dialysis Products to Dialysis Services.
THREE MONTHS ENDED MARCH 31, --------------------- (DOLLARS IN MILLIONS) 2001 2000 ----- ----- NET REVENUES Dialysis Services ............ $692 $630 Dialysis Products ............ 179 175 Intercompany Eliminations..... (66) (60) ---- ---- Total Net Revenues ............... $805 $745 ==== ==== Operating Earnings: Dialysis Services ............ $ 99 $ 99 Dialysis Products ............ 30 26 ---- ---- Total Operating Earnings ......... 129 125 ---- ---- Other Expenses: General Corporate ............ $ 33 $ 26 Research & Development ....... 1 1 Interest Expense, Net ........ 51 53 ---- ---- Total Other Expenses ............. 85 80 ---- ---- Earnings Before Income Taxes ..... 44 45 Provision for Income Taxes ....... 21 22 ---- ---- Net Income ....................... $ 23 $ 23 ==== ====
16 17 THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Net revenues for the first three months of 2001 increased by 8% ($60 million) over the comparable period in 2000. Net earnings for the first three months of 2001 remained unchanged over the comparable period in 2000 as a result of increased operating earnings and decreased interest expense offset by increased general corporate expenses. DIALYSIS SERVICES Dialysis Services net revenues for the first three months of 2001 increased by 10% ($62 million) over the comparable period in 2000, primarily as a result of an 8% increase in the number of treatments provided, the impact of increased Medicare reimbursement rates, and increased laboratory testing revenues due to patient volume. The treatment increase was a result of base business growth and the impact of 2000 acquisitions. The laboratory testing revenues increased as a result of higher patient volume. Dialysis Services operating earnings for the first three months of 2001 remained unchanged over the comparable period of 2000 as the revenue increases were entirely offset by increased operating expenses primarily related to higher personnel costs, increases in the provision for doubtful accounts, and increases to other operating expenses. DIALYSIS PRODUCTS Dialysis Products net revenues for the first three months of 2001 increased by 2% ($4 million) over the comparable period of 2000. This is primarily due to increased sales of dialyzers and other hemo disposable products, partially offset by decreased sales of machines and peritoneal products. Dialysis Products operating earnings for the first three months of 2001 increased by 15% ($4 million) over the comparable period of 2000. This is a result of an improvement in gross margin and decreased freight and distribution expenses. OTHER EXPENSES The Company's other expenses for the first three months of 2000 increased by 6% ($5 million) over the comparable period of 2000. General corporate expenses increased by $7 million due to a charge of approximately $9 million to fair value foreign exchange contracts, partially offset by reduced corporate spending. Interest expense was favorable by $2 million primarily due to the change in the mix of debt instruments during the first quarter 2001 versus the first quarter 2000. INCOME TAX RATE The effective tax rate from operations for the first three months of 2001 (47.9%) is lower than the rate for the comparable period of 2000 (48.7%), due to expected higher earnings in relation to the amount of non-deductible merger goodwill. LIQUIDITY AND CAPITAL RESOURCES The Company's cash requirements in 2001, and 2000, including acquisitions and capital expenditures have historically been funded by cash generated from operations, additional net intercompany borrowings and net increases in the receivable financing facility. Cash from operations decreased by $12 million from $61 million for the three months ended Mach 31, 2000 to $49 million for the three months ended Mach 31, 2001. This decrease is primarily related to decreases in deferred income taxes partially offset by increased addbacks for non cash expenses and net increases in operating assets and liabilities of $3 million. The movement in operating assets and liabilities includes the collection of $5 million related to IDPN receivables. Increases in accounts receivable of $50 million in the three month period 2001 are primarily due to the impact of acquisitions in 2001 and 2000, as well as slower payment patterns from third parties, specifically non governmental payors. Increases in accounts payable are primarily due to the timing of disbursements. 17 18 Cash on hand was $33 million at March 31, 2001 and December 31, 2000. Net cash flows used in investing activities of operations totaled $41 million in 2001 compared to $56 million in 2000. The Company funded its acquisitions and capital expenditures primarily through cash flows from operations and intercompany borrowings. Acquisitions totaled $5 million and $36 million in 2001 and 2000, respectively, net of cash acquired. Capital expenditures of $35 million and $20 million were made for internal expansion, improvements, new furnishings and equipment in 2001 and 2000, respectively. Net cash flows used in financing activities of operations totaled $8 million in 2001 compared to $2 million in 2000. During the first three months of 2001, the Company made payments to the U.S. Government totaling $35 million for the Settlement. In addition, debt and capital lease obligations increased by $43 million, primarily due to an increase on the Company's credit facility of $43 million. IMPACT OF INFLATION A substantial portion of the Company's net revenue is subject to reimbursement rates which are regulated by the federal government and do not automatically adjust for inflation. Non-governmental payors also are exerting downward pressure on reimbursement levels. Increased operating costs that are subject to inflation, such as labor and supply costs, without a compensating increase in reimbursement rates, may adversely affect the Company's business and results of operations. Amgen Inc. has announced a 3.9% increase in its wholesaler acquisition price for Epogen effective May 9, 2001. The Company's purchase contract with Amgen contains pricing protection such that its purchase price for Epogen will be unaffected by such increase through December 31, 2001. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks due to changes in interest rates and foreign currency rates. The Company uses derivative financial instruments, including interest rate swaps and foreign exchange contracts, as part of its market risk management strategy. These instruments are used as a means of hedging exposure to interest rate and foreign currency fluctuations in connection with debt obligations and purchase commitments. Periodically, the Company enters into derivative instruments with related parties to form a natural hedge for currency exposures on intercompany obligations. These instruments are reflected in the balance sheet at fair value with changes in fair value recognized in earnings. Hedge accounting is applied if the derivative reduces the risk of the underlying hedged item and is designated at inception as a hedge. Additionally, changes in the value of the derivative must result in payoffs that are highly correlated to the changes in value of the hedged item. Derivatives are measured for effectiveness both at inception and on an ongoing basis. The Company enters into foreign exchange contracts that are designated as, and effective as, hedges for the Euro denominated mandatorily redeemable preferred stock and for forecasted purchases of raw materials. Also, since the Company carries a substantial amount of floating rate debt, the Company uses interest rate swaps to synthetically change certain variable-rate debt obligations to fixed-rate obligations, as well as options to mitigate the impact of interest rate fluctuations. Gains and losses on foreign exchange contracts accounted for as cash flow hedges are deferred in comprehensive income. The deferred gains and losses are recognized as adjustments to cost of sales when the future sales are recognized. Interest rate swap payments and receipts are recorded as part of interest expense. Gains and losses from interest rate swaps are deferred in other comprehensive income and will be reclassed into interest expense over the period during which the hedge variable interest rate payments are recognized. Cash flows from derivatives are recognized in the consolidated statement of cash flows in the same category as the item being hedged. At March 31, 2001, the fair value of the Company's interest rate agreements, which consisted entirely of interest rate swaps, is approximately ($47.0 million) and the fair value of the Company's foreign exchange contracts, which consisted entirely of forward agreements, is valued at approximately $10.6 million. The Company had outstanding contracts covering the purchase of 488 million Euros ("EUR") at an average contract price of $0.9114 per EUR, for delivery between April 2001 and November 2003. 18 19 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Commercial Litigation In 1997, the Company, NMC, and certain named NMC subsidiaries, were served with a civil complaint filed by Aetna Life Insurance Company in the U.S. District Court for the Southern District of New York. The lawsuit alleges inappropriate billing practices for nutritional therapy, diagnostic and clinical laboratory tests and misrepresentations. In April 1999, Aetna amended its complaint to include its affiliate, Aetna U.S. Healthcare, Inc., as an additional plaintiff, and to make certain other limited changes in its pleading. The amended complaint seeks unspecified damages and costs. Other insurance companies have filed similar clams seeking unspecified damages and costs. The Company, NMC and its subsidiaries believe that there are substantial defenses to the claims asserted, and intend to vigorously defend all lawsuits. Other private payors have contacted the Company and may assert that NMC received excess payment and, similarly, may join the lawsuits or file their own lawsuit seeking reimbursement and other damages. Although the ultimate outcome on the Company of these proceedings cannot be predicted at this time, an adverse result could have a material adverse effect on the Company's business, financial condition and result of operations. The Company has filed counterclaims against the plaintiffs in these matters based on inappropriate claim denials and delays in claim payments. On September 28, 2000, Mesquita, et al. v. W.R. Grace & Company, et al. (Sup. Court of Calif., S.F. County, #315465) was filed as a class action by plaintiffs claiming to be creditors of W.R. Grace & Co.-Conn. ("Grace Chemicals") against Grace Chemicals, the Company and other defendants, principally alleging that the Merger which resulted in the original formation of the Company (described in greater detail in Note 5 to the financial statements included in Part I infra) was a fraudulent transfer, violated the uniform fraudulent transfer act, and constituted a conspiracy. An amended complaint (Abner et al. v. W.R. Grace & Company, et al.) and an additional class action were filed subsequently with substantially similar allegations. These cases have been stayed in connection with Grace's Chapter 11 bankruptcy proceedings. The Company has requested indemnification from Grace Chemicals pursuant to the Merger agreements. If the Merger is determined to have been a fraudulent transfer, if material damages are proved by the plaintiffs, and if the Company is not able to collect, in whole or in part on the indemnity from W.R. Grace & Co. or its affiliates or former affiliates or their insurers, and if the Company is not able to collect against any party that may have received proceeds from W.R. Grace & Co., a judgment could have a material adverse effect on the Company's business, financial condition and results of operations. The Company is confident that no fraudulent transfer or conspiracy occurred and intends to defend the cases vigorously. OBRA 93 The Omnibus Budget Reconciliation Act of 1933 affected the payment of benefits under Medicare and employer health plans for dual-eligible ESRD patients. In July 1994, the Health Care Financing Administration issued an instruction to Medicare claims processors to the effect that Medicare benefits for the patients affected by that act would be subject to a new 18-month "coordination of benefits" period. This instruction had a positive impact on NMC's dialysis revenues because, during the 18-month coordination of benefits period, patients' employer health plans were responsible for payment, which was generally at rates higher than those provided under Medicare. In April 1995, the Health Care Financing Administration issued a new instruction, reversing its original instruction in a manner that would substantially diminish the positive effect of the original instruction on NMC's dialysis business. The Health Care Financing Administration further proposed that its new instruction be effective retroactive to August 1993, the effective date of the Omnibus Budget Reconciliation Act of 1993. NMC ceased to recognize the incremental revenue realized under the original instruction as of July 1, 1995, but it continued to bill employer health plans as primary payors for patients affected by the Omnibus Budget Reconciliation Act of 1993 through December 31, 1995. As of January 1, 1996, NMC commenced billing Medicare as primary payor for dual eligible ESRD patients affected by the act, and then began to re-bill in compliance with the revised policy for services rendered between April 24 and December 31, 1995. 20 20 On May 5, 1995, NMC filed a complaint in the U.S. District Court for the District of Columbia (National Medical Care, Inc. and Bio-Medical Applications of Colorado, Inc. d/b/a Northern Colorado Kidney Center v. Shalala, C.A. No. 95-0860 (WBB)) seeking to preclude the Health Care Financing Administration from retroactively enforcing its April 24, 1995 implementation of the Omnibus Budget Reconciliation Act of 1993 provision relating to the coordination of benefits for dual eligible ESRD patients. On May 9, 1995, NMC moved for a preliminary injunction to preclude the Health Care Financing Administration from enforcing its new policy retroactively, that is, to billing for services provided between August 10, 1993 and April 23, 1995. On June 6, 1995, the court granted NMC's request for a preliminary injunction and in December of 1996, NMC moved for partial summary judgment seeking a declaration from the Court that the Health Care Financing Administration's retroactive application of the April 1995 rule was legally invalid. The Health Care Financing Administration cross-moved for summary judgment on the grounds that the April 1995 rule was validly applied prospectively. In January 1998, the court granted NMC's motion for partial summary judgment and entered a declaratory judgment in favor of NMC, holding the Health Care Financing Administration's retroactive application of the April 1995 rule legally invalid. Based on its finding, the Court also permanently enjoined the Health Care Financing Administration from enforcing and applying the April 1995 rule retroactively against NMC. The Court took no action on the Health Care Financing Administration's motion for summary judgment pending completion of the outstanding discovery. On October 5, 1998, NMC filed its own motion for summary judgment requesting that the Court declare the Health Care Financing Administration's prospective application of the April 1995 rule invalid and permanently enjoin Health Care Financing Administration from prospectively enforcing and applying the April 1995 rule. The Court has not yet ruled on the parties' motions. The Health Care Financing Administration elected not to appeal the Court's June 1995 and January 1998 orders. The Health Care Financing Administration may, however, appeal all rulings at the conclusion of the litigation. If the Health Care Financing Administration should successfully appeal so that the revised interpretation would be applied retroactively, NMC may be required to refund the payment received from the employer health plans for services provided after August 10, 1993 under the Health Care Financing Administration's original implementation, and to re-bill Medicare for the same services, which would result in a loss to NMC of approximately $120 million attributable to all periods prior to December 31, 1995. Also, in this event, the Company's business, financial condition and results of operations would be materially adversely affected. In July, 2000, NMC filed a complaint in the U.S. District Court for the Eastern District of Virginia (National Medical Care, Inc. and Bio-Medical Applications of Virginia, Inc. v. Aetna Life Insurance, Co., Inc. Aetna U.S. Healthcare, Inc. and John Does 1-10) seeking recovery against Aetna U.S. Healthcare and health plans administered by Aetna U.S. Healthcare for claims related to primary payor liability for dual eligible ESRD patients under the Omnibus Budget Reconciliation Act of 1993. On January 16, 2001, the Court stayed the action pending resolution of the District of Columbia Court action. OTHER LITIGATION AND POTENTIAL EXPOSURES From time to time, the Company is a party to or may be threatened with other litigation arising in the ordinary course of its business. Management regularly analyzes current information including, as applicable, the Company's defenses and insurance coverage and, as necessary, provides accruals for probable liabilities for the eventual disposition of these matters. The ultimate outcome of these matters is not expected to materially affect the Company's financial position, results of operations or cash flows. The Company, like other health care providers, conducts its operations under intense government regulation and scrutiny. The Company must comply with regulations which relate to or govern the safety and efficacy of medical products and supplies, the operation of manufacturing facilities, laboratories and dialysis clinics, and environmental and occupational health and safety. The Company must also comply with the U.S. anti-kickback statute, the False Claims Act, the Stark Law, and other federal and state fraud and abuse laws. Applicable laws or regulations may be amended, or enforcement agencies or courts may make interpretations that differ from the Company's or the manner in which the Company conduct its business. In the U.S., enforcement has become a high priority for the federal government and some states. In addition, the provisions of the False Claims Act authorizing payment of a portion of any recovery to the party bringing the suit encourage private plaintiffs to commence "whistle blower" actions. By virtue of this regulatory 21 21 environment, as well as our corporate integrity agreement with the government, the Company expects that its business activities and practices will continue to be subject to extensive review by regulatory authorities and private parties, and continuing inquiries, claims and litigation relating to its compliance with applicable laws and regulations. The Company may not always be aware that an inquiry or action has begun, particularly in the case of "whistle blower" actions, which are initially filed under court seal. The Company operates a large number of facilities throughout the U.S. In such a decentralized system, it is often difficult to maintain the desired level of oversight and control over the thousands of individuals employed by many affiliate companies. The Company relies upon its management structure, regulatory and legal resources, and the effective operation of its compliance program to direct, manage and monitor the activities of these employees. On occasion, the Company may identify instances where employees, deliberately or inadvertently, have submitted inadequate or false billings. The actions of such persons may subject the Company and its subsidiaries to liability under the False Claims Act, among other laws, and the Company cannot predict whether law enforcement authorities may use such information to initiate further investigations of the business practices disclosed or any of its other business activities. Physicians, hospitals and other participants in the health care industry are also subject to a large number of lawsuits alleging professional negligence, malpractice, product liability, worker's compensation or related claims, many of which involve large claims and significant defense costs. The Company has been subject to these suits due to the nature of its business and the Company expects that those types of lawsuits may continue. Although the Company maintains insurance at a level which it believes to be prudent, the Company cannot assure that the coverage limits will be adequate or that insurance will cover all asserted claims. A successful claim against the Company or any of its subsidiaries in excess of insurance coverage could have a material adverse effect upon the Company and the results of its operations. Any claims, regardless of their merit or eventual outcome, also may have a material adverse effect on the Company's reputation and business. The Company has also had claims asserted against it and has had lawsuits filed against it relating to businesses that it has acquired or divested. These claims and suits relate both to operation of the businesses and to the acquisition and divestiture transactions. The Company has asserted its own claims, and claims for indemnification. Although the ultimate outcome on the Company cannot be predicted at this time, an adverse result could have a material adverse effect upon the Company's business, financial condition, and results of operations. 22 22 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NO. DESCRIPTION - ----------- ----------- Exhibit 2.1 Agreement and Plan of Reorganization dated as of February 4, 1996 between W. R. Grace & Co. and Fresenius AG (incorporated herein by reference to Appendix A to the Joint Proxy Statement-Prospectus of Fresenius Medical Care AG, W. R. Grace & Co. and Fresenius USA, Inc. dated August 2, 1996 and filed with the Commission on August 5, 1996). Exhibit 2.2 Distribution Agreement by and among W. R. Grace & Co., W. R. Grace & Co.-Conn. and Fresenius AG dated as of February 4, 1996 (incorporated herein by reference to Exhibit A to Appendix A to the Joint Proxy Statement-Prospectus of Fresenius Medical Care AG, W. R. Grace & Co. and Fresenius USA, Inc. dated August 2, 1996 and filed with the Commission on August 5, 1996). Exhibit 2.3 Contribution Agreement by and among Fresenius AG, Sterilpharma GmbH and W. R. Grace & Co.-Conn. dated February 4, 1996 (incorporated herein by reference to Exhibit E to Appendix A to the Joint Proxy-Statement Prospectus of Fresenius Medical Care AG, W. R. Grace & Co. and Fresenius USA, Inc. dated August 2, 1996 and filed with the Commission on August 5, 1996). Exhibit 3.1 Certificate of Incorporation of Fresenius Medical Care Holdings, Inc. (f/k/a W. R. Grace & Co.) under Section 402 of the New York Business Corporation Law dated March 23, 1988 (incorporated herein by reference to the Form 8-K of the Company filed on May 9, 1988). Exhibit 3.2 Certificate of Amendment of the Certificate of Incorporation of Fresenius Medical Care Holdings, Inc. (f/k/a W. R. Grace & Co.) under Section 805 of the New York Business Corporation Law dated May 25, 1988 (changing the name to W. R. Grace & Co., incorporated herein by reference to the Form 8-K of the Company filed on May 9, 1988). Exhibit 3.3 Certificate of Amendment of the Certificate of Incorporation of Fresenius Medical Care Holdings, Inc. (f/k/a W. R. Grace & Co.) under Section 805 of the New York Business Corporation Law dated September 27, 1996 (incorporated herein by reference to the Form 8-K of the Company filed with the Commission on October 15, 1996). Exhibit 3.4 Certificate of Amendment of the Certificate of Incorporation of Fresenius Medical Care Holdings, Inc. (f/k/a W. R. Grace & Co.) under Section 805 of the New York Business Corporation Law dated September 27, 1996 (changing the name to Fresenius National Medical Care Holdings, Inc., incorporated herein by reference to the Form 8-K of the Company filed with the Commission on October 15, 1996). Exhibit 3.5 Certificate of Amendment of the Certificate of Incorporation of Fresenius Medical Care Holdings, Inc. under Section 805 of the New York Business Corporation Law dated June 12, 1997 (changing name to Fresenius Medical Care Holdings, Inc., incorporated herein by reference to the Form 10-Q of the Company filed with the Commission on August 14, 1997). Exhibit 3.6 Amended and Restated By-laws of Fresenius Medical Care Holdings, Inc. (incorporated herein by reference to the Form 10-Q of the Company filed with the Commission on August 14, 1997). Exhibit 4.1 Credit Agreement dated as of September 27, 1996 among National Medical Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and Affiliates, as Guarantors, the Lenders named therein, NationsBank, N.A., as paying agent and The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank AG and Bank of America, N.A. (formerly known as NationsBank, N.A.), as Managing Agents (incorporated herein by reference to the Form 6-K of Fresenius Medical Care AG filed with the Commission on October 15, 1996).
23 23 Exhibit 4.2 Amendment dated as of November 26, 1996 (amendment to the Credit Agreement dated as of September 27, 1996, incorporated herein by reference to the Form 8-K of Registrant filed with the Commission on December 16, 1996). Exhibit 4.3 Amendment No. 2 dated December 12, 1996 (second amendment to the Credit Agreement dated as of September 27, 1996, incorporated herein by reference to the Form 10-K of Registrant filed with the Commission on March 31, 1997). Exhibit 4.4 Amendment No. 3 dated June 13, 1997 to the Credit Agreement dated as of September 27, 1996, among National Medical Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and Affiliates, as Guarantors, the Lenders named therein, NationsBank, N.A., as paying agent and The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank AG and Bank of America, N.A. (formerly known as NationsBank, N.A.), as Managing Agents, as previously amended (incorporated herein by reference to the Form 10-Q of the Registrant filed with the Commission on November 14, 1997). Exhibit 4.5 Amendment No. 4, dated August 26, 1997 to the Credit Agreement dated as of September 27, 1996, among National Medical Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and Affiliates, as Guarantors, the Lenders named therein, NationsBank, N.A., as paying agent and The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank AG and Bank of America, N.A. (formerly known as NationsBank, N.A.), as Managing Agents, as previously amended (incorporated herein by reference to the Form 10-Q of Registrant filed with Commission on November 14, 1997). Exhibit 4.6 Amendment No. 5 dated December 12, 1997 to the Credit Agreement dated as of September 27, 1996, among National Medical Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and Affiliates, as Guarantors, the Lenders named therein, NationsBank, N.A., as paying agent and The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank AG and Bank of America, N.A. (formerly known as NationsBank, N.A.), as Managing Agents, as previously amended (incorporated herein by reference to the Form 10-K of Registrant filed with Commission on March 23, 1998). Exhibit 4.7 Form of Consent to Modification of Amendment No. 5 dated December 12, 1997 to the Credit Agreement dated as of September 27, 1996 among National Medical Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and Affiliates, as Guarantors, the Lenders named therein, NationsBank, N.A., as paying agent and The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank AG and Bank of America, N.A. (formerly known as NationsBank, N.A.), as Managing Agents (incorporated herein by reference to the Form 10-K of Registrant filed with Commission on March 23, 1998). Exhibit 4.8 Amendment No. 6 dated effective September 30, 1998 to the Credit Agreement dated as of September 27, 1996, among National Medical Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and Affiliates, as Guarantors, the Lenders named therein, NationsBank, as paying agent and The Bank of Nova Scotia, The Chase Manhattan Bank, N.A., Dresdner Bank AG and Bank of America, N.A. (formerly known as NationsBank, N.A.), as Managing Agents, as previously amended (incorporated herein by reference to the Form 10-Q of Registrant filed with Commission on November 12, 1998). Exhibit 4.9 Amendment No. 7 dated as of December 31, 1998 to the Credit Agreement dated as of September 27, 1996 among National Medical Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and Affiliates Guarantors , the Lenders named therein, Nations Bank, N.A. as paying agent and The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank A. G. and Bank of America, N.A. (formerly known as NationsBank, N.A.). as Managing Agents, (incorporated herein by reference to the Form 10-K of registrant filed with Commission on March 9, 1999). Exhibit 4.10 Amendment No. 8 dated as of June 30, 1999 to the Credit Agreement dated as of September 27, 1996 among National Medical Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and Affiliates Guarantors, the Lenders named therein, NationsBank, N.A. as paying agent and The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank A.G. and Bank of America, N.A. (formerly known as NationsBank, N.A.), as Managing Agent (incorporated herein by reference to the Form 10-K of registrant filed with Commission on March 30, 2000).
24 24 Exhibit 4.11 Amendment No. 9 dated as of December 15, 1999 to the Credit Agreement dated as of September 27, 1996 among National Medical Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and Affiliates Guarantors, the Lenders named therein, NationsBank, N.A. as paying agent and The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank A.G. and Bank of America, N.A. (formerly known as NationsBank, N.A.), as Managing Agent (incorporated herein by reference to the Form 10-K of registrant filed with Commission on March 30, 2000). Exhibit 4.12 Amendment No. 10 dated as of September 21, 2000 to the Credit Agreement dated as of September 27, 1996 among National Medical Care, Inc. and Certain Subsidiaries and Affiliates, as Borrowers, Certain Subsidiaries and Affiliates Guarantors, the Lenders named therein, NationsBank, N.A. as paying agent and The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner Bank A.G. and Bank of America, N.A. (formerly known as NationsBank, N.A.), as Managing Agent, (incorporated herein by reference to the Form 10-K of registrant filed with Commission on November 11, 2000). Exhibit 4.13 Fresenius Medical Care AG 1998 Stock Incentive Plan as amended effective as of August 3, 1998 (incorporated herein by reference to the Form 10-Q of Registrant filed with Commission on May 14, 1998). Exhibit 4.14 Senior Subordinated Indenture dated November 27, 1996, among Fresenius Medical Care AG, State Street Bank and Trust Company, as successor to Fleet National Bank, as Trustee and the Subsidiary Guarantors named therein (incorporated herein by reference to the Form 10-K of Registrant filed with the Commission on March 31, 1997). Exhibit 4.15 Senior Subordinated Indenture dated as of February 19, 1998, among Fresenius Medical Care AG, State Street Bank and Trust Company as Trustee and Fresenius Medical Care Holdings, Inc., and Fresenius Medical Care AG, as Guarantors with respect to the issuance of 7 7/8% Senior Subordinated Notes due 2008 (incorporated herein by reference to the Form 10-K of Registrant filed with Commission on March 23, 1998). Exhibit 4.16 Senior Subordinated Indenture dated as of February 19, 1998 among FMC Trust Finance S.a.r.l. Luxemborg, as Insurer, State Street Bank and Trust Company as Trustee and Fresenius Medical Care Holdings, Inc., and Fresenius Medical Care AG, as Guarantors with respect to the issuance of 7 3/8% Senior Subordinated Notes due 2008 (incorporated herein by reference to the Form 10-K of Registrant filed with Commission on March 23, 1998). Exhibit 10.1 Employee Benefits and Compensation Agreement dated September 27, 1996 by and among W. R. Grace & Co., National Medical Care, Inc., and W. R. Grace & Co.-- Conn. (incorporated herein by reference to the Registration Statement on Form F-1 of Fresenius Medical Care AG, as amended (Registration No. 333-05922), dated November 22, 1996 and the exhibits thereto). Exhibit 10.2 Purchase Agreement, effective January 1, 1995, between Baxter Health Care Corporation and National Medical Care, Inc., including the addendum thereto (incorporated by reference to the Form SE of Fresenius Medical Care dated July 29, 1996 and the exhibits thereto). Exhibit 10.3* Product Purchase Agreement effective January 1, 2001 between Amgen, Inc. and National Medical Care, Inc. and Everest Healthcare Services Corporation (filed herewith). Exhibit 10.4 Primary Guarantee dated July 31, 1996 (incorporated by reference to the Registrant's Registration Statement on Form S-4 (Registration No. 333-09497) dated August 2, 1996 and the exhibits thereto). Exhibit 10.5 Secondary Guarantee dated July 31, 1996 (incorporated by reference to the Registrant's Registration Statement on Form S-4 (Registration No. 333-09497) dated August 2, 1996 and the exhibits thereto). Exhibit 10.6 Receivables Purchase Agreement dated August 28, 1997 between National Medical Care, Inc. and NMC Funding Corporation (incorporated herein by reference to the Form 10-Q of the Registrant filed with the Commission on November 14, 1997).
25 25 Exhibit 10.7 Amendment dated as of September 28, 1998 to the Receivables Purchase Agreement dated as of August 28, 1997, by and between NMC Funding Corporation, as Purchaser and National Medical Care, Inc., as Seller (incorporated herein by reference to the Form 10-Q of Registrant filed with Commission on November 12, 1998). Exhibit 10.8 Amended and Restated Transfer and Administration Agreement dated as October 26, 2000 among Compass US Acquisition, LLC, NMC Funding Corporation, National Medical Care, Inc., Enterprise Funding Corporation, the Bank Investors listed therein, Westdeutsche Landesbank Girozentrale, New York Branch, as an administrative agent and Bank of America, N.A., as an administrative agent (incorporated herein by reference to the Form 10-K of Registrant filed with Commission on April 2, 2001). Exhibit 10.9 Employment Agreement dated January 1, 1992 by and between Ben J. Lipps and Fresenius USA, Inc. (incorporated herein by reference to the Annual Report on Form 10-K of Fresenius USA, Inc., for the year ended December 31, 1992). Exhibit 10.10 Modification to FUSA Employment Agreement effective as of January 1, 1998 by and between Ben J. Lipps and Fresenius Medical Care AG (incorporated herein by reference to the Form 10-Q of Registrant filed with Commission on May 14, 1998). Exhibit 10.11 Separation Agreement dated January 31, 2001 by and between Roger G. Stoll and Fresenius Medical Care Holdings, Inc. (filed herewith). Exhibit 10.12 Loan Agreement dated January 31, 2001 by and between Roger G. Stoll and Fresenius Medical Care Holdings, Inc. (filed herewith). Exhibit 10.13 Employment Agreement dated March 15, 2000 by and between Jerry A. Schneider and National Medical Care, Inc. (incorporated herein by reference to the Form 10-Q of Registrant filed with Commission on May 12, 2000). Exhibit 10.14 Employment Agreement dated March 15, 2000 by and between Ronald J. Kuerbitz and National Medical Care, Inc. (incorporated herein by reference to the Form 10-Q of Registrant filed with Commission on May 12, 2000). Exhibit 10.15 Employment Agreement dated March 15, 2000 by and between J. Michael Lazarus and National Medical Care, Inc. (incorporated herein by reference to the Form 10-Q of Registrant filed with Commission on May 12, 2000). Exhibit 10.16 Employment Agreement dated March 15, 2000 by and between Robert "Rice" M. Powell, Jr. and National Medical Care, Inc. (incorporated herein by reference to the Form 10-K of Registrant filed with Commission on April 2, 2001). Exhibit 10.17 Employment Agreement dated June 1, 2000 by and between John F. Markus and National Medical Care, Inc. (incorporated herein by reference to the Form 10-K of Registrant filed with Commission on April 2, 2001). Exhibit 10.18 Employment Agreement dated January 1, 2001 by and between E. Craig Dawson and National Medical Care, Inc. (incorporated herein by reference to the Form 10-K of Registrant filed with Commission on April 2, 2001). Exhibit 10.19 Subordinated Loan Note dated as of May 18, 1999, among National Medical Care, Inc. and certain Subsidiaries with Fresenius AG as lender (incorporated herein by reference to the Form 10-Q of Registrant filed with Commission on November 22, 1999). Exhibit 11 Statement re: Computation of Per Share Earnings.
(b) Reports on Form 8-K The Company filed no current reports on Form 8-K during the quarter for which this report is filed. * Confidential treatment has been requested as to certain portions of this Exhibit 26 26 SIGNATURES Pursuant to the requirement 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. Fresenius Medical Care Holdings, Inc. DATE: May 15, 2001 /s/ Ben J. Lipps ------------ ------------------------------------------ NAME: Ben J. Lipps TITLE: President (Chief Executive Officer) DATE: May 15, 2001 /s/ Jerry A. Schneider ------------ ------------------------------------------ NAME: Jerry Schneider TITLE: Chief Financial Officer 27 EX-10.3 2 b39254fmex10-3.txt PRODUCT PURCHASE AGREEMENT 1 AMGEN EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- [*] - Indicates material which has been omitted pursuant to a request for confidential treatment, and which has been separately filed. This Agreement ("Agreement"), between Amgen Inc. ("Amgen") and National Medical Care, Inc. and Everest Healthcare Services Corporation, including all subsidiaries and affiliates that are at least fifty and one-tenth percent (50.10%) owned by National Medical Care, Inc. or Everest Healthcare Services Corporation listed on Appendix B (collectively, "NMC"), sets forth the terms and conditions for the purchase of EPOGEN(R) (Epoetin alfa) by NMC. Each of the parties hereto hereby acknowledges and agrees that National Medical Care, Inc. shall act on behalf of Everest Healthcare Services Corporation such that any obligations regarding consents, notices or otherwise, due to or from Everest Healthcare Services Corporation hereunder shall be deemed satisfied when delivered to or from National Medical Care, Inc. The parties hereto agree and acknowledge that this Agreement supersedes Everest Healthcare Services Corporation's own individual agreement with Amgen to purchase EPOGEN(R) (i.e. Agreement #980460) (the "Everest Agreement") effective as of December 31, 2000 and that the Everest Agreement was terminated effective as of December 31, 2000. The final reconciliation of discounts and incentives under the Everest Agreement through December 31, 2000 will be made as provided in that agreement. 1. TERM OF AGREEMENT. The "Term" of this Agreement shall be defined as January 1, 2001 ("Commencement Date") through December 31, 2001 ("Termination Date"). 2. QUALIFIED PURCHASES. All terms contained herein apply only to purchases made hereunder, as confirmed by Amgen ("Qualified Purchases"), by NMC and, subject to the terms of Section 13, all affiliates opened, acquired, or managed by NMC during the Term, for so long as such affiliates remain at least fifty and one-tenth percent (50.10%) owned or managed by National Medical Care, Inc. or Everest Healthcare Services Corporation ("Affiliates"), through wholesalers chosen by NMC and authorized by Amgen to participate in the program ("Authorized Wholesalers") or directly from Amgen. In addition, and also subject to the terms of Section 13, Affiliates of Renaissance Health Care, Clinic, Inc., Optimal Renal Care, L.L.C., Integrated Renal Care of the Pacific, and/or any joint venture of NMC in which NMC holds at least a fifty and one-tenth percent (50.10%) ownership interest, will also be eligible to participate, although not required to purchase. Amgen agrees to reasonably approve Authorized Wholesalers requested by NMC. The option to purchase on a direct basis from Amgen is subject to receipt and approval, not to be unreasonably withheld, of an "Application for Direct Ship Account". 3. PRICING. See Appendix A. 4. PAYMENT TERMS. The terms and conditions of this Agreement shall apply whether NMC and/or Affiliates purchase EPOGEN(R)through an Authorized Wholesaler or from Amgen directly. 5. PRODUCT ACQUISITION COSTS. As long as NMC and Affiliates are the [*] non-governmental, freestanding dialysis center (including home dialysis affiliates) purchaser of EPOGEN(R) in the United States, Puerto Rico and Guam during the Term, on an annual, calendar year basis, Amgen commits that this Agreement provides NMC and Affiliates with [*] for EPOGEN(R) available to any freestanding dialysis center purchaser in the United States and Puerto Rico with comparable growth and percentage of patients with [*] [*]. If NMC and Affiliates are not the [*] non-governmental, freestanding dialysis center purchaser of EPOGEN(R) in the United States, Puerto Rico and Guam during the Term, on a calendar year basis, Amgen may provide [*] for EPOGEN(R) to [*] non-governmental, freestanding dialysis center purchaser(s). Qualification as a freestanding dialysis center shall be determined by Amgen in its reasonable discretion, in accordance with Amgen's customer classification policies, which generally classify freestanding dialysis centers as independent, exclusive providers of dialysis services, which (a) may not obtain EPOGEN(R) from or through a hospital, or (b) are not otherwise affiliated with a hospital, nursing home, or integrated health care system. This commitment excludes [*] available to any governmental entities, or [*] mandated by Title 38 (Veterans' Benefits) or Title 42 (The Public Health and Welfare) of the United States Code, or any other federal or state health care program. Amgen's agreement to make this commitment is contingent upon its ability to comply with all federal, state, local and military laws, statutes and regulations. 6. MINIMUM PRODUCT PURCHASE AGREEMENT. NMC and Affiliates as listed on Appendix B on the Commencement Date of this Agreement agree that the aggregate EPOGEN(R)purchases during [*] the Term will equal or exceed [*] for the same time period during the previous year. AGREEMENT NO. 20010007 - 1 - Ver. 1/12/01 2 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- 7. DISCOUNT. Amgen will pay discounts and incentives in accordance with the schedule and terms set forth in Appendix A attached hereto. 8. PAYMENT OF DISCOUNTS. Any discount (hereinafter defined as including a discount at time of purchase, rebate, incentive or other concession impacting the pricing of a product) earned hereunder shall be calculated in accordance with this Agreement, based on Qualified Purchases, using [*] as the calculation price, and shall be paid in the form of a [*] to National Medical Care's corporate headquarters, except as otherwise provided hereunder. NMC and Affiliates shall make available to Amgen any records concerning NMC's and Affiliates' purchase amounts that Amgen or its auditors may reasonably request. [*]. Amgen will use its best efforts to make any discount (excluding discounts at time of purchase) pursuant to this Agreement available in accordance with the terms referenced in Appendix A. Availability of discounts is contingent upon Amgen receiving all relevant purchase data from all Authorized Wholesalers designated by NMC, in a form reasonably acceptable to Amgen, detailing NMC's and Affiliates' Qualified Purchases of EPOGEN(R) for the relevant period, along with any other data required by the terms of Appendix A. In the event of any purchases directly from Amgen, all such purchase data shall be included in the calculation of all discounts. In no event shall Amgen pay any discount on EPOGEN(R) distributed by NMC or Affiliates to non-Affiliates of NMC (see Section 2 for definition of Affiliates). Subject to the section entitled "Breach of Agreement", in the event that Amgen is notified in writing that National Medical Care, Inc. and/or any of its subsidiaries or Affiliates (the "Acquiree") is acquired by another entity or a change of control otherwise occurs with respect to the Acquiree, any discount which may have been earned hereunder prior to the effective date of the acquisition shall vest, and shall be paid in the form of a [*] to National Medical Care's corporate headquarters subject to the conditions described herein. 9. TREATMENT OF DISCOUNTS. The parties agree that they will account for any discount earned hereunder in a way that complies with all applicable federal, state, and local laws and regulations, including without limitation, Section 1128B(b) of the Social Security Act and its implementing regulations, and if required by such statutes or regulations (a) claim the benefit of such discount received, in whatever form, in the fiscal year in which such discount was earned or the year after, (b) fully and accurately report the value of such discount in any cost reports filed under Title XVIII or Title XIX of the Social Security Act, or a state health care program, and (c) provide, upon request by the U.S. Department of Health and Human Services or a state agency or any other federally funded state health care program, the information furnished by Amgen concerning the amount or value of such discount. NMC agrees that it will advise all Affiliates, in writing, of any discount received by National Medical Care's corporate headquarters hereunder with respect to purchases made by such Affiliates and that NMC will advise said Affiliates as to their requirement to account for any such discount in accordance with the above stated requirements. 10. COMMITMENT TO PURCHASE. NMC and Affiliates agrees to purchase EPOGEN(R) for all of its dialysis use requirements in the United States, Puerto Rico and Guam for recombinant human erythropoietin. Amgen agrees to make such EPOGEN(R) available to NMC and Affiliates through its Authorized Wholesalers or directly from Amgen. In addition to other remedies available to NMC and Affiliates, NMC and Affiliates may purchase another brand of recombinant human erythropoietin for its dialysis use requirements in the United States, Puerto Rico and Guam if, and only if, NMC and Affiliates have informed Amgen, in writing, that NMC and Affiliates are unable to acquire sufficient amounts of EPOGEN(R) to meet NMC's and Affiliates' reasonable dialysis use requirements, and Amgen by itself, or through its Authorized Wholesalers, is actually unable to supply NMC and Affiliates with their reasonable dialysis use requirements of EPOGEN(R) within the time period reasonably required by NMC and Affiliates, which, in no event will be less than five (5) business days after Amgen's receipt of NMC's and Affiliates' written notice. If the preceding requirements are met, NMC and Affiliates will only be allowed to purchase another brand of recombinant human erythropoietin for the time period, and to the extent, that Amgen is unable to provide NMC and Affiliates with EPOGEN(R) to meet NMC's and Affiliates' reasonable dialysis use requirements. 11. OWN USE. NMC hereby certifies that EPOGEN(R)purchased hereunder will be for the "own use" by NMC and the Affiliates of NMC. 12. AUTHORIZED WHOLESALERS. A complete list of NMC's and Affiliates' current Authorized Wholesalers, through whom NMC and Affiliates may purchase EPOGEN(R) hereunder is attached as Appendix C. NMC and Affiliates agrees to promptly provide Amgen with any additions, deletions, or changes to the initial list of Authorized Wholesalers. Amgen requires no less than 30 days notice before the effective date of change for any addition or deletion of Authorized Wholesalers hereunder. Any proposed changes to the initial list of Authorized Wholesalers must be in writing and are subject to reasonable approval by Amgen. AGREEMENT NO. 20010007 - 2 - Ver. 1/12/01 3 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- 13. SUBSIDIARIES AND AFFILIATES. Within 30 days of execution of this Agreement, NMC shall provide a current listing of all Affiliates, and other entities, that will be participating in this Agreement, designating which Affiliates are owned and/or managed by NMC. Such listing will be incorporated into this Agreement as Appendix B. Only those entities listed on Appendix B will be eligible to participate in this Agreement. Any NMC managed Affiliate, or other entity with an existing contract, may participate in either their existing agreement with Amgen, or this Agreement, but not both. Each managed Affiliate or entity must declare under which single Amgen contract it will participate. Only Qualified Purchases under this Agreement will be used in the calculation of pricing, discounts or other incentives under this Agreement. NMC will notify Amgen of changes to Appendix B, and the effective date of change. Such effective date of change may not be earlier than the date the notice is received by Amgen. Any proposed change to Appendix B will be subject to the reasonable approval of Amgen based upon Amgen's then current legal and contractual requirements, and such proposed affiliate's classification as a freestanding dialysis center or a home dialysis support facility. 14. BREACH OF AGREEMENT. Either party may terminate this Agreement for a material breach upon thirty (30) days advance written notice provided such breach remains uncured at the end of the thirty (30) day period. 15. CONFIDENTIALITY. Both Amgen and NMC agree that this Agreement represents and contains confidential information which will not be disclosed to any third party, or otherwise made public, without prior written authorization of the other party, except where such disclosure is contemplated hereunder or required by law or court order. In the event NMC believes it is obligated to disclose any such information as required by law or court order, NMC will provide Amgen with prior written notice and an opportunity to seek a protective order and NMC shall furnish only that portion of the information that its counsel advises is required to be disclosed by law. 16. WARRANTIES. Each party represents and warrants to the other that this Agreement (a) has been duly authorized, executed, and delivered by it, (b) constitutes a valid, legal, and binding agreement enforceable against it in accordance with the terms contained herein, and (c) does not conflict with or violate any of its other contractual obligations, expressed or implied, to which it is a party or by which it may be bound. NMC represents and warrants that it has the power to bind National Medical Care, Inc. and the subsidiaries and owned Affiliates listed on Appendix B to the terms contained herein. NMC shall cause each managed Affiliate to be bound by the terms and conditions of this Agreement through the execution of a joinder agreement executed between NMC and each such managed Affiliate. 17. GOVERNING LAW. This Agreement will be governed by the laws of the State of Delaware and the parties submit to the jurisdiction of Delaware courts, both state and federal. 18. NOTICES. Any notice or other communication required or permitted hereunder will be in writing and shall be deemed given or made when delivered in person or when received by the other party sent by U.S. Mail, return receipt requested, at the respective party's address set forth below or at such other address as the party shall have furnished to the other in accordance with this provision. 19. COMPLIANCE WITH HEALTH CARE PRICING AND PATIENT PRIVACY LEGISLATION AND STATUTES. a) Notwithstanding anything contained herein to the contrary, at any time following the enactment of any federal, state, or local law or regulation that materially reforms, modifies, alters, restricts, or otherwise affects the pricing of or reimbursement available for EPOGEN(R), either party may initiate good faith negotiations to modify this Agreement. If after forty-five (45) days the parties are unable to in good faith mutually agree to modifications to this Agreement, (i) either party may terminate this Agreement immediately, or (ii) Amgen may exclude any owned or managed Affiliates from participating in this Agreement unless such owned or managed Affiliate(s) certifies in writing that they are, or will be, exempt from the provisions of such enacted law or regulation. Additionally, in order to assure compliance with any existing federal, state or local statute, regulation or ordinance, Amgen reserves the right, in its reasonable discretion, to exclude any owned or managed Affiliates from the pricing, discount, and incentive provisions of this Agreement. In the event there is a future change in Medicare, Medicaid, or other federal or state statutes or regulations or in the interpretation thereof, which renders any of the material terms of this Agreement unlawful or unenforceable, this Agreement shall continue and shall be amended by the parties as a result of good faith negotiations as necessary to bring the Agreement into compliance with such statute and regulation. AGREEMENT NO. 20010007 - 3 - Ver. 1/12/01 4 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- b) Notwithstanding anything contained herein to the contrary, in order to assure compliance, as determined by either party in its reasonable discretion, with any existing federal, state or local statute, regulation or ordinance relating to patient privacy of medical records, or at any time following the enactment of any federal, state, or local law or regulation relating to patient privacy of medical records that in any manner reforms, modifies, alters, restricts, or otherwise affects any of the data received or to be received in connection with any of the incentives contemplated under this Agreement, either party may upon 30 days' notice, seek to modify this Agreement. NMC and Amgen shall meet and in good faith seek to mutually agree to modify this Agreement to accommodate any such change in law or regulation, [*]. If the parties in good faith determine that such modification is not possible, the parties shall seek to modify the Agreement in another manner acceptable to both parties. If the parties, after a reasonable time, are unable to agree upon such a modification, either party shall be entitled to terminate the affected incentive upon 30 days' notice or upon the date such change in law or regulation goes into effect, whichever is earlier. [*]. 20. MISCELLANEOUS. No modification of this Agreement shall be effective unless made in writing and signed by a duly authorized representative of each party. This Agreement constitutes the entire agreement of the parties pertaining to the subject matter hereof and supersedes all prior written and oral agreements and understandings pertaining hereto including without limitation, any previous or existing contract or amendment for the purchase of EPOGEN(R). Neither party shall have the right to assign this Agreement to a third party without the prior written consent of the other party. Neither party shall be liable for delays in performance and nonperformance of this Agreement or any covenant contained herein caused by fire, flood, storm, earthquake or other act of God, war, rebellion, riot, failure of carriers to furnish transportation, strike, lockout or other labor disturbances, act of government authority, inability to obtain material or equipment, or any other cause of like or different nature beyond the control of such party. However, during any time of nonperformance by Amgen which involves NMC's and Affiliates' inability to obtain sufficient EPOGEN(R) to meet NMC's and Affiliates' reasonable dialysis use requirements, the [*] for such nonperformance, the [*] and NMC and Affiliates may purchase EPOGEN(R) from another supplier. The parties shall execute and deliver all documents, provide all information, and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement. This Agreement may be executed in one or more counterparts, each of which is deemed to be an original but all of which taken together constitutes one and the same agreement. Amgen reserves the right to rescind this offer if the parties fail to execute this Agreement within thirty (30) days from the date of its offering. Please retain one fully executed original for your records and return the other fully executed original to Amgen. THE PARTIES EXECUTED THIS AMENDMENT AS OF THE DATES SET FORTH BELOW. AMGEN INC. NATIONAL MEDICAL CARE, INC. Signature: /s/Richard W. Reese Signature: /s/Ben Lipps ---------------------------------------- ---------------------------------------- Print Name: RICHARD W. REESE Print Name: BEN LIPPS ---------------------------------------- ---------------------------------------- Print Title: NATIONAL ACCOUNT, ASSOCIATE DIRECTOR Print Title: ---------------------------------------- ---------------------------------------- Date: 2-13-01 Date: ---------------------------------------- ---------------------------------------- EVEREST HEALTHCARE HOLDINGS, INC., SUCCESSOR BY STATUTORY MERGER TO EVEREST HEALTHCARE SERVICES CORPORATION Signature /s/Michael Narachi Signature: /s/Ben Lipps ----------------------------------------- --------------------------------------- Print Name: VICE PRESIDENT & GEN'L. MGR. NBU Print Title: BEN LIPPS ----------------------------------------- --------------------------------------- Date: 2-14-01 Date: --------------------------------------- ---------------------------------------
AGREEMENT NO. 20010007 - 4 - Ver. 1/12/01 5 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS 1. PRICING. NMC and Affiliates may purchase EPOGEN(R) directly from Amgen or through Authorized Wholesalers [*]. Notwithstanding any of the foregoing, each of the parties hereto hereby acknowledges and agrees that this Agreement is being executed after the Commencement Date and that any purchases of EPOGEN(R) made by NMC and Affiliates were and will continue to be made [*] from the Commencement Date (January 1, 2001) until such date that is 15 days after the date of execution of this Agreement or March 1, 2001, if mutually agreed upon by the parties (the "Negotiation Period"). [*] [*]. Resulting prices do not include any wholesaler markup, service fees, or other charges. [*] 2. [*]. NMC may qualify [*] the following requirements must be met: A. REQUIREMENTS: In order to qualify [*]. In order to participate [*], NMC and Affiliates must provide the following information for each dialysis patient to Amgen or to a data collection vendor specified by Amgen, on a [*] basis, and no later than [*] after the end of [*]: i) facility ID, [*], [*]. Amgen may utilize the Data for any purpose, and reserves the right to audit all Data. Notwithstanding the foregoing, Amgen shall not sell or re-sell any Data obtained pursuant to this Agreement. Additionally, any use by Amgen of such Data shall be in a format that does not identify NMC as the source of such Data, unless NMC has consented to such use. Under no circumstances should the Data include any patient identifiable information including, without limitation, name, complete social security number, address or birth date. The identity of the account submitting the Data and any association with the Data will remain confidential and will not be used in a manner that is patient identifiable. The [*] must be derived from [*] taken immediately before dialysis treatment using any automated [*] must be reported to [*] and must be submitted in a format reasonably acceptable to Amgen. Hand written reports are not acceptable; electronic submission of the Data is preferred; and AGREEMENT NO. 20010007 - 5 - Ver. 1/12/01 6 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED) ii) a properly executed "Annual Certification Letter", a sample of which is attached hereto as Exhibit #1, that will be provided to National Medical Care's corporate headquarters, unless otherwise requested, after this Agreement is executed by both parties. B. CALCULATION: Assuming NMC and Affiliates have fulfilled all requirements as described in Section 2(a) above, NMC's [*] will be calculated as follows: The "Average Patient [*]" for each dialysis patient will be based upon the average of all [*] gathered for each patient during each [*] of the Term. The [*] of all dialysis patients with Average Patient [*] less than [*], will be determined by dividing the total number of dialysis patients with Average Patient [*] less than [*], by the total number of dialysis patients treated by NMC and Affiliates. [*] will be calculated based on NMC's and Affiliates' overall performance in accordance with Amgen's discount calculation policies. C. PAYMENT: [*] will be calculated on a [*] and paid to National Medical Care's corporate headquarters, except as otherwise provided hereunder. Payment is contingent upon receipt by Amgen of the Annual Certification Letter (attached hereto as Exhibit 1) and all required Data for the corresponding quarter. Data shall be submitted to Amgen [*], and no later than [*]. If Data is [*], NMC will not qualify for the [*] for that [*]. However, if Amgen determines that any Affiliate(s) is consistently not submitting the required Data, Amgen reserves the right in its reasonable discretion to exclude such Affiliate's Qualified Purchases of EPOGEN(R)from the calculation of the [*] for any relevant [*]. [*] will be based on the Data received from the [*], and will equal a percentage of NMC's and Affiliates' total Qualified Purchases of EPOGEN(R)during each relevant [*] (exclusive of any Qualified Purchases of EPOGEN(R)made by NMC or any Affiliate not meeting the Data submission requirements described above) as governed by the [*] schedules listed below. In the event the EPOGEN(R)package insert language or the [*] guidelines change, [*] AGREEMENT NO. 20010007 - 6 - Ver. 1/12/01 7 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED) [*] INCENTIVE [*] SCHEDULES: [*] [*] D. VESTING: [*] will vest on [*] and be paid in accordance with the terms and conditions of Section 2 c) Payment above. AGREEMENT NO. 20010007 - 7 - Ver. 1/12/01 8 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED) 3. [*] NMC shall be eligible to receive a [*] if certain data elements are transmitted to Amgen [*]. The [*] will be calculated as a percentage of Qualified Purchases of EPOGEN(R) attributable to NMC and all Affiliates during each [*]. In order to qualify for the [*], the following [*] must be submitted by NMC and all Affiliates in [*] format reasonably acceptable to Amgen [*]: Facility ID, [*], [*]. [*] must be submitted on a [*] basis, and no later than [*]. If such [*] is received more than [*], NMC will not qualify for the [*]. [*]. However, if Amgen determines that any Affiliate(s) is consistently not submitting the required [*], Amgen reserves the right in its sole discretion to exclude such Affiliate's Qualified Purchases of EPOGEN(R) from the calculation of the [*]. [*]. 4. [*]. NMC may qualify for the [*] as described below. A. CALCULATION: NMC's [*] will be calculated in accordance with the following formula and with each relevant [*] schedule listed below: [*] = A x B where A = [*]. B = [*]. C = [*]. D = [*]. AGREEMENT NO. 20010007 - 8 - Ver. 1/12/01 9 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED) [*] INCENTIVE [*] SCHEDULES: [*] [*] [*] [*] AGREEMENT NO. 20010007 - 9 - Ver. 1/12/01 10 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED) [*] [*] SCHEDULES: [*] [*] [*] [*] AGREEMENT NO. 20010007 - 10 - Ver. 1/12/01 11 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX A: DISCOUNT PRICING, SCHEDULE, AND TERMS (CONTINUED) For the purposes of calculating [*], Amgen will incorporate purchases of any newly created facility (but not facilities added through acquisition). [*]. B. VESTING: NMC's [*] will vest on the [*], and will be paid in accordance with the terms and conditions described above. AGREEMENT NO. 20010007 - 11 - Ver. 1/12/01 12 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX B: LIST OF NMC SUBSIDIARIES AND AFFILIATES SUBSIDIARIES: Bio-Medical Applications Management Co., Inc. and its subsidiaries Erika, Inc. Infusion Care, Inc. LifeChem, Inc. National Medical Care HomeCare Division, Inc. Renal Research Institute, Inc. Spectra Renal Management AFFILIATES: See Contract List Attached AGREEMENT NO. 20010007 - 12 - Ver. 1/12/01 13 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX C: LIST OF NMC AUTHORIZED WHOLESALERS TO ENSURE YOU RECEIVE THE APPROPRIATE DISCOUNT, IT IS IMPORTANT THAT WE HAVE YOUR CURRENT LIST OF AUTHORIZED WHOLESALERS. THE FOLLOWING LIST REPRESENTS THE WHOLESALERS AMGEN CURRENTLY HAS ASSOCIATED WITH YOUR CONTRACT. PLEASE UPDATE THE LIST BY ADDING OR DELETING WHOLESALERS AS NECESSARY. Bergen Brunswig Corporation 4000 Metropolitan Drive Orange, CA 92668 J.M. Blanco Inc. Calle D - Lote No. 21 Guaynabo, PR 00965 Metro Medical Supply, Inc. 3332 Powell Avenue Nashville, TN 37204 Bellco Drug Corporation 101 East Hoffman Avenue Lindenhurst, NY 11757 AGREEMENT NO. 20010007 - 13 - Ver. 1/12/01 14 EPOGEN(R) FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- EXHIBIT #1 SAMPLE ANNUAL CERTIFICATION LETTER Month X, 2001 FSDC Legal Name Street Address City, ST Zip RE: EPOGEN(R)(Epoetin alfa) Agreement No. 20010007 Dear ____________: Thank you for your participation in the [*] Incentive Program. In order for us to enroll you, we require that a duly authorized representative of your organization sign the certification below. Upon receipt of this executed document, we will calculate the value of your incentive. If we do not receive the executed certification, we cannot provide you with this incentive. If you have any questions regarding this letter please contact me at [*]. Thank you for your assistance in returning this certification. Sincerely, [*] Outcomes Incentive Analyst CERTIFICATION: On behalf of FSDC Legal Name and all eligible Affiliates participating in the [*] Incentive Program under Agreement No. 20010007, the undersigned hereby certifies that the [*] data submitted for each eligible Affiliate includes the required [*] results from all dialysis patients of such Affiliate, and does not include [*] results from non-patients. The party executing this document also represents and warrants that it (i) has no reason to believe that the submitted [*] data is incorrect, and (ii) is authorized to make this certification on behalf of all eligible Affiliates submitting [*] data. FSDC LEGAL NAME Signature: _____________________________ Print Name: _____________________________ Print Title: _____________________________ Date: _____________________________ AGREEMENT NO. 20010007 - 14 - Ver. 1/12/01 EX-10.11 3 b39254fmex10-11.txt SEPERATION AGREEMENT 1 EXHIBIT 10.11 SEPARATION AGREEMENT This Agreement is entered into as of this 31st day of January, 2001 (the "Effective Date") between Roger G. Stoll ("Mr. Stoll"), who currently resides at 2141 Oyster Harbor, Osterville, MA 02655, and Fresenius Medical Care Holdings, Inc., d/b/a Fresenius Medical Care North America, with its principal offices located at 95 Hayden Avenue, Lexington, Massachusetts 02420 ("FMC" or the "Company"). WITNESSETH: WHEREAS, on October 23, 1998, Mr. Stoll entered into an Employment Agreement with National Medical Care, Inc. ("NMC"), a subsidiary of FMC (the "Employment Agreement"), a copy of which is attached hereto as Exhibit A; and WHEREAS, Mr. Stoll and FMC now desire to enter into an agreement concerning the separation of Mr. Stoll from FMC. NOW THEREFORE, in consideration of the mutual promises contained in this Agreement, Mr. Stoll and FMC (the "Parties") agree as follows: 1) SEPARATION: The Parties agree that Mr. Stoll shall continue to work for and be an employee of the Company through and including January 31, 2001 (the "Separation Date"), and that until he ceases to be an employee of the Company, Mr. Stoll shall continue to hold the position of Executive Vice President. FMC represents and Mr. Stoll agrees that the termination of Mr. Stoll's employment is not a termination for cause, as set forth in Section 6(a) of the Employment Agreement. Instead, the parties have mutually agreed to end their current relationship in accordance with Section 6(d) of the Employment Agreement on the terms and conditions set forth herein. 2) CONSIDERATION TO MR. STOLL: The Company shall make the following payments and provide the following additional consideration to Mr. Stoll: a) SALARY AND BENEFITS CONTINUATION: Upon the separation of Mr. Stoll's employment with the Company, the Company agrees to pay Mr. Stoll all accrued but unpaid base salary through January 31, 2001. In addition, the Company agrees to the following: i) SALARY. The Company agrees that beginning February 1, 2001 through January 31, 2003, Mr. Stoll shall receive continuation of his salary at an annual rate of Five Hundred Sixty Nine Thousand, Four Hundred Forty Dollars ($569,440) from which all applicable withholdings shall be made. This two (2) year "Salary Continuation" period will be paid out over twenty-six (26) pay periods for each year. At FMC's option, the Company may elect to provide the Salary Continuation referenced in this Section 2(a)(i) in a lump sum (the "Lump Sum Election"), in which event Mr. Stoll shall forego the continuation of his life insurance and medical benefits provided in Section 2(a)(ii). 2 ii) MEDICAL AND DENTAL COVERAGE, AND LIFE INSURANCE; NO LUMP SUM ELECTION. For as long as Mr. Stoll is receiving the Salary Continuation, and provided that Mr. Stoll has not received the Lump Sum payment, the Company agrees that Mr. Stoll shall receive continuation at the Company's expense of any coverage under FMC's medical and dental plans, such coverage to be provided to Mr. Stoll on the same basis and to the same extent as the coverage provided Mr. Stoll during his employment, subject to any plan changes made during such Salary Continuation period that also apply to all other participants in such plans. Mr. Stoll's life insurance benefits will similarly continue at the Company's expense during the Salary Continuation. Any conversion of life insurance at the end of that period (or upon a Lump Sum payment) may be arranged through the Corporate Human Resources Department. iii) MEDICAL AND DENTAL COVERAGE, AND LIFE INSURANCE; LUMP SUM ELECTION. In the event that Mr. Stoll receives the Lump Sum payment as provided in Section 2(a)(i), he shall forego continuation of the coverage specified in Section 2(a)(ii); it being understood, however, that Mr. Stoll shall have the right to elect to pay for coverage himself under COBRA. FMC will send Mr. Stoll the documents necessary for such COBRA election. iv) LONG AND SHORT TERM DISABILITY BENEFITS. Mr. Stoll's long and short term disability benefits shall cease as of January 31, 2001. v) 401(k) PLAN. Contributions to FMC's 401(k) Plan may be withdrawn from the plan by Mr. Stoll following Mr. Stoll's termination of employment. Mr. Stoll may not make contributions to the Plan during the Salary Continuation period. vi) PENSION PLAN. Mr. Stoll will stop accruing benefit service under the Pension Plan effective January 31, 2001. vii) DEFERRED COMPENSATION PLAN. Mr. Stoll's account balance under the Deferred Compensation Plan will be paid to him within sixty (60) days of the Separation Date. viii) TAX PREPARATION. Mr. Stoll shall be reimbursed for expenses associated with individual income tax preparation up to a total of $2,000 per year for the years 1999 and 2000. ix) LEGAL FEES. Mr. Stoll shall be entitled to reimbursement for legal fees incurred in connection with this Separation Agreement pursuant to paragraph 8 of the Employment Agreement. b) STOCK OPTIONS: Mr. Stoll shall also on the Separation Date be vested in Options consisting of Sixty Thousand (60,000) Fresenius Medical Care AG Preference Shares. The Company and FMCAG agree that, as provided in Mr. Stoll's Employment Agreement, Mr. Stoll is granted up to one (1) year from the Separation Date in which to exercise the Vested Options, PROVIDED that Ben Lipps, or his successor, will recommend to the Management Board of FMCAG (the "Management Board"), including but not limited to recommending to the Management Board through an oral and written presentation in accordance with the normal operating procedures of the Management Board, that Mr. Stoll be granted two (2) years from the date of this Agreement to exercise such Vested Options. 2 3 c) VACATION/PTO TIME: Mr. Stoll will receive on or before the Separation Date a payout of all accrued but unpaid vacation PTO time to which he is entitled under Company policy. d) EXPENSE REIMBURSEMENT: The Company acknowledges that Mr. Stoll has incurred expenses on behalf of the Company which have not yet been reimbursed, and, in accordance with the Company's policies, the Company will reimburse Mr. Stoll within ten (10) business days of the submission of documented proof of such expenses to Brian O'Connell, Vice President of Human Resources. 3) MUTUAL RELEASE: The Company and its affiliates, predecessors, successors, assigns, officers, directors, representatives and attorneys (the "Employer Parties") hereby irrevocably and unconditionally release, acquit and forever discharge Mr. Stoll and his successors, assigns, representatives and attorneys, and all persons acting by, through, under or in concert with him (collectively "Employee Parties"), from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorney's fees and costs actually incurred), of any nature whatsoever, known or unknown (collectively "Employer Claims"), which the Employer Parties now have, own, or hold, or claim to have, own, or hold, or which the Employer Parties at any time had, owned, or held, or claimed to have, own, or hold against each or any of the Employee Parties from the beginning of time until the Effective Date of this Agreement other than any Employer Claims arising with respect (i) to this Separation Agreement, the Loan Agreement and Form of Note attached as Exhibit A hereto and incorporated by reference herein, and any agreements executed in connection or simultaneously herewith, and (ii) that certain Non-Disclosure and Non-Competition Agreement dated as of October 23, 1998 between FMC and Mr. Stoll (the "Non-Disclosure and Non-Competition Agreement"). The Employee Parties hereby irrevocably and unconditionally release, acquit and forever discharge the Employer Parties from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorney's fees and costs actually incurred), of any nature whatsoever, known or unknown (collectively "Employee Claims"), which the Employee Parties now have, own, or hold, or claim to have, own, or hold, or which the Employee Parties at any time had, owned, or held, or claimed to have, own, or hold against each or any of the Employer Parties from the beginning of time until the Effective Date of this Agreement other than any Employee Claims arising with respect (i) to this Separation Agreement and any agreements executed in connection or simultaneously herewith, and (ii) the Non-Disclosure and Non-Competition Agreement. 4) UNEMPLOYMENT BENEFITS: The Company agrees that it will not protest any claim Mr. Stoll may file for unemployment compensation. 5) RETURN OF PROPERTY: Mr. Stoll expressly agrees that by the Separation Date he will return to the Company, and will not retain copies of, all property of the Company including, but not limited to, any and all files, computers, computer equipment and software and diskettes, documents, papers, records, accords, notes, agenda, memoranda, plans, calendars and other books and records of any kind and nature whatsoever containing information concerning the Company or its customers or operations, other than copies of materials that are available to the general public and materials that came into Mr. Stoll's possession outside the scope of his employment with the Company. 3 4 6) NON DISCLOSURE: Mr. Stoll acknowledges and affirms that he continues to be bound and will abide by the provisions of the Non-Disclosure and Non-Competition Agreement . 7) BINDING NATURE OF AGREEMENT: This Agreement shall be binding upon each of the Parties and upon their heirs, administrators, representatives, executors, successors and permitted assigns, and shall inure to the benefit of each party and to their heirs administrators, representatives, executors, successors and permitted assigns. 8) NO ORAL MODIFICATION: This Agreement may not be changed orally and no modification, amendment or waiver of any provision contained in this Agreement, or any future representation, promise or condition in connection with the subject matter of this Agreement shall not be binding upon any party hereto unless made in writing and signed by such party. 9) SEVERABILITY: In the event that any provision of this Agreement or the application thereof should be held to be void, voidable, unlawful or, for any reason unenforceable, the remaining portion and application shall remain in full force and effect, and to that end the provisions of this Agreement are declared to be severable. 10) GOVERNING LAW: This Agreement is made and entered into, and shall be subject to, governed by, and interpreted in accordance with the laws of the Commonwealth of Massachusetts and shall be fully enforceable in the courts of that state, without regard to principles of conflict of laws. The Parties (i) agree that any suit, action or other legal proceeding arising out of this Agreement may be brought in the United States District Court for the District of Massachusetts, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Suffolk County, Massachusetts; (ii) consent to the jurisdiction of any such court; and (iii) waive any objection which they may have to the laying of venue in any such court. The parties also consent to the service of process, pleadings, notices or other papers by regular mail, addressed to the party to be served, postage prepaid, and registered or certified with return receipt requested. 11) NOTICES: All notices, requests, consents, approvals and other communications required or permitted under this Agreement ("Notices") shall be in writing and shall be delivered to the addresses listed below, by mail, by hand, or by facsimile transmission, unless otherwise provided in this Agreement. In the case of Mr. Stoll: Roger G. Stoll 2141 Oyster Harbor Osterville, MA 02655 Phone: 508 428-3117 4 5 In the case of Fresenius Medical Care Holdings, Inc.: Fresenius Medical Care Holdings, Inc.95 Hayden Avenue Lexington, Massachusetts 02420 Attention: Ronald J. Kuerbitz, Senior Vice President and General Counsel Phone: 781 402-4003 FAX: 781 402-9713 Any party may change its address or facsimile number for notification purposes by giving the other parties notice, in accordance with the notice provisions set forth in this Section, of the new address or facsimile number and the date upon which it will become effective. 12) NO ASSIGNMENT: Neither this Agreement nor any portion hereof is assignable, except with the prior written consent of the other Party. The Parties represent, warrant and covenant that they have not previously assigned or transferred, or purported to assign or transfer, to any individual or entity, any of the rights being released herein. 13) COUNTERPARTS, ENTIRE AGREEMENT: This Agreement may be executed in counterparts, and each counterpart, when executed, shall have the effect of a signed original. This Agreement constitutes the entire agreement between the parties, with the exception of the Non-Disclosure and Non-Competition Agreement, and supersedes all existing agreements between them, whether oral or written, with respect to the subject matter hereof. 14) ACKNOWLEDGMENT OF REVOCATION RIGHTS. Mr. Stoll certifies that he has read the terms of this Agreement. The execution hereof by Mr. Stoll shall indicate that this Agreement conforms to Mr. Stoll's understandings and is acceptable to him as a final agreement. It is further understood and agreed that Mr. Stoll has been advised of the opportunity to consult with counsel of his choice and that he has been given a reasonable and sufficient period of time of no less that twenty one (21) days in which to consider and return this document. It is further agreed and understood that upon Mr. Stoll's execution and return of this document, he is thereafter permitted to revoke the Agreement at any time during a period of seven (7) days following his execution hereof. This agreement shall not be effective until the seven (7) day revocation period has expired, but upon expiration of such period shall be effective as of the Effective Date. To be effective, the revocation must be in writing and must be hand-delivered or telecopied to counsel for the Company within the seven (7) day period. 5 6 WHEREFORE, intending to be legally bound, the parities have agreed to the aforesaid terms and indicate their agreement by signing below. [PLEASE READ CAREFULLY.] THIS AGREEMENT IS A LEGAL DOCUMENT AND INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS, INCLUDING WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, ALL CLAIMS ARISING UNDER TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED, THE AGE DISCRIMINATION IN EMPLOYMENT ACT, AS AMENDED, THE EMPLOYEE RETIREMENT INCOME SECURITY ACT, AS AMENDED, AND CHAPTER 93A AND 151B OF THE MASSACHUSETTS GENERAL LAWS. BY SIGNING THIS AGREEMENT, I ACKNOWLEDGE AND AFFIRM THAT I AM COMPETENT, THAT I HAVE BEEN AFFORDED A TIME PERIOD OF TWENTY ONE (21) DAYS TO REVIEW AND CONSIDER THIS AGREEMENT AND HAVE BEEN ADVISED TO DO SO WITH AN ATTORNEY OF MY CHOICE. THAT I HAVE READ AND UNDERSTAND AND ACCEPT THIS DOCUMENT AS FULLY AND FINALLY WAIVING AND RELEASING ANY AND ALL CLAIMS, DEMANDS, DISPUTES AND ANY DIFFERENCES OF ANY KIND WHATSOEVER WHICH I MAY HAVE HAD OR NOW HAVE AGAINST THE COMPANY ARISING OUT OF OR RELATING TO MY EMPLOYMENT WITH THE COMPANY, COMPENSATION AND BENEFITS WITH THE COMPANY, SEPARATION FROM EMPLOYMENT OR OTHERWISE, EXCEPT AS PROVIDED HEREIN, THAT NO REPRESENTATIONS, PROMISES OR INDUCEMENTS HAVE BEEN MADE TO ME, EXCEPT AS PROVIDED HEREIN, THAT NO REPRESENTATIONS, PROMISES OR INDUCEMENTS HAVE BEEN MADE TO ME EXCEPT AS SET FORTH IN THIS AGREEMENT, AND THAT I HAVE SIGNED THIS DOCUMENT FREELY AND VOLUNTARILY, INTENDING TO BE LEGALLY BOUND BY ITS TERMS, AND WITH FULL UNDERSTANDING OF ITS CONSEQUENCES. ROGER G. STOLL /s/ Roger G. Stoll 2-12-01 ----------------------- --------------- Date FRESENIUS MEDICAL CARE HOLDINGS, INC. d/b/a FRESENIUS MEDICAL CARE NORTH AMERICA /s/ Ronald J. Kuerbitz 2-12-01 ------------------------------- ---------------- By: Ronald J. Kuerbitz, Senior Vice President 6 7 Exhibit A 7 EX-10.12 4 b39254fmex10-12.txt LOAN AGREEMENT 1 EXHIBIT 10.12 LOAN AGREEMENT AGREEMENT made and entered into as of the 31st day of January, 2001, by and between Roger G. Stoll, an individual with his principal residence at 2141 Oyster Harbor Osterville, MA 02655 (hereinafter referred to as the "Borrower", and Fresenius Medical Care Holdings, Inc., a New York corporation having its executive office and principal place of business at 95 Hayden Avenue Lexington, MA 02420 (hereinafter referred to as the "Lender"). NOW, THEREFORE, in consideration of mutual covenants set forth herein and for other good and valuable consideration, the parties hereto have agreed, and do hereby agree, as follows: SECTION 1. LOAN AGREEMENT On the terms and conditions set froth herein, the Lender agrees to lend to the Borrower, a sum equal to the amount of state and federal taxes (the "Taxes") due and payable as a result of the sale of the Borrower's former principal residence in Connecticut (the "Loan"). SECTION 2. CONDITIONS OF NOTE (i) Borrower's execution and delivery to Lender of a Promissory Note, hereinafter referred to as the "Note", in the form of EXHIBIT A hereto attached evidencing the Loan. The Borrower shall have the right to repay the Loan in whole or in part at any time, or from time to time, without penalty. (ii) Lender's obligation to fund the Loan shall be conditioned on Lender's prior receipt from Borrower of evidence in the form and substance reasonably satisfactory to Lender of Borrower's obligation to pay the Taxes. SECTION 3. EVENTS OF DEFAULT 3.1 Payment of Note. The Note shall become immediately due and payable in full upon the occurrence of the following event of default (an "Event of Default"): Commencement by Borrower of a voluntary case under Title 7 or 13 of the United States Bankruptcy Code as from time to time in effect; have filed against him a petition commencing an involuntary case under said Title 7 or 13 which is not stayed or dismissed within 60 days after its filing; make an assignment for the benefit of, or enter into a composition with, Borrower's creditors, or appoint or consent to the appointment of a receiver or other custodian for all or a substantial part of Borrower's property. 3.2 Waiver of notice. The Borrower hereby waives presentment for payment, demand, protest, notice of protest and all other demands and notices in connection with the Page 1 of 4 2 delivery, acceptance, performance, defaults, or enforcement of this Loan Agreement and Note; and the Borrowers expressly assents to any extension or postponement of the time of payment or other indulgence. SECTION 4. MISCELLANEOUS 4.1 The Lender shall not by any act of omission or commission be deemed to waive any of its rights or remedies hereunder unless such waiver be in writing and signed by the Lender, and then only to the extent specifically set forth therein; a waiver on one event shall not be construed as continuing or as a bar to or waiver of such right or remedy on a subsequent event. 4.2 This Agreement may not be assigned by the Borrower. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts. Executed at Lexington, Massachusetts, on the day and year first above written. LENDER Fresenius Medical Care Holdings, Inc. By: /s/ Ronald J. Kuerbitz ---------------------- Its: Senior Vice President BORROWER By: /s/ Roger G. Stoll ------------------ Roger G. Stoll 2 3 EXHIBIT A PROMISSORY NOTE $ Lexington, Massachusetts [date] FOR VALUE RECEIVED Roger G. Stoll, an individual ("the Maker"), promises to pay to the order of Fresenius Medical Care Holdings, Inc., a New York corporation ("FMC") the principal amount of ____________________________________ ("Principal") pursuant to that certain Loan Agreement dated as of January 31, 2001 by and between FMC and the Maker (the "Loan Agreement"), with interest, at the rate hereinafter set forth, on the daily balance of all unpaid Principal, from the date hereof until payment in full of all Principal hereunder. Capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Loan Agreement. This Note shall bear interest per annum on the principal balance from time to time remaining unpaid at a rate equal to seven and three-quarters percent (7 3/4%) per annum. All past due payments shall bear interest at the lesser of eighteen percent (10%) per annum or the maximum rate permitted by then applicable law. All Principal and accrued interest shall be due and payable on January 31, 2003. All outstanding Principal and all interest accrued thereon shall be immediately due and payable in full at the option of FMC on the occurrence of an Event of Default under Section 3 of the Loan Agreement. Payments of both Principal and interest shall be made, in immediately available funds, via check or electronic funds transfer to such bank account(s), or at such other address as the holder of this Note may from time to time designate. The Maker agrees to pay, to the extent permitted by law, all costs and expenses of collection, including, without limitation, reasonable attorneys' fees, incurred or paid by FMC in enforcing its rights under this Note, whether or not litigation is commenced. This promissory note is the "Note" referred to in, and is entitled to the benefits of, the Loan Agreement. This Note is subject to prepayment and its maturity may be accelerated upon the occurrence of an Event of Default, all as provided in the Loan Agreement. The obligations of the Maker hereunder shall not be subject to any defense, setoff, counterclaim, recoupment, or termination whatsoever based upon the invalidity, illegality, or unenforceability of any other agreements between the Maker and FMC or otherwise. This Note shall be binding upon the Maker and its successors and assigns. The invalidity or unenforceability of any provision of this Note shall not affect the other provisions hereof and the remaining provisions of this Note shall remain operative and in full force and effect. Page 3 of 4 4 This Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of law provision or rule. The Maker hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Note, except as specifically otherwise provided herein and assents to extensions of the time of payment, or forbearance or other indulgence without notice. No right, power or remedy conferred hereby shall be exclusive of any other right, power or remedy referred to herein or now or hereafter available. The Maker may not assign its obligations under this Note without the express written consent of the holder hereof in its sole discretion. This Note is executed, as an instrument under seal, as of the day and year first above written. --------------------------- Roger G. Stoll 4 EX-11 5 b39254fmex11.txt STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES WEIGHTED AVERAGE NUMBER OF SHARES AND EARNINGS USED IN PER SHARE COMPUTATION (DOLLARS AND SHARES IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ---------------------- 2001 2000 ---- ---- The weighted average number of shares of Common Stock were as follows ...................... 90,000 90,000 ====== ======
Income used in the computation of earnings per share were as follows:
THREE MONTHS ENDED MARCH 31, ------------------------ CONSOLIDATED 2001 2000 -------- -------- Net earnings ........................................ $ 23,150 $ 23,094 Dividends paid on preferred stocks .................. (130) (130) -------- -------- -------- -------- Income used in per share computation of earnings..... $ 23,020 $ 22,964 ======== ======== Basic and fully dilutive earnings per share ......... $ 0.26 $ 0.26 ======== ========
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