-----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, QidJFDeustBCGxxs+Uq6Cez9Y+fUfBQGVtMQXBYEwZNWv6rQDxd3PaauxP7y6VpD rcjkTbFlbcVe2Rq+2Gle9A== 0000950144-97-008416.txt : 19970804 0000950144-97-008416.hdr.sgml : 19970804 ACCESSION NUMBER: 0000950144-97-008416 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19970801 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RENEX CORP CENTRAL INDEX KEY: 0000911953 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 650422087 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-32611 FILM NUMBER: 97649749 BUSINESS ADDRESS: STREET 1: 2222 PONCE DE LEON BLVD STE 950 CITY: CORAL GABLES STATE: FL ZIP: 33134 BUSINESS PHONE: 3054482044 MAIL ADDRESS: STREET 1: 2100 PONCE DE LEON BLVD STREET 2: #950 CITY: CORAL GABLES STATE: FL ZIP: 33134 S-1 1 RENEX CORPORATION FORM S-1 1 As filed with the Securities and Exchange Commission on August 1, 1997 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- RENEX CORP. (Exact name of registrant as specified in its charter) --------------------- FLORIDA 8092 65-0422087 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
--------------------- 2100 PONCE DE LEON BOULEVARD, SUITE 950, CORAL GABLES, FLORIDA 33134 (305) 448-2044 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------------- JAMES P. SHEA PRESIDENT AND CHIEF EXECUTIVE OFFICER RENEX CORP. 2100 PONCE DE LEON BOULEVARD, SUITE 950 CORAL GABLES, FLORIDA 33134 (305) 448-2044 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- Copies to: BRYAN W. BAUMAN, ESQ. RODD M. SCHREIBER, ESQ. WALLACE, BAUMAN, FODIMAN & SHANNON, P.A. SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) 2222 Ponce de Leon Boulevard, Sixth Floor 333 West Wacker Drive, Suite 2100 Coral Gables, Florida 33134 Chicago, Illinois 60606 (305) 444-9991 (312) 407-0700 ANDREW J. BECK, ESQ. HAYTHE & CURLEY 237 Park Avenue New York, New York 10017 (212) 880-6000
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date hereof. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- CALCULATION OF REGISTRATION FEE
============================================================================================================================ PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE - ---------------------------------------------------------------------------------------------------------------------------- Common Stock, $.001 par value per share..... 3,450,000 $9.00 $31,050,000 $9,409 ============================================================================================================================
(1) Includes 450,000 shares which the Underwriters have the option to purchase from the Company to cover over-allotments, if any. See "Underwriting." (2) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED AUGUST 1, 1997 PROSPECTUS 3,000,000 SHARES RENEX LOGO COMMON STOCK All of the 3,000,000 shares of Common Stock offered hereby are being sold by Renex Corp. ("Renex" or the "Company"). Prior to the Offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company has applied to list the Common Stock for quotation on the Nasdaq National Market under the symbol "RENX." THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS," BEGINNING ON PAGE 6. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
============================================================================================================== UNDERWRITING DISCOUNTS AND PROCEEDS TO PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) - -------------------------------------------------------------------------------------------------------------- Per Share.............................. $ $ $ - -------------------------------------------------------------------------------------------------------------- Total(3)............................... $ $ $ ==============================================================================================================
(1) Excludes the issuance of warrants to the Representatives of the Underwriters (the "Representatives") to purchase 300,000 shares of Common Stock, exercisable for a period of five years commencing on the date of this Prospectus, at an exercise price of 107% of the public offering price set forth above. Holders of such warrants have been granted certain registration rights under the Securities Act of 1933, as amended, with respect to the securities issuable upon exercise of such warrants. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company, estimated at $ . (3) The Company has granted the Underwriters a 30-day option to purchase up to 450,000 additional shares of Common Stock on the same terms and conditions set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ , and $ , respectively. See "Underwriting." --------------------- The shares of Common Stock offered by the Underwriters are subject to prior sale, receipt and acceptance by them and subject to the right of the Underwriters to reject any order in whole or in part and certain other conditions. It is expected that delivery of such shares will be made at the offices of the agent of Vector Securities International, Inc., in New York, New York, on or about , 1997. --------------------- Vector Securities International, Inc. Needham & Company, Inc. , 1997 3 [Map depicting location of Company's facilities and other services, together with pictures of inside and outside of a representative facility.] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." "Renex(R)" is a tradename of Renex Corp. 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Prospectus, including information under "Risk Factors." This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." THE COMPANY Renex Corp. is a high quality provider of dialysis and ancillary services to patients suffering from chronic kidney failure, generally referred to as end stage renal disease ("ESRD"). The Company has grown primarily through the development of new facilities ("de novo" development) and more recently through acquisitions, and seeks to distinguish itself on the basis of quality patient care and responsiveness to the professional needs of its referring nephrologists. The Company currently provides dialysis services to approximately 800 patients in seven states, through 12 outpatient dialysis facilities and two staff assisted home dialysis programs. Additionally, the Company provides inpatient dialysis services at four hospitals. The Company intends to accelerate the penetration of its existing markets through a combination of acquisitions and de novo development and to enter new markets, primarily through acquisitions, in which the Company believes it can establish significant market share over time. To date, the Company has achieved significant growth in net revenues, from $2.7 million in 1994 to $18.6 million in 1996 and $6.0 million for the three months ended March 31, 1997. ESRD is the state of advanced chronic kidney disease characterized by the irreversible loss of kidney function. A normal human kidney removes waste products and excess water from the blood, preventing water overload, toxin buildup and eventual poisoning of the body. Chronic kidney disease can be caused by a number of conditions, including inherited diseases, diabetes, hypertension and other illnesses. Patients suffering from ESRD require routine dialysis treatments or kidney transplantation to sustain life. According to the Health Care Financing Administration ("HCFA"), the number of patients requiring chronic kidney dialysis services in the United States has increased from 66,000 patients in 1982 to over 200,000 patients in 1995. According to the National Institutes of Health, the number of ESRD patients is projected to reach 300,000 by the year 2000. According to HCFA, total spending for ESRD in the United States in 1995 was an estimated $13.1 billion. Of this amount, the Company estimates $6.0 billion was spent for dialysis treatment and ancillary services. Patients with ESRD generally receive dialysis treatments through a dialysis facility, which may be a free-standing or a hospital-based outpatient facility. The primary function of dialysis facilities is to provide ESRD patients with life sustaining kidney dialysis, including both hemodialysis and peritoneal dialysis. HCFA estimates that as of December 31, 1995, approximately 84% of ESRD patients in the United States were receiving hemodialysis treatments (83% in outpatient facilities and 1% in the home) and that approximately 16% of all ESRD patients were receiving peritoneal dialysis in the home, under the supervision of an outpatient facility. ESRD patients are generally under the care of a nephrologist, who serves as the primary gatekeeper of ESRD patients and, in consultation with the patient, plays a significant role in determining which dialysis facility and hospital will be used for such patient. The nephrologist is typically supported by a team of dialysis professionals, including patient care personnel, dieticians and social workers. Most dialysis facilities offer a range of services to ESRD patients, including: dialysis treatments; provision of supplies and equipment; patient, family and community training and education; insurance counseling; billing services; dietary counseling; and social services support. As of July 31, 1997, the Company operated 12 outpatient dialysis facilities, with a total of 187 certified dialysis stations. The Company has four additional facilities under development with planned openings ranging from the fourth quarter of 1997 through the first quarter of 1998. The Company's dialysis facilities are designed specifically for outpatient hemodialysis and for the training of peritoneal dialysis and home hemodialysis patients. Each facility has between eight and 21 dialysis stations and many facilities are designed to accommodate additional stations as patient census in- 3 5 creases. All of the Company's facilities contain state-of-the-art equipment and modern accommodations and are typically located near public transportation. The facilities are designed to provide a pleasant and comfortable environment for each patient and include such amenities as color television sets for each patient station, VCRs for patient education and entertainment, and portable telephones. In addition to the Company's outpatient dialysis facilities, the Company provides staff-assisted home hemodialysis services in St. Louis, Missouri and Tampa, Florida, and provides inpatient dialysis services to four hospitals pursuant to contracts negotiated with the hospitals for per-treatment rates paid directly by the hospitals. The Company also provides a full range of ancillary services to ESRD patients. The Company's goal is to continue expanding its geographic coverage and market penetration while maintaining high quality patient care and physician satisfaction with its services. The Company's growth strategy is focused on establishing local clusters of dialysis facilities in order to create strong regional networks. Renex has targeted seven markets, in which it has operations, for the development of regional networks. The Company intends to continue to grow these regional networks through a combination of strategic acquisitions and de novo development. Additionally, Renex seeks to enter new markets in which it believes that it can establish significant market share over time. The Company also intends to continue to establish alliances with hospitals and managed care organizations, and to capitalize on its relationships with nephrologists by emphasizing high quality patient care and sensitivity to physicians' professional concerns. Renex Corp. was incorporated in Florida on July 7, 1993. The Company's executive offices are located at 2100 Ponce de Leon Boulevard, Suite 950, Coral Gables, Florida 33134, and its telephone number is (305) 448-2044. THE OFFERING Common Stock offered......................... 3,000,000 shares Common Stock to be outstanding after the Offering..................................... 6,974,247 shares(1) Use of proceeds.............................. For repayment of indebtedness, including redemption of a warrant issued in connection with a portion of such indebtedness; capital expenditures associated with facilities under development; acquisitions; de novo facility development; and working capital and other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol....... RENX - --------------- (1) Excludes: (i) 351,730 shares issuable upon exercise of options granted pursuant to the Company's stock option plans, at a weighted average exercise price of $ per share; (ii) an aggregate of $ shares reserved for issuance for future grants of options under the Company's stock option plans; (iii) 49,169 shares issuable upon exercise of options granted to two of the Company's directors and three other individuals, at a weighted average exercise price of $ per share; (iv) 441,621 shares reserved for issuance upon exercise of outstanding warrants at a weighted average exercise price of $6.88 per share; and (v) 300,000 shares issuable upon exercise of warrants issued to the Representatives at an exercise price of 107% of the initial public offering price per share (the "Representatives' Warrants"). See "Management," "Description of Securities" and "Underwriting." --------------------- Except as otherwise noted, all information in this Prospectus, including financial information, share and per share data assumes: (i) an initial public offering price of $ per share; (ii) no exercise of the Underwriters' over-allotment option; and (iii) a 1-for-3 reverse stock split of the Common Stock effected as of April 21, 1997. See "Description of Securities" and "Underwriting." 4 6 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT SHARE AND OPERATING DATA)
PERIOD FROM THREE MONTHS INCEPTION ENDED (JULY 7, 1993) TO YEARS ENDED DECEMBER 31, MARCH 31, DECEMBER 31, --------------------------------- -------------------- 1993 1994 1995 1996 1996 1997 ----------------- ------ ------- -------- ------- ------- STATEMENTS OF OPERATIONS DATA: Net revenues............. $ -- $2,746 $ 8,794 $ 18,569 $ 3,876 $ 6,007 Operating expenses....... 357 3,649 9,495 20,241 4,052 5,979 Operating income (loss)................. (357) (903) (701) (1,672) (176) 28 Net interest income (expense).............. 35 61 (360) (915) (144) (260) Net (loss)............... (322) (842) (1,187) (2,449) (375) (314) Net (loss) per share(1) $ (.13) $ (.31) $ (.40) $ (.66) $ (.11) $ (.08) Weighted average number of shares outstanding.. 2,395,835 2,759,884 2,963,193 3,693,617 3,377,291 4,067,637 PRO FORMA DATA: Pro forma net (loss)(2).............. $ $ Pro forma net (loss) per common share(2)........ Shares used in computation of pro forma net (loss) per common share(3)........ OPERATING DATA: Patients (at period end)(4)................ -- 142 390 691 502 764 Treatments(5)............ -- 10,260 33,762 77,694 16,216 26,054
MARCH 31, 1997 ------------------------ PRO FORMA ACTUAL AS ADJUSTED(6) ------- -------------- BALANCE SHEET DATA: Working capital........................................... $ 2,710 $ Total assets.............................................. 16,087 Total debt................................................ 8,368 Total shareholders' equity................................ 4,015
- --------------- (1) See Note 1 of Notes to Consolidated Financial Statements for information concerning the computation of net (loss) per share. (2) Pro forma statements of operations information is presented to give effect to the sale of the 3,000,000 shares offered hereby and the receipt and application of approximately $ million of the net proceeds therefrom for repayment of certain indebtedness, including $ for redemption of a warrant issued in connection with a portion of such indebtedness. The redemption of this warrant, together with the non-cash write-off of deferred financing costs related to repayment of certain of the indebtedness will result in a one-time charge of $ . See "Use of Proceeds." (3) Includes the 3,974,247 shares outstanding and shares of the 3,000,000 shares offered hereby, the proceeds of which will be used for repayment of indebtedness. (4) Number of ESRD patients under care, including patients receiving dialysis treatments in the Company's outpatient facilities and in the patients' homes. (5) Treatments include all dialysis treatments provided in outpatient facilities, patients' homes and hospitals. Peritoneal dialysis treatments are stated in hemodialysis equivalents. (6) Pro forma as adjusted to give effect to the receipt and application of the estimated net proceeds from the sale of the 3,000,000 shares offered hereby. See "Use of Proceeds." 5 7 RISK FACTORS PROSPECTIVE INVESTORS IN THE SHARES OF COMMON STOCK OFFERED HEREBY SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." HISTORY OF LOSSES. The Company has experienced significant losses since its inception in July 1993 and had an accumulated deficit of $5.2 million through March 31, 1997. Net losses for the years ended December 31, 1994, 1995 and 1996 were $842,000, $1.2 million and $2.4 million, respectively. Net losses for the three months ended March 31, 1996 and 1997 were $375,000 and $314,000, respectively. The Company expects its operating losses to continue at least through 1997 as it continues to expend substantial resources to develop its existing facilities, as well as to acquire and build new facilities. The Company's ability to achieve profitability is largely dependent upon increased utilization of its existing facilities, the acquisition and development of additional dialysis facilities and the continued availability of adequate third-party reimbursement for its services. There can be no assurance that the Company will achieve or sustain profitability or positive cash flow from operating activities, in which case it may not be able to meet its debt service or working capital requirements. The Company's future performance will depend, among other things, upon the Company's ability to develop and manage dialysis facilities not yet in existence, and to acquire facilities and successfully integrate such facilities into the Company's operations. The Company has no history of earnings upon which to base an evaluation of its future operating efficiency or financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business -- Business Strategy," "Business -- Sources of Reimbursement" and "Business -- Government Regulation." RISKS INHERENT IN GROWTH STRATEGY. The successful implementation of the Company's business strategy depends, in part, on the Company's ability to acquire and develop additional dialysis facilities. Competition for acquisitions and the recruitment of nephrologists to serve as medical directors for de novo facilities in the dialysis industry has increased significantly in recent years, and as a result, the cost of acquiring or developing dialysis facilities has increased. No assurance can be given that the Company will make any additional acquisitions or develop any additional facilities. The Company's strategy is dependent on: (i) the continued availability of suitable acquisition candidates, which subjects the Company to the risks inherent in assessing the value, strengths and weaknesses of acquisition candidates; (ii) identifying suitable locations and medical directors for de novo facilities; and (iii) successfully integrating and managing the operations of any acquired companies and developed facilities. In connection with its acquisition and development activities, the Company is competing with companies which have significantly greater financial and management resources. In addition, the Company has limited experience in completing acquisitions and integrating their operations. The Company has limited resources and financing available to it and there can be no assurance that the Company will be able to obtain the necessary financing to implement its growth strategy on acceptable terms, or at all, or that the Company would otherwise be successful in acquiring or developing new facilities. A failure to implement its growth strategy could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, acquisitions involve a number of special risks, including possible adverse effects on the Company's operating results, diversion of management's attention, failure to retain key personnel of the acquired companies, amortization of acquired intangible assets and risks related to unanticipated events or liabilities. See "Business -- Business Strategy." DEPENDENCE UPON GOVERNMENT REIMBURSEMENT. The Company estimates that approximately 65%, 59% and 67% of its net revenues for the years ended December 31, 1994, 1995 and 1996, respectively, and approximately 67% and 76% of its net revenues for the three months ended March 31, 1996 and 6 8 1997, respectively, were derived from reimbursement rates under the federal Medicare and state Medicaid programs, which cover virtually all patients with ESRD, regardless of age. The maximum allowable charge (referred to as the composite rate) for dialysis treatment of Medicare patients is fixed by law. Once a patient becomes eligible for Medicare reimbursement, Medicare reimburses the Company at 80% of the composite rate. The Company is responsible for collecting the balance of the composite rate from the patient, Medicaid or non-governmental payors, if any. The initial composite rates for outpatient dialysis treatments were established in 1972 and remained unchanged until 1983, when rates were reduced from $138 per treatment to $127 per treatment, on average. Rates were reduced again in 1986 to a low of $125 per treatment on average. The composite rate per treatment was increased to $126 per treatment on average effective January 1, 1991. There can be no assurance that this increase will remain in effect or that rates will not decrease in the future. Recent cost containment initiatives by Medicare have been aimed at reducing the cost of delivering services at non-hospital sites. The Company is unable to predict what changes, if any, may occur in the composite rate. Because of the Company's dependence on Medicare revenue, any future rate reduction could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, increases in operating costs that are subject to inflation, such as labor and supply costs, without a compensatory increase in prescribed rates, may adversely affect the Company's earnings in the future. The Company is also unable to predict whether certain services, for which the Company is separately reimbursed, may in the future be included in the Medicare composite rate. Since June 1, 1989, the Medicare program has provided separate reimbursement for the physician prescribed administration to dialysis patients of bioengineered erythropoietin ("EPO"). Net revenues from the administration of EPO (the substantial majority of which is reimbursed through Medicare and Medicaid programs) were approximately $626,000, $1.9 million and $3.7 million, or 22.8%, 21.7% and 19.9% of the Company's net revenues for each of the years ended December 31, 1994, 1995 and 1996, respectively. For the three months ended March 31, 1996 and 1997, net revenues were approximately $652,000 and $1.3 million or 16.8% and 20.9%, respectively. EPO reimbursements significantly affect the Company's earnings. Effective January 1, 1994, Medicare reimbursement was reduced from $11 to $10 per 1,000 units of EPO. Any further reduction in these reimbursement rates could have a material adverse effect on the Company's net revenues and earnings. The Company is unable to predict future changes in the reimbursement rate for the administration of EPO, the future reimbursement dosage limit per administration, or the cost of the drug. In addition, EPO is produced by only one manufacturer. The interruption of supplies of EPO would have a material adverse effect on the Company's business, financial condition and results of operations. All of the Company's facilities are located in states which provide Medicaid or comparable benefits for dialysis patients. Such benefits supplement Medicare benefits or in some cases are the primary source of reimbursement. Approximately 3% to 6% of the Company's net revenues for the years ended December 31, 1994, 1995 and 1996 and for the three months ended March 31, 1996 and 1997 were derived from Medicaid or comparable state programs. Each state Medicaid program is subject to statutory or regulatory changes, administrative rulings, interpretations of policy and governmental findings at the state level. All of these factors could have the effect of decreasing Medicaid payments, increasing costs or requiring the Company to modify its operations. See "Business -- Sources of Reimbursement." DEPENDENCE UPON OTHER SOURCES OF REIMBURSEMENT. Approximately 35%, 41% and 33% of the Company's net revenues for the years ended December 31, 1994, 1995 and 1996, respectively and 33% and 24% for the three months ended March 31, 1996 and 1997, respectively, were from sources other than Medicare and Medicaid. These sources include payments from third-party non-governmental payors and hospitals at rates that generally exceed Medicare and Medicaid rates. The Company believes that if Medicare reimbursement for dialysis treatment is reduced in the future, these private payors may be required to assume a greater percentage of the costs of dialysis care and, as a result, may focus on reducing dialysis payments as their overall costs increase. Notwithstanding any legisla- 7 9 tive action, the Company expects that non-governmental payors will reduce payments for dialysis services. In addition, as managed care organizations expand, they will aggressively seek to reduce amounts paid for dialysis treatments. If third-party non-governmental payor rates are reduced or are no longer subject to price increases or their payment obligation period is shortened, the Company's business, financial condition and results of operations would be materially and adversely affected. The Company is unable to predict the degree of the risk, if any, of reductions in payments from these sources. In addition, any restriction or reduction of the Company's ability to charge non-governmental payors for its services at rates in excess of those paid by Medicare would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Sources of Reimbursement." COMPETITION. The dialysis industry is fragmented and highly competitive. The Company competes in the dialysis industry for the acquisition of existing facilities, development of relationships with referring physicians and development of relationships with nephrologists to serve as medical directors for de novo facilities. Competition for medical directors is also intense. The Company competes with national and regional health care providers, many of which are larger and have significantly greater financial and marketing resources than the Company. In addition, there are also many local independent facilities owned by community physicians, hospitals and other persons or entities which compete with the Company. The Company may also experience competition from former medical directors or referring physicians who open their own dialysis facilities. There can be no assurance that the Company will be able to compete effectively with any such providers. Competition has increased the cost of acquiring existing facilities and there can be no assurance that these costs will not continue to increase as a result of future industry consolidation, or that the Company will be able to compete effectively for such acquisitions. Furthermore, the Company's dialysis facilities are generally in metropolitan areas where there are many competing facilities in close proximity. See "Business -- Competition." OPERATIONS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION. The Company's operations are subject to extensive and frequently changing regulation by federal, state and local governments, regarding among other things, licensing, certifications, financial relationships, fraud and abuse, referrals, direct employment of health care providers by business corporations, reimbursement and certain capital expenditures. Some of these laws may restrict or prohibit business in certain states. The Company is subject to the illegal remuneration provisions (the "anti-kickback statute") of the Social Security Act ("SSA") and similar state laws which prohibit individuals or entities from offering, paying, soliciting or receiving remuneration, directly or indirectly, in return for referring an individual for the furnishing of any item or treatment reimbursed, in whole or in part, under Medicare, Medicaid or similar state health care programs. Violations of the anti-kickback statute are punishable by criminal or civil penalties, which may include, among other things, exclusion or suspension of a provider from participation in Medicare and Medicaid programs, as well as substantial fines. In July 1991 and in November 1992, the federal government published regulations that provide safe harbors for certain business transactions. Transactions that are structured within the safe harbor provisions are deemed not to violate the anti-kickback statute. Transactions that do not satisfy all elements of a relevant safe harbor do not necessarily violate the statute, but may be subject to greater scrutiny by enforcement agencies. The Company endeavors to structure its arrangements with its physicians and other providers and suppliers to substantially comply with the anti-kickback statute and similar state laws and believes that such arrangements substantially satisfy any applicable safe harbors; however, there can be no assurance that the relevant enforcement agencies would not take a contrary position. In addition, certain of the Company's medical directors from whom the Company has acquired dialysis facilities have received shares of the Company's Common Stock as consideration for such acquisitions, and such security ownership does not fall within any of the safe harbors. Although the Company has never been challenged under these statutes and believes it complies in all material respects with these and all other applicable laws and regulations, there can be no assurance that the Company will not be required to change its practices or relationships with its medical directors. In the event that any of the Com- 8 10 pany's relationships with its medical directors or other referring nephrologists are determined to violate any of these applicable laws or regulations or are required to change its practices or relationships with such nephrologists, it could have a material adverse effect on the Company's business, financial condition and results of operations. The Office of Inspector General (the "OIG") of the Department of Health and Human Services ("HHS") has previously published warnings that the industry-wide practices of obtaining discounts on certain laboratory charges and the payment of remuneration for intradialytic parenteral nutrition ("IDPN") therapy at dialysis centers may violate certain statutory provisions. Although the Company believes it is in compliance with these statutory provisions, there can be no assurance that the OIG will not take a contrary position. The Omnibus Budget Reconciliation Act of 1993 includes certain provisions ("Stark II") that restrict physician referrals for certain designated health services to entities with which the physician or an immediate family member has a financial relationship. Stark II does not specifically include dialysis services within the designated health services and the Company believes that the language and legislative history of Stark II indicate that Congress did not intend to include dialysis services and certain services and items provided incident to dialysis services within the legislative prohibition. However, certain services provided by the Company, including the provision of outpatient prescription drugs such as EPO, could be construed as designated health services within the meaning of Stark II. Violations of Stark II are punishable by repayment of amounts received pursuant to a prohibited referral and civil penalties, which may include exclusion or suspension of the provider from future participation in Medicare and Medicaid programs, as well as substantial fines. Due to the breadth of the statutory provisions and the absence of court decisions interpreting the statute, it is possible that the Company's practices could be challenged under these laws. If Stark II is broadly interpreted by HCFA to apply to the Company and the Company cannot achieve compliance, it could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, there can be no assurance that federal or state governments will not impose additional restrictions which could have a material adverse effect on the Company's business, financial condition and results of operations. The health care industry in the United States is subject to changing political, economic and regulatory influences that may impact the Company's operations and profitability. The Clinton Administration's recent health care proposal, and other proposals in general, do not presently deal with the Medicare ESRD program, although the Clinton Administration has proposed to extend the Medicare fraud and abuse laws discussed above to all payors. Nonetheless, health care reform in general, and Medicare reform in particular, could result in significant changes in the financing and regulation of the dialysis industry. The Company is unable to predict the effect of any such changes on its future operations. It is uncertain what legislation or health care reform will ultimately be implemented or whether other changes in the administration or interpretation of government health care programs will occur. There can be no assurance that such changes will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Government Regulation." DEPENDENCE UPON PHYSICIAN REFERRALS. The success of the Company's dialysis facilities is dependent upon referrals of ESRD patients by nephrologists who practice in the communities served by these dialysis facilities. It is customary in the dialysis industry that one or a few physicians account for all or a significant portion of a facility's patient referral base. The loss of one or more key referring physicians at a particular facility could have a material adverse effect on the operations of that facility and could adversely affect the Company's overall results of operations. Financial relationships with physicians and other referral sources are highly regulated. The anti-kickback and self-referral provisions of the SSA, as well as similar state laws, prohibit the offering, paying and receiving of any remuneration for either making a referral for a covered service or item, or ordering any such covered service or item, and prohibit physicians, subject to certain exceptions, from making referrals for certain health services to entities with which they have a financial relationship. In the event that any of the 9 11 Company's relationships with its referring nephrologists are determined to violate any of these federal anti-kickback or self-referral provisions, it could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Business Strategy," "Business -- The Dialysis Industry," "Business -- Medical Directors" and "Business -- Government Regulation." DEPENDENCE UPON PROCEEDS OF OFFERING; POSSIBLE NEED FOR ADDITIONAL CAPITAL. The Company requires substantial working capital to fund its accounts receivable. Like other health care providers, the Company relies on third-party payors, primarily Medicare, for payment of a substantial portion of its billings. The Company must finance its receivable balances between the time of billing and collection. The Company's net accounts receivable balance as of March 31, 1997 was $5.6 million. Since inception, the Company has not generated positive cash flow due to, among other things, continued losses, increases in its receivable balances and capital expenditures for expansion. In order to implement its growth strategy, the Company intends to expend substantial funds for acquisitions and de novo development of dialysis facilities following completion of this Offering. The Company believes that the net proceeds of this Offering, together with existing debt financing arrangements and internally generated funds, will be sufficient to fund the Company's operations and to finance the Company's proposed growth strategy through the next 18 months. However, there can be no assurance that the Company will not require substantial additional funds prior to such time. The Company's future liquidity and capital requirements will be dependent on numerous factors, including results of the Company's operations, the cost and timing of potential acquisitions and de novo developments, the ability of the Company to integrate such new facilities, developments related to government and other third party reimbursement matters, and other factors. If additional financing is needed, the Company may seek additional funds from public and private equity or debt financings or other arrangements. The Company currently has no commitments with respect to any other sources of financing and there can be no assurance such financing sources would be available, if needed, on terms acceptable to the Company, or at all. The failure of the Company to obtain adequate financing could have a material adverse effect on the Company's business, financial condition and results of operations. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." DEPENDENCE UPON KEY PERSONNEL. The Company is dependent upon the services and management skills of its executives and its medical directors. Although the Company has entered into employment agreements with its key executives which include confidentiality and non-competition provisions, there can be no assurance such individuals will continue in their present capacities with the Company for any particular period of time, or that the non-competition provisions will be enforceable or free from limitations under the laws of the appropriate jurisdictions. The success of the Company and its growth strategy, will also be dependent on the Company's ability to attract and retain additional key management, marketing and operating personnel, as well as medical directors for its dialysis facilities. The Company's facilities are staffed by professionals with significant experience in the treatment of ESRD. Such persons are in high demand and are often subject to offers from competitors. There can be no assurance that the Company will be able to attract and retain such qualified personnel. The Company does not have, or intend to maintain, key-man life insurance on any of its personnel. The loss by the Company of any of its key executives, or the inability to attract and retain qualified management personnel and medical directors, could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Competition" and "Management." DISCRETION IN USE OF PROCEEDS. Following the Offering and after repayment of certain indebtedness, the Company will have approximately $ million (approximately $ million if the Underwriters' over-allotment option is exercised in full) of the net proceeds of the Offering available for acquisitions, de novo facility development and other unspecified purposes. The Company's management, subject to approval by the Board of Directors, will have broad discretion with respect to the use of such proceeds. See "Use of Proceeds." 10 12 AVAILABILITY OF INSURANCE. The operation of dialysis facilities entails certain liability risks. The Company maintains property and general liability insurance, professional liability insurance on its professional staff and other insurance which the Company believes to be appropriate for its operations. There can be no assurance that the Company's current coverage is adequate or that the Company will be able to maintain such insurance in the future. Any claim in excess of such insurance coverage could have a material adverse effect on the Company's business, financial condition and results of operations. Further, professional liability insurance is expensive and becoming increasingly difficult to obtain. See "Business -- Insurance." ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS. Certain provisions of the Company's Articles of Incorporation and By-laws may have the effect of making more difficult or delaying attempts by others to obtain control of the Company, even when these attempts may be in the best interests of the shareholders. These provisions include advance notice provisions, provisions that establish a classified Board of Directors, and provisions that enable the Board of Directors to issue up to 5,000,000 shares of preferred stock in one or more series, having terms fixed by the Board of Directors, without shareholder vote. In addition, Florida has enacted legislation that may deter or inhibit takeovers of the Company. The Florida Control Share Act generally provides that in certain circumstances, shares acquired in excess of certain specified thresholds, starting at 20%, will not possess any voting rights unless such voting rights are approved by a majority vote of a corporation's disinterested shareholders. The Florida Affiliated Transactions Act generally requires super-majority approval by disinterested directors or shareholders of certain specified transactions between a corporation and holders of more than 10% of the outstanding shares of the corporation or their affiliates. See "Description of Securities -- Anti-Takeover Provisions." CONTROL BY EXISTING MANAGEMENT; CONCENTRATION OF OWNERSHIP. Following the consummation of this Offering, the Company's directors, officers and their respective affiliates will beneficially own % of the Company's voting securities. Although these persons do not have any agreements or understandings to act or vote in concert, any such agreement, understanding or acting in concert would make it difficult for others to elect the entire Board of Directors, or to control the disposition of any matter submitted to a vote of shareholders. See "Principal Shareholders" and "Description of Securities." NO PRIOR PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE. Prior to this Offering, there has been no public market for the Company's Common Stock, and there can be no assurance that a liquid trading market for the Common Stock will develop or, if one develops, that it will be sustained after the Offering. The initial public offering price of the Common Stock will be determined by negotiations among the Company and the representatives of the Underwriters and may not be indicative of the prices that will prevail in the public market. See "Underwriting." Future trading prices for the Company's Common Stock will depend on many factors, including, among other things, the Company's operating results and the market for similar securities. The market prices for securities of health care services companies, including companies in the dialysis services sector, have been highly volatile and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. It is likely that the market price of the Company's Common Stock will be highly volatile. Factors such as announcements of acquisitions or the de novo development of new dialysis facilities, changes in the Medicare composite rate, changes in reimbursement rates charged by the Company to third-party non- governmental payors and hospitals, changes in the political, economic and regulatory environment in which the Company operates, releases of reports by security analysts, as well as period-to-period fluctuations in the Company's operating results and general market conditions may have a significant impact on the future price of the Company's Common Stock. IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS. Investors purchasing shares of Common Stock in the Offering will experience immediate and substantial dilution in the net tangible book value of their shares of approximately $ per share. Additional dilution may occur upon the exercise of outstanding options and warrants. In the event the Company issues additional Common Stock in 11 13 connection with future acquisitions or other financing needs, investors in the Offering may experience further dilution. See "Dilution" and "Shares Eligible For Future Sale." ABSENCE OF DIVIDENDS. The Company currently anticipates that it will retain all future earnings for use in the operation of the business and does not anticipate paying any dividend on the Common Stock in the foreseeable future. See "Dividend Policy." SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICE. Sales of substantial amounts of Common Stock (including shares issuable upon exercise of outstanding options and warrants) in the public market after this Offering could adversely affect the market price of the Common Stock. Such sales could also make it more difficult for the Company to sell equity securities or equity-related securities in the future at a time and price that the Company deems appropriate. Upon completion of this Offering, the Company will have outstanding an aggregate of 6,974,247 shares of Common Stock. In addition, the Company has reserved for issuance 1,142,520 shares issuable upon exercise of outstanding options and warrants, including the Representatives' Warrants. The 3,000,000 shares of Common Stock offered hereby will be freely transferable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), except for shares which may be acquired by affiliates of the Company as that term is defined in Rule 144 under the Securities Act. The remaining 3,974,247 shares of Common Stock held by existing shareholders are "restricted securities" as that term is defined in Rule 144. Restricted securities may be sold in the public market only if they are registered or if they qualify for exemption from registration under Rules 144 or 701 under the Securities Act. Pursuant to certain "lock-up" agreements, all of the Company's shareholders, together with the Company, have agreed, for a period of 180 days following the date of this Prospectus, not to offer, pledge, sell, contract to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any shares of Common Stock without the prior written consent of Vector Securities International, Inc. Following the 180-day period, approximately shares of Common Stock will be eligible for sale in the public market without restriction under Rule 144(k) and an additional shares will be eligible for sale subject to certain volume, manner of sale and other restrictions of Rule 144. In addition, holders of stock options or warrants, including the Representatives' Warrants, exercisable for an aggregate of shares of Common Stock have entered into agreements prohibiting the sales of the underlying Common Stock for 180 days following the date of this Prospectus. See "Principal Shareholders," "Shares Eligible for Future Sale" and "Underwriting." 12 14 USE OF PROCEEDS The net proceeds to the Company from the sale of the 3,000,000 shares of Common Stock offered hereby are estimated to be approximately $ million ($ million if the Underwriters' over-allotment option is exercised in full) assuming an initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company intends to use approximately $ million of the net proceeds of this Offering for the repayment of indebtedness, including: (i) $6.4 million for the repayment of certain indebtedness incurred under the Company's Senior Subordinated Secured Loan (the "Subordinated Loan"), including a prepayment penalty of approximately $90,000; (ii) $2.1 million of certain indebtedness incurred under a lease line of credit with an equipment financing company (the "Lease Line"); and (iii) approximately $ to redeem a warrant issued in connection with the Subordinated Loan. Borrowings under the Subordinated Loan bear interest at the rate of 13% per annum, payable quarterly. Principal payments are amortized over a three-year period, payable quarterly, commencing September 30, 1999 with payment in full by June 30, 2002. The Lease Line is a credit facility with maximum availability of $6.0 million and is used primarily to finance dialysis related equipment. Interest accrues at the five-year U. S. Treasury bond yield rate plus 3.91% (9.91% as of the date of this Prospectus). Principal and interest are amortized over a five-year period and payable monthly. The Lease Line expires in August 2001. The Company intends to use approximately $1.5 million of the net proceeds of this Offering to fund capital expenditures and working capital for four dialysis facilities presently under development. The balance of the net proceeds, approximately $ million, will be used for acquisitions, de novo facility development, working capital and general corporate purposes. See "Risk Factors -- Discretion in Use of Proceeds." The Company continually reviews and evaluates acquisition candidates as part of its growth strategy and is at various stages of discussion or negotiation with a number of such candidates. However, as of the date of this Prospectus, the Company has not entered into an agreement or letter of intent as to any such potential acquisition. The foregoing represents the Company's best estimate of the allocation of the net proceeds from the sale of the Common Stock offered hereby, based upon the current state of its business operations, its current plans for expansion and the current economic and industry conditions, and is subject to reallocation among the categories stated above. The amount or timing of actual expenditures will depend on numerous factors, including profitability of the Company, the availability of alternative financing for acquisitions, the Company's business development activities and competition. See "Risk Factors -- Dependence upon Proceeds of Offering; Possible Need for Additional Capital." Pending such uses set forth above, the Company will invest the net proceeds of this Offering in short-term, interest bearing, investment-grade securities. DIVIDEND POLICY The Company has not declared or paid any cash dividends on its Common Stock since inception. The Company currently intends to retain any future earnings to finance the growth and development of its business and, therefore, does not anticipate that any cash dividends will be declared or paid on the Common Stock in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon the Company's financial condition, results of operations, capital requirements, restrictions under any existing indebtedness and such other factors as the Board of Directors deems relevant. The Company's loan agreement with respect to the Line of Credit contains restrictions on the payment of cash dividends without the lender's prior written consent. 13 15 CAPITALIZATION The following table sets forth the capitalization of the Company at March 31, 1997 and the Company's capitalization as adjusted to reflect the issuance of 3,000,000 shares of Common Stock offered hereby and the receipt and application of the estimated net proceeds therefrom, assuming an initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company. This table should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto, included elsewhere in this Prospectus. See "Use of Proceeds" and "Description of Securities."
MARCH 31, 1997(1) ------------------------ PRO FORMA ACTUAL AS ADJUSTED(2) ------- -------------- (IN THOUSANDS) Debt: Current portion of long-term debt and capital lease obligations............................................ $ 437 $ Long-term debt, excluding current portion................. 6,189 Capital lease obligations, excluding current portion...... 1,742 ------- ------- Shareholders' equity: Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares issued and outstanding, actual and pro forma as adjusted.............................. -- Common Stock, $.001 par value; 30,000,000 shares authorized; 3,974,247 shares issued and outstanding, actual; 6,974,247 shares issued and outstanding, pro forma as adjusted...................................... 3 Additional paid-in capital................................ 9,163 Accumulated deficit....................................... (5,151) ------- ------- Total shareholders' equity............................. 4,015 ------- ------- Total capitalization.............................. $12,383 $ ======= =======
- --------------- (1) Excludes: (i) 351,730 shares issuable upon exercise of options granted pursuant to the Company's stock option plans, at a weighted average exercise price of $ per share; (ii) an aggregate of shares reserved for issuance for future grants of options under the Company's stock option plans; (iii) 49,169 shares issuable upon exercise of options granted to two of the Company's directors and three other individuals, at a weighted average exercise price of $ per share; (iv) 441,621 shares reserved for issuance upon exercise of warrants at a weighted average exercise price of $6.88 per share; and (v) 300,000 shares issuable upon the exercise of the Representatives' Warrants. See "Management," "Description of Securities" and "Underwriting." (2) Pro forma as adjusted to give effect to the receipt and application of the estimated net proceeds from the sale of the 3,000,000 shares offered hereby. See "Use of Proceeds." 14 16 DILUTION The net tangible book value of the Company as of March 31, 1997 was $2.7 million or $0.69 per share of Common Stock. Net tangible book value per share represents the amount of the Company's total tangible assets less total liabilities divided by the number of shares of Common Stock outstanding. Without taking into account any other changes in net tangible book value other than to give effect to the sale by the Company of the 3,000,000 shares of Common Stock offered hereby (assuming an initial public offering price of $ per share), the pro forma net tangible book value of the Company as of March 31, 1997 would have been $ million, or $ per share of Common Stock. This represents an immediate increase in net tangible book value per share of $ to existing shareholders and an immediate dilution in net tangible book value of $ per share to investors in the Offering. The following table illustrates the per share dilution: Assumed initial public offering price per share............. $ Net tangible book value per share as of March 31, 1997.... $0.69 Increase per share attributable to new investors.......... ----- Pro forma net tangible book value per share after the Offering.................................................. ------ Dilution per share to new investors......................... $ ======
The following table summarizes, on a pro forma basis as of March 31, 1997, the difference between the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid by existing shareholders and by new investors, assuming an initial public offering price of $ per share and before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------- --------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- ------- ----------- ------- --------------- Existing shareholders..... 3,974,247 57.0% $ 9,166,000 % $ 2.31 New investors............. 3,000,000 43.0 --------- ----- ----------- ----- Total........... 6,974,247 100.0% $ 100.0% ========= ===== =========== =====
The foregoing table assumes no exercise of the Underwriters' over-allotment option or shares underlying outstanding options or warrants. As of the date of this Prospectus, there were: (i) 351,730 shares issuable upon exercise of options granted pursuant to the Company's stock option plans, at a weighted average exercise price of $ per share; (ii) an aggregate of shares reserved for issuance for future grants of options under the Company's stock option plans; (iii) 49,169 shares issuable upon exercise of options granted to two of the Company's directors and three other individuals, at a weighted average exercise price of $ per share; (iv) 441,621 shares reserved for issuance upon exercise of warrants at a weighted average exercise price of $6.88 per share; and (v) 300,000 shares issuable upon the exercise of the Representatives' Warrants. See "Management," "Description of Securities" and "Underwriting." 15 17 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The following selected consolidated financial and operating data of the Company are qualified in their entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and the Notes thereto appearing elsewhere in this Prospectus. The statement of operations data for the years ended December 31, 1994, 1995 and 1996 and the balance sheet data as of December 31, 1995 and 1996 are derived from the audited Consolidated Financial Statements included elsewhere in this Prospectus. The statement of operations data for the period from inception to December 31, 1993 and the balance sheet data as of December 31, 1993 and 1994 are derived from audited consolidated financial statements not included in this Prospectus. The consolidated statements of operations data for the three months ended March 31, 1996 and 1997 and the consolidated balance sheet data at March 31, 1997 have been derived from unaudited interim financial statements and include all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial position and results of operations at that date and for such periods. The operating results for the three months ended March 31, 1997 are not necessarily indicative of the results to be expected for the full year or for any future period.
PERIOD FROM INCEPTION (JULY 7, 1993) THREE MONTHS ENDED TO YEARS ENDED DECEMBER 31, MARCH 31, DECEMBER 31, ------------------------------------- ------------------------ 1993 1994 1995 1996 1996 1997 -------------- ---------- ---------- ----------- ---------- ----------- (IN THOUSANDS, EXCEPT SHARE AND OPERATING DATA) STATEMENT OF OPERATIONS DATA: Net revenues................... $ -- $ 2,746 $ 8,794 $ 18,569 $ 3,876 $ 6,007 Operating expenses: Facilities................... -- 2,405 6,809 14,625 2,979 4,735 General and administrative... 355 1,025 1,682 2,681 590 637 Provision for doubtful accounts................... -- 93 495 1,293 268 228 Depreciation and amortization............... 2 126 509 1,642 215 379 ---------- ---------- ---------- ----------- ---------- ----------- Operating income (loss)................ (357) (903) (701) (1,672) (176) 28 ---------- ---------- ---------- ----------- ---------- ----------- Other income (expenses): Gain (loss) on sale of assets..................... -- -- -- 364 -- (27) Net interest income (expense).................. 35 61 (360) (915) (144) (260) Amortization of deferred financing costs............ -- -- (126) (226) (55) (55) ---------- ---------- ---------- ----------- ---------- ----------- Net (loss)..................... $ (322) $ (842) $ (1,187) $ (2,449) $ (375) $ (314) ========== ========== ========== =========== ========== =========== Net (loss) per common share(1)..................... $ (.13) $ (.31) $ (.40) $ (.66) $ (.11) $ (.08) ========== ========== ========== =========== ========== =========== Weighted average number of shares outstanding........... 2,395,835 2,759,884 2,963,193 3,693,617 3,377,291 4,067,637 ========== ========== ========== =========== ========== =========== PRO FORMA DATA: Pro forma net (loss)(2)........ $ $ =========== =========== Pro forma net (loss) per common share(2)..................... $ $ =========== =========== Shares used in computation of pro forma net (loss) per common share(3).............. =========== =========== OPERATING DATA: Patients (at period end)(4).... -- 142 390 691 502 764 Treatments(5).................. -- 10,260 33,762 77,694 16,216 26,054
16 18
MARCH 31, 1997 DECEMBER 31, ------------------------ ----------------------------------- PRO FORMA 1993 1994 1995 1996 ACTUAL AS ADJUSTED(6) ------ ------ ------- ------- ------- -------------- (IN THOUSANDS) BALANCE SHEET DATA: Current assets............................. $3,543 $2,527 $ 5,234 $ 6,059 $ 6,851 $ Working capital............................ 3,503 2,136 3,051 2,389 2,710 Total assets............................... 3,642 4,020 11,815 15,161 16,087 Total debt................................. -- 220 6,375 7,743 8,368 Total shareholders' equity................. 3,603 3,482 4,164 4,317 4,015
- --------------- (1) See Note 1 of Notes to Consolidated Financial Statements for information concerning the computation of net (loss) per share. (2) Pro forma statement of operations information is presented to give effect to the sale of the 3,000,000 shares offered hereby and the receipt and application of approximately $ million of the net proceeds therefrom for repayment of certain indebtedness, including $ for redemption of a warrant issued in connection with a portion of such indebtedness. The redemption of this warrant, together with the non-cash write-off of deferred financing costs related to repayment of certain of the indebtedness will result in a one-time charge of $ . See "Use of Proceeds." (3) Includes the 3,974,247 shares outstanding and shares of the 3,000,000 shares offered hereby, the proceeds of which will be used for repayment of indebtedness. (4) Number of ESRD patients under care, including patients receiving dialysis treatments in the Company's outpatient facilities and in the patients' homes. (5) Treatments include all dialysis treatments performed in outpatient facilities, patients' homes and hospitals. Peritoneal dialysis treatments are stated in hemodialysis equivalents. (6) Pro forma as adjusted to give effect to the receipt and application of the estimated net proceeds from the sale of the 3,000,000 shares offered hereby. See "Use of Proceeds." 17 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA" AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN. OVERVIEW Renex, which was established in July 1993, is a high quality provider of dialysis and ancillary services to patients with ESRD. Since inception, the Company has implemented an aggressive growth strategy designed to build the Company's presence in selected regional markets. A key element of the Company's growth strategy has been to establish local clusters of dialysis facilities within strong regional networks through de novo development. To date, Renex has grown primarily through de novo development because the Company believes such a strategy minimizes the initial capital outlay. Additionally, Renex has grown through acquisitions and hospital alliances. In the future, the Company believes that its growth will be through a combination of acquisitions and de novo development, which will allow expansion of its regional market presence and provide entry into new regional markets. As of July 31, 1997, the Company operated 12 outpatient dialysis facilities, of which eight were opened between 1994 and 1996 through de novo development. In addition, the Company acquired three facilities in December 1995. In April 1996, the Company acquired the assets of two facilities under development. The Company opened one of these facilities during the first quarter of 1997 and the second facility is expected to open during the first quarter of 1998, subject to receipt of applicable state approvals. The Company sold an additional de novo facility, not included in the above, in September 1996 because it did not satisfy the Company's strategic objectives. SOURCES OF NET REVENUES The Company's net revenue is derived primarily from five sources: (i) outpatient hemodialysis services; (ii) the administration of EPO and, to a lesser extent, other ancillary services; (iii) peritoneal dialysis services; (iv) home hemodialysis services; and (v) inpatient hemodialysis services to hospitalized patients. Services generally include the provision of equipment and supplies. The Company's dialysis and ancillary services are reimbursed primarily under the Medicare ESRD program in accordance with rates established by HCFA. Medicare reimbursement is subject to rate and other legislative changes by Congress and periodic changes in regulations, including changes that may reduce payments under the ESRD program. Payments are also provided by Medicaid, patients and non-governmental third-party payors for the first three to 21 months of treatment as mandated by law. Payments made by non-governmental third-party payors are generally at rates higher than the Medicare composite rate. Rates paid for services provided to hospitalized patients are negotiated with individual hospitals. For the year ended December 31, 1996, approximately 67% of the Company's net revenues were derived from reimbursement by Medicare and Medicaid. The Company will continue to be dependent upon revenue from Medicare and Medicaid. Since dialysis is an ongoing, life sustaining therapy used to treat a chronic condition, use of the Company's services is generally predictable and not subject to seasonal or economic fluctuation. See "Risk Factors -- Dependence upon Government Reimbursement." 18 20 RESULTS OF OPERATIONS The following table sets forth certain income statement items expressed as a percentage of net revenues for the years ended December 31, 1994, 1995 and 1996 and for the three months ended March 31, 1996 and 1997:
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ------------------------ --------------- 1994 1995 1996 1996 1997 ------ ------ ------ ------ ------ Net revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0% ------ ------ ------ ------ ------ Facilities expenses.................................. 87.6 77.4 78.8 76.9 78.8 General and administrative expenses.................. 37.3 19.1 14.4 13.8 10.6 Provision for doubtful accounts...................... 3.4 5.6 7.0 6.9 3.8 Depreciation and amortization expenses............... 4.6 5.8 8.8 5.5 6.3 Operating income (loss).............................. (32.9) (8.0) (9.0) (3.1) 0.5 Net interest income (expense)........................ 2.2 (4.1) (4.9) (5.1) (4.3) Net (loss)........................................... (30.7) (13.5) (13.2) (9.7) (5.2)
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 NET REVENUES. Net revenues for the three months ended March 31, 1997 were $6.0 million compared to $3.9 million for the same period in 1996, representing an increase of 55.0%. The increase in net revenues was primarily attributable to the continued growth at existing facilities and to a full three months' net revenues in 1997 for the two facilities opened during the fourth quarter of 1996. FACILITIES EXPENSES. Facilities expenses primarily consist of costs and expenses specifically attributable to the operation of the dialysis facilities, including operating and maintenance costs of such facilities and all labor, supplies and service costs related to patient care. Facilities expenses for the three months ended March 31, 1997 were $4.7 million compared to $3.0 million for the same period in 1996. As a percentage of net revenues, facilities expenses increased to 78.8% for the three months ended March 31, 1997 from 76.9% for the same period in 1996. This increase was due to the lack of full patient utilization at the Company's newer facilities and a change in the payor mix related to peritoneal dialysis patients. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist of headquarter expenses including marketing, finance, operations management, legal, quality assurance, information systems, billing and collections and centralized accounting support. General and administrative expenses for the three months ended March 31, 1997 were $637,000 compared to $536,000 for the same period in 1996. As a percentage of net revenues, general and administrative expenses decreased to 10.6% for the three months ended March 31, 1997 from 13.8% for the same period in 1996. This decrease was due to an increase in net revenues from increased utilization of existing facilities which did not require a proportionate increase in corporate overhead. PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts is a function of patient payor mix, billing practices and other factors. It is the Company's practice to reserve for doubtful accounts in the period in which revenue is recognized based on management's estimate of the net collectibility of accounts receivable. The provision for doubtful accounts for the three months ended March 31, 1997 was $228,000 compared to $268,000 for the same period in 1996. As a percentage of net revenues, the provision for doubtful accounts decreased to 3.8% for the three months ended March 31, 1997 from 6.9% for the same period in 1996. This decrease was primarily due to an improved account evaluation process and an increased emphasis upon collections of aged amounts. DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses for the three months ended March 31, 1997 were $379,000 compared to $215,000 for the same period in 1996. As a percentage of net revenues, depreciation and amortization expenses increased to 6.3% for the three months ended March 31, 1997 from 5.5% for the same period in 1996. This increase was due to the opening of two new facilities in the fourth quarter of 1996. 19 21 NET INTEREST INCOME (EXPENSE). Net interest expense for the three months ended March 31, 1997 was $260,000 compared to $198,000 for the same period in 1996. The increase of $62,000 was primarily due to the increase in the Company's borrowings for working capital purposes. In June 1995, the Company entered into the Subordinated Loan, which permitted borrowings, under certain circumstances, of up to $12.5 million, of which $6.2 million and $4.7 million were outstanding as of March 31, 1997 and 1996, respectively. NET (LOSS). The Company had a net loss of $314,000 for the three months ended March 31, 1997 compared to a net loss of $375,000 for the same period in 1996, a decrease of $61,000. YEARS ENDED DECEMBER 31, 1996 AND 1995 NET REVENUES. Net revenues for the year ended December 31, 1996 were $18.6 million compared to $8.8 million for the same period in 1995, representing an increase of 111.2%. The increase in net revenues was primarily attributable to a full year's net revenues in 1996 for three facilities opened in 1995, the acquisition in December 1995 of three facilities and the continued growth at existing facilities. FACILITIES EXPENSES. Facilities expenses for the year ended December 31, 1996 were $14.6 million compared to $6.8 million for the same period in 1995. As a percentage of net revenues, facilities expenses increased to 78.8% for the year ended December 31, 1996 from 77.4% for the same period in 1995. This increase was due to the lack of full patient utilization in 1996 at the facilities opened in 1995. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the year ended December 31, 1996 were $2.7 million compared to $1.7 million for the same period in 1995. As a percentage of net revenues, general and administrative expenses decreased to 14.4% for the year ended December 31, 1996 from 19.1% for the same period in 1995. This decrease was due to an increase in net revenues from increased utilization of existing facilities which did not require a proportionate increase in corporate overhead. PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts for the year ended December 31, 1996 was $1.3 million compared to $495,000 for the same period in 1995. As a percentage of net revenues, the provision for doubtful accounts increased to 7.0% for the year ended December 31, 1996 from 5.6% for the same period in 1995. This increase was primarily due to a continuing evaluation of the collectible amounts outstanding and an increase in Medicare patients without secondary insurance resulting from the acquisition of three facilities in December 1995. DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses for the year ended December 31, 1996 were $1.6 million compared to $509,000 for the same period in 1995. As a percentage of net revenues, depreciation and amortization expenses increased to 8.8% for the year ended December 31, 1996 from 5.8% for the same period in 1995. This increase was due to the amortization and write-off of certain intangible assets associated with the acquisition in 1996 of two facilities under development and the acquisition and opening of new facilities in 1995. NET INTEREST INCOME (EXPENSE). Net interest expense for the year ended December 31, 1996 was $915,000 compared to $360,000 for the same period in 1995. The increase of $555,000 was primarily due to the increase in the Company's borrowings for working capital purposes. Pursuant to the Subordinated Loan, $6.2 million and $4.7 million were outstanding as of December 31, 1996 and 1995, respectively. NET (LOSS). The Company had a net loss of $2.4 million for the year ended December 31, 1996 compared to a net loss of $1.2 million for the same period in 1995, an increase of $1.2 million. YEARS ENDED DECEMBER 31, 1995 AND 1994 NET REVENUES. Net revenues for the year ended December 31, 1995 were $8.8 million compared to $2.7 million for the same period in 1994, an increase of 220.2%. The increase in net revenues was 20 22 primarily attributable to facilities opened in 1995 and an increase in the utilization of facilities opened in 1994. FACILITIES EXPENSES. Facilities expenses for the year ended December 31, 1995 were $6.8 million compared to $2.4 million for the same period in 1994. As a percentage of net revenues, facilities expenses decreased to 77.4% for the year ended December 31, 1995 from 87.6% for the same period in 1994. This decrease was primarily due to increased patient utilization at existing facilities. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the year ended December 31, 1995 were $1.7 million compared to $1.0 million for the same period in 1994. As a percentage of net revenues, general and administrative expenses decreased to 19.1% for the year ended December 31, 1995 from 37.3% for the same period in 1994. This decrease was primarily due to increases in net revenues from increased patient utilization of existing facilities which did not require a proportionate increase in corporate overhead. PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts for the year ended December 31, 1995 was $495,000 compared to $93,000 for the same period in 1994. As a percentage of net revenues, the provision for doubtful accounts increased to 5.6% for the year ended December 31, 1995 from 3.4% for the same period in 1994. This increase was primarily due to the Company's continuing evaluation of the collectible amounts outstanding. DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization expenses for the year ended December 31, 1995 were $509,000 compared to $126,000 for the same period in 1994. As a percentage of net revenues, depreciation and amortization expenses increased to 5.8% for the year ended December 31, 1994 from 4.6% for the same period in 1994. This increase was due to increased depreciation expenses resulting from the development and opening of four facilities in 1995. NET INTEREST INCOME (EXPENSE). Net interest expense for the year ended December 31, 1995 was $360,000 compared to net interest income of $61,000 for the same period in 1994. The increase of $421,000 was primarily due to the increase in the Company's borrowings for working capital and expansion purposes. The Company entered into the Subordinated Loan in June 1995. At December 31, 1995, the Company had borrowed $4.7 million on such loan. NET (LOSS). The Company had a net loss of $1.2 million for the year ended December 31, 1995 compared to a net loss of $842,000 for the same period in 1994, an increase of $345,000. LIQUIDITY AND CAPITAL RESOURCES The Company requires capital for acquisitions, maintenance, refurbishing and expansion of existing facilities, de novo development, the integration of newly developed and acquired facilities and working capital and general corporate purposes. As of March 31, 1997, the Company had working capital of approximately $2.7 million, of which $519,000 consisted of cash and cash equivalents, compared to working capital and cash and cash equivalents of $2.4 million and $952,000 at December 31, 1996, respectively. The Company intends to finance its working capital requirements, as well as purchases of additional equipment and leasehold improvements, from cash generated from operations, borrowings, if available, and through the net proceeds of the Offering. Net cash used in operating activities was $94,000 and $956,000 for the three months ended March 31, 1997 and for the year ended December 31, 1996, respectively. Net cash used in operating activities consists of the Company's net loss, decreased by non-cash expenses such as depreciation, amortization and the provision for doubtful accounts and adjusted by changes in components of working capital, primarily accounts receivable. Once a de novo facility is operational, the Company is unable to bill for services until it receives a Medicare provider number and the Medicare intermediary installs its electronic billing software at the facility. For these reasons, there is generally a 90-day delay before the Company will receive payment on its initial services at such facility. The dialysis industry is characterized by long collection cycles because Medicaid and private insurance carriers require substantial documentation to support reimbursement claims and often take a substantial amount of time 21 23 to process claims. As a result, the Company requires significant working capital to cover expenses during the collection process. Net cash used in investing activities was $184,000 and $1.6 million for the three months ended March 31, 1997 and the year ended December 31, 1996, respectively. The Company's principal uses of cash in investing activities have been related to purchases of new equipment and leasehold improvements for the Company's existing facilities and the cost of development of additional facilities. Net cash used in financing activities for the three months ended March 31, 1997 was $155,000. This consisted primarily of payments on capital lease obligations. Net cash provided by financing activities for the year ended December 31, 1996 was $2.3 million. The principal sources of cash from financing activities were $1.5 million in proceeds from the Company's Subordinated Loan and equity financings aggregating $1.8 million through the sale of Series B Preferred Stock (net of redemptions) and Common Stock in the year ended December 31, 1996. The Subordinated Loan bears interest at 13.0% and permitted borrowings of up to $12.5 million under certain circumstances during the first two years of the term. As of June 5, 1997, the Company is no longer permitted additional borrowings on the Subordinated Loan. The Subordinated Loan contains certain financial covenants. See Note 8 of Notes to Consolidated Financial Statements. As of March 31, 1997 and December 31, 1996, the Company had borrowed approximately $6.2 million on the Subordinated Loan which will be repaid out of the net proceeds of the Offering. An aggregate of 775,000 shares of Series B Preferred Stock were converted into Common Stock by November 27, 1996. The balance of the outstanding Series B Preferred Stock were redeemed by the Company on November 27, 1996 for the aggregate redemption price of $275,000, plus accrued dividends. The Company has a $4.0 million secured Line of Credit. Borrowings under the Line of Credit are limited to 80% of the net collectible value of eligible accounts receivable. Approximately $2.8 million was available as of March 31, 1997. The Line of Credit bears interest on the outstanding balance at the prime rate, plus 2.0% (10.5% as of the date of this Prospectus). The Line of Credit is for the development of dialysis facilities and for working capital and general corporate purposes and is secured by the Company's accounts receivable. The Line of Credit contains financial covenants relating to the maintenance of a minimum net worth and specified net worth to debt ratios. The Line of Credit also requires the lender's approval for any acquisitions in excess of $5,000,000 in the aggregate in any calendar year and for the payment of cash dividends. As of March 31, 1997 and December 31, 1996, the Company had not borrowed on the Line of Credit. As of June 15, 1997, the Company had borrowed $1.5 million on the Line of Credit. The Company also has available a $6.0 million Lease Line with an equipment financing company. The Lease Line is used primarily to finance dialysis related equipment and furnishings at the Company's facilities and bears interest at the five year U. S. Treasury bond yield rate plus 3.91% (9.91% as of the date of this Prospectus). As of March 31, 1997 and December 31, 1996, the Company had borrowed approximately $2.1 million and $1.5 million, respectively, on the Lease Line. The outstanding balance on the Lease Line will be repaid out of the net proceeds of the Offering. The Company's long-term capital requirements will depend on numerous factors, including the rate at which the Company develops or acquires new facilities. In addition, the Company has various on-going needs for capital, including: (i) working capital for operations (including financing receivables as previously described); and (ii) routine capital expenditures for the maintenance of facilities, and equipment and leasehold improvements. In order to implement the Company's long-term growth strategy, the Company anticipates that capital requirements will increase from historical levels. The Company anticipates that the consideration paid for the acquisition of new facilities will consist of cash, promissory notes, assumption of liabilities and/or the issuance of Common Stock or securities convertible into Common Stock. The Company believes that the net proceeds of the Offering, together with existing debt financing arrangements and internally generated funds, will be sufficient to fund the Company's operations and to finance the Company's growth strategy through the next 18 22 24 months. However, there can be no assurance that the Company will not require substantial additional funds prior to such time. See "Risk Factors -- Dependence upon Proceeds of Offering; Possible Need for Additional Capital." INCOME TAX LOSS CARRYFORWARDS As of March 31, 1997, the Company had approximately $6.6 million of net operating loss carryforwards that may be available to offset future taxable income for federal income tax purposes. These net operating loss carryforwards begin to expire in 2008. POTENTIAL IMPACT OF INFLATION A majority 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. These reimbursement rates are adjusted periodically based on certain factors, including Congressional budget limitations, inflation, consumer price indexes and costs incurred in rendering the services. Historically, adjustments to reimbursement rates have had little relation to the actual cost of doing business. The Company is not able to increase the amounts it bills for services provided by its operations that are subject to Medicare and Medicaid reimbursement rates. Operating costs, such as labor and supply costs, are subject to inflation without corresponding increases in reimbursement rates. Such increases may be significant and have a material adverse effect on the Company's results of operations. NEW ACCOUNTING PRONOUNCEMENTS In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. This statement establishes standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock or potential common stock. This statement is effective for financial statements issued for periods ending after December 15, 1997, and earlier application is not permitted. This statement requires restatement of all prior-period EPS data presented. The Company will adopt SFAS 128 in the fourth quarter of the year ending December 31, 1997. The pro forma basic (loss) per share and diluted (loss) per share calculated in accordance with SFAS 128 for the fiscal years ended December 31, 1994, 1995 and 1996, and the period ended March 31, 1997, are as follows:
THREE MONTHS YEARS ENDED DECEMBER 31, ENDED -------------------------- MARCH 31, 1994 1995 1996 1997 ------ ------ ------ -------------- Pro forma basic (loss) per share.............. $(.48) $(.61) $(.84) $(.08) Pro forma diluted (loss) per share............ $(.48) $(.61) $(.84) $(.08)
Other recently issued accounting standards may affect the Company's Consolidated Financial Statements in the future. See Consolidated Financial Statements and Notes thereto. 23 25 BUSINESS Renex Corp. ("Renex" or the "Company"), which was established in July 1993, is a high quality provider of dialysis and ancillary services to patients suffering from chronic kidney failure, generally referred to as end stage renal disease ("ESRD"). The Company has grown primarily through de novo development and more recently through acquisitions, and seeks to distinguish itself on the basis of quality patient care and responsiveness to the professional needs of its referring nephrologists. The Company currently provides dialysis services to approximately 800 patients in seven states, through 12 outpatient dialysis facilities and two staff-assisted home dialysis programs. Additionally, the Company provides inpatient dialysis services at four hospitals. The Company intends to accelerate the penetration of its existing markets through a combination of acquisitions and de novo development and to enter new markets, primarily through acquisitions, in which the Company believes it can establish significant market share over time. THE DIALYSIS INDUSTRY END STAGE RENAL DISEASE ESRD is the state of advanced chronic kidney disease that is characterized by the irreversible loss of kidney function. A normal human kidney removes waste products and excess water from the blood, preventing water overload, toxin buildup and eventual poisoning of the body. Chronic kidney disease can be caused by a number of conditions, including inherited diseases, diabetes, hypertension and other illnesses. Patients suffering from ESRD require routine dialysis treatments or kidney transplantation to sustain life. Transplantation is severely limited due to scarcity of suitable organ donors, the incidence of organ transplant rejection and the ineligibility of many ESRD patients for transplantation due to health and age. As a result, the vast majority of ESRD patients must rely on dialysis for the remainder of their lives. According to the Health Care Financing Administration ("HCFA"), the number of patients requiring chronic kidney dialysis services in the United States has increased from 66,000 patients in 1982 to over 200,000 patients in 1995. According to the National Institutes of Health, the number of ESRD patients is projected to reach 300,000 by the year 2000. HCFA estimates that the national incidence rate of new cases of ESRD in 1995 was approximately 253 patients per million when considering all age groups, but was 1,097 patients per million in individuals age 65 to 74, and 1,035 patients per million in individuals age 75 and over. The Company attributes the growth in the number of ESRD patients principally to: (i) the aging of the U.S. population; (ii) better treatment and longer survival of patients suffering from diabetes, hypertension, and other illnesses that lead to ESRD; and (iii) improved dialysis technology which has enabled dialysis to be provided to older patients and patients who previously could not tolerate dialysis due to their physical condition. According to HCFA, total spending for ESRD in the United States in 1995 was an estimated $13.1 billion, of which Medicare paid an estimated $9.7 billion. The Company estimates that approximately $6.0 billion of the $13.1 billion was spent on dialysis and ancillary services. Since 1972, most ESRD patients in the United States have been entitled to Medicare benefits, regardless of age or financial circumstances. Currently, 93% of all ESRD patients in the United States are receiving Medicare reimbursement for treatment. NEPHROLOGISTS Nephrology is a subspecialty within the specialty of internal medicine. Nephrologists specialize in the management of all forms of kidney-related ailments and the administration of related services. Nephrologists typically are the primary care physicians for ESRD patients. As specialists, nephrologists provide consultation services to other physicians' patients who suffer from kidney-related ailments. They also examine and treat pre-ESRD patients. Nephrologists serve as the primary gatekeepers of ESRD patients and, in consultation with their patients, play a significant role in determining which dialysis facilities and hospitals will be used by such patients. While managed care directs a small minority of these patients (estimated by HCFA at 3% in 1995), nephrologists direct the vast majority of patients. 24 26 DIALYSIS FACILITIES; TREATMENTS AND STAFF FACILITIES. Patients with ESRD generally receive dialysis treatment through a dialysis facility, which may be a free-standing or a hospital-based outpatient facility. Most dialysis facilities offer a range of services to ESRD patients, including: dialysis treatments; provision of supplies and equipment; patient, family and community training and education; insurance counseling; billing services; dietary counseling and social services support. In 1995, there were over 2,800 dialysis facilities in the United States, of which approximately 71% were free-standing and approximately 29% were hospital-based outpatient facilities. The primary function of dialysis facilities is to provide ESRD patients with life sustaining kidney dialysis, including both hemodialysis and peritoneal dialysis. Patient care is provided by a team of dialysis professionals. HEMODIALYSIS. HCFA estimates that as of December 31, 1995, approximately 84% of ESRD patients in the United States were receiving hemodialysis treatments (83% in outpatient facilities and 1% in the home). Hemodialysis uses an artificial kidney, called a dialyzer, to remove certain toxins and fluid from the patient's blood and a machine to control external blood flow and to monitor certain vital signs of the patient. Hemodialysis patients are connected to a dialysis machine via a vascular access device. The dialysis process occurs across a semipermeable membrane that divides the dialyzer into two distinct chambers. While the blood is circulated through one chamber, a premixed dialysate solution is circulated through the other chamber. The toxins and excess fluid from the blood cross the membrane into the dialysate solution. A typical hemodialysis treatment lasts three to four hours and is administered three times per week. During the dialysis procedure, patients generally remain seated next to the hemodialysis machine, but are able to read, watch television (if available) or converse with other patients or clinic staff. Most clinics provide some flexibility in scheduling (such as evening and weekend hours) to minimize disruption to the patients' lives. In certain cases, hemodialysis may also be performed at home for patients who are medically suitable and have a willing and capable assistant. Home hemodialysis requires training for both the patient and the caregiver, and requires monitoring by a designated outpatient facility. PERITONEAL DIALYSIS. As of December 31, 1995, HCFA estimates that approximately 16% of all ESRD patients were receiving peritoneal dialysis in the home, under the supervision of an outpatient facility. There are several variations of peritoneal dialysis. The most common forms are continuous ambulatory peritoneal dialysis ("CAPD") and continuous cycling peritoneal dialysis ("CCPD"). All forms of peritoneal dialysis use the patient's peritoneal (abdominal) cavity to eliminate fluid and toxins from the patient's blood. CAPD utilizes a sterile, pharmaceutical grade dialysate solution, which is introduced into the patient's peritoneal cavity through a surgically implanted catheter. Toxins in the blood continuously cross the peritoneal membrane into the dialysate solution. After several hours, the patient must drain and replace the fluid. CCPD is performed in a manner similar to CAPD but utilizes a mechanical device to cycle the dialysate solution while the patient is sleeping. Peritoneal dialysis patients are closely monitored by the designated dialysis facility, either through periodic (at least monthly) visits to the facility or through visits to the patient's home by a dialysis facility nurse. PATIENT CARE PROFESSIONALS. ESRD patients are generally under the care of a nephrologist, who is typically supported by a team of dialysis professionals, including: Patient Care Personnel. Patient care personnel include registered nurses and patient care technicians who work under the supervision of registered nurses. Patient care personnel administer the dialysis treatment in accordance with the nephrologist's prescriptions. Nurses also assess the patient's condition throughout treatment, administer all medication, provide psycho-social assessments, and educate patients regarding their treatment. Dieticians. Dialysis patients in general, and hemodialysis patients in particular, must follow a restricted diet. The effectiveness and the efficiency of each patient's dialysis treatment is influenced by the patient's compliance with these dietary restrictions. In addition, many dialysis patients receive a complex regimen of nutritional supplements to augment their diet. Dialysis facilities generally employ dieticians who are responsible for designing a patient's diet, educating and training the patient about 25 27 the importance of the diet, and continually monitoring the patient's nutritional status and compliance with dietary guidelines. Social Workers. Federal regulations require that a social worker, having a masters degree in social work and a background in clinical practice, provide assessment and counseling to ESRD patients and their families. Social workers are also required to assist ESRD patients in obtaining transportation to and from the dialysis facility, financial support services from government and private sources when needed, insurance and dialysis services when traveling away from home. BUSINESS STRATEGY The Company's goal is to continue expanding its geographic coverage and market penetration while maintaining high quality patient care and physician satisfaction with its services. Renex intends to enter new markets primarily through acquisitions and to penetrate existing markets primarily through de novo development, same facility growth and the establishment of alliances with hospitals and managed care organizations. The key elements of the Company's strategy include the following: CREATE AND EXPAND REGIONAL NETWORKS The Company's growth strategy is focused on establishing local clusters of dialysis facilities in order to create strong regional networks. Renex has targeted seven markets, in which the Company currently has operations, for the development of regional networks. The Company intends to continue to grow these regional networks through a combination of strategic acquisitions and de novo development. Additionally, Renex intends to enter new markets, primarily through acquisitions, where it believes it can establish significant market share over time. ACQUISITIONS. While the dialysis industry is undergoing significant patient and facility growth, it is also undergoing consolidation in the number of providers. The Company believes that many physician-owners are selling their facilities to gain relief from the administrative burdens associated with changing government regulations and changing patterns of reimbursement, to focus their efforts on patient care and to realize a more immediate return on their investment. In addition, increasing pressures within the hospital industry, which is also undergoing consolidation, are motivating hospitals to sell or outsource the management of their dialysis facilities as they re-focus on their core businesses. Renex seeks to capitalize on these trends by acquiring both physician-owned and hospital-based outpatient dialysis facilities. The Company evaluates potential acquisitions on the basis of historical and projected patient volumes and profitability, the state of the local competitive environment, the nephrologist's reputation for quality and the willingness of the physician-owner to remain actively involved as medical director. The Company intends to focus primarily on acquisitions of facilities with 70 or more patients owned by mid-career nephrologists who intend to continue to build their nephrology practices. The purchase price is based on projected earnings of the acquired facility under the Company's management and the consideration will generally be paid in a combination of cash and stock. Renex believes that this combination meets the nephrologists' immediate cash needs and offers the nephrologists a possible greater overall long-term return through the potential appreciation in the value of the stock. DE NOVO DEVELOPMENT. Since inception, the Company has grown primarily through an aggressive de novo development strategy. This strategy has led to the development of eight dialysis facilities in five markets. The Company intends to continue using this strategy primarily in its existing markets, where its reputation attracts additional referring nephrologists. In establishing de novo facilities, the Company first seeks to attract one or more nephrologists whose existing patient base and projected growth supports the establishment of a new facility. The Company will not develop a facility unless it has a written agreement with a local nephrologist to serve as medical director for a minimum of five years. Because one or a few nephrologists account for all or a significant portion of a facility's patients, the Company's selection of a specific site is deter- 26 28 mined, in part, by the location of the physician selected as the facility's medical director. The Company also analyzes patient density and locations of competing facilities by postal zip code to identify the best location to service the medical director's patients and to attract additional patients who may be traveling longer distances to receive treatment at competitors' facilities. Once an appropriate site has been obtained, the Company employs its knowledge and experience to design and build a new facility within a few months. SAME-FACILITY GROWTH. The Company seeks to achieve same-facility growth in excess of the growth rate of the ESRD patient population by marketing its services to additional community and hospital-based nephrologists. Marketing emphasis is placed on the quality of services provided, convenience of locations and commitment to meeting the professional needs of nephrologists. In order to facilitate the transfer to, and enrollment and care of, patients at its facilities, the Company continually strives to simplify its processes for admitting new patients, monitoring patient progress and updating patient treatment orders. The Company also attracts patients through patient-to-patient referrals, local print and other advertising and open house events. The Company's attention to facility design, equipment selection and patient amenities, such as individual television sets at each patient treatment station, VCR equipment for patient education and entertainment and portable telephones, are important factors in retaining patients and fostering patient-to-patient referrals. ESTABLISH ALLIANCES WITH HOSPITALS AND MANAGED CARE ORGANIZATIONS Although the vast majority of ESRD patients receive dialysis on an outpatient basis, hemodialysis is also performed by hospitals on an inpatient basis, generally in an acute care setting. The Company's strategy is to leverage its relationships with nephrologists to identify hospitals which are: (i) seeking to outsource their existing dialysis programs; (ii) interested in establishing inpatient dialysis programs; or (iii) dissatisfied with their current dialysis contractors. The Company's facility administrators are responsible for marketing to local hospitals on the basis of quality, service and price. The Company has two hospital contracts in Mississippi and, in 1996, established two new hospital inpatient programs, one each in Massachusetts and Pennsylvania. The Company recently signed a contract to establish a new inpatient dialysis program in a community hospital in New Jersey, subject to the hospital's receipt of regulatory approval. Renex believes that managed care programs will have an increasing influence on the ESRD market. The Company is committed to establishing managed care relationships through non-exclusive and semi-exclusive managed care contracts in its markets. The Company believes that its strategy of clustering facilities, and thus providing multiple sites to serve managed care patients, will enhance the Company's ability to compete for managed care contracts. The Company's facility administrators are responsible for identifying and negotiating managed care contracts. The Company currently has non-exclusive managed care contracts in most of its markets. CAPITALIZE ON RELATIONSHIPS WITH NEPHROLOGISTS Renex believes that its success is attributable to the Company's efforts to identify and cultivate relationships with those nephrologists who have a rapidly expanding patient base and who are seeking an association with a company known for high quality patient care and sensitivity to physicians' professional concerns. Since inception, Renex has managed its business based on a set of guiding principles that recognize nephrologists as the Company's primary customer and high quality patient care as the nephrologist's primary concern. These principles include: (i) involving the nephrologist in all aspects of designing, equipping, staffing and planning the clinical operating policies and procedures of a Renex facility; (ii) avoiding corporate interference in the nephrologist's medical decisions; (iii) treating the nephrologist's patients with dignity and respect; (iv) assessing and responding to the nutritional, psychological and social needs of patients; (v) creating an environment which fosters patient wellness and safety; and (vi) developing long-term care plans with an emphasis on returning the nephrologist's patients to the community at the patient's highest level of independent living. 27 29 Renex believes that its guiding principles appeal to nephrologists and help facilitate their recruitment as medical directors. The Company has developed marketing materials based on these principles and actively markets to nephrologists through journal advertising, direct mail and personal networking, including third-party introductions by the Company's existing medical directors. OPERATIONS OUTPATIENT FACILITIES As of July 31, 1997, the Company operated 12 outpatient dialysis facilities, with a total of 187 certified dialysis stations. All of the facilities are operated through wholly owned subsidiaries and are located in leased premises. The following table sets forth selected information regarding the Company's dialysis facilities:
NUMBER OF TREATMENTS(1) -------------------------------------------- THREE MONTHS DATE OF CURRENT YEARS ENDED DECEMBER 31, ENDED OPENING/ NUMBER OF -------------------------- MARCH LOCATION OF FACILITY ACQUISITION STATIONS 1994 1995 1996 31, 1997 - -------------------------- ------------- --------- ------ ------ ------ -------------- University City, MO March 1994 21 7,252 14,462 17,251 4,878 Pittsburgh, PA May 1994 20 1,357 4,673 6,941 2,261 Tampa, FL August 1994 14 1,481 6,515 8,730 2,183 Creve Coeur, MO November 1994 17 170 4,058 7,342 2,161 Amesbury, MA May 1995 16 -- 2,692 7,473 2,645 Philadelphia, PA August 1995 17 -- 741 6,217 1,966 Bridgeton, MO August 1995 13 -- 621 5,652 1,922 Jackson, MS(2) December 1995 18 -- -- 6,864 2,019 Delta, LA(2) December 1995 9 -- -- 7,783 1,750 Port Gibson, MS(2) December 1995 8 -- -- 2,719 790 Orange, NJ(2) November 1996 20 -- -- 593 2,384 Woodbury, NJ December 1996 14 -- -- 129 1,095 --- ------ ------ ------ ------ TOTAL 187 10,260 33,762 77,694 26,054 === ====== ====== ====== ======
- --------------- (1) Treatments listed opposite a facility include all outpatient hemodialysis treatments, home hemodialysis treatments, acute care treatments provided at hospitals located near such facilities and peritoneal dialysis treatments. Peritoneal dialysis treatments are stated in hemodialysis equivalents. Excludes treatments provided by a facility sold by the Company in September 1996. (2) Facilities acquired by the Company. Only treatments rendered after acquisition of the facility are included in the table. The Company has four additional facilities under development with planned openings ranging from the fourth quarter of 1997 through the first quarter of 1998. These facilities under development are located in New Jersey, Massachusetts and Missouri. OPERATION OF FACILITIES The Company's dialysis facilities are designed specifically for outpatient hemodialysis and for the training of peritoneal dialysis and home hemodialysis patients. Each facility has between eight and 21 dialysis stations and many facilities are designed to accommodate additional stations as patient census increases. In addition, each facility generally contains a reception room, a patient preparation area, a nurse's station, a patient examination room, a patient training room, a water treatment room, a dialyzer reprocessing room, staff work areas, offices, a kitchen, a supply room, and a lounge. All of the Company's facilities contain state-of-the-art equipment and modern accommodations and are typically located near public transportation. The facilities are designed to provide a pleasant and comfortable environment for each patient and include such amenities as color television sets for each patient station, VCRs for patient education and entertainment, and portable telephones. Each facility is managed by a full time professional administrator with experience in the dialysis industry. Each administrator is supported by a director of nursing, nursing professionals, social workers, dieticians, technicians and clerical support staff. In accordance with Medicare regulations, each facility is supervised by a practicing physician, typically a nephrologist, who serves as medical 28 30 director. The medical director is responsible for implementing the Company's policies and procedures to assure high quality patient care. The medical director's responsibilities also include patient education, recommendation of appropriate equipment, development of staff training programs and community relations. The Company also offers peritoneal dialysis, both CAPD and CCPD, at all of its facilities. Such services consist of patient training, the provision of equipment and supplies, patient monitoring and follow-up assistance to patients who prefer and are able to receive this form of dialysis. Patients and their families or other caregivers are trained over a two week period by a registered nurse to perform peritoneal dialysis. STAFF-ASSISTED HOME HEMODIALYSIS SERVICES In addition to the Company's outpatient dialysis facilities, the Company provides staff-assisted home hemodialysis services in St. Louis, Missouri and Tampa, Florida. In these programs, the Company provides dialysis equipment, supplies and a fully qualified nurse or technician who administers the hemodialysis treatments in the patient's home three times per week on a schedule convenient to the patient. INPATIENT DIALYSIS SERVICES The Company provides inpatient dialysis services to four hospitals pursuant to contracts negotiated with the hospitals for per-treatment rates paid directly by the hospitals. The Company also has one additional contract with a hospital to provide acute dialysis services once the hospital receives state approval for the program. In most instances, the Company provides the dialysis equipment and supplies to the hospital and administers the dialysis treatment when requested. Examples of cases in which inpatient services are required include patients with acute kidney failure resulting from trauma or other causes, newly diagnosed but clinically unstable ESRD patients and ESRD patients who require hospitalization. ANCILLARY SERVICES The Company provides a full range of ancillary services to ESRD patients, the most prominent of which is the physician prescribed administration of bioengineered erythropoietin ("EPO"). EPO is a substitute for the natural protein, erythropoietin, which is secreted by the kidneys and stimulates the production and development of red blood cells. Low levels of erythropoietin in a patient's blood often result in anemia. EPO is useful in the treatment of anemia associated with ESRD and reduces the need for blood transfusions. Substantially all ESRD patients receive EPO in dosages varying with a patient's weight and blood count. Other ancillary services that the Company provides to its ESRD patients include electrocardiograms, bone densitometry studies, nerve conduction studies, chest x-rays, blood transfusions and the administration of pharmaceutical products specific to ESRD, such as iron dextran (an intravenous iron supplement), calcitriol (an intravenous calcium supplement) and intradialytic parenteral nutrition ("IDPN"). Effective July 1, 1997, routine coverage by Medicare for electrocardiograms, bone densitometry studies, nerve conduction studies and chest x-rays was eliminated. Medicare continues to pay for these tests only when there is documentation of medical necessity. The Company derived approximately one-third of its net revenues for the year ended December 31, 1996 from the provision of ancillary services. The majority of such net revenues were from the administration of EPO. See "Risk Factors -- Dependence upon Government Reimbursement." MEDICAL DIRECTORS Medicare regulations mandate that, in order to receive reimbursement under the Medicare ESRD program, the dialysis facility must be "under the general supervision of a Director who is a physician." Generally, the medical director must be certified or board eligible in internal medicine, with at least 29 31 12 months of training or experience in the care of ESRD patients at dialysis facilities. Some facilities may also have associate medical directors. Medical directors and associate medical directors enter into written agreements with the Company which specify their duties and establish their compensation. Compensation is fixed for periods of one year or more, is separately negotiated for each facility, and generally depends upon competitive factors in the local market and the medical director's professional qualifications and responsibilities. Agreements between the Company and its medical directors have a minimum term of five years and may extend for as much as ten years. Under these agreements, the Company pays its medical directors a base monthly compensation. Medical director agreements, to the extent permitted by law, restrict the medical director from acting as a medical director, owner or equity holder in competing dialysis facilities within a specific geographic area, but do not prohibit the physician from providing direct patient care services at other locations and do not require, or otherwise compensate the physician for referrals of patients to the facility. In connection with acquisitions, the Company generally requires non-competition agreements from the sellers, whether physicians or otherwise. Such non-competition agreements prohibit such sellers from owning, operating, maintaining or otherwise participating in competing facilities within specific geographic areas, and extend for periods of two to ten years. QUALITY ASSURANCE Renex has established a system-wide quality assurance process, which includes its Continuous Quality Improvement ("CQI") program, to ensure that a high standard of care is provided to all of the Company's patients. The CQI program is modeled after the Joint Commission on Accreditation of Healthcare Organization's ten step process. The CQI program is implemented at the facility level by the medical director, clinic administrator and director of nursing. This process involves the continuous collection and analysis of patient care data to identify areas for improvement and to monitor progress of previously implemented measures. Each facility regularly audits its quality of care and equipment to ensure that all aspects of patient care meet the standards set by the Company's corporate office. The Company manages the CQI program at the corporate level through the compilation and analysis of all facilities' statistical data. These data are used to compare the Company's overall performance and each facility's specific performance to the national core indicators established for the dialysis industry by HCFA and the regional ESRD networks. Results of these comparisons are used to effect Company-wide improvements. Additional quality assurance support is provided by the Company's corporate office through a quality assurance department. The department develops, monitors and audits the quality standards of each dialysis facility on an ongoing basis through reporting mechanisms and site inspections to ensure the facilities meet the regulations of HCFA and the Occupational Safety and Health Administration. 30 32 SOURCES OF REIMBURSEMENT The following table provides information regarding the percentage of net revenues received by the Company by source:
THREE MONTHS YEARS ENDED ENDED DECEMBER 31, MARCH 31, ----------------------- -------------- 1994 1995 1996 1996 1997 ----- ----- ----- ----- ----- Medicare/Medicaid.................................... 65.0% 58.5% 67.2% 66.9% 75.9% Private/Managed Care Payors.......................... 35.0 41.5 30.9 32.5 21.1 Hospital Inpatient Dialysis Services................. -- -- 1.9 0.6 3.0 ----- ----- ----- ----- ----- Total....................................... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
The Company obtains a substantial portion of its reimbursement under a prospective Medicare reimbursement system for dialysis services provided to ESRD patients. The Social Security Act ("SSA") provides Medicare coverage for individuals who are medically determined to have ESRD. ESRD is currently defined in federal regulations as that stage of kidney impairment that appears irreversible and permanent and requires a regular course of dialysis or kidney transplantation to maintain life. Once an individual is medically determined to have ESRD, the SSA specifies that one of two conditions must be met before entitlement begins: (i) a regular course of dialysis must begin; or (ii) a kidney transplant must be performed. The SSA provides that entitlement begins 90 days after the month in which a regular course of dialysis is initiated. Under the Medicare ESRD program, reimbursement rates per treatment are fixed in advance and have been adjusted from time to time by the U.S. Congress. Payment for dialysis services is based on a prospective system which was implemented by HCFA in 1972. Providers are paid a base reimbursement rate per dialysis treatment, also referred to as the "composite rate." The composite rate constitutes payment for all routinely provided supplies, drugs, tests and services incident to dialysis. Other dialysis related ancillary services, including certain drugs (such as EPO), blood transfusions and certain tests ordered by physicians, are separately reimbursed in accordance with Medicare's reimbursement policies. Although this form of reimbursement limits the allowable charge per treatment, it provides the Company with predictable and recurring per treatment net revenue. Medicare, through its carriers, pays 80% of the amounts set by the Medicare prospective reimbursement system. The remaining 20% is paid by Medicaid, secondary private insurance coverage, if any, and/or the patient. From time to time, the U.S. Congress adjusts the applicable composite rate and fees based upon a review of several factors, including provider cost data from prior years. Prior to 1983, the average composite rate was established at $138 per treatment. In 1983, the average composite rate was reduced to $127 per treatment for free-standing outpatient dialysis facilities. In 1986, the average composite rate was further reduced to $125 per treatment. In January 1991, the average composite rate was increased to $126, the current level. The composite rate varies from region to region based on regional wage variations. The Medicare composite rate has been the subject of a number of reports and studies. In April 1991, the Institute of Medicine, an organization chartered by the National Academy of Sciences and an advisor to the federal government, released a report recommending that the composite rate be adjusted for the effects of inflation. In March 1996, after conducting a study on dialysis costs and reimbursement at the request of the U.S. Congress, the Prospective Payment Assessment Commission recommended a 2% increase be made in the ESRD composite reimbursement rate. The U.S. Congress is not required to implement either of these recommendations and can either raise or lower the reimbursement rate. The Company is unable to predict what, if any, future changes may occur in the Medicare composite reimbursement rate. Any reductions in the Medicare composite rate could have a material adverse effect on the Company's business, financial condition and results of operations. One ancillary item that provides the Company with significant net revenues is the provision of EPO. In June 1989, Medicare started reimbursement for EPO treatments at the rate of $40 per treatment 31 33 up to 10,000 units and $70 for treatments in excess of 10,000 units. In January 1991, Medicare reimbursement rates were changed to $11 per 1,000 units with no maximum and later reduced to $10 per 1,000 units in 1993. Currently, the administration of EPO is reimbursed only for patients whose average hematocrit levels over a 90 day period are 36% or less, which include the vast majority of dialysis patients. Hematocrit is the measurement of the concentration of oxygen-carrying red blood cells in a patient's bloodstream. The EPO Medicare reimbursement rate may be adjusted annually to reflect cost of living changes. In March 1996, HCFA published a request for proposals ("RFP"), requesting bids from managed care companies to participate in a three year test program for the comprehensive treatment of ESRD patients, including dialysis, kidney transplantation, physician and hospital services. Currently, managed care companies are only permitted to arrange for the treatment of existing members of their programs who develop ESRD subsequent to their enrollment in the managed care plan. HCFA selected four managed care companies that will be allowed to recruit ESRD patients beginning in mid-1997 in a test program. One managed care company subsequently withdrew from the test program and will not be replaced. The results of the test program will determine whether HCFA will open up the market to additional managed care companies. The RFP includes a proposed capitation payment scale for ESRD patients. HCFA will also require that the managed care companies offer certain extra services including rehabilitation counseling, free transportation to physicians' offices and discounted prescription drugs to all ESRD patients. The Company is unable to predict whether the HCFA test program will be successful and result in large numbers of ESRD patients enrolling in managed care programs, or the impact, if any, of such enrollment on the Company's operations. The widespread introduction of managed care to the dialysis industry could result in a change of the reimbursement rates for the Company's services, which could have a material effect on the Company's business, financial condition and results of operations. MEDICARE ELIGIBILITY. Medicare laws provide that any individual, regardless of age, who has no primary insurance coverage from a private insurance company and is diagnosed as having ESRD is automatically covered under Medicare if he or she is Medicare eligible and applies for coverage. Coverage varies depending upon the age of the patient and the status of other insurance coverage. For ESRD patients over age 65, who are not covered by an employer group health insurance plan, Medicare coverage commences immediately. For ESRD patients over age 65 who are covered by an employer group health plan, Medicare coverage begins after an 18 month coordination of benefits period. For ESRD patients under age 65 who are not covered by an employer group health insurance plan, Medicare coverage begins 90 days following the month in which the patient begins dialysis. During the first 90 days, Medicaid (if the patient is eligible), private insurance, or the patient is responsible for payment for dialysis services. If an ESRD patient who is not covered by an employer group health plan begins home dialysis training during the first 90 days of dialysis, Medicare immediately becomes the primary payor. ESRD patients under age 65 who are covered by an employer group health insurance plan must wait 21 months (consisting of the three months' entitlement waiting period described above and an additional 18 months coordination of benefits period) before Medicare becomes the primary payor. During the 21 month period, the employer group health plan is responsible for paying primary benefits at its negotiated rate or, in the absence of such a rate, at the Company's usual and customary charges. Medicare generally pays the difference between what is paid by the employer group health plan and the gross amount payable by Medicare. Following such 21 month period, Medicare becomes the primary coverage and the group insurance becomes secondary. If an ESRD patient who is covered by an employer group health plan elects home dialysis training during the first 90 days of dialysis, Medicare becomes the primary payor after 18 months. MEDICAID REIMBURSEMENT. Medicaid programs are state administered programs partially funded by the federal government. These programs are intended to provide coverage for patients whose income and assets fall below state defined levels and who are otherwise uninsured. In certain states, 32 34 Medicaid serves as the primary payor for patients who are not eligible for Medicare benefits. The programs also serve as supplemental insurance programs for the Medicare co-insurance portion and provide coverage for certain services that are not covered by Medicare. State regulations generally follow Medicare reimbursement levels and coverages without any co-insurance amounts. Certain states, however, require beneficiaries to pay a monthly share of the cost based upon levels of income or assets. The Company is a licensed ESRD Medicaid provider in all states in which it does business. PRIVATE PAYOR REIMBURSEMENT/ACUTE CARE CONTRACTS. The Company receives reimbursement from private payors for ESRD treatments and ancillary services prior to Medicare becoming the primary payor, at rates which can be significantly higher than the per treatment rate set by Medicare. After Medicare becomes a patient's primary payor, private payors become secondary payors and generally reimburse the Company for the 20% of the Medicare allowable rate not paid by Medicare. The Company has also negotiated non-exclusive managed care contracts in certain markets with certain payors at rates which range from the Medicare composite rate to significantly higher amounts. The Company also receives payments for the provision of dialysis services from several hospitals under acute care contracts at rates significantly higher than the Medicare composite rate. GOVERNMENT REGULATION GENERAL The Company's operations are subject to extensive government regulation at the federal, state and local levels. These government regulations require, among other things, that the Company meet various standards governing the construction and management of facilities, personnel, maintenance of proper records, equipment and quality assurance programs. In order to receive Medicare reimbursement, dialysis facilities must be certified by HCFA and are subject to periodic inspection to assure compliance with applicable regulations. HCFA's approval is also required for the addition of dialysis stations at existing facilities. All of the Company's facilities are certified by HCFA. All states have specific regulations governing dialysis services. These regulations vary from state to state and many include approval of owners and construction plans, licensure of facilities, inspections or certificates of need ("CON"). Except for its facilities located in Mississippi and Missouri, the Company does not presently operate in any state which has an applicable CON law. However, the Company may in the future acquire or develop facilities in such states. In such event, the Company would apply for approval through the applicable CON process and comply with all applicable licensing requirements. Any loss by the Company of its federal certifications, its authorization to participate in the Medicare or Medicaid programs or its licenses under the laws of any state or other governmental authority from which a substantial portion of its net revenues is derived or a change resulting from health care reform reducing dialysis reimbursement or reducing or eliminating coverage for dialysis services would have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that the health care services industry will continue to be subject to intense regulation at the federal, state and local levels, the scope and effect of which cannot be predicted. No assurance can be given that the activities of the Company will not be reviewed and challenged by government regulators or that health care reform will not result in a material adverse change to the Company. FRAUD AND ABUSE ANTI-KICKBACK STATUTE. The Company's operations are subject to the illegal remuneration provisions of the federal SSA governing federally funded health care programs, including Medicare and Medicaid, and similar state laws that impose criminal penalties and civil sanctions on persons who knowingly and willfully solicit, offer, receive or pay any remuneration, whether directly or indirectly, in return for, or to induce, the referral of a patient for treatment, or, among other things, the ordering, purchasing, or leasing of items or services that may be paid for in whole or in part by Medicare, 33 35 Medicaid or similar state programs. Violations of the federal anti-kickback statute are punishable by criminal penalties, including imprisonment, fines, freezing of assets, asset forfeiture and exclusion of the provider from future participation in the Medicare or Medicaid programs. Civil penalties for violations of the federal anti-kickback statute include assessments of $10,000 per improper claim for payment, plus three times the amount of such claim and suspension from future participation in the Medicare or Medicaid programs. Civil suspension from participation in Medicare or Medicaid for anti-kickback violations also can be imposed through an administrative process, without the imposition of civil monetary penalties. Some state statutes also include criminal penalties. To provide guidance regarding the federal anti-kickback statute, the Office of the Inspector General (the "OIG") for the federal Department of Health and Human Services ("HHS") has published regulations that create exceptions or "safe harbors" for certain business transactions. The safe harbors are narrowly drafted and many lawful transactions fall outside their scope. Transactions that satisfy the criteria under applicable safe harbors will be deemed not to violate the federal anti-kickback statute. Transactions that do not satisfy all elements of a relevant safe harbor do not necessarily violate the statute, although such transactions may be subject to scrutiny by enforcement agencies. Since the federal anti-kickback statute has been broadly interpreted by the government and through court decisions, it could limit the manner in which the Company conducts its business. The Company seeks to structure its various business arrangements, including its relationship with physicians, to comply with the federal provisions. The Company believes that its arrangements with physicians and other business arrangements comply in all material respects with the federal anti-kickback statute and all other applicable related laws and regulations. However, because of the broad provisions of the federal anti-kickback statute the OIG or other governmental agency may take a contrary position which could require the Company to change its practices or experience a material adverse effect on its business, financial condition and results of operations. LEASES WITH PHYSICIANS. Certain of the Company's dialysis facilities are leased from entities in which physicians who refer patients to the Company hold interests. Because of the referral of patients by these physicians, the federal anti-kickback statute may apply. HHS has promulgated a safe harbor relevant to such arrangements relating to space rental. The Company believes that its leases satisfy the space rental safe harbor. MEDICAL DIRECTOR RELATIONSHIPS. Because the Company's medical directors refer patients to the Company's facilities, the federal anti-kickback statute could apply to such referrals. However, the Company believes it has a reasonable basis for concluding that its contractual arrangements with its medical directors are in material compliance with the federal anti-kickback statute. The Company seeks to comply with the requirements of the federal anti-kickback statute, or if applicable, the personal services or employment safe harbor provisions, when entering into agreements or contracts with its medical directors and other physicians. ACUTE DIALYSIS SERVICES. Under the Company's acute inpatient dialysis service arrangements, the Company agrees to provide a hospital with supervised emergency or acute dialysis services, including qualified nursing, technical personnel and services, and, in most cases, equipment. Because physicians under contract with the Company may refer patients to hospitals with which the Company has an acute dialysis service arrangement, the federal anti-kickback statute could apply. The Company believes that it has a reasonable basis for concluding that its contractual arrangements with hospitals for acute inpatient dialysis services are in material compliance with the federal anti-kickback statute. CERTAIN RELATIONSHIPS WITH LABORATORIES AND IDPN SUPPLIERS. The Company enters into arrangements with laboratories for purposes of obtaining laboratory services. Such services include testing currently reimbursed under the Medicare composite rate, as well as testing reimbursed separately from the Medicare composite rate. In October 1994, the OIG published a Special Fraud Alert which stated that the federal anti-kickback statute could be violated when a dialysis facility obtains discounts from a laboratory for testing encompassed within the Medicare composite rate in return for referring all or most of the dialysis facility's non-composite rate testing to the laboratory. In addition, 34 36 the Company has arrangements with suppliers of IDPN. In May 1993, the OIG issued a report indicating its belief that many ESRD patients receive IDPN although they do not meet Medicare coverage guidelines for the treatment. Furthermore, in July 1993, the OIG issued a Management Advisory Report indicating that "administration fees" paid by IDPN suppliers to dialysis facilities for administering IDPN to patients during dialysis could violate the federal anti-kickback statute when the payments made to the dialysis facilities are unreasonably high. The Company believes that its current arrangements with laboratories, IDPN suppliers, and other persons or entities who either refer patients to the Company or from whom the Company purchases items or services are in material compliance with the federal anti-kickback statute. However, there can be no assurance that the Company's future arrangements will not be challenged, required to be changed, or result in sanctions. Furthermore, there can be no assurance that the Company will not be challenged or subject to sanctions for any of its past arrangements. Any such challenge or change, including any related sanctions which might be assessed, could have a material adverse effect on the Company's business, financial condition and results of operations. STARK LAW. Stark II restricts physician referrals for certain "designated health services" to entities with which a physician or an immediate family member has a "financial relationship." The entity is prohibited from claiming payment under the Medicare or Medicaid programs for services rendered pursuant to a prohibited referral and is liable for the refund of amounts received pursuant to prohibited claims. The entity also can incur civil penalties of up to $15,000 per improper claim and can be excluded from participation in the Medicare or Medicaid programs. Stark II provisions became effective on January 1, 1995. Comparable provisions applicable to clinical laboratory services ("Stark I") became effective in 1992. A "financial relationship" under the Stark provisions is defined as an ownership or investment interest in, or a compensation arrangement between, the physician (or an immediate family member) and the entity. The Company has entered into compensation agreements with its medical directors or their respective professional associations, and in one case a medical director is a general partner of a partnership which leases real property to the Company. Certain medical directors also own shares of the Company's Common Stock, and/or options to purchase shares of Common Stock. Accordingly, such medical directors have a "financial relationship" with the Company which may be applicable to the Stark provisions. For purposes of Stark II, "designated health services" include, among other things: clinical laboratory services; parenteral and enteral nutrients, equipment and supplies, including IDPN; prosthetics, orthotics and prosthetic devices and supplies; physical and occupational therapy services; outpatient prescription drugs; durable medical equipment, and inpatient and outpatient hospital services. Kidney dialysis is not a designated health service under Stark II. However, the Stark definition of "designated health services" includes items and services that are components of dialysis or that may be provided to a patient in connection with dialysis, if such items and services were considered separately rather than collectively as dialysis. The Stark I regulations provide an exception for certain clinical laboratory services reimbursed under the Medicare composite rate for dialysis. Because HHS has not yet issued regulations under Stark II, it is unclear whether ancillary services administered in conjunction with dialysis treatments, but which are not included in the composite rate, such as EPO, non-routine parenteral items and non-routine laboratory services, constitute separate services or are considered part of the dialysis treatment. If such services are considered separate services, Stark II would apply. Stark II contains exceptions for ownership or compensation arrangements that meet certain specific criteria set forth in the statute or in forthcoming regulations. With respect to ownership, certain qualifying in-office physician or ancillary services provided by or under the supervision of physicians in a single group practice are exempt from both ownership and compensation arrangement restrictions. With respect to compensation arrangements, exceptions are available for certain qualifying arrangements in the following areas: (i) bona fide employment relationships; (ii) personal services contracts; (iii) space and equipment leasing arrangements; (iv) certain group practice arrangements 35 37 with a hospital that were in existence prior to December 1989; and (v) purchases by physicians of laboratory services, or of other items and services at fair market value. In order to be exempt from the Stark II self-referral prohibition, it is necessary to meet all of the criteria of a particular exception for each financial relationship existing between an entity and a referring physician. Although the Company does not believe Stark II applies to its operations, the Company believes that several of its financial relationships with referring physicians meet the criteria for an exception. For example, the Company believes, based on the language of Stark II, that its agreements with its medical directors or their professional associations satisfy the exceptions for compensation pursuant to employment relationships, personal services contracts or space leasing arrangements. With respect to physician ownership/investments in the Company, Stark II includes an exception for a physician's ownership or investment interest in securities listed on an exchange or quoted on the Nasdaq Stock Market which, in either case, meet certain criteria. Such criteria include a requirement that the issuer of such securities have at least $75 million in stockholder equity at the end of the issuer's most recent fiscal year or on average during the previous three fiscal years. The Company is not currently eligible to rely on this exception and will not be eligible following this Offering. Therefore, if the regulations interpreting Stark II are issued, and in the event that ancillary services provided by the Company in conjunction with dialysis treatments are determined to be designated health services, then either the physicians who have an ownership interest in the Company will have to divest such ownership, the Company will have to meet the above described ownership exception or the physicians will have to cease referrals to the Company. The Company believes, but there can be no assurance, that if Stark II is interpreted to apply to the Company's operations, the Company will be able to bring its financial relationships with referring physicians into compliance with the provisions of Stark II, including relevant exceptions. If the Company cannot achieve such compliance and Stark II is broadly interpreted by HCFA to apply to the Company, such application of Stark II could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, there can be no assurance that the Company will not be challenged or subjected to sanctions for any of its past arrangements, including repayment of amounts made pursuant to a prohibited referral. Any such challenge, including any related sanctions which might be assessed, may cause a change in the Company's operations and could have a material adverse effect on the Company's business, financial condition and results of operations. Because physicians under contract with the Company may refer patients to hospitals with which the Company has an acute inpatient dialysis service arrangement, Stark II may be interpreted by the federal government to apply to the Company's acute dialysis arrangements with hospitals. However, Stark II contains exceptions for certain equipment rental and personal services arrangements. The Company believes it has a reasonable basis for concluding that its contractual arrangements with hospitals for acute inpatient dialysis services are in compliance with the requirements of such exceptions to Stark II. STATE REFERRAL REGULATIONS. Several states have enacted statutes prohibiting physicians from holding financial interests in various types of medical facilities to which they refer patients. The Company believes, based on its understanding of such state laws, that its arrangements with physicians are in material compliance with such laws. However, given the recent enactment of such state laws, there is an absence of definitive interpretative guidance in many areas and there can be no assurance that one or more of the practices of the Company might not be subject to challenge under such state laws. If one or more of such state laws are interpreted to apply to the Company and the Company is determined to be liable for violations of such state laws, the application of such state laws could have a material adverse effect on the Company's business, financial condition and results of operations. THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996. In August 1996, President Clinton signed the Health Insurance Portability and Accountability Act ("HIPAA") which requires, among other things, that the Secretary of HHS issue advisory opinions regarding what constitutes a violation under the federal anti-kickback statute and whether an arrangement satisfies a statutory 36 38 exception or regulatory safe harbor to the federal anti-kickback statute. Prior to HIPAA's enactment, advisory opinions regarding the federal anti-kickback statute could not be obtained from the OIG. Although the OIG recently issued regulations regarding obtaining advisory opinions, the Clinton Administration has proposed legislation which would repeal this provision of HIPAA. Accordingly, the Company cannot predict whether the advisory opinion process will remain available and has not sought any advisory opinions from the OIG to date. FALSE CLAIMS. The Company is also subject to federal and state laws prohibiting an individual or entity from knowingly and willfully presenting claims for payment by Medicare, Medicaid or other third party payors that contain false or fraudulent information. These laws provide for both criminal and civil penalties. Furthermore, providers found to have submitted claims which they knew or should have known were false, fraudulent, or for items or services that were not provided as claimed, may be excluded from Medicare and Medicaid participation, required to repay previously collected amounts, and/or subject to substantial civil monetary penalties. In addition, the OIG has taken the position that violations of the anti-kickback statute and the Stark law constitute false claims. Although dialysis facilities are generally reimbursed by Medicare based upon prospectively determined composite rates, the submission of Medicare cost reports and other requests for payment by dialysis facilities are covered by these laws. The Company believes that it has procedures to ensure the accurate completion of cost reports and other requests for payment. However, there can be no assurance that cost reports or other requests for payment filed by the Company's dialysis facilities will be materially accurate or will not be subject to challenge under these laws. Such challenge, if successful, could have a material adverse effect on the Company's business, financial condition and results of operations. HEALTH CARE LEGISLATION. Because the Medicare program represents a substantial portion of the federal budget, Congress takes action in almost every legislative session to modify the Medicare program for the purpose of reducing the amounts otherwise payable by the program to health care providers in order to achieve deficit reduction targets, among other reasons. The Clinton Administration has recently proposed extending the Medicare fraud and abuse laws to all payors. Further, legislation or regulations may be enacted in the future that may significantly modify the Medicare ESRD program or substantially reduce the amount paid for the Company's services. In addition, the conference report to the reconciliation bill proposed by Congress in 1996 calls for HHS to report to Congress not later than December 31, 1999 with recommendations on expanding the definition of individuals eligible to enroll in certain Medicare managed care plans to include ESRD patients. Furthermore, statutes or regulations may be enacted which impose additional requirements on the Company to maintain eligibility to participate in the federal and state payment programs. Such new legislation or regulations may have a material adverse effect on the Company's business, financial condition and results of operations. OTHER REGULATIONS. The Company's operations are subject to various state medical waste disposal laws. Recently promulgated regulations under the Occupational Safety and Health Act ("OSHA") attempt to limit occupational exposure to blood and other potentially infectious materials. These regulations apply to all industries in which employees could reasonably be expected to come in contact with blood pathogens, including dialysis facilities. The regulations require employers to provide Hepatitis B vaccinations and personal protective equipment. Employers must establish policies and procedures for infection control, hazardous waste disposal techniques and other matters to minimize risk of contamination. Employers also have specific record maintenance requirements. The Company believes it is in compliance with the OSHA regulations. The Company believes it is in material compliance with all applicable laws and regulations. No assurance can be made that in the future the Company's business arrangements, past or present, will not be the subject of an investigation or prosecution by a federal or state governmental authority. The Company believes that in the near future the health care services industry will continue to be subject to substantial regulation at the federal and state levels, the scope and effect of which cannot be predicted by the Company. Any loss by the Company of its various federal certifications, its authorization to participate in the Medicare and Medicaid programs or its licenses under the laws of any state or other 37 39 governmental authority from which a substantial portion of its net revenues is derived would have a material adverse effect on the Company's business, financial condition and results of operations. COMPETITION The dialysis industry is fragmented and highly competitive, particularly with respect to the acquisition of existing dialysis facilities. Competition for qualified nephrologists to act as medical directors is also intense. According to HCFA, as of December 31, 1995, there were in excess of 2,800 dialysis facilities in the United States. According to industry estimates, as of May 31, 1997, 52% of all ESRD patients were treated by the six largest outpatient dialysis providers. The largest multi-facility provider is Fresenius Medical Care AG. Other large publicly owned dialysis companies include Gambro Health Care Patient Services, Inc. (a subsidiary of Incentive AB), Renal Treatment Centers, Inc., Total Renal Care, Inc. and Renal Care Group, Inc. An additional multi-facility provider, Dialysis Clinics, Inc., is a not-for-profit entity. Many of the Company's competitors have substantially greater financial resources than the Company and may compete with the Company for acquisitions, development and/or management of dialysis facilities. The Company may also experience competition from facilities established by former medical directors or other referring physicians. In addition, there are also a number of health care providers that have substantially greater financial resources than the Company who may decide to enter the dialysis industry. The Company believes that competition for acquisitions increases the cost of acquiring dialysis facilities and there can be no assurance that the Company will be able to compete effectively with such competitors either for acquisitions or generally. The Company believes that other important competitive factors in the dialysis industry are the development of relationships with physicians, quality of patient care and service and location and convenience of facilities. INSURANCE The Company maintains property and general liability insurance, professional liability insurance on its professional staff and other insurance appropriate for its operations. The Company believes that its current levels of such insurance are adequate in amounts and coverage. However, there can be no assurance that any future claims will not exceed applicable insurance coverage. Furthermore, no assurance can be given that malpractice and other liability insurance will be available in the future at a reasonable cost, or that the Company will be able to maintain adequate levels of malpractice insurance coverage in the future. Each medical director and each other physician with staff privileges at the Company's facilities is required to maintain his or her own malpractice insurance for patient care activities at the facilities. EMPLOYEES As of June 30, 1997, the Company had 225 full-time and 33 part-time employees in its dialysis operations and an additional 29 full-time and 2 part-time employees in its corporate office. The Company's employees are not represented by a labor union or covered by a collective bargaining agreement. The Company considers its employee relations to be good. PROPERTIES The Company maintains its principal executive offices in Coral Gables, Florida. The Company's facilities generally occupy between 4,000 and 10,000 square feet of leased space, with lease terms of five to ten years, typically renewable for at least five years. The Company considers its properties to be in good operating condition and suitable for the purposes for which they are being used. Expansion or relocation of the Company's dialysis facilities would be subject to compliance with conditions relating to participation in the Medicare ESRD program and certain states' health department requirements. In states that require a CON, approval of an application submitted by the Company would be necessary for expansion or development of a new dialysis facility. 38 40 LEGAL PROCEEDINGS The Company is subject to claims and suits in the ordinary course of business, including those arising from patient treatments, which the Company believes are covered by insurance. The Company is not involved in any material litigation and is not aware of any potential claims which would give rise to material liability. 39 41 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information with respect to the executive officers and directors of the Company as of June 30, 1997:
NAME AGE POSITION - ---------------------------------- --- ------------------------------------------------------- Milton J. Wallace(1).............. 61 Chairman of the Board Arthur G. Shapiro, M.D.(1)........ 58 Vice Chairman of Board, Director of Medical Affairs James P. Shea(1).................. 56 President, Chief Executive Officer, Director Orestes L. Lugo................... 38 Vice President -- Finance, Chief Financial Officer Patsy L. Anders................... 53 Vice President -- Business Development Mignon B. Early................... 34 Vice President -- Operations Jeffery C. Finch.................. 36 Vice President Eugene P. Conese, Sr.(2).......... 67 Director C. David Finch, M.D............... 38 Director John E. Hunt, Sr.(2).............. 79 Director Charles J. Simons(2)(3)........... 79 Director Mark D. Wallace................... 29 Director, Secretary Jeffrey H. Watson(3).............. 39 Director
- --------------- (1) Member of the Executive Committee. (2) Member of the Compensation and Stock Option Committee. (3) Member of the Audit Committee. MILTON J. WALLACE is a co-founder of the Company and has been Chairman of the Board of the Company since its inception in July 1993. Mr. Wallace has been a practicing attorney in Miami for over 30 years, and is currently a shareholder in the law firm of Wallace, Bauman, Fodiman & Shannon, P.A. He was a co-founder and a member of the Board of Directors of Home Intensive Care, Inc., a provider of home infusion and dialysis services, serving as Chairman of its Executive Committee from 1985 through July 1993 and Chairman of the Board from December 1989 until July 1993. Home Intensive Care, Inc. was acquired by W.R. Grace & Co. in July 1993. Mr. Wallace is Chairman of the Board of Med/Waste, Inc., a provider of medical waste management services. He is a director of several private companies and is Chairman of the Dade County Florida, Housing Finance Authority. Mr. Wallace is the father of Mark D. Wallace, a Director of the Company. ARTHUR G. SHAPIRO, M.D. is a co-founder of the Company and has been Vice Chairman of the Company's Board and Director of Medical Affairs since the Company's inception in July 1993. Dr. Shapiro has held an appointment to the University of Miami School of Medicine as a professor of clinical obstetrics and gynecology since January 1995. From 1985 until 1995, he was engaged in the private practice of medicine. He is board certified in obstetrics and gynecology, reproductive endocrinology and laser surgery. He is a Fellow in the American College of Obstetrics and Gynecology and the American College of Endocrinology. Dr. Shapiro was a co-founder of Home Intensive Care, Inc. and served on its Board of Directors from 1985 until July 1993. Dr. Shapiro also served as Home Intensive Care, Inc.'s Medical Director from 1990 until July 1993. He serves as Chairman of the Board of Bankers Savings Bank, Coral Gables, Florida and as a Director of Med/Waste, Inc. JAMES P. SHEA has been President and Chief Executive Officer of the Company since August 1993 and a Director since December 1993. From July 1992 until June 1993, he served as Director General for Home Intensive Care, Inc.'s international division. From 1986 to 1990, he was Senior Vice President of Protocare, Inc., an infusion therapy and respiratory care provider, which he helped establish. From 1985 to 1986, he was General Manager of the health care products division of The Norton Company, a manufacturer of engineered materials. From 1983 to 1985, he was President of the infusion division of 40 42 National Medical Care, Inc., a kidney dialysis and infusion therapy provider, which is now owned by Fresenius Medical Care AG. ORESTES L. LUGO has served as the Company's Vice President -- Finance and Chief Financial Officer since August 1995. From March 1994 until August 1995, he was Chief Financial Officer of PacifiCare of Florida, a health maintenance organization and subsidiary of PacifiCare Health Systems, Inc. From September 1993 until March 1994, he was Chief Financial Officer of Supreme International, Inc., a clothing manufacturer. From July 1989 until September 1993, Mr. Lugo served as Vice President of Finance for Home Intensive Care, Inc. From 1980 to 1989, Mr. Lugo was employed by the public accounting firm of Touche Ross, last as a senior manager. Mr. Lugo is a Certified Public Accountant. PATSY L. ANDERS has served as the Company's Vice President -- Business Development since January 1996. From the Company's inception in July 1993 through January 1996, she served as the Company's Director of Business Development. From 1990 until July 1993, Ms. Anders was the Physician Liaison for Quality Care Dialysis Centers, Inc., the wholly-owned dialysis facility subsidiary of Home Intensive Care, Inc. From 1986 through 1990, Ms. Anders was Director of Physician Relations for Home Intensive Care, Inc. In 1989, Ms. Anders founded Anders and Associates, a physician placement firm specializing in the placement of nephrologists, and has served as its President since its inception. MIGNON B. EARLY, RN, BSN has been the Company's Vice President -- Operations since January 1997. From July 1995 until January 1997, she was the Company's Director of Training and Development. From January 1994 until July 1995, she served as a clinic administrator for the Company in the St. Louis, Missouri region. From December 1990 until January 1994, Ms. Early was a clinic administrator for Quality Care Dialysis Centers, Inc. Ms. Early is a registered nurse. JEFFERY C. FINCH has been a Vice President of the Company since December 1995. From June 1990 until December 1995, Mr. Finch served as Chief Executive Officer of Dialysis Facilities, Inc., a dialysis company which owned three dialysis facilities purchased by the Company in December 1995, which Mr. Finch co-founded in 1990. He is a principal of JCD Partnership, a real estate and property management firm. Mr. Finch is the brother of C. David Finch, M.D., a Director of the Company. EUGENE P. CONESE, SR. has been a Director of the Company since November 1996. Since 1987, he has been Chairman of the Board of Directors and Chief Executive Officer of Greenwich Air Services, Inc., a provider of repair and overhaul services for gas turbine aircraft engines. Mr. Conese is a Director of Trans World Airlines, Inc. and is a member of the Board of Trustees of Iona College. C. DAVID FINCH, M.D. has been a Director of the Company since December 1995, when the Company acquired Dialysis Facilities, Inc., a dialysis company he co-founded in 1990. He is a board certified nephrologist and maintains a private practice of medicine in nephrology and hypertension in Jackson, Mississippi. Dr. Finch serves as the Medical Director of the Company's dialysis facilities in the Jackson, Mississippi area. He also serves as Director of Dialysis at Vicksburg Medical Center and Parkview Regional Medical Center. He is a principal in JCD Partnership, a real estate and property management firm, and the brother of Jeffery C. Finch, a Vice President of the Company. JOHN E. HUNT, SR. has been a Director of the Company since its inception in July 1993. Since August 1983, Mr. Hunt has been Chairman of the Board of Hunt Insurance Group, Inc., an insurance agency holding company. For the previous 40 years, Mr. Hunt was President of John E. Hunt & Associates, a Tallahassee and Miami, Florida insurance agency. For the past 13 years, he has also been President of Insurance Consultants and Analysis, Inc., an insurance consulting firm. Mr. Hunt serves as Chairman of the Board of Trustees of the Florida Police Chiefs' Education and Research Foundation, Inc., and as a trustee of Florida Southern College. Mr. Hunt was a Director of Home Intensive Care, Inc. from 1985 until July 1993. CHARLES J. SIMONS has been a Director of the Company since its inception in July 1993. Mr. Simons is the Chairman of the Board of G.W. Plastics, Inc., a plastics manufacturer, and is an independent management and financial consultant. From 1940 to 1981, he was employed by Eastern Airlines, last serving as Vice Chairman, Executive Vice President and as a Director. Mr. Simons is a Director of 41 43 Arrow Air, Inc., a cargo air carrier; Bessemer Trust of Florida, an investment management firm; Greenwich Air Services, Inc.; Calspan Corporation, an aerospace company; and a number of private companies. He was also a Director of Home Intensive Care, Inc. from 1988 until July 1993. Mr. Simons is the Chairman of the Board of the Matthew Thornton Health Plan. From 1985 until 1992, he was a Director of General Development Corp., now known as Atlantic Gulf Development Corp., a real estate development company, and became Chairman of the Board and Chief Executive Officer just prior to that company's Chapter 11 bankruptcy filing in April 1990. Mr. Simons resigned all positions prior to that company's emergence from bankruptcy in 1992. MARK D. WALLACE has been Secretary and a Director of the Company since the Company's inception in July 1993. Since July 1992, Mark Wallace has been a practicing attorney and is currently a partner at the law firm of Stack, Fernandez and Anderson, P.A. Mr. Wallace is the son of Milton J. Wallace, Chairman of the Board of the Company. JEFFREY H. WATSON has been a Director of the Company since July 1994. Since December 1995, he has been Chairman of the Board and President of J. Watson & Co., a government relations and business consulting firm. From June 1994 until December 1995, he was Vice President for Government Relations of the Jefferson Group, an independent public affairs firm. From January 1993 until June 1994, Mr. Watson served as Deputy Assistant for Inter-Governmental Affairs for the Clinton Administration. From December 1991 through November 1992, Mr. Watson was employed by the election campaign for President Clinton. From 1989 until November 1991, Mr. Watson served as Finance Administrator for the City of Miami, Florida's Department of Development and Housing Conservation. From 1986 until January 1989, he served as an Administrative Assistant for the Mayor of Miami, Florida. From September 1985 through March 1986, he was a Managing Partner and Chief Financial Manager of J. Howard Industries, a company involved in low-income housing redevelopment and construction. BOARD OF DIRECTORS The Company's Board of Directors is divided into three classes. The members of each class serve for staggered three year terms, including three Class I directors (Charles J. Simons, Jeffrey H. Watson and Eugene P. Conese, Sr.), three Class II directors (Mark D. Wallace, John E. Hunt, Sr. and James P. Shea) and three Class III directors (Milton J. Wallace, Arthur G. Shapiro and C. David Finch). Class I, II and III director terms expire upon the election of directors at the annual meeting of shareholders to be held in 1997, 1998 and 1999, respectively. Directors hold office until the expiration of their respective terms and until their successors are elected, or until death, resignation or removal. Each officer serves at the discretion of the Board of Directors, subject to certain contractual rights described below. Following the consummation of the Offering, the Company intends to increase the size of the Board of Directors by adding two additional non-employee directors. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has established standing Executive, Audit and Compensation and Stock Option Committees. The Executive Committee consists of Milton J. Wallace, Arthur G. Shapiro and James P. Shea. When the Board of Directors is not in session, the Executive Committee possesses all of the powers of the Board. Although the Executive Committee has broad powers, in practice it meets infrequently to take formal action on a specific matter when it would be impractical to call a meeting of the full Board. The Audit Committee consists of Charles J. Simons and Jeffrey H. Watson. The functions of the Audit Committee are to recommend to the Board the appointment of independent public accountants for the annual audit of the Company's financial statements; review the scope of the annual audit and other services the auditors are asked to perform; review the report on the Company's financial statements following the audit; review the accounting and financial policies of the Company; and review management's procedures and policies with respect to the Company's internal accounting controls. 42 44 The Compensation and Stock Option Committee consists of Eugene P. Conese, Sr., John E. Hunt, Sr. and Charles J. Simons. The functions of the Compensation and Stock Option Committee are to review and approve salaries, benefits and bonuses for all executive officers of the Company; to review and recommend to the Board matters relating to employee compensation and benefit plans; and to administer the Company's 1994 Employee Stock Option Plan. DIRECTOR COMPENSATION Directors who are officers or employees of the Company receive no additional compensation for their services as members of the Board of Directors. Prior to the Offering, non-employee directors did not receive any cash compensation for service on the Board of Directors, but received reimbursement of expenses. Following the Offering, non-employee directors of the Company will receive such compensation for their services as the Board of Directors may from time to time determine. Non-employee directors receive annual grants of options under the Directors Stock Option Plan ("Directors Plan") described below. In addition, Milton J. Wallace and Dr. Shapiro, as compensation for services rendered to the Company, each received options to purchase 16,667 shares of Common Stock in April 1995. Such options have an exercise price of $6.00 per share and are exercisable through April 2000. EXECUTIVE COMPENSATION SUMMARY COMPENSATION INFORMATION. The following table summarizes the compensation earned by, and paid to, the Company's President and Chief Executive Officer and each other executive officer for the year ended December 31, 1996 who received compensation in excess of $100,000 for such period (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION AWARD ----------------------------------------- --------------------- OTHER ANNUAL SECURITIES NAME AND PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION UNDERLYING OPTIONS(#) - --------------------------------------------- ------------ -------- --------------- --------------------- James P. Shea................................ $110,000 -- $5,160 13,334 President and Chief Executive Officer Orestes L. Lugo.............................. 102,500 $4,000 $5,160 11,667 Vice President -- Finance and Chief Financial Officer
- --------------- (1) The Company provides its officers with certain non-cash group life and health benefits generally available to all salaried employees. Such benefits are not included in the above table pursuant to applicable Securities and Exchange Commission rules. No Named Executive Officer received aggregate personal benefits or perquisites that exceed the lesser of $50,000 or 10% of his total annual salary and bonus for such year. Following the Offering, the Named Executive Officers' salaries will be increased. See "Employment Agreements" below. 43 45 STOCK OPTION GRANTS. The following table sets forth information concerning grants of stock options to each of the Named Executive Officers during the year ended December 31, 1996: OPTIONS GRANTED IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED INDIVIDUAL GRANTS ANNUAL RATES ---------------------------------------------------------------------- OF STOCK PRICE NUMBER OF % OF TOTAL OPTIONS APPRECIATION FOR SECURITIES GRANTED TO EXERCISE OPTION TERM($)(3) UNDERLYING OPTIONS EMPLOYEES IN FISCAL PRICE PER ----------------- NAME GRANTED(#)(1) YEAR(2) SHARE EXPIRATION DATE 5% 10% - ---------------------- ------------------ ------------------- --------- --------------- ----- ------ James P. Shea......... 13,334 17.2% $6.00 4/27/01 $-0- $-0- Orestes L. Lugo....... 11,667 15.1% $6.00 4/27/01 -0- -0-
- --------------- (1) All such options were granted pursuant to the 1994 Employee Stock Option Plan. Options granted during fiscal year 1996 vest over three years, with 25% of such options vesting six months following the date of grant, 25% on the first anniversary from the date of grant and 25% at the end of each succeeding year from the grant date. (2) Based on an aggregate of 77,510 options granted to employees in 1996, including the Named Executive Officers. (3) The exercise price on the date of grant was greater than the fair market value of the underlying Common Stock by 153%. The potential realizable value is calculated by assuming that the stock option price on the date of grant appreciates at the indicated annual rate compounded annually for the entire term of the options (5 years) and the option is exercised and the underlying Common Stock sold on the last day of its term for the appreciated stock price. The 5% and 10% assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of the future Common Stock price. YEAR-END OPTION HOLDINGS. The following table sets forth certain aggregated option information for the Named Executive Officers for the year ended December 31, 1996: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING IN-THE-MONEY UNEXERCISED OPTIONS(#) OPTIONS(2) --------------------------- --------------------------- NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ----------------------------------------------------- ----------- ------------- ----------- ------------- James P. Shea........................................ 15,419 17,916 $ $ Orestes L. Lugo...................................... 7,085 12,916 $ $
- --------------- (1) No options were exercised by the above Named Executive Officers during the fiscal year ended December 31, 1996. (2) The value of unexercised options represents the difference between the exercise price of the options and an assumed initial public offering price of $ per share herein. EMPLOYMENT AGREEMENTS In April 1997, the Company entered into two year employment agreements with James P. Shea, the Company's President and Chief Executive Officer, and Orestes L. Lugo, Vice President -- Finance and Chief Financial Officer. The employment agreements provide for base salaries of $110,000 and $102,500 for Mr. Shea and Mr. Lugo, respectively, with automatic increases to $190,000 and $155,000, respectively, upon the earlier of the date of this Prospectus or a "change of control" as defined below. Base salary for each officer is increased on January 1 of each year during the term by a minimum of 6%. Each officer receives an automobile allowance and certain other non-cash benefits, including life, health and disability insurance. Each employment agreement is automatically renewed for two years at the end of the initial term and each extended term, unless either party provides notice of termination at least 90 days prior to the expiration of such term. If either officer is terminated without cause during the term of their respective agreements, such officer will be entitled to severance equal to the greater of the remaining base salary due under the agreement or one year's base salary. Both Mr. Shea and Mr. Lugo are entitled to receive bonuses in each fiscal year during the term of their agreements. Such agreements require the Board of Directors to establish incentive bonus plans for 44 46 each fiscal year which would provide a means for each officer to earn a bonus up to 100% of their respective base salaries upon the achievement of established goals and criteria. The respective employment agreements grant to each of Mr. Shea and Mr. Lugo the right to terminate his employment agreement within 90 days following a "change of control," and to receive an amount equal to the greater of: (i) base salary due for the remainder of the term of the agreement had it not been terminated; or (ii) two years base salary. Such change of control severance is payable 50% in cash on the effective date of such termination, with the balance payable over a six month period. For the purposes of the employment agreements, "change of control" is defined as: (i) the acquisition, other than from the Company directly, by any person, entity or group, within the meaning of sec. 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), of beneficial ownership of 25% or more of the outstanding Common Stock; (ii) if the individuals who serve on the Board as of the date of the employment agreement, no longer constitute a majority of the members of the Board; provided, however, any person who becomes a director subsequent to such date, who was elected to fill a vacancy by a majority of the individuals then serving on the Board, shall be considered as if a member prior to such date; (iii) approval by a majority of the voting stock of the Company of a merger, reorganization or consolidation whereby the shareholders of the Company immediately prior to such approval do not, immediately after consummation of such reorganization, merger or consolidation own more than 50% of the voting stock of the surviving entity; or (iv) a liquidation or dissolution of the Company, or the sale of all or substantially all of the Company's assets. STOCK OPTION PLANS EMPLOYEE PLAN In April 1994, the Company's shareholders approved a 1994 Employee Stock Option Plan ("Employee Plan"). The Employee Plan is designed as an incentive program to cause employees to increase their interest in the Company's performance and to attract and retain qualified personnel. Subject to certain anti-dilution provisions, the Employee Plan consists of 666,667 shares of Common Stock reserved for issuance upon the exercise of options which may be granted, including 321,714 shares subject to outstanding options. The Employee Plan is administered by the Compensation and Stock Option Committee. The Compensation and Stock Option Committee has the discretion, among other things, as to whom to grant options, the amount of options, the terms of options and the exercise prices. All employees of the Company are eligible to receive options under the Employee Plan. Such employees are eligible to receive either "incentive" or "nonqualified" stock options, subject to the limitations of the Internal Revenue Code of 1986, as amended (the "Code"). The exercise price of an incentive stock option may not be less than 100% of the market price of the underlying Common Stock as of the date of grant. No option may be granted which has a term longer than 10 years. Stock options may have vesting requirements as established by the Compensation and Stock Option Committee, but, except in the case of an employee's death or permanent disability, in no event may the options be exercisable until six months after grant. All vested options under the Employee Plan become immediately vested in full upon a change of control of the Company, as such term is defined in the Employee Plan. Upon termination of an optionee's employment with the Company for any reason, all options granted to such employee under the Employee Plan would terminate immediately, except that the Compensation and Stock Option Committee has the discretion to permit such holder to exercise vested options for a period of 90 days after termination. Options granted under the Employee Plan may not be transferred and are not exercisable except by the employee. The Employee Plan provides for the automatic grant of "reload" options to an employee, who pays all, or a portion of, an exercise price by delivery of shares of Common Stock then owned by such employee. Reload options are granted for each share of Common Stock so tendered. The exercise price of such reload option is the then fair market value of the Common Stock. All other terms of the reload options would be identical to the original options; provided, however, that if the expiration date is less 45 47 than one year, the expiration date is extended to one year from the date of issuance of the reload options. As of June 30, 1997, options to purchase a total of 321,714 shares of Common Stock, with a weighted average exercise price of $ , have been granted to executive officers and other employees of the Company. Each option granted has a term of five years. Options are not exercisable until six months after the date of grant and vest 25% at the end of six months and 25% on each anniversary of such grant until 100% are vested. DIRECTORS PLAN In April 1994, the Company's shareholders adopted the Directors Plan. Subject to certain anti-dilution provisions in the Plan, there are 166,667 shares of Common Stock reserved for issuance upon the exercise of options which may be granted pursuant to the Directors Plan, including 30,016 shares subject to outstanding options. All non-employee directors are eligible to receive grants of options ("Eligible Directors"). Each Eligible Director receives automatic, non-discretionary grants of options based upon specific criteria set forth in the Directors Plan. On April 27 of each year, each Eligible Director receives non-qualified options to purchase 834 shares of Common Stock for service on the Board of Directors and additional options to purchase 334 shares for service on each committee of the Board, other than the Executive Committee, for which members would receive options to purchase 834 shares. Also, additional options to purchase 334 shares are granted to Eligible Directors who serve as a chairman of each standing committee of the Board, other than the chairman of the Executive Committee, who would receive options to purchase 834 shares. The exercise price of each option granted under the Directors Plan is equal to the fair market value of the Common Stock on the date of grant as determined in accordance with the provisions of the Directors Plan. All options granted have a term of five years, but, except in the case of an Eligible Director's death or permanent disability, are not exercisable until six months after the date of grant. No option is transferable by the Eligible Director, except by the laws of descent and distribution. If the Eligible Director's membership on the Board terminates, including by reason of death, such options are exercisable for the lesser of the remaining term of such option, or one year. The Directors Plan provides for the automatic grant of "reload" options to an Eligible Director, who pays all, or a portion of, an exercise price by delivery of shares of Common Stock then owned by such Eligible Director. Reload options are granted for each share of Common Stock so tendered. The exercise price of such reload option is the then fair market value of the Common Stock. All other terms of the reload options, including the expiration date, would be identical to the original options, provided, however, that if the expiration date is less than one year, the expiration date is extended to one year from the date of issuance of the reload options. As of June 30, 1997, options to purchase 30,016 shares of Common Stock, with a weighted average exercise price of $ per share, have been automatically granted to Eligible Directors as a group. 401(K) PLAN As of January 1997, the Company adopted a tax-qualified employee savings and retirement plan (the "401(k) Plan") covering the Company's employees. Pursuant to the 401(k) Plan, eligible employees may elect to contribute to the 401(k) Plan up to the lesser of 15% of their annual compensation or the statutorily prescribed annual limit ($9,500 in 1996). The Company matches 25% of the contributions of employees up to 4% of each employee's salary. All employees who were employed at December 31, 1996 and new hires who thereafter attain at least one year's service are eligible to participate in the 401(k) Plan. The Trustees of the 401(k) Plan, at the direction of each participant, invest the assets of the 401(k) Plan in designated investment options. The 401(k) Plan is intended to qualify under Section 401 of the Code, so that contributions to the 401(k) Plan, and income earned on the 401(k) Plan contributions are not taxable until withdrawn. Matching contributions by the Company are deductible when made. 46 48 PRINCIPAL SHAREHOLDERS The following table sets forth certain information as of June 30, 1997, with respect to the beneficial ownership of the Company's Common Stock by: (i) each person who is known by the Company to own more than 5% of such shares of Common Stock; (ii) each Named Executive Officer; (iii) each of the Company's directors; and (iv) all directors and executive officers as a group.
PERCENT OF SHARES BENEFICIALLY OWNED ------------------------- NUMBER OF SHARES PRIOR TO AFTER NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OFFERING(3) OFFERING(4) - --------------------------------------- --------------------- ----------- ----------- Arthur G. Shapiro, M.D.(5)........................... 767,259 19.14% 10.95% Milton J. Wallace(6)................................. 741,891 18.47 10.57 James P. Shea(7)..................................... 208,356 5.15 2.96 C. David Finch, M.D.(8).............................. 195,947 4.93 2.81 John E. Hunt, Sr.(9)................................. 79,820 2.00 1.14 Orestes L. Lugo(10).................................. 53,736 1.35 * Charles J. Simons(11)................................ 32,353 * * Eugene P. Conese, Sr.(12)............................ 20,834 * * Mark D. Wallace(13).................................. 14,502 * * Jeffrey H. Watson(14)................................ 5,835 * * All executive officers and directors as group (13 persons)(15)................................... 2,247,998 56.56% %
- --------------- * Less than one percent. (1) Unless otherwise indicated, the address for each beneficial owner is c/o the Company at 2100 Ponce de Leon Boulevard, Suite 950, Coral Gables, Florida 33134. (2) Except as set forth herein, all securities are directly owned and the sole investment and voting power are held by the person named. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days of June 30, 1997 upon the exercise of options or warrants. (3) Based upon 3,974,247 shares of Common Stock issued and outstanding. Each beneficial owner's percentage is determined by assuming that all such exercisable options or warrants that are held by such person (but not those held by any other person) have been exercised. (4) Based upon 6,974,247 shares of Common Stock issued and outstanding following the Offering. (5) Except as set forth herein, all shares of Common Stock are owned jointly by Dr. Shapiro and his wife. Includes: (i) 17,234 shares of Common Stock owned by Dr. Shapiro's Individual Retirement Account; (ii) 19,169 shares of Common Stock issuable upon exercise of stock options; (iii) 106,122 shares of Common Stock (including 8,655 shares of Common Stock issuable upon exercise of warrants and Series B Warrants) owned by a corporation, of which Dr. Shapiro is an officer and director; and (iv) 3,750 shares of Common Stock issuable upon exercise of Series B Warrants owned by Dr. Shapiro's Individual Retirement Account. (6) Mr. Wallace's address is 2222 Ponce de Leon Boulevard, Coral Gables, Florida 33134. Except as set forth herein, all shares of Common Stock are owned jointly by Mr. Wallace and his wife. Includes: (i) 12,000 shares of Common Stock owned by Milton J. Wallace and his wife as custodian for a minor child; (ii) 35,600 shares of Common Stock owned by Mr. Wallace's Individual Retirement Account; (iii) 106,122 shares of Common Stock (including 8,655 of Common Stock issuable upon exercise of warrants and Series B Warrants) owned by a corporation, of which Mr. Wallace is an officer, director and controlling stockholder; (iv) 19,169 shares of Common Stock issuable upon exercise of stock options; and (v) 15,000 shares of Common Stock issuable upon exercise of Series B Warrants owned by his Individual Retirement Account. (7) Except as set forth herein all shares are owned jointly by Mr. Shea and his wife. Includes: (i) 23,755 shares of Common Stock issuable upon exercise of stock options; (ii) 33,334 shares of Common Stock issuable upon exercise of warrants; and (iii) 15,000 shares of Common Stock issuable upon exercise of Series B Warrants. (8) Includes 3,750 shares of Common Stock issuable upon exercise of stock options. (9) Includes: (i) 2,502 shares of Common Stock issuable upon exercise of stock options; (ii) 6,667 shares of Common Stock issuable upon exercise of warrants; (iii) 11,667 shares of Common Stock owned by Mr. Hunt's spouse; (iv) 1,667 shares of Common Stock issuable upon exercise of warrants owned by his spouse; and (v) 3,750 shares of Common Stock issuable upon exercise of Series B Warrants. Mr. Hunt disclaims beneficial ownership of the shares owned by his spouse. (10) Includes: (i) 12,085 shares of Common Stock issuable upon exercise of stock options; (ii) 3,334 shares of Common Stock issuable upon exercise of warrants; and (iii) 3,750 shares of Common Stock issuable upon exercise of Series B Warrants. (11) Includes: (i) 3,168 shares of Common Stock issuable upon exercise of stock options; (ii) 1,667 shares of Common Stock issuable upon exercise of warrants; and (iii) 7,500 shares of Common Stock issuable upon exercise of Series B Warrants. (12) Includes: (i) 834 shares of Common Stock issuable upon exercise of stock options; and (ii) 5,000 shares of Common Stock issuable upon exercise of warrants. (13) Includes 2,502 shares of Common Stock issuable upon exercise of stock options. (14) Includes 2,835 shares of Common Stock issuable upon exercise of stock options. (15) Includes: (i) 109,353 shares of Common Stock issuable upon exercise of options; (ii) 58,336 shares of Common Stock issuable upon exercise of warrants; and (iii) 54,488 shares of Common Stock issuable upon exercise of Series B Warrants. 47 49 CERTAIN TRANSACTIONS In connection with the Company's formation in 1993, the Company issued an aggregate of 1,000,000 shares of Series A Preferred Stock at $1.00 per share. The following current directors and officers beneficially purchased Series A Preferred Stock: Milton J. Wallace, 432,000 shares; Arthur G. Shapiro, 400,000 shares; James P. Shea, 20,000 shares; John E. Hunt, Sr., 8,000 shares; Charles J. Simons, 8,000 shares; Mark D. Wallace, 8,000 shares and Patsy L. Anders, 8,000 shares. In August 1996, the Company authorized the redemption of all 1,000,000 shares of Series A Preferred Stock. All officers and directors set forth above converted their shares of Series A Preferred Stock prior to the time for redemption and received an aggregate of 294,667 shares of Common Stock. In April 1995, the Company issued options to purchase 16,667 shares of Common Stock to each of Mr. Wallace and Dr. Shapiro, the Chairman and Vice Chairman of the Company, respectively, as special compensation for services rendered to the Company. The options are exercisable until April 2000 at $6.00 per share. In December 1995, the Company purchased 100% of the capital stock of Dialysis Facilities, Inc. ("DFI"), which was owned by C. David Finch, M.D., Charles D. Finch, Sr., and Jeffery Finch. In connection with the acquisition which was accounted for under the purchase method of accounting, the Company issued 192,197, 90,446 and 94,214 shares of Common Stock to C. David Finch, M.D., Charles D. Finch, Sr. and Jeffery Finch, respectively. C. David Finch and Jeffery Finch became a director and vice president of the Company, respectively, effective upon consummation of the acquisition of DFI. C. David Finch, M.D. also serves as the medical director of the Company's three facilities acquired in the DFI transaction pursuant to a ten year medical director employment agreement. JCD Partnership, a real estate holding and property management firm, of which C. David Finch, M.D., Jeffery Finch and Charles D. Finch, Sr. are the principals, owns the real property and improvements at the Company's dialysis facilities at Jackson, Mississippi and Delta, Louisiana. JCD Partnership leases the properties to the Company pursuant to ten year leases, in which the Company pays annual rent of $92,400 and $82,500, respectively. In connection with the lease agreements, JCD Partnership, at its own expense, was required to construct new buildings for the relocation of the dialysis facilities. The Company was obligated to pay for the cost of leasehold improvements to be installed by JCD Partnership. The Jackson, Mississippi and Delta, Louisiana buildings and leasehold improvements were completed in November 1996 and May 1997, respectively. The Company paid $282,000 and $313,000 to JCD Partnership in connection with such improvements at each facility. DFI owned a small parcel of property adjacent to the Delta, Louisiana facility, which the Company sold to JCD Partnership in July 1996 for the book value of $30,000. C. David Finch, M.D. owed DFI approximately $85,000 at the time of DFI's acquisition by the Company evidenced by a note. C. David Finch, M.D. is obligated to repay the Company over a three-year period with interest. Such repayments are expected to come from any bonuses C. David Finch, M.D. may earn in connection with his employment as a medical director with the Company. The balance of the note, if not then paid, will be payable upon demand by the Company at the end of three years. On July 31, 1996, the Company completed a bridge financing incident to a shareholders' rights offering commenced in August 1996, and issued an aggregate of 1,050,000 shares of Series B Preferred Stock and Series B Warrants to purchase 78,751 shares of Common Stock. The Company received gross proceeds of $1,050,000 in connection with the Series B Preferred financing. The following directors and officers beneficially purchased Series B Preferred Stock and Series B Warrants: Milton J. Wallace, 226,500 shares and 16,988 Series B Warrants; Dr. Arthur Shapiro, 126,500 shares and 9,488 Series B Warrants; James P. Shea, 200,000 shares and 15,000 Series B Warrants; John E. Hunt, Sr., 50,000 shares and 3,750 Series B Warrants; Charles J. Simons, 100,000 shares and 7,500 Series B Warrants; and Orestes L. Lugo, 50,000 shares and 3,750 Series B Warrants. The Series B Preferred Stock was called for redemption in November 1996. In connection with such redemption, the holders thereof converted an 48 50 aggregate of 775,000 shares of Series B Preferred Stock into 268,250 shares of Common Stock including accrued dividends and the Company redeemed 275,000 shares of Series B Preferred Stock for $275,000, plus accrued dividends. The shares of Common Stock received upon conversion of the Series B Preferred Stock were at the same price as the Common Stock sold in the shareholders' rights offering. Milton J. Wallace, Chairman of the Board of Directors of the Company, is a shareholder of the law firm of Wallace, Bauman, Fodiman & Shannon, P.A. The law firm serves as general counsel to the Company for which the firm received $133,000 during 1996. John E. Hunt, Sr., a Director of the Company, is Chairman of the Board of Directors of Hunt Insurance Group, Inc., an insurance agency. Hunt Insurance Group, Inc. arranges for various types of insurance policies for the Company and receives commissions as a result of such policies. DESCRIPTION OF SECURITIES The authorized capital stock of the Company consists of 30,000,000 shares of Common Stock, $.001 par value, and 5,000,000 shares of preferred stock, $.01 par value. As of the date of this Prospectus, there were 3,974,247 shares of Common Stock presently issued and outstanding, held of record by 239 shareholders. Upon completion of this Offering, there will be 6,974,247 shares of Common Stock issued and outstanding. No shares of preferred stock are outstanding. COMMON STOCK Each outstanding share of Common Stock is entitled to one vote, either in person or by proxy, in all matters that can be voted upon by the owners thereof at meetings of shareholders. The holders of Common Stock: (i) have equal ratable rights to dividends from funds legally available therefore when, as and if declared by the board of directors of the Company; (ii) are entitled to share ratably in all of the assets of the Company available for distribution to holders of Common Stock upon liquidation, dissolution or winding up of the affairs of the Company; (iii) do not have preemptive, subscription or conversion rights, or redemption or sinking fund provisions applicable thereto; and (iv) are entitled to one non-cumulative vote per share in all matters on which shareholders may vote at all meetings of shareholders. PREFERRED STOCK The Board of Directors is authorized by the Company's Articles of Incorporation, without any action of the shareholders, to issue one or more class or series of preferred stock and to determine the dividend rights, dividend rates, conversion rights, voting rights, redemption rights and terms, liquidation preferences, sinking fund provisions and designations of such class or series. The Company has no present intention to issue any shares of preferred stock. The Company's Board of Directors could issue a series of preferred stock, the terms of which, subject to certain limitations imposed by securities laws, may impede the completion of a merger, tender offer or other takeover attempt. The Company's Board of Directors will make any determination to issue such shares based on its judgment as to the best interest of the Company and its shareholders at the time of issuance. The Company's Board of Directors, in so acting, could issue preferred stock having terms which could discourage an acquisition attempt or other transaction that some, or a majority, of the shareholders might believe to be in their best interests or in which shareholders might receive a premium for their stock over the then market price of such stock. WARRANTS Upon completion of the Offering, the Company will have four different classes of warrants: (i) warrants to purchase 246,201 shares of Common Stock exercisable until December 9, 1998 at an exercise price of $9.00 per share (the "Warrants"); (ii) warrants to purchase 78,751 shares of Common Stock exercisable until July 31, 1999 at an exercise price of $6.00 per share (the "Series B Warrants"); 49 51 (iii) warrants to purchase 116,669 shares of Common Stock exercisable until November 15, 1999 at an exercise price of $3.00 per share (the "Advisor Warrants"); and (iv) the Representatives' Warrants. A warrant to purchase 211,023 shares of Common Stock issued in connection with certain indebtedness will be redeemed upon consummation of this Offering. See "Use of Proceeds." The Company is not required to issue fractional shares upon exercise of any warrants, but may make cash payments thereof, based on the then market price of the Common Stock. No holder of any warrants will be entitled to vote, receive dividends, or be deemed the holder of the Common Stock until such time as the warrants shall have been duly exercised and payment of the purchase price shall have been made. Shares of Common Stock issued upon the exercise of the warrants and on payment of the purchase price will be legally issued, fully paid and non-assessable. WARRANTS The Warrants were issued in December 1994. No adjustments as to dividends, except stock dividends, will be made upon the exercise of the Warrants. The Warrants are subject to equitable adjustment upon certain events, which include: (i) the issuance of Common Stock as a dividend on the outstanding Common Stock; (ii) subdivisions, combinations, and reclassifications of Common Stock; and (iii) mergers, consolidations and similar events. The Warrants are redeemable at the option of the Company in whole at any time or in part from time to time upon 30 days written notice to the holders of the Warrants at the redemption price of $.30 per Warrant. SERIES B WARRANTS The Series B Warrants were issued in connection with the Company's sale of 1,050,000 shares of Series B Preferred Stock completed as of July 31, 1996. See "Certain Transactions." No adjustments as to dividends, except stock dividends, will be made upon the exercise of the Series B Warrants. The Series B Warrants are subject to equitable adjustment upon certain events, which include: (i) the issuance of Common Stock as a dividend on the outstanding Common Stock; (ii) subdivisions, combinations, and reclassifications of Common Stock; and (iii) mergers, consolidations and similar events. The holders of the Series B Warrants have certain piggy-back registration rights, which have been waived in connection with this Offering. ADVISOR WARRANTS The Advisor Warrants were issued to a financial advisor of the Company in November 1996 in connection with services to be performed under a six month advisory agreement. No adjustment as to dividends, except stock dividends, will be made upon exercise of the Advisor Warrants. The Advisor Warrants are subject to equitable adjustment upon certain events, including: (i) the issuance of Common Stock for a price less than the exercise price of $3.00 per share; (ii) subdivisions, combinations and reclassifications of the Common Stock; and (iii) mergers, consolidations and similar events. The holder of the Advisor Warrants has certain demand registration rights commencing six months following the completion of the Offering and certain piggy-back registration rights, which have been waived by the holders in connection with this Offering. REPRESENTATIVES' WARRANTS The Company has agreed to issue to the Representatives warrants to purchase an aggregate of 300,000 shares of Common Stock at an exercise price equal to 107% of the initial public offering price set forth on the cover page of this Prospectus. The Representatives' Warrants are exercisable for a period of five years, beginning on the date of this Prospectus. The Company has granted the holders of the Representatives' Warrants certain registration rights with respect to the shares of Common Stock issuable upon the exercise of such warrants. See "Description of Securities -- Registration Rights" and "Underwriting." 50 52 ANTI-TAKEOVER PROVISIONS Certain portions of the Company's Articles of Incorporation and By-laws may make more difficult the acquisition of control of the Company by various means, such as a tender offer, a proxy contest or otherwise. These provisions encourage persons seeking to acquire control of the Company to consult first with the Company's Board of Directors to negotiate the terms of any proposed business combination or offer. The provisions are designed to reduce the vulnerability of the Company to an unsolicited proposal for a takeover that does not contemplate the acquisition of all outstanding shares of capital stock or which is otherwise unfair to shareholders of the Company. CLASSIFIED BOARD OF DIRECTORS The Company's Articles of Incorporation provide for the Company's Board of Directors to be divided into three classes, as nearly equal in number as is reasonably possible, serving three year staggered terms, so that directors' terms expire either at the 1997, 1998 or 1999 annual meeting of the Company's shareholders. See "Management." ADVANCE NOTICE The Company's By-laws contain provisions relating to notice of shareholder meetings, which would prohibit a shareholder from nominating a person to the Board of Directors or proposing certain actions relating to the Company's business without advance written notice to the Company. Such written notice must be received a minimum of 90 days prior to a shareholders' meeting and must contain specific information about the nominee and the shareholder who makes such nomination or proposal. ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW The Company is subject to the anti-takeover provisions of Section 607.0901 of the Florida Business Corporation Act (the "Affiliated Transaction Statute"). In general, the Affiliated Transaction Statute requires the approval of the holders of two-thirds of the voting shares of a corporation, other than shares owned by an "interested shareholder," in order to effect an "affiliated transaction," such as a merger, sale of assets, or sale of shares, between a corporation and an interested shareholder. An "interested shareholder" is defined as a beneficial owner of 10% or more of the outstanding voting securities of the corporation. Such approval is not required where: (i) the affiliated transaction is approved by a majority of the disinterested directors; (ii) the interested shareholder owns 90% or more of the corporation's outstanding voting stock, or has owned 80% or more for five years; or (iii) the consideration paid in connection with the affiliated transaction satisfies the statutory "fair price" formula and the transaction meets certain other requirements. A corporation may elect, by the vote of a majority of the outstanding voting securities of the corporation (not including shares held by an interested shareholder), or by amendment to the articles or by-laws of the corporation, not to be subject to the provisions of the Affiliated Transaction Statute. The election will not be effective until 18 months after it is made, and will not apply to any affiliated transaction between the corporation and someone who was an interested shareholder prior to the effective date of the election. The Company may also be subject to the provisions of Section 607.0902 of the Florida Business Corporation Act (the "Control Share Acquisition Statute"). Under such statute, "control shares" of certain corporations acquired in a "control share acquisition," with certain exceptions, have no voting rights unless such rights are granted pursuant to a vote of the holders of a majority of the corporation's voting securities (excluding all "interested shares"). "Control shares" are shares that, when added to all other shares which a person owns or has the power to vote, would give that person any of the following grants of voting power: (i) one-fifth or more but less than one-third of the voting power; (ii) one-third or more but less than a majority of the voting power; and (iii) more than a majority of the voting power. A "control share acquisition" is the acquisition of ownership of, or the power to vote, outstanding control shares. Shares acquired within 90 days, or as part of a plan to effect a control share 51 53 acquisition, are deemed to have been acquired in the same transaction. "Interested shares" include shares held by the person attempting to effect the control share acquisition, and shares held by employee-directors or officers of the corporation. A corporation may elect not to be subject to the Control Share Acquisition Statute by amendment to its articles or by-laws. REGISTRATION RIGHTS The holders of 333,334 shares of Common Stock (the "Holders") are entitled to certain rights with respect to the registration of such shares under the Securities Act of 1933, as amended (the "Securities Act"). Under the terms of an agreement between the Company and such Holders, such Holders, commencing two years following receipt of Medicare certification of a proposed dialysis facility in New Jersey (which the Company expects to receive by the end of the first quarter of 1998), may require the Company to file a registration statement covering such shares under the Securities Act, at the Company's expense. However, such registration rights will not be exercisable if the provisions of Rule 144 would allow the sale of such shares. In addition, following the Offering, if the Company thereafter proposes to register any of its Common Stock, subject to certain exceptions, the Holders are entitled to include their shares of Common Stock in such registration, at the Company's expense. Holders of the Series B Warrants have certain rights with respect to the registration of 78,751 shares of Common Stock underlying the Series B Warrants. If the Company proposes to register any of its Common Stock, the holders of the Series B Warrants are entitled to include, subject to such limitations imposed by the managing underwriters of such offering, their shares of Common Stock in such registration, at the Company's expense. All of the holders of the Series B Warrants have waived their right to be included in the Offering. Holders of the Advisor Warrants also have certain rights with respect to the registration of the 116,669 shares of Common Stock underlying the Advisor Warrants. If the Company proposes to register any of its Common Stock, the holders of the Advisor Warrants are entitled to include, subject to such limitations imposed by the managing underwriters of such offering, their shares of Common Stock in such registration, at the Company's expense. All of the holders of the Advisor Warrants have waived their right to be included in the Offering. In addition, the holders of the Advisor Warrants have demand registration rights commencing six months following the completion of this Offering. The Company has also granted certain registration rights to the Representatives with respect to the Common Stock issuable upon exercise of the Representatives' Warrants. See "Underwriting." TRANSFER AGENT The Transfer Agent for the Common Stock of the Company is Continental Stock Transfer and Trust Company, New York, New York. SHARES ELIGIBLE FOR FUTURE SALE Future sales of shares of Common Stock by the Company's current shareholders could adversely affect the market price of the Common Stock. Upon completion of the Offering, the Company will have outstanding an aggregate of 6,974,247 shares of Common Stock. In addition, the Company has reserved for issuance 1,142,520 shares issuable upon exercise of outstanding options and warrants, including the Representatives' Warrants. The 3,000,000 shares of Common Stock offered hereby will be freely transferable without restriction or further registration under the Securities Act, except for such shares acquired by affiliates of the Company. Shares purchased by affiliates of the Company would be subject to certain volume and other restrictions upon resale as described below. The remaining 3,947,247 shares of Common Stock held by existing shareholders are "restricted securities" as that term is defined by Rule 144 under the Securities Act. Pursuant to certain "lock-up" agreements, all shareholders of the Company, together with the Company, have agreed that they will not offer, pledge, sell, contract to sell, grant any option for the sale of, or otherwise dispose of, directly 52 54 or indirectly, any shares of Common Stock without the prior written consent of Vector Securities International, Inc. for a period of 180 days following the date of this Prospectus. Following the 180-day period, approximately shares of Common Stock will be eligible for sale in the public market without restriction pursuant to Rule 144(k), and an additional shares will be eligible for sale under Rule 144, subject to certain volume, manner of sale and other restrictions of Rule 144. In addition, holders of stock options or warrants, including the Representatives' Warrants, exercisable for an aggregate of 1,142,520 shares of Common Stock have entered into agreements prohibiting the sales of the underlying Common Stock for 180 days following the date of this Prospectus. See "Principal Shareholders" and "Underwriting." In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, any person who has beneficially owned restricted securities for at least one year will be entitled to sell in any three-month period a number of shares that does not exceed the greater of: (i) one percent of the then outstanding shares of the Company's Common Stock (approximately 69,000 shares immediately after the Offering); or (ii) the average weekly trading volume of the Company's Common Stock in the Nasdaq National Market during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about the Company. A person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the 90 days immediately preceding the sale and who has beneficially owned the shares proposed to be sold for at least two years is entitled to sell such shares under Rule 144(k) without regard to the limitations described above. The Company intends to file a registration statement under the Securities Act covering shares of Common Stock reserved for issuance under the Employee Plan. Based on the options outstanding and shares reserved for issuance as of the date of this Prospectus, such registration statement would cover approximately 321,714 shares. Such registration statement is expected to be filed and to become effective as soon as practicable after the date of this Prospectus. Shares registered in such registration will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market upon expiration of the contractual restrictions discussed above. As of the date of this Prospectus, options to purchase 321,714 shares of Common Stock were issued and outstanding under the Employee Plan. Holders of warrants to purchase an aggregate of shares of Common Stock have been granted certain registration rights. See "Management" and "Description of Securities -- Registration Rights." 53 55 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the underwriters named below (the "Underwriters"), for whom Vector Securities International, Inc. and Needham & Company, Inc. are acting as representatives (the "Representatives"), have severally agreed to purchase, subject to the terms and conditions of the Underwriting Agreement, and the Company has agreed to sell to the Underwriters, the following respective numbers of shares of Common Stock:
UNDERWRITERS NUMBER OF SHARES - ------------ ---------------- Vector Securities International, Inc. ...................... Needham & Company, Inc. .................................... --------- Total............................................. 3,000,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, including the absence of any material adverse change in the Company's business and the receipt of certain certificates, opinions and letters from the Company and its counsel. The nature of the Underwriters' obligation is such that they are committed to purchase all shares of Common Stock offered hereby, if any of such shares are purchased. The Underwriting Agreement contains certain provisions whereby if any Underwriter defaults in its obligation to purchase shares, and the aggregate obligations of the Underwriters so defaulting do not exceed 10% of the shares offered hereby, the remaining Underwriters, or some of them, must assume such obligations. The Underwriters propose to offer the shares of Common Stock directly to the public at the offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the public offering of the shares of Common Stock, the offering price and other selling terms may be changed by the Representatives. The Company has granted to the Underwriters an option, exercisable at any time during the 30-day period no later than 30 days after the date of this Prospectus, to purchase up to 450,000 additional shares of Common Stock at the public offering price set forth on the cover page of this Prospectus, less underwriting discounts and commissions. The Underwriters may exercise such option solely for the purpose of covering over-allotments, if any, in connection with the Offering. To the extent such option is exercised, each Underwriter will be obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares as the number of shares of Common Stock set forth next to such Underwriter's name in the preceding table bears to the total number of shares listed in the table. The Company will be obligated, pursuant to the option, to sell such shares to the Underwriters to the extent the option is exercised. In connection with the Offering, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may overallot the Offering, creating a syndicate short position. In addition, the Underwriters may bid for and purchase shares of Common Stock in the open market to cover syndicate short positions or to stabilize the price of the Common Stock. Finally, the underwriting syndicate may reclaim selling concessions from syndicate members in the Offering, if the syndicate repurchases previously distributed Common Stock in syndicate covering transactions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Common Stock above independent 54 56 market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. The Representatives have advised the Company that the Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. The Company has agreed to issue to the Representatives warrants to purchase up to an aggregate of 300,000 shares of Common Stock, exercisable for a period of five years commencing on the date of this Prospectus, at a price equal to 107% of the initial public offering price set forth on the cover page of this Prospectus. The Representatives' Warrants contain provisions providing for adjustment of the exercise price and the number and type of securities issuable upon the exercise thereof upon the occurrence of certain events, including the issuance of any shares of Common Stock or other securities convertible into or exercisable for shares of Common Stock at a price per share less than the exercise price, or the market price of the Common Stock, or in the event of any stock dividend, stock split, stock combination or similar transaction. Holders of the Representatives' Warrants have been granted certain registration rights under the Securities Act with respect to the securities issuable upon exercise of the Representatives' Warrants. See "Description of Securities -- Registration Rights." The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The officers, directors and the other shareholders of the Company have agreed, that they will not, without the prior written consent of Vector Securities International, Inc., offer, sell or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable for or convertible into shares of Common Stock owned by them for a period of 180 days after the date of this Prospectus. The Company has agreed that it will not, without the prior written consent of Vector Securities International, Inc., offer, sell or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable for or convertible into shares of Common Stock for a period of 180 days after the date of this Prospectus. Prior to the Offering, there has been no public market for the Common Stock. Consequently, the initial public offering price for the shares of Common Stock included in the Offering will be determined by negotiations between the Company and the Representatives. Among the factors to be considered in determining such price will be: the history of, and the prospects for, the Company's business and the industry in which it competes; an assessment of the Company's management and the present state of the Company's development; the past and present revenues and earnings of the Company; the prospects for growth of the Company's revenues and earnings; the current state of the economy in the United States; and the current level of economic activity in the industry in which the Company competes and in related or comparable industries, and currently prevailing conditions in the securities markets, including current market valuations of publicly traded companies that are comparable to the Company. LEGAL MATTERS The validity of the issuance of the shares of Common Stock offered hereby and certain other legal matters will be passed upon for the Company by Wallace, Bauman, Fodiman & Shannon, P.A., Coral Gables, Florida and Haythe & Curley, New York, New York. Milton J. Wallace, Chairman of the Board of the Company, is a shareholder of Wallace, Bauman, Fodiman & Shannon, P.A. and beneficially owns 741,891 shares of Common Stock. Other shareholders of such firm beneficially own an aggregate of 22,197 shares of Common Stock. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois. Haythe & Curley and Skadden, Arps, Slate, Meagher & Flom (Illinois) will rely on the opinion of Wallace, Bauman, Fodiman & Shannon, P.A., as to matters of Florida law. 55 57 EXPERTS The consolidated financial statements of the Company as of December 31, 1995 and 1996, and for the years ended December 31, 1995 and 1996, included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of the Company for the year ended December 31, 1994 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent certified public accountants, as set forth in their report therein appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The statements of law in this Prospectus under the captions "Risk Factors -- Dependence upon Government Reimbursement," "Risk Factors -- Operation Subject to Extensive Government Regulation," "Business -- Sources of Reimbursement" and "Business -- Government Regulation" have been reviewed and approved by Lashly & Baer, health care counsel for the Company, as experts on such matters, and are included herein in reliance upon that review and approval. ADDITIONAL INFORMATION A Registration Statement on Form S-1, including amendments thereto, relating to the Common Stock offered by the Company has been filed with the Securities and Exchange Commission, Washington, D.C. 20549 ("Commission"). This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement and the exhibits and schedules thereto. A copy of the Registration Statement may be inspected by anyone without charge at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of all or any part thereof may be obtained from such offices, upon payment of certain fees prescribed by the Commission. The Commission maintains a World Wide Website that contains reports, proxy and information statements and other information filed electronically with the Commission. The address of the Commission's World Wide Website is http://www.sec.gov. Following the effective date of the Registration Statement, the Company will be subject to the information requirements of the Securities Exchange Act of 1934, and in accordance therewith will file reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or through the Commission's World Wide Website. 56 58 RENEX CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors.............................. F-2 Report of Independent Certified Public Accountants.......... F-3 Consolidated Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited)............................ F-4 Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996 and the Three Months Ended March 31, 1996 and 1997 (unaudited)................. F-5 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1994, 1995 and 1996 and the Three Months Ended March 31, 1996 and 1997 (unaudited).......... F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and the Three Months Ended March 31, 1996 and 1997 (unaudited)................. F-7 Notes to Consolidated Financial Statements.................. F-8
F-1 59 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Renex Corp. and Subsidiaries Miami, Florida: We have audited the accompanying consolidated balance sheets of Renex Corp. and Subsidiaries (the "Company") as of December 31, 1995 and 1996 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the two years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such 1995 and 1996 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the two years then ended in conformity with generally accepted accounting principles. DELOITTE AND TOUCHE LLP Miami, Florida April 18, 1997, except for Note 18 for which the date is April 22, 1997 F-2 60 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Shareholders Renex Corp. and Subsidiaries We have audited the accompanying consolidated statements of operations, shareholders' equity and cash flows of Renex Corp. and Subsidiaries (the "Company") for the year ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated result of operations and cash flows of the Company for the year ended December 31, 1994 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Miami, Florida March 8, 1995 F-3 61 RENEX CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- MARCH 31, 1995 1996 1997 ----------- ----------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 1,234,000 $ 952,000 $ 519,000 Accounts receivable (net of allowance for doubtful accounts of $393,000 in 1995, $1,261,000 in 1996 and $1,280,000 as of March 31, 1997)........................ 3,693,000 4,535,000 5,631,000 Inventories............................................... 272,000 347,000 339,000 Prepaids and other........................................ 35,000 225,000 362,000 ----------- ----------- ----------- Total current assets............................... 5,234,000 6,059,000 6,851,000 Fixed assets, net........................................... 3,774,000 6,042,000 6,238,000 Intangible assets, net...................................... 1,058,000 1,309,000 1,268,000 Notes receivable from affiliates (interest rate at 9% (1995), 8% (1996) and 8% (March 31, 1997)).................................. 112,000 85,000 85,000 Other assets, including $1,384,000 in 1995, $1,168,000 in 1996 and $1,113,000 as of March 31, 1997 of deferred financing costs........................................... 1,637,000 1,666,000 1,645,000 ----------- ----------- ----------- TOTAL ASSETS....................................... $11,815,000 $15,161,000 $16,087,000 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 756,000 $ 708,000 $ 1,428,000 Accrued expenses and other................................ 520,000 2,393,000 2,276,000 Note payable to bank...................................... 337,000 -- -- Notes payable to affiliates............................... 94,000 -- -- Current portion of long-term debt......................... 113,000 46,000 34,000 Current portion of capital lease obligations.............. 363,000 523,000 403,000 ----------- ----------- ----------- Total current liabilities.......................... 2,183,000 3,670,000 4,141,000 ----------- ----------- ----------- Long-term debt, less current portion........................ 4,810,000 6,184,000 6,189,000 ----------- ----------- ----------- Capital lease obligations, less current portion............. 658,000 990,000 1,742,000 ----------- ----------- ----------- Shareholders' equity: Series A redeemable preferred stock, $.01 par value, 5,000,000 shares authorized, 1,000,000 shares issued and outstanding (1995)...................................... 10,000 -- -- Common stock, $.001 par value, 30,000,000 shares authorized, 2,358,857 shares (1995), 3,970,114 shares (1996) and 3,974,247 shares (March 31, 1997) issued and outstanding............................................. 2,000 3,000 3,000 Additional paid-in capital.................................. 6,503,000 9,151,000 9,163,000 Accumulated deficit......................................... (2,351,000) (4,837,000) (5,151,000) ----------- ----------- ----------- Total shareholders' equity......................... 4,164,000 4,317,000 4,015,000 ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $11,815,000 $15,161,000 $16,087,000 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 62 RENEX CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, MARCH 31, -------------------------------------- ----------------------- 1994 1995 1996 1996 1997 ---------- ----------- ----------- ---------- ---------- (UNAUDITED) Net revenues................................. $2,746,000 $ 8,794,000 $18,569,000 $3,876,000 $6,007,000 Operating expenses: Facilities................................. 2,405,000 6,809,000 14,625,000 2,979,000 4,735,000 General and administrative................. 1,025,000 1,682,000 2,681,000 536,000 637,000 Provision for doubtful accounts............ 93,000 495,000 1,293,000 268,000 228,000 Depreciation and amortization.............. 126,000 509,000 1,642,000 215,000 379,000 ---------- ----------- ----------- ---------- ---------- Operating income (loss).................. (903,000) (701,000) (1,672,000) (122,000) 28,000 Other income (expenses): Gain (loss) on sale of assets.............. -- -- 364,000 -- (27,000) Net interest income (expense).............. 61,000 (360,000) (915,000) (198,000) (260,000) Amortization of deferred financing......... -- (126,000) (226,000) (55,000) (55,000) ---------- ----------- ----------- ---------- ---------- Net (loss)................................... $ (842,000) $(1,187,000) $(2,449,000) $ (375,000) $ (314,000) ========== =========== =========== ========== ========== Net (loss) per share......................... $ (.31) $ (.40) $ (.66) $ (.11) $ (.08) ========== =========== =========== ========== ========== Weighted average number of common shares and equivalents outstanding.................... 2,759,884 2,963,193 3,693,617 3,377,291 4,067,637 ========== =========== =========== ========== ==========
See accompanying notes to consolidated financial statements. F-5 63 RENEX CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK REDEEMABLE REDEEMABLE ------------------- COMMON PREFERRED STOCK PREFERRED STOCK NUMBER OF ADDITIONAL STOCK SERIES A SERIES B SHARES AMOUNT PAID-IN CAPITAL SUBSCRIBED --------------- --------------- --------- ------- --------------- ---------- Balance at January 1, 1994............ $ 10,000 1,733,333 $2,000 $3,913,000 Sale of common stock through exercise of warrants (net of expenses of $15,000).............. 111,667 655,000 $ 290,000 Repurchase of warrants.............. (72,000) Sale of common stock................ 23,000 139,000 Net loss............................ -------- ------- --------- ------ ---------- --------- Balance at December 31, 1994.......... 10,000 1,868,000 2,000 4,635,000 290,000 Sale of common stock through exercise of warrants (net of expenses of $9,000)............... 45,000 261,000 (290,000) Sale of common stock................ 64,333 386,000 Stock warrants issued with debt..... 150,000 Issuance of common stock............ 4,667 20,000 Issuance of common stock for acquisition....................... 376,857 1,051,000 Net loss............................ -------- ------- --------- ------ ---------- --------- Balance at December 31, 1995.......... 10,000 2,358,857 2,000 6,503,000 Issuance of common stock for acquisition....................... 333,333 790,000 Sale of common stock (net of expenses of $21,000).............. 351,007 1,058,000 Issuance of preferred stock......... $11,000 1,039,000 Conversion of preferred stock....... (10,000) (8,000) 926,917 1,000 47,000 Redemption of preferred stock....... (3,000) (286,000) Net loss............................ -------- ------- --------- ------ ---------- --------- Balance at December 31, 1996.......... 3,970,114 3,000 9,151,000 Sale of common stock (unaudited).... 4,133 12,000 Net loss (unaudited)................ -------- ------- --------- ------ ---------- --------- Balance at March 31, 1997 (unaudited)......................... $ $ 3,974,247 $3,000 $9,163,000 $ ======== ======= ========= ====== ========== ========= SUBSCRIPTIONS RECEIVABLE FROM EXERCISE OF ACCUMULATED WARRANTS DEFICIT TOTAL --------------- ----------- ----------- Balance at January 1, 1994............ $ (322,000) $ 3,603,000 Sale of common stock through exercise of warrants (net of expenses of $15,000).............. $(290,000) 655,000 Repurchase of warrants.............. (72,000) Sale of common stock................ 139,000 Net loss............................ (842,000) (842,000) --------- ----------- ----------- Balance at December 31, 1994.......... (290,000) (1,164,000) 3,483,000 Sale of common stock through exercise of warrants (net of expenses of $9,000)............... 290,000 261,000 Sale of common stock................ 386,000 Stock warrants issued with debt..... 150,000 Issuance of common stock............ 20,000 Issuance of common stock for acquisition....................... 1,051,000 Net loss............................ (1,187,000) (1,187,000) --------- ----------- ----------- Balance at December 31, 1995.......... (2,351,000) 4,164,000 Issuance of common stock for acquisition....................... 790,000 Sale of common stock (net of expenses of $21,000).............. 1,058,000 Issuance of preferred stock......... 1,050,000 Conversion of preferred stock....... (30,000) Redemption of preferred stock....... (7,000) (296,000) Net loss............................ (2,449,000) (2,449,000) --------- ----------- ----------- Balance at December 31, 1996.......... (4,837,000) 4,317,000 Sale of common stock (unaudited).... 12,000 Net loss (unaudited)................ (314,000) (314,000) --------- ----------- ----------- Balance at March 31, 1997 (unaudited)......................... $ $(5,151,000) $ 4,015,000 ========= =========== ===========
See accompanying notes to consolidated financial statements. F-6 64 RENEX CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, MARCH 31, --------------------------------------- ------------------------ 1994 1995 1996 1996 1997 ----------- ----------- ----------- ---------- ----------- (UNAUDITED) Cash Flows from Operating Activities: Net loss............................................... $ (842,000) $(1,187,000) $(2,449,000) $ (375,000) $ (314,000) Adjustments to reconcile net loss to net cash used in operating activities: Provisions for doubtful accounts..................... 93,000 495,000 1,293,000 268,000 228,000 Depreciation and amortization........................ 126,000 509,000 1,642,000 215,000 379,000 Amortization of deferred financing costs............. -- 126,000 226,000 55,000 55,000 Loss on sale of property and equipment............... -- -- 100,000 -- 27,000 Gain from sale of facility........................... -- -- (364,000) -- -- Changes in operating assets and liabilities: (Increase) decrease in accounts receivable......... (1,438,000) (2,171,000) (2,135,000) (514,000) (1,324,000) (Increase) decrease in inventories................. (63,000) (110,000) (75,000) (12,000) 8,000 (Increase) decrease in prepaids and other current assets........................................... (98,000) 78,000 (190,000) (68,000) (137,000) (Increase) decrease in other assets................ (96,000) (302,000) (245,000) 4,000 (41,000) Increase (decrease) in accounts payable and accrued expenses......................................... 231,000 316,000 1,241,000 (214,000) 1,025,000 ----------- ----------- ----------- ---------- ----------- Net cash used in operating activities............ (2,087,000) (2,246,000) (956,000) (641,000) (94,000) ----------- ----------- ----------- ---------- ----------- Cash Flows from Investing Activities: Purchases of property and equipment.................... (1,201,000) (1,505,000) (2,396,000) (10,000) (220,000) Cash acquired in acquisitions.......................... -- 130,000 -- -- -- Proceeds from the sale of property and equipment....... -- -- 776,000 -- 36,000 ----------- ----------- ----------- ---------- ----------- Net cash used in investing activities............ (1,201,000) (1,375,000) (1,620,000) (10,000) (184,000) ----------- ----------- ----------- ---------- ----------- Cash Flows from Financing Activities: Net change in notes receivable from affiliates......... -- -- 27,000 -- -- Repayment of note payable to bank...................... -- -- (337,000) -- -- Payments on capital lease obligations.................. (3,000) (225,000) (353,000) (123,000) (164,000) Proceeds from long-term debt........................... -- 5,600,000 1,500,000 90,000 -- Proceeds from stock warrants........................... -- 150,000 -- -- -- Net change in notes payable to affiliates.............. -- -- (94,000) -- -- Repayments of long-term debt........................... -- (800,000) (261,000) -- (3,000) Proceeds from sale of stock through exercise of warrants............................................. 654,000 261,000 -- -- -- Proceeds from sale of stock............................ 139,000 386,000 2,108,000 -- 12,000 Repurchase of warrants................................. (25,000) (26,000) -- -- -- Payment of deferred financing costs.................... -- (1,510,000) -- -- -- Redemption of preferred stock.......................... -- -- (296,000) -- -- ----------- ----------- ----------- ---------- ----------- Net cash provided (used) by financing activities..................................... 765,000 3,836,000 2,294,000 (33,000) (155,000) ----------- ----------- ----------- ---------- ----------- Increase (Decrease) in Cash and Cash Equivalents......... (2,523,000) 215,000 (282,000) (684,000) (433,000) Cash, Beginning of Year.................................. 3,542,000 1,019,000 1,234,000 1,234,000 952,000 ----------- ----------- ----------- ---------- ----------- Cash, End of Year........................................ $ 1,019,000 $ 1,234,000 $ 952,000 $ 550,000 $ 519,000 =========== =========== =========== ========== =========== Supplemental Disclosures of Cash Flow Information: Cash paid for interest................................. $ 1,000 $ 446,000 $ 971,000 $ 207,000 $ 263,000 =========== =========== =========== ========== =========== Non-Cash Investing and Financing Activities: Equipment acquired through capital lease obligations... $ 223,000 $ 970,000 $ 1,267,000 $ 132,000 $ 374,000 Lease equipment liability.............................. -- 422,000 -- -- Conversion of preferred stock.......................... -- -- 48,000 -- -- Stock issued for acquisition........................... -- 1,051,000 790,000 -- -- Issuance of Common Stock............................... -- 20,000 -- -- -- Stock subscriptions receivable for Common Stock subscribed........................................... 290,000 -- -- -- -- Warrant redemption payable for repurchase of warrants............................................. 47,000 -- -- -- --
See accompanying notes to consolidated financial statements. F-7 65 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION. Renex Corp., a Florida corporation, was incorporated on July 7, 1993. Renex Corp. and its subsidiaries (the "Company") are engaged in the provision of kidney dialysis services to patients suffering from end-stage renal disease. The Company currently operates, through wholly-owned subsidiaries, twelve dialysis facilities and two home dialysis programs in seven states. Additionally, the Company has entered into patient dialysis service agreements with several hospitals to provide dialysis treatments on an inpatient basis. The Company has a limited operating history and had an accumulated deficit of $4,837,000 through December 31, 1996 and is subject to all the risks inherent in the establishment of a new business enterprise. The Company's ability to achieve profitability is dependent upon increased utilization of its existing facilities, controlling operating costs and its ability to develop or acquire and manage additional dialysis facilities. The Company has availability in its lines of credit and will continue to rely on external financing to meet its cash needs. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All intercompany accounts and transactions have been eliminated in consolidation. INTERIM FINANCIAL INFORMATION (UNAUDITED). The unaudited interim financial statements as of March 31, 1997 and for the three months ended March 31, 1996 and 1997 have been prepared on the same basis as the audited financial statements included herein. In the opinion of management, such unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for such periods. The operating results for the three months ended March 31, 1997 are not necessarily indicative of the operating results to be expected for the full fiscal year or for any future period. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of the revenues and expenses during the reporting period. Actual results could differ from those estimates. NET REVENUES. The Company has agreements with third-party payors that provide for payments to the Company at amounts different from its established rates. These third-party payors include Medicare, Medicaid, commercial insurance carriers, health maintenance organizations and preferred provider organizations. The basis for payment to the Company under these agreements primarily includes prospectively determined rates and discounts from established charges. The Company's net revenues are recorded at the estimated realizable amounts from third-party payors. The Company provides an allowance for doubtful accounts based on historical experience of amounts that result to be uncollectible. Amounts written off are charged against the allowance. During the years ended December 31, 1994, 1995 and 1996, the Company received approximately 65%, 59% and 67%, respectively, of its dialysis revenues from Medicare and Medicaid programs. The remaining balance of dialysis revenues was from insurance companies and private and other third-party payors. Revenues associated with the administration of erythropoietin ("EPO") are a significant source of revenue for the Company. The Company is unable to predict future changes in the reimbursement rate for EPO treatments, the typical dosage per administration, or the cost of the medication. In addition, F-8 66 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) EPO is produced by only one manufacturer. The interruption of supplies of EPO to the Company would have a material adverse effect on the Company's business, financial condition and results of operations. CASH EQUIVALENTS. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. INVENTORIES. Inventories are stated at the lower of cost (first-in, first-out) or market. FIXED ASSETS. Fixed assets are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from five to ten years for medical and other equipment, and furniture and fixtures, and twenty years for buildings. Leasehold improvements are amortized over the lease term or the useful life of the assets, whichever is lower. ASSETS HELD UNDER CAPITAL LEASES. Equipment held under capital lease obligations has been capitalized at the present value of the minimum lease payments. Depreciation of assets capitalized under lease obligations is computed under the straight-line method over the lives of the assets or leases, whichever is appropriate, and is included in depreciation expense. INTANGIBLE ASSETS. NON-COMPETE AGREEMENTS. Non-compete agreements are being amortized over the terms of the agreements, typically from 2 to 10 years, using the straight-line method. PATIENT LISTS. Patient lists are amortized over 5 years, using the straight-line method. GOODWILL. Goodwill, the excess of the aggregate purchase price over the fair value of net assets acquired, is amortized over 20 years using the straight-line method. Management evaluates intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This evaluation is based on certain financial indicators, such as estimated future undiscounted cash flows. INCOME TAXES. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE. Net income per common and common equivalent share amounts are based on the average number of common shares outstanding for each period, after giving effect to the reverse stock split. In accordance with Securities and Exchange Commission requirements, common stock equivalent shares issued during the twelve month period prior to the proposed initial public offering have been included in the calculation as if they were outstanding for all periods, using the treasury stock method. FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments include receivables, payables, debt and credit lines. The fair values of such financial instruments have been determined based on market interest rates as of December 31, 1996. The fair values were not materially different than their carrying values. STOCK BASED COMPENSATION. Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation ("SFAS 123") encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to F-9 67 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) continue to account for stock-based compensation to employees using the intrinsic value method as prescribed by Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, compensation cost for stock options issued to employees is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay for the stock. Compensation cost related to stock options of non-employees is recorded at fair value. RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform to current year presentation. NEW ACCOUNTING PRONOUNCEMENTS. In March 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"). This statement establishes standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock or potential common stock. This statement is effective for financial statements issued for periods ending after December 15, 1997 and earlier application is not permitted. This statement requires restatement of all prior period EPS data presented. The Company will adopt SFAS 128 in the fourth quarter of the fiscal year ending December 31, 1997. The pro forma basic (loss) per share and diluted (loss) per share calculated in accordance with SFAS 128 for the fiscal years ended December 31, 1994, 1995 and 1996, are as follows:
YEARS ENDED DECEMBER 31, --------------------- 1994 1995 1996 ----- ----- ----- Pro forma basic (loss) per share............................ $(.48) $(.61) $(.84) Pro forma diluted (loss) per share.......................... $(.48) $(.61) $(.84)
During February 1997, the Financial Accounting Standards Board issued Statement of Accounting Standards No. 129, Disclosure of Information about Capital Structure ("SFAS 129"). SFAS 129 requires entities to explain, in summary form within their financial statements, the pertinent rights and privileges of the various securities outstanding. Information that shall be disclosed should include dividend and liquidation preferences, participation rights, call prices and dates, conversion or exercise prices or rates and pertinent dates, sinking fund requirements, unusual voting rights, and significant terms of contracts to issue additional shares. SFAS 129 is effective for periods ending after December 15, 1997. The adoption of this accounting standard is not expected to have a material impact on the financial statements. 2. BUSINESS COMBINATIONS In April 1996, the Company, through two wholly owned subsidiaries, acquired two limited liability companies, Central Dialysis Center, L.L.C. and Metropolitan Dialysis Center, L.L.C., each with an interest in two facilities under development. The acquisitions have been accounted for under the purchase method. Central Dialysis Center, L.L.C. was acquired for 166,667 shares valued at $395,000 and assumed liabilities of $121,000. The Company entered into non-compete agreements with a group of nephrologists for a period of two and one-half years and completed the build-out of the facility, which began operations in October 1996. The purchase price of $516,000 was allocated to the non-compete agreements. Metropolitan Dialysis Center, L.L.C. was also acquired for 166,667 shares valued at $395,000 and assumed liabilities of $42,000. The Company also entered into non-compete agreements with a similar group of nephrologists. However, this facility was not completed due to the zoning variance request being denied. The Company is in the process of finding a suitable location to build the new facility. F-10 68 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Based on the Company's inability to generate revenue without a facility and the uncertainty that a location will be found, the Company has determined the assets to be impaired and, accordingly, has written off the intangible assets of $437,000. In December 1995, Dialysis Facilities, Inc. ("DFI"), which operates three dialysis facilities and two acute dialysis programs in Mississippi and Louisiana, was acquired by the Company through a wholly owned subsidiary. The Company issued 376,857 shares of the Company's common stock with an estimated value of $1,051,000 to DFI shareholders in exchange for all of the outstanding common stock of DFI. The transaction was accounted for using the purchase method of accounting. Accordingly, a portion of the purchase price was allocated to the net assets acquired based on their estimated fair values. The balance of the purchase price, $846,000, was recorded as goodwill. The following table reflects pro forma combined results of operations of Renex and DFI on the basis that the acquisition had taken place and was recorded at the beginning of the fiscal years ended December 31, 1994 and 1995.
DECEMBER 31, ------------------------ 1994 1995 ---------- ----------- Net revenues: Renex..................................................... $2,746,000 $ 8,794,000 DFI....................................................... 2,116,000 3,111,000 ---------- ----------- $4,862,000 $11,905,000 ========== =========== Net income (loss): Renex..................................................... $ (842,000) $(1,187,000) DFI....................................................... 33,000 (11,000) ---------- ----------- $ (809,000) $(1,198,000) ========== ===========
3. FIXED ASSETS Fixed assets are summarized as follows:
DECEMBER 31, ------------------------ 1995 1996 ---------- ----------- Land........................................................ $ 24,000 $ -- Building and leasehold improvements......................... 2,234,000 4,008,000 Medical equipment........................................... 859,000 872,000 Equipment, furniture and fixtures........................... 581,000 656,000 Equipment, under capital lease obligations.................. 944,000 2,170,000 ---------- ----------- Total.............................................. 4,642,000 7,706,000 Less accumulated depreciation and amortization.............. (868,000) (1,664,000) ---------- ----------- Fixed assets -- net......................................... $3,774,000 $ 6,042,000 ========== ===========
F-11 69 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. ALLOWANCE FOR DOUBTFUL ACCOUNTS Changes in the Company's allowance for doubtful accounts are as follows:
DECEMBER 31, ------------------------------- 1994 1995 1996 ------- -------- ---------- Beginning balance........................................... $ -- $ 93,000 $ 393,000 Provision for doubtful accounts............................. 93,000 495,000 1,293,000 Write-offs.................................................. -- (195,000) (425,000) ------- -------- ---------- Ending balance.............................................. $93,000 $393,000 $1,261,000 ======= ======== ==========
The Company grants credit without collateral to its patients, most of whom are insured under third party payor agreements, including Medicare and Medicaid, which represent the significant portion of the balance of receivables for the years ended December 31, 1994, 1995 and 1996 and the three months ended March 31, 1997. The remaining receivables are primarily due from third party payors, including managed care companies, commercial and insurance. The Company also has receivables due from patients who are self-payors or owe co-payments. 5. MEDICAL MALPRACTICE INSURANCE The Company maintains general liability and professional malpractice liability insurance on its staff and other insurance appropriate for its operations. The general liability policy provides coverage of $2,000,000 per occurrence and $2,000,000 in the aggregate. The professional liability policy provides coverage for professional (medical) activities of the Company's employees. This policy provides coverage of $1,000,000 per occurrence and $3,000,000 in the aggregate. 6. NOTE PAYABLE TO BANK Consisted of borrowings under a line of credit the Company had with a bank, with interest at prime plus 1%, and that were collateralized by certain accounts receivable. The line of credit was paid in full in September 1996. 7. NOTES PAYABLE TO AFFILIATES Consisted of two unsecured 9% demand notes in 1995. These notes were paid in full in 1996. 8. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ----------------------- 1995 1996 ---------- ---------- Senior subordinated debt (a), net of warrants............... $4,650,000 $6,184,000 Note payable to bank, collateralized by certain fixed assets and inventory accruing interest at 9.75%, due in monthly installments, maturing November 1998...................... 170,000 11,000 Various notes payable to banks, collateralized by certain medical and other equipment, accruing interest at rates ranging from 7.5% to 10%, due in monthly installments, with maturities ranging from February 1997 to April 1998...................................................... 103,000 35,000 ---------- ---------- $4,923,000 $6,230,000 ========== ==========
F-12 70 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The maturity schedule of long-term debt as of December 31, 1996 is as follows:
YEAR ENDING TOTAL - ----------- ---------- 1997........................................................ $ 46,000 1998........................................................ -0- 1999........................................................ 1,008,000 2000........................................................ 2,016,000 2001........................................................ 2,142,000 Thereafter.................................................. 1,134,000 ---------- $6,346,000 Amount representing warrants................................ (116,000) ---------- Total....................................................... $6,230,000 ==========
(a) On June 5, 1995, the Company entered into a senior subordinated secured loan agreement for $12,500,000 with a lender. This loan bears interest at 13% and is collateralized by the capital stock of the subsidiaries of the Company. The Company took an initial advance of $4,800,000 and must make quarterly interest only payments through June 30, 1999 and principal and interest payments beginning September 30, 1999 through June 30, 2002, the maturity date. In connection with this debt, the Company issued 211,023 warrants to the lender. Management has allocated $150,000 as the value of these warrants to additional paid in capital and as a reduction of long-term debt. In connection with the loan agreement, the Company recorded approximately $1,510,000 of deferred financing costs. Such costs are amortized over the seven year term of the related debt. The loan contains certain restrictive covenants, including financial covenants as to minimum net worth, leverage, and cash flows. The Company was in default of the minimum net worth and cash flows covenants as of December 31, 1995 and has obtained a waiver of these defaults through April 30, 1996. Effective May 1, 1996, the loan agreement was revised as to the minimum net worth and cash flows covenants. The Company was in default of the cash flows covenant as of December 31, 1996 and has obtained a waiver of this default through December 31, 1996. Effective January 1, 1997, the loan agreement was revised as to the minimum net worth and cash flows covenants. 9. BANK LINE OF CREDIT The Company has available a $4,000,000 revolving line of credit ("Line of Credit") maturing on August 24, 1998 with interest payable monthly at 2% over the bank's prime lending rate (10.25% at December 31, 1996). The initial drawing amount is limited to 80% of the net collectible value of eligible receivables less than 180 days, aged from the date of service (approximately $2,800,000 at December 31, 1996). As of December 31, 1996, the Company had not borrowed under this agreement. The Line of Credit contains financial covenants relating to the maintenance of a minimum net worth and specified net worth to debt ratios. The Line of Credit also requires the lender's approval for any acquisitions in excess of $5,000,000 in the aggregate in any calendar year and for the payment of cash dividends. F-13 71 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. CAPITAL LEASE OBLIGATIONS The Company has various capital lease obligations related to purchase of equipment for its various facilities under a $6,000,000 lease line of credit. Maturities of capital lease obligations for each of the five years ending December 31 are as follows:
YEAR ENDING TOTAL - ----------- ---------- 1997........................................................ $ 646,000 1998........................................................ 445,000 1999........................................................ 345,000 2000........................................................ 249,000 2001........................................................ 124,000 ---------- 1,809,000 Less amount representing interest .......................... (296,000) ---------- Total....................................................... $1,513,000 ==========
11. PREFERRED STOCK SERIES A: On August 2, 1996, the Company notified all shareholders of the redemption of all the issued and outstanding shares of the Series A on September 1, 1996 (the "Redemption Date"). Each share of Series A was convertible to common stock at $1.50 per common share. At the Redemption Date, any non-converted shares of Series A were redeemed by the Company at a redemption price of $1.00 per share plus accrued and unpaid cumulative dividends of $.0462 per share. As a result of the redemption, 988,000 shares of Series A were converted to 658,667 shares of common stock, $.001 par value. The remaining 12,000 shares were redeemed by the Company, resulting in the payment of $544 in dividends. SERIES B: In July, 1996 the Company authorized the issuance and sale of 1,050,000 shares of Series B preferred stock, $.10 redeemable convertible series ("Series B"), $.01 par value at $1.00 per share. The Series B provided for conversion to common stock on November 15, 1996 if not otherwise redeemed by such date. On November 15, 1996, the Company notified all shareholders of the redemption of all issued and outstanding shares of Series B on November 27, 1996. Each share of Series B was convertible to common stock at the conversion price of $3.00 per share, plus accrued and unpaid cumulative dividends through the Series B redemption date of $.034 per share. As a result of the redemption, 775,000 shares of Series B were converted to 268,250 shares of common stock, $.001 par value. The remaining 275,000 shares were redeemed by the Company, resulting in the payment of $36,000 in dividends. 12. WARRANTS TO PURCHASE COMMON STOCK During 1993, the Company completed its initial private placement of 120 units, each consisting of 7,500 shares of its common stock and 3,333 Common Stock Purchase Warrants (the "Warrants") at the offering price of $22,500 per unit. The proceeds received by the Company amounted to $2,675,000 (net of expenses of $25,000). Each Warrant entitled the holder thereof to purchase one share of common stock at an exercise price of $6.00 per share for three years after issuance. F-14 72 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On November 1, 1994, the Company's Board of Directors approved the redemption of all outstanding Warrants at the redemption price of $.30 per Warrant with a redemption date set at December 9, 1994. The following table summarizes the activity for the original $6.00 warrants issued in connection with the private placement:
ADDITIONAL PAID-IN WARRANTS CAPITAL --------- ---------- Original warrants issued 1993............................... 400,000 $ -- Warrants exercised and paid 1994 (net of expenses of $15,000).................................................. (111,667) 654,000 Warrants redeemed by the Company 1994....................... (240,000) (72,000) -------- -------- Warrants exercised and receivable at December 31, 1994...... 48,333 582,000 Warrants exercised and paid 1995 (net of expenses of $9,000)................................................... (45,000) 261,000 Lapsed warrants (pending redemption)........................ (3,333) -- -------- -------- Original warrants outstanding at December 31, 1995.......... -0- -- ======== Net proceeds on exercise of original warrants............... $843,000 ========
For warrants that were not exercised, the Company authorized the sale of additional shares of common stock to existing shareholders and others. In connection with the December 9, 1994 Warrant redemption, the Company authorized the issuance of new Common Stock Purchase Warrants (the "New Warrants"). All warrants exercised at December 9, 1994, as well as additional shares purchased to the extent that Warrants were not exercised, entitled the shareholder to one New Warrant for each share purchased. Each New Warrant entitles the holder thereof to purchase one share of common stock at an exercise price of $9.00 per share for four years after issuance. The New Warrants are redeemable by the Company after December 9, 1996 at a redemption price of $.30 per New Warrant. A total of 246,201 shares of the Company's common stock have been reserved for the exercise of the New Warrants. At December 31, 1995 and 1996, none of the New Warrants had been exercised and were outstanding. In June 1995, the Company issued 211,023 warrants to a lender as an additional cost of financing. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $6.00 per share for fifteen years after issuance. Such warrants are callable by the Company, but in no event earlier than June 30, 2002 or full payment of the senior subordinated secured loan (See Note 8). The call price would be the "fair value" of the underlying common stock at the time of the call. The call price is also protected for a twelve month period in the event the Company enters into an agreement for sale or merger for a consideration in excess of the call price. At December 31, 1995 and 1996, none of these warrants had been exercised and were outstanding. In July 1996, the Company issued 78,751 warrants in connection with the sale of 1,050,000 shares of Series B preferred stock. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $6.00 per share for three years from the date of issuance. At December 31, 1996, none of these warrants have been exercised and were outstanding. In November 1996, the Company issued 116,669 warrants to a financial advisor in connection with a six month advisory agreement. Each warrant entitles the holder to purchase one share of common stock at an exercise price of $3.00 per share for three years from the date of issuance. Compensation expense of $26,600 has been recorded to reflect the fair value of the warrants. At December 31, 1996, none of these warrants have been exercised and were outstanding. F-15 73 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. STOCK OPTIONS The Company has employee and director stock option plans. The employee plan permits the grant of options to purchase up to 250,000 shares of common stock. The director plan permits the grant of options to purchase up to 166,667 shares of common stock. Subsequent to year end, the number of options permitted to be granted under the employee plan was increased to 666,667, subject to shareholder approval. Under the director plan, each non-employee director receives automatic non-discretionary grants of options each year (the "Annual Grant"). The Annual Grant date is the annual anniversary date of shareholders' approval of the director plan. The initial grant date was April 27, 1994. On each grant date commencing April 27, 1994, each non-employee director received options to purchase 834 shares of common stock for service on the board, additional options to purchase 334 shares of common stock for service on each committee of the board, other than the executive committee, and additional options to purchase 334 shares for service as chairman of a committee other than the executive committee. Non-employee directors receive options to purchase 834 shares for service on the executive committee and an additional 834 as chairman of the executive committee. The term of the options granted under the director plan is five years and the options vest 100% immediately but are not exercisable for six months from date of grant. All officers and employees are eligible for grants of options under the employee plan (the "Plan") which includes incentive stock options granted for employees' current services to the Company and non-statutory stock options granted for special services which employees provide the Company, as determined by the Plan. The Plan is administered by a stock option committee which has the discretion to determine to whom, the amount, exercise prices, exercise terms and all other matters relating to the grant of options under the employee plan. The Plan prohibits the grant of incentive stock options under the Plan or any other plan of the Company to any individual in any calendar year for common stock having an aggregate fair market value determined at the time the option is granted in excess of $100,000. All options granted under the employee plan to date vest 25% six months after the date of grant and 25% on each anniversary of the date of grant thereafter so long as the individual remains employed by the Company. All options granted have a five-year term, but are not exercisable for six months from the date of grant. Both the director and employee plans provide for the automatic grant of reload options to an optionee who would pay all, or part of, the option exercise price by delivery of shares of common stock already owned by such optionee. The following table summarizes stock options activity:
1994 1995 1996 ----------------------- ------------------------ ------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE DIRECTORS PLAN SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE - -------------- ------ -------------- ------- -------------- ------- -------------- Outstanding January 1,............................ -- 5,838 $ 6.00 11,676 $ 6.00 Granted......................................... 5,838 $ 6.00 5,838 6.00 7,671 6.00 ----- ------ ------ ------ ------- ------ Outstanding December 31,.......................... 5,838 $ 6.00 11,676 $ 6.00 19,357 $ 6.00 ----- ------ ------ ------ ------- ------ Options exercisable at December 31,............... 5,004 11,676 18,513 ----- ------ -------
F-16 74 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994 1995 1996 ----------------------- ------------------------ ------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EMPLOYEE PLAN SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE - ------------- ------ -------------- ------- -------------- ------- -------------- Outstanding January 1,............................ 50,334 $ 6.00 94,501 $ 6.00 Granted......................................... 50,334 $ 6.00 54,167 6.00 77,510 6.00 Cancelled....................................... -- -- (10,000) (6.00) (6,667) -- ------ ------ ------- ------ ------- ------ Outstanding December 31,.......................... 50,334 $ 6.00 94,501 $ 6.00 165,344 $ 6.00 ------ ------ ------- ------ ------- ------ Options exercisable at December 31,............... 3,751 23,716 78,184 ------ ------- -------
1994 1995 1996 ----------------------- ------------------------ ------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE OTHER SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE - ----- ------ -------------- ------- -------------- ------- -------------- Outstanding January 1,............................ 3,334 $ 6.00 36,669 $ 6.00 Granted......................................... 3,334 $ 6.00 33,335 6.00 -- 6.00 ----- ------ ------ ------ ------- ------ Outstanding December 31,.......................... 3,334 $ 6.00 36,669 $ 6.00 36,669 $ 6.00 ----- ------ ------ ------ ------- ------ Options exercisable at December 31,............... 3,334 36,669 36,669 ----- ------ -------
The Company applies APB No. 25 and related interpretations in accounting for its stock option plans as described in Note 1. Accordingly, no compensation cost has been recognized in 1995 or 1996 related to these plans. The fair value of each option granted is determined on the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: no dividend yield, expected volatility of .001, risk-free interest rate of 6.13% and expected option life of three years. The fair value of the options was determined to be zero. 14. INCOME TAXES At December 31, 1996, the Company has tax net operating loss carryforwards of $6,691,000 that expire beginning in 2008 and ending in 2010. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liability at December 31, 1995 and 1996 are presented below:
DECEMBER 31, ------------------------ 1995 1996 ---------- ----------- Deferred tax assets Net operating loss carry forwards......................... $1,791,000 $ 2,542,000 Other..................................................... 116,000 72,000 ---------- ----------- Total deferred tax assets.......................... 1,907,000 2,614,000 Deferred tax liability Use of cash method of accounting for income tax purposes................................................ 977,000 908,000 ---------- ----------- Net deferred tax asset (before valuation allowance)......... 930,000 1,706,000 Less valuation allowance.................................... (930,000) (1,706,000) ---------- ----------- Net deferred tax asset...................................... $ -0- $ -0- ========== ===========
15. EMPLOYEE BENEFIT PLANS As of January 1, 1997, the Company adopted a tax qualified employee savings and retirement plan (the "401(k) Plan") covering the Company's employees. Pursuant to the 401(k) Plan, eligible employees may elect to contribute to the 401(k) Plan up to the lesser of 15% of their annual compensation or the statutorily prescribed annual limit ($9,500 in 1996). The Company matches 25% of the contributions of employees, up to 4% of each employee's salary. All employees who were employed at December 31, F-17 75 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1996, and new hires who thereafter attain at least one year's service, are eligible to participate in the 401(k) Plan. The Trustees of the 401(k) Plan, at the direction of each participant, invest the assets of the 401(k) Plan in designated investment options. The 401(k) Plan is intended to qualify under Section 401 of the Code, so that contributions to the 401(k) Plan, and income earned on the 401(k) Plan contributions, are not taxable until withdrawn. Matching contributions by the Company are deductible when made. 16. RELATED PARTY TRANSACTIONS The Company is a party to the following transactions with related parties by virtue of common ownership:
YEAR ENDED DECEMBER 31, ---------------------------- 1994 1995 1996 ------- ------- -------- Legal fees.................................................. $59,000 $82,000 $133,000 Insurance expense........................................... 30,000 50,000 6,000 Rent expense................................................ 36,000 46,000 59,000
17. COMMITMENTS AND CONTINGENCIES COMMITMENTS. The Company leases facility space and equipment under noncancelable operating leases. Minimum annual lease payments under these leases are as follows:
YEAR ENDING AMOUNT - ----------- ---------- 1997........................................................ $1,160,000 1998........................................................ 959,000 1999........................................................ 768,000 2000........................................................ 563,000 2001........................................................ 479,000 Thereafter.................................................. 1,753,000 ---------- Total....................................................... $5,682,000 ==========
Rental expense under these operating leases was $362,000, $753,000 and $1,046,000 (of which $146,000, $245,000 and $257,000, respectively, relate to equipment leases for patient care and are included in facilities expenses) for the years ended December 31, 1994, 1995 and 1996, respectively. A partnership owned by three shareholders is in the process of completing construction of two facilities and the related leasehold improvements for the Company. The Company is committed for leasehold improvements for approximately $400,000. The Company will lease these buildings from the partnership for ten years at amounts deemed to be fair value. LITIGATION. The Company is subject to claims and suits in the ordinary course of business, including those arising from patient treatments, which the Company believes are covered by insurance. The Company is not involved in any material litigation and is not aware of any potential claims which would give rise to material liability. 18. SUBSEQUENT EVENTS The Company's Board of Directors authorized and effected a one-for-three reverse common stock split to shareholders of record on April 21, 1997. Shareholders' equity has been changed to give retroactive recognition to the stock split in prior periods. All references in the consolidated financial F-18 76 RENEX CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) statements to number of shares, per share amounts, stock options and warrant data of the Company's common stock have been changed to reflect the reverse stock split. On April 22, 1997, the Company entered into two year employment agreements with James P. Shea, the Company's President and Chief Executive Officer, and Orestes L. Lugo, Vice President -- Finance and Chief Financial Officer. Such agreements became effective immediately, except that the base salaries will become effective upon completion of the contemplated public offering. The employment agreements provide for base salaries of $190,000 and $155,000 for Mr. Shea and Mr. Lugo, respectively. The base salary for each officer is increased on January 1, of each year during the term by a minimum of 6%. Each officer receives an automobile allowance and certain other non-cash benefits, including life, health and disability insurance. Each employment agreement is automatically renewed for two years at the end of the initial term and each extended term, unless either party provides notice of termination at least 90 days prior to the expiration of such term. If any officer is terminated without cause or there is a change of control during the term of their respective agreements, such officer will be entitled to severance equal to the greater of the remaining base salary due under the agreement or one and two year's base salary, respectively. During the first quarter of 1997, the Company entered into three operating lease agreements for three facilities which will be constructed. These lease agreements have terms ranging from five to twenty years and the minimum annual lease payments under these agreements range from $181,000 to $319,000. As of June 1997, the Company had borrowed $1.0 million on its Line of Credit. F-19 77 ========================================================= NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. --------------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary............................ 3 Risk Factors.................................. 6 Use of Proceeds............................... 13 Dividend Policy............................... 13 Capitalization................................ 14 Dilution...................................... 15 Selected Consolidated Financial and Operating Data........................................ 16 Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 18 Business...................................... 24 Management.................................... 40 Principal Shareholders........................ 47 Certain Transactions.......................... 48 Description of Securities..................... 49 Shares Eligible for Future Sale............... 52 Underwriting.................................. 54 Legal Matters................................. 55 Experts....................................... 56 Additional Information........................ 56 Consolidated Financial Statements............. F-1
--------------------------- UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ========================================================= ========================================================= 3,000,000 SHARES RENEX LOGO COMMON STOCK --------------------------- PROSPECTUS --------------------------- Vector Securities International, Inc. Needham & Company, Inc. , 1997 ========================================================= 78 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth all expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the issuance and distribution of the Common Stock being registered. All amounts shown are estimates, except for the SEC Registration Fee and the NASD Filing Fee. SEC registration fee........................................ $ 9,409.00 NASD filing fee............................................. 3,605.00 NASDAQ National Market listing fee.......................... 37,934.00 Legal fees and expenses..................................... * Printing and engraving expenses............................. * Accounting fees and expenses................................ * Blue Sky fees and expenses.................................. * Transfer agent and registrar fees and expenses.............. * Travel expenses............................................. * Miscellaneous............................................... * ---------- Total.............................................. * ==========
- --------------- * To be filed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Florida Business Corporation Act. Section 607.0850(1) of the Florida Business Corporation Act (the "FBCA") provides that a Florida corporation, such as the Company, shall have the power to indemnify any person who was or is a party to any proceeding (other than an action by, or in the right of, the corporation), by reason of the fact that he is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against liability incurred in connection with such proceeding, including any appeal thereof, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Section 607.0850(2) of the FBCA provides that a Florida corporation shall have the power to indemnify any person, who was or is a party to any proceeding by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof. Such indemnification shall be authorized if such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made under this subsection in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable unless, and only to the extent that, the court in which such proceeding was brought, or any other court of competent jurisdiction, shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. II-1 79 Section 607.850 of the FBCA further provides that: (i) to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any proceeding referred to in subsection (1) or subsection (2), or in defense of any claim, issue, or matter therein, he shall be indemnified against expense actually and reasonably incurred by him in connection therewith; (ii) indemnification provided pursuant to Section 607.0850 is not exclusive; and (iii) the corporation may purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 607.0850. Notwithstanding the foregoing, Section 607.0850 of the FBCA provides that indemnification or advancement of expenses shall not be made to or on behalf of any director, officer, employee or agent if a judgment or other final adjudication establishes that his actions, or omissions to act, were material to the cause of action so adjudicated and constitute: (i) a violation of the criminal law, unless the director, officer, employee or agent had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; (ii) a transaction from which the director, officer, employee or agent derived an improper personal benefit; (iii) in the case of a director, a circumstance under which the liability provisions regarding unlawful distributions are applicable; or (iv) willful misconduct or a conscious disregard for the best interests of the corporation in a proceeding by or in the right of the corporation to procure a judgment in its favor or in a proceeding by or in the right of a shareholder. Section 607.0831 of the FBCA provides that a director of a Florida corporation is not personally liable for monetary damages to the corporation or any other person for any statement, vote, decision, or failure to act, regarding corporate management or policy, by a director, unless: (i) the director breached or failed to perform his duties as a director; and (ii) the director's breach of, or failure to perform, those duties constitutes: (A) a violation of criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; (B) a transaction from which the director derived an improper personal benefit, either directly or indirectly; (C) a circumstance under which the liability provisions regarding unlawful distributions are applicable; (D) in a proceeding by or in the right of the corporation to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the corporation, or willful misconduct; or (E) in a proceeding by or in the right of someone other than the corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. ARTICLES AND BYLAWS. The Company's Articles of Incorporation and the Company's Bylaws provide that the Company shall, to the fullest extent permitted by law, indemnify all directors of the Company, as well as any officers or employees of the Company to whom the Company has agreed to grant indemnification. UNDERWRITING AGREEMENT. Reference is made to the Underwriting Agreement, the proposed form of which is to be filed as Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of directors, officers and controlling persons of the Registrant against certain liabilities, including liabilities under the Securities Act, under certain circumstances. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES All share totals set forth herein have been adjusted based upon an assumed one for three reverse stock split to be effected prior to the effective date of the offering. In November 1994, the Registrant called for redemption an aggregate of 400,000 warrants which were issued in a private placement completed in 1993. The redemption price of each warrant was $.30 per warrant. Each warrant entitled the holder to purchase one share of Common Stock for $6.00 per share. In connection with the redemption, an aggregate of 156,667 warrants were exercised prior to the II-2 80 redemption date for aggregate consideration of $940,002. The Registrant issued 156,667 shares of Common Stock in connection with such exercises. In addition, the Company sold 89,534 additional shares of Common Stock underlying warrants that were redeemed by the Company. In order to encourage exercise, the Company offered to such warrant holders and other stockholders who purchased additional common stock a new warrant for each old warrant exercised. Accordingly, 246,201 new warrants were so issued. Each new warrant entitles the holder thereof to purchase one share of Common Stock at $9.00 per share until December 9, 1998. The Registrant sold such securities in reliance on sec. 4(2) of the Securities Act of 1933 as not involving a public offering of its securities. In June 1995, in connection with the receipt of a $12,500,000 subordinated loan, the Registrant issued to such lender warrants to purchase 211,023 shares of Common Stock. Such warrants are exercisable at $6.00 per share until June 30, 2010. The Registrant issued such securities in reliance on sec. 4(2) of the Securities Act of 1933 as not involving a public offering of its securities. In December 1995, the Registrant issued an aggregate of 376,857 shares of Common Stock to three shareholders of Dialysis Facilities, Inc. ("DFI") in exchange for 100% of the capital stock of DFI pursuant to a merger between DFI and a wholly-owned subsidiary of the Registrant. DFI become a wholly-owned subsidiary of the Registrant as of December 29, 1995. The Registrant issued such shares in reliance upon sec. 4(2) of the Securities Act of 1933 as not involving a public offering of its securities. The Company paid a finders fee of 4,000 shares of Common Stock to an individual in connection with the acquisition. In April 1996, the Registrant issued an aggregate of 166,667 shares of Common Stock to 11 members of Central Dialysis Center, L.L.C. ("Central") in exchange for 100% of the membership interests of Central. In connection therewith, Central merged with and into a wholly-owned subsidiary of the Registrant. The Registrant issued such shares in reliance upon sec. 4(2) of the Securities Act of 1933, as not involving a public offering of its securities. In April 1996, the Registrant issued an aggregate of 166,667 shares of Common Stock to 10 members of Metropolitan Dialysis Center, L.L.C. ("Metropolitan") in exchange for 100% of the membership interests of Metropolitan. In connection therewith, Metropolitan merged with and into a wholly-owned subsidiary of the Registrant. The Registrant issued such shares in reliance upon sec. 4(2) of the Securities Act of 1933, as not involving a public offering of its securities. In July 1996, the Registrant issued an aggregate of 1,050,000 shares of Series B Preferred Stock and 78,751 Series B Warrants to 14 accredited investors, who were either directors or officers of the Registrant or who had prior personal or business relationships with such directors and/or officers. The Registrant received gross proceeds of $1,050,000. Each Series B Warrant entitles the holder thereof to purchase one share of Common Stock at an exercise price of $6.00 per share until July 31, 1999. The Registrant issued such securities in reliance upon sec. 4(2) of the Securities Act of 1933, as not involving a public offering of its securities. In August 1996, the Registrant commenced a rights offering to its common shareholders, completed in December 1996, whereby each common shareholder had the right to purchase one share of common stock for each five shares then held. The Registrant issued 328,840 shares of Common Stock for aggregate proceeds of $1,046,000. The Registrant issued such shares in reliance on sec. 4(2) of the Securities Act of 1933, as not involving a public offering. In August 1996, the Registrant approved the redemption of 1,000,000 shares of Series A Preferred Stock then outstanding. Such shares of Series A Preferred Stock were issued in July 1993. In connection with such redemption, the holders of the Series A Preferred Stock converted such Series A Preferred Stock into an aggregate of 658,667 shares of Common Stock. The Registrant issued such shares in reliance on sec. 4(2) of the Securities Act of 1933, as not involving a public offering. In September 1996, the Registrant sold an aggregate of 8,000 shares of Common Stock to two of its executive officers. The shares purchased represented the underlying shares of Common Stock of the Series A Preferred Stock which were actually redeemed by the Registrant in August 1996. The purchase II-3 81 price for such Common Stock was the aggregate redemption price for such shares of Series A Preferred Stock. The Registrant issued such shares in reliance on sec. 4(2) of the Securities Act of 1933, as not involving a public offering. In November 1996, the Registrant approved the redemption of 1,050,000 shares of Series B Preferred Stock then outstanding. Such shares of Series B Preferred Stock were issued in July 1996. In connection with such redemption, the holders of the Series B Preferred Stock converted such Series B Preferred Stock into an aggregate of 268,250 shares of Common Stock including accrued dividends. The Registrant issued such shares in reliance on sec. 4(2) of the Securities Act of 1933, as not involving a public offering. In November 1996, the Registrant issued warrants to purchase 116,667 shares of Common Stock at $3.00 per share exercisable through November 15, 1999 to a financial advisor. The Registrant issued such securities in reliance on sec. 4(2) of the Securities Act, as not involving a public offering. In February 1997, the Registrant issued an aggregate of 4,134 shares of Common Stock for aggregate proceeds of $12,400. Such shares remained unsubscribed in the Company's rights offering to its shareholders concluded in November 1996. The Registrant issued such shares in reliance on sec. 4(2) of the Securities Act of 1933, as not involving a public offering. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 -- Form of Underwriting Agreement* 1.2 -- Agreement Among Underwriters* 1.3 -- Selected Dealers Agreement* 1.4 -- Form of Representatives' Warrant* 2. -- Agreement and Plan of Merger by and between Renex Corp., Renex Acquisition Corp., Dialysis Facilities, Inc., C. David Finch, Jr., Charles D. Finch, Sr., and Jeffery C. Finch dated December 29, 1995 3.1 -- Articles of Incorporation of the Company 3.2 -- By-Laws of the Company 4.1 -- Specimen Certificate of Common Stock* 5.1 -- Form of Opinion of Wallace, Bauman, Fodiman & Shannon, P.A., Counsel to the Issuer 10.1 -- Employment Agreement dated April 22, 1997 by and between Renex Corp. and James P. Shea 10.2 -- Employment Agreement dated April 22, 1997 by and between Renex Corp. and Orestes L. Lugo 10.3 -- Loan and Security Agreement by and between DVI Business Credit Corporation, Renex Corp. and its Subsidiaries dated as of August 23, 1996 10.4 -- Directors Stock Option Plan 10.5 -- 1994 Employee Stock Option Plan 10.6 -- Master Lease Agreement by and between Renex Corp. and Morcroft Leasing Corp. as of January 1, 1994* 10.7 -- Lease Agreement by and between JCD Partnership and Renex Dialysis Facilities, Inc. dated December 29, 1995 for certain property located in Jackson, Mississippi 10.8 -- Lease Contract and Agreement by and between JCD Partnership and Renex Dialysis Facilities, Inc. dated December 29, 1995 for certain property located in Jackson, Mississippi 10.9 -- Lease Contract and Agreement by and between JCD Partnership and Renex Dialysis Facilities, Inc. dated December 29, 1995 for certain property located in Delta, Louisiana 11.1 -- Computation of per share earnings*
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- .1 -- Subsidiaries of the Company* 21 23.1 -- Consent of Deloitte & Touche, LLP. 23.2 -- Consent of Ernst & Young, LLP. 23.3 -- Consent of Lashly & Baer 23.4 -- Form of Consent of Wallace, Bauman, Fodiman & Shannon, P.A. (included in their opinion filed as Exhibit 5.1) 24.1 -- Powers of Attorney (included on the signature page of this Registration Statement) 27.1 -- Financial Data Schedule (for SEC use only)
- --------------- * To be filed by an amendment. ITEM 17. UNDERTAKINGS (a) EQUITY OFFERINGS OF NON-REPORTING REGISTRANTS: The undersigned registrant hereby undertakes to provide to the representatives of the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by such representatives of the underwriters to permit prompt delivery to each purchaser. (b) REQUEST FOR ACCELERATION OF EFFECTIVE DATE. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) RULE 430A UNDERTAKING. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 83 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Coral Gables, State of Florida, on the 31st day of July, 1997. RENEX CORP. By: /s/ JAMES P. SHEA ------------------------------------ James P. Shea President/Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below on this Registration Statement hereby constitutes and appoints JAMES P. SHEA with full power to act as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities (including his capacity as a director and/or officer of RENEX CORP. (until revoked in writing) to sign any and all amendments (including post-effective amendments and amendments thereto) to this Registration Statement on Form S-1 of the Company and to sign a Registration Statement pursuant to Section 462(b) of the Securities Act of 1933 and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes, as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney have been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ MILTON J. WALLACE Chairman of the Board of July 31, 1997 - ----------------------------------------------------- Directors Milton J. Wallace /s/ ARTHUR G. SHAPIRO, M.D. Vice Chairman of the Board, July 31, 1997 - ----------------------------------------------------- Director of Medical Affairs Arthur G. Shapiro, M.D. /s/ JAMES P. SHEA President/CEO, Director July 31, 1997 - ----------------------------------------------------- James P. Shea /s/ MARK D. WALLACE Director July 31, 1997 - ----------------------------------------------------- Mark D. Wallace /s/ EUGENE P. CONESE, SR. Director July 31, 1997 - ----------------------------------------------------- Eugene P. Conese, Sr. /s/ C. DAVID FINCH, M.D. Director July 31, 1997 - ----------------------------------------------------- C. David Finch, M.D. /s/ JOHN E. HUNT, SR. Director July 31, 1997 - ----------------------------------------------------- John E. Hunt, Sr. /s/ JEFFREY H. WATSON Director July 31, 1997 - ----------------------------------------------------- Jeffrey H. Watson
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SIGNATURE TITLE DATE --------- ----- ---- Director July 31, 1997 /s/ CHARLES J. SIMONS - ----------------------------------------------------- Charles J. Simons /s/ ORESTES L. LUGO Vice President/Chief July 31, 1997 - ----------------------------------------------------- Financial and Principal Orestes L. Lugo Accounting Officer
II-7 EX-2 2 AGREEMENT AND PLAN OF MERGER 1 Exhibit 2 AGREEMENT AND PLAN OF MERGER By and Between RENEX CORP. a Florida corporation, RENEX ACQUISITION CORP. a Mississippi corporation, DIALYSIS FACILITIES, INC. a Mississippi corporation, C. DAVID FINCH, JR., M.D. CHARLES D. FINCH, SR. and JEFFERY C. FINCH 2 TABLE OF CONTENTS ARTICLE I. DEFINITIONS...................................................................... 1 ARTICLE II. MERGER........................................................................... 3 2.1 The Merger.............................................................. 3 2.2 Effective Time of Merger................................................ 3 ARTICLE III. THE SURVIVING CORPORATION...................................................... 3 3.1 Certificate of Incorporation............................................ 3 3.2 Bylaws.................................................................. 3 3.3 Directors and Officers of Surviving Corporation......................... 3 ARTICLE IV. CONVERSION OF SHARES; CLOSING................................................... 4 4.1 Exchange Ratio.......................................................... 4 4.2 Exchange of Shares...................................................... 4 4.3 Investment Restrictions................................................. 4 4.4 Closing................................................................. 4 4.5 Shareholder and Company Performance at Closing.......................... 4 4.6 Parent and Sub Performance at Closing................................... 7 4.7 Right of Set-Off........................................................ 7 4.8 Termination in Absence of Closing....................................... 7 ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDERS.................................................................... 8 5.1 Organization............................................................ 8 5.2 Capitalization.......................................................... 8 5.3 Corporate Documents..................................................... 8 5.4 Subsidiaries............................................................ 9 5.5 Authority............................................................... 9 5.6 Consents and Approvals.................................................. 9 5.7 Financial Statements.................................................... 9 5.8 Title to Assets......................................................... 9 5.9 Liabilities............................................................. 9 5.10 Obligations to Affiliates............................................... 10 5.11 Real Property........................................................... 10 5.12 Employee Benefits....................................................... 10 5.13 Labor and Employment Matters............................................ 11 5.14 Personal Property....................................................... 12 5.15 Insurance............................................................... 12 5.16 Contracts and Commitments............................................... 12 5.17 Contracts with Physicians, Hospitals, HMO's and Third Party Payors...... 13 5.18 Inspection of Records................................................... 13 5.19 Inventories............................................................. 13 5.20 Equipment and Other Tangible Property................................... 14 5.21 Permits................................................................. 14 5.22 Intangible Rights....................................................... 14 5.23 Litigation.............................................................. 14 5.24 Compliance with Laws.................................................... 14 5.25 Absence of Material Changes............................................. 14 5.26 Banking Information..................................................... 15 5.27 Tax Returns............................................................. 15
- i - 3 5.28 Accounts Receivable..................................................... 16 5.29 Medicare Matters........................................................ 16 5.30 Compliance with Instruments............................................. 17 5.31 Brokers' Commissions.................................................... 17 5.32 Books and Records....................................................... 17 5.33 Accuracy of Information................................................. 17 5.34 Environmental Regulations............................................... 17 5.35 Accounting Matters...................................................... 17 ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB................................ 17 6.1 Parent Organization..................................................... 17 6.2 Sub Organization........................................................ 18 6.3 Parent Capitalization................................................... 18 6.4 Sub Capitalization...................................................... 18 6.5 Authority............................................................... 18 6.7 Medicare Matters........................................................ 18 6.8 Brokers' Commissions.................................................... 19 ARTICLE VII. OBLIGATIONS PRIOR TO CLOSING................................................... 19 7.1 Operation of Business................................................... 19 7.2 Access to Books and Records............................................. 19 7.3 Negative Covenants...................................................... 19 7.4 Affirmative Covenants................................................... 21 7.5 Company Acquisition Proposals........................................... 21 7.6 Accounting Matters...................................................... 21 7.7 Audit................................................................... 21 7.8 Current Information..................................................... 21 7.9 Public Announcements.................................................... 22 7.10 Leases for Facilities................................................... 22 ARTICLE VIII. CONDITIONS PRECEDENT TO THE CLOSING........................................... 23 8.1 Conditions to Obligations of Parent and Sub............................. 23 8.2 Conditions to Obligations of the Company and Shareholder................ 24 ARTICLE IX. POST-CLOSING OBLIGATIONS........................................................ 24 9.1 Survival of the Closing................................................. 24 9.2 Further Assurances...................................................... 24 9.3 Indemnification by Shareholders......................................... 24 9.4 Non-Competition Agreement............................................... 25 9.5 Publicity............................................................... 26 9.6 Employment Arrangement.................................................. 26 9.7 Audit................................................................... 26 9.8 Board of Directors...................................................... 27 9.9 Right of First Refusal.................................................. 27 ARTICLE X. MISCELLANEOUS.................................................................... 27 10.1 Costs and Expenses...................................................... 27 10.2 Remedies................................................................ 27 10.3 Exhibits and Schedules.................................................. 27 10.4 Attorneys' Fees......................................................... 27 10.5 Risk of Loss............................................................ 27 10.6 Assignment and Amendment of Agreement................................... 27 10.7 Notices................................................................. 28 10.8 Entire Agreement........................................................ 28
- ii - 4 10.9 Waiver.................................................................. 28 10.10 Governing Law........................................................... 28 10.11 Counterparts............................................................ 28 10.12 Captions................................................................ 29 10.13 Successors and Assigns.................................................. 29 10.14 Interpretation.......................................................... 29 10.15 Severability............................................................ 29
- iii - 5 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") entered into as of the _____ day of December, 1995 by and between RENEX CORP., a Florida corporation ("Parent"), RENEX ACQUISITION CORP., a Mississippi corporation ("Sub"), DIALYSIS FACILITIES, INC., a Mississippi corporation (the "Company"), C. DAVID FINCH, JR., M.D., CHARLES D. FINCH, SR. and JEFFERY C. FINCH (C. DAVID FINCH, JR., M.D., CHARLES D. FINCH, SR. and JEFFERY C. FINCH are collectively referred to as the "Shareholders"). R E C I T A L S: A. The Company owns and operates three (3) kidney dialysis facilities located in Mississippi and Louisiana, through which it provides various forms of kidney dialysis treatments. B. Parent, Sub and the Company desire to effect a transaction in which the Company would be acquired by Parent through a merger of Sub with and into the Company, or alternately through a merger of the Company with and into Sub) upon the terms and subject to the conditions set forth herein (the "Merger"). C. The respective Boards of Directors of Parent, Sub and the Company deem it advisable and in the best interest of their respective shareholders that Parent acquire the Company in the Merger and such Boards of Directors have approved the Merger, in each case, upon the terms and subject to the conditions set forth herein. D. The Shareholders own 100% of the outstanding capital stock of the Company and have agreed to the terms and conditions set forth herein. E. Parent, Sub, the Company and the Shareholders desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe various conditions to the Merger. F. For federal income tax purposes, it is intended that the Merger qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). G. For accounting purposes, it is intended that the Merger be accounted for as a "pooling of interest" between Parent and the Company. NOW, THEREFORE, in consideration of the premises and the mutual benefits to be derived therefrom and of the respective mutual covenants and agreements hereinafter set forth and such other good and valuable consideration, the adequacy and receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I. DEFINITIONS All capitalized terms used in this Agreement are used as defined in this Article I or elsewhere in this Agreement. 1.1 Business. The provision of kidney dialysis treatments and related services, through three (3) dialysis clinics located in Jackson, Mississippi, Port Gibson, Mississippi and Delta, Louisiana, respectively. 6 1.2 Parent. RENEX CORP., a Florida corporation. 1.3 Closing Date. December 29, 1995, or such other date as may be agreed upon in writing by all parties hereto. 1.4 Collateral Agreements. Any and all agreements, instruments, certificates or documents required or expressly provided for in this Agreement to be executed and delivered in connection with the transaction contemplated by this Agreement, including all exhibits attached hereto or to the Disclosure Schedule. 1.5 Company. DIALYSIS FACILITIES, INC., a Mississippi corporation. 1.6 Contracts. Any and all contracts, agreements (including management agreements, provider agreements, partnership agreements and joint venture agreements), franchises, understandings, arrangements, leases, licenses, registrations, authorizations, easements, servitudes, rights of way, mortgages, bonds, notes, guaranties, liens, indebtedness, approvals, or other instruments or undertaking to which such person is a party or to which or by which such person or the property of such person is subject or bound, excluding any Permits. 1.7 Damages. Any and all damages, liabilities, obligations, penalties, fines, judgments, claims, deficiencies, losses, costs, expenses and assessments, including all attorneys' fees and costs and interest accruing (at the highest annual rate permitted by law) on such Damages. 1.8 Disclosure Schedule. The Disclosure Schedule entered into between the parties hereto containing the disclosures, exhibits and schedules required pursuant to the terms of this Agreement. 1.9 Financial Statements. The Company's unaudited financial statements consisting of a balance sheet as of November 30, 1995 and statements of income, cash flow and stockholders' equity for the eleven (11) months ended November 30, 1995 and the notes to the financial statements thereto, all as attached to the Disclosure Schedule as Exhibit "A" thereto. 1.10 Governmental Authority. Any nation, country (including, but not limited to the United States of America) commonwealth, state, territory or possession thereof and any political subdivision of any of the foregoing, including, but not limited to courts, departments, commissions, boards, bureaus, agencies, ministries or other instrumentalities. 1.11 Hazardous Materials. Any and all elements or compounds which are contained in a list of hazardous substances by the United States Environmental Protection Agency ("EPA") and the list of toxic pollutants designated by the United States Congress or the EPA or defined by any other Federal, state or local statute, law, ordinance, code rule, regulation order or degree regulating, relating to or imposing liability or standards of conduct concerning any hazardous, medical, toxic or dangerous waste, substance or material as now or at any time in effect. 1.12 Intangible Rights. Any and all information, trade secrets, patents, copyrights, trademarks, tradenames and other intangible properties that are necessary or customarily used by the Company in the operation of its Business. 1.13 Permits. Any and all permits, certificates of need, licenses, agencies, orders or contracts granted by any Governmental Authority necessary or used in the operation of the Business as presently conducted. - 2 - 7 1.14 Shareholders. C. DAVID FINCH, JR., M.D., CHARLES D. FINCH, SR., and JEFFERY C. FINCH. 1.15 Sub. RENEX ACQUISITION CORP., a Mississippi corporation ARTICLE II. MERGER 2.1 The Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 2.2 herein) Sub shall be merged with and into the Company, with the Company to continue as the surviving corporation on the Merger on the terms set forth herein (the "Surviving Corporation"), and the separate existence of Sub shall thereupon cease. Alternatively, the Company shall be merged with and into Sub, with the separate existence of the Company ceasing at the Effective Time, if Parent, in it sole judgment and discretion, deems such structure desirable and appropriate. In such event, all corresponding changes shall be deemed to have been made to this Agreement to reflect such structure. From and after the Effective Time, the Surviving Corporation shall be a wholly-owned subsidiary of Parent. The Merger shall have the effects set forth in Section 79-4-11.06 of the Mississippi Business Corporation Act. 2.2 Effective Time of Merger. The Merger shall become effective when a properly executed Articles of Merger is duly filed with the Secretary of State of the State of Mississippi (or such later date as is specified in the Articles of Merger) in accordance with Section 79-4-11.05 of the Mississippi Business Corporation Act, which filing shall be made as soon as practicable after the Closing Date. When used in this Agreement, the term "Effective Time" shall mean the date and time at which such Articles of Merger is so filed or such later date and/or time as is agreed upon by the parties and specified in the Articles of Merger. ARTICLE III. THE SURVIVING CORPORATION 3.1 Certificate of Incorporation. The Articles of Incorporation of the Company as in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation; provided however, that the Articles of Incorporation shall be amended at or after the Effective Time such that the name of the Surviving Corporation shall be "Renex Dialysis Facilities, Inc." 3.2 Bylaws. The By-Laws of Sub as in effect immediately prior to the Effective Time shall be the By-Laws of the Surviving Corporation. 3.3 Directors and Officers of Surviving Corporation. (a) The Directors of Sub immediately prior to the Effective Time, James P. Shea and Jerry McNeill, shall be the initial directors of the Surviving Corporation and shall hold office from the Effective Time until their respective successors are duly elected or appointed and qualify in the manner provided in the Articles of Incorporation and By-Laws of the Surviving Corporation, or as otherwise provided by law. (b) The officers of Sub immediately prior to the Effective Time, James P. Shea, President, Orestes Lugo, Vice President-Finance and Jerry McNeill, Vice President-Operations/Secretary, together with Jeffery C. Finch as Vice President, shall be the initial officers of the Surviving Corporation, shall hold office at the discretion of the Board of Directors of the Surviving Corporation and may be removed or replaced in accordance with and in the manner as provided in the By-Laws of the Surviving Corporation. - 3 - 8 ARTICLE IV. CONVERSION OF SHARES; CLOSING 4.1 Exchange Ratio. At the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof: (a) Each share of the two thousand (2,000) shares of common stock, no par value per share of the Company (the "Company Shares") issued and outstanding immediately prior to the Effective Time shall be converted into the right to receive 565.2845 shares of common stock, par value $.001 per share of Parent ("Renex Shares") ("Exchange Ratio") payable upon the surrender of the certificates formerly representing such Company Shares at the Closing. Certificates representing Company Shares shall be exchanged for certificates representing Renex Shares issued in consideration therefore in accordance with the provisions herein. If prior to the Effective Time, Parent should split or combine the Renex Shares, or pay a stock dividend or other stock distribution of Renex Shares, then the Exchange Ratio will be appropriately adjusted to reflect such split, combination, distribution or dividend. (b) Each Company Share held in the treasury of the Company immediately prior to the Effective Time shall be cancelled, retired and shall cease to exist, and no Renex Shares shall be issued in exchange therefore. (c) Each share of common stock, par value $1.00 per share of Sub issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and exchangeable for one Company Share of the Surviving Corporation. 4.2 Exchange of Shares. At the Closing, Parent shall make available, and each holder of Company Shares will be entitled to receive upon surrender to the Parent of the certificates representing Company Shares, certificates representing Renex Shares in accordance with the conditions set forth in this Article IV based on the Exchange Ratio. 4.3 Investment Restrictions. The Renex Shares to be issued to the Shareholders, shall be "Restricted Securities" as that term is defined pursuant to the Securities Act of 1933, as amended, (the "1933 Act") and the rules and regulations promulgated thereunder. Shareholders represent to Parent and Sub that upon receipt of Renex Shares, that the Renex Shares are being acquired for investment purposes only and not with a view to the distribution thereof, except as may be permitted by the 1933 Act. The certificates representing Renex Shares shall contain a restrictive legend to the effect that the Renex Shares have not been registered pursuant to the 1933 Act or any state having jurisdiction thereof, and may not be sold, transferred or otherwise disposed of, except in compliance with the 1933 Act or unless Parent receives an opinion of counsel satisfactory to it that an exemption is available. A stop transfer order shall be placed on the Renex Shares with Parent's transfer agent. 4.4 Closing. Subject to the terms and conditions of this Agreement, the Closing shall take place at 9:30 a.m. on the Closing Date, or such other date and time as is mutually agreed between the parties. The Closing shall take place at the offices of Wallace, Bauman, Fodiman & Shannon, P.A., 2222 Ponce de Leon Boulevard, Sixth Floor, Coral Gables, Florida 33134. The Closing shall be deemed to have been completed as of 11:59 p.m. on the date immediately prior to Closing Date. - 4 - 9 4.5 Shareholder and Company Performance at Closing. At or prior to the Closing, the Shareholders and the Company shall deliver to Parent and Sub: (a) duly executed certificates from the Shareholders, with duly executed stock powers endorsed in blank, representing 100% of the outstanding Company Shares; (b) a certificate duly executed by the Shareholders and the president of the Company to the effect that to the best of their knowledge: (i) all of the representations and warranties made by the Shareholders and the Company in this Agreement are true and correct in all material respects as of the Closing Date; (ii) none of the covenants made by the Shareholders or the Company in this Agreement have been breached in any material respect as of the Closing Date; (iii) there have been no material adverse changes in the condition of the Company since the date of the Financial Statements, whether financial or otherwise, through the Closing Date; (c) a schedule of liabilities of the Company as of the Closing certified by the Shareholders and the Company as true and correct; (d) all approvals and consents of all appropriate state regulatory agencies, if any, including all consents to the transfer of ownership of the Company as it impacts the Company's health care licenses, including its certificates of need and Medicare and Medicaid licenses and certifications; (e) Executed Articles of Merger as required on Section 2.1 herein; (f) A Medical Director's Employment Agreement executed by C. DAVID FINCH, JR., M.D. substantially in the form attached to the Disclosure Schedule as Exhibit "B", whereby C. DAVID FINCH, JR., M.D. shall agree to be employed by the Surviving Corporation, following the Closing, as its Medical Director; (g) An Escrow Agreement executed by the Shareholders as required pursuant to Section 4.6(a) herein, together with duly executed stock powers in blank, covering the Renex Shares placed in escrow. (h) Non-Competition Agreements executed by the Shareholders as required by Section 9.4 herein. (i) Execution of a waiver by the Company and each Shareholder of the right of first refusal contained in the Company's By-laws. (j) an opinion of counsel in form and substance satisfactory to Parent and Sub and its counsel that to their knowledge and based upon representations of management of the Company: (i) The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Mississippi and is authorized and qualified to do business as a foreign corporation in Louisiana and is in good standing in each jurisdiction - 5 - 10 where the character of its, business, properties or the nature of its activities makes such qualifications necessary; (ii) The Company and the Shareholders have the full power to conduct their business as presently conducted and to execute and deliver this Agreement and to perform its obligations hereunder; (iii) The Company and the shareholders have authorized the execution, delivery and performance of the Agreement by all necessary corporate and shareholder action; (iv) The execution and delivery of the Agreement, performance by the Company of its obligations under the Agreement and the exercise by the Company of the rights created by the Agreement do not (a) violate the Company's Articles of Incorporation or By-laws; (b) constitute a breach of or a default under any agreement or instrument to which the Company or any Shareholders are a party or by which they or their assets are bound, or result in the creation of a mortgage, security interest or other encumbrance upon the assets of the Company (except as set forth in the Agreement); (c) violate any judgment, decree or order of any court or administrative tribunal, which judgment, decree or order is binding on the Company or its assets; or (d) violate any Federal or state law, rule or regulation; (v) Except as may be disclosed in the Disclosure Schedule, no notice, report or other filing or registration with, and no consent, approval or authorization of, any Federal, state or local governmental authority is required to be submitted, made or obtained by the Company in connection with the execution, delivery and performance of the Agreement, which, if not obtained, could have a materially adverse impact on the transaction contemplated by the Agreement; (vi) The Agreement and each Collateral Agreement executed in connection herewith, is a valid and binding obligation of the Company and each Shareholder enforceable against the Company and each Shareholder under the laws of the State of Mississippi and the Federal law of the United States; (vii) Except as set forth in the Disclosure Schedule, counsel has no knowledge of any pending or threatened actions, claims, investigations or other proceedings against the Company which would have a materially adverse effect on the Company's business; (viii) Except as described in the Disclosure Schedule and Financial Statements, on the Closing Date, the Company has good and marketable title to all of its assets free and clear of all liens, mortgages, pledges, conditional sales agreements, security interests, restrictions, judgments, options, charges, claims or encumbrances of any kind; (ix) The instruments of conveyance and assignment delivered by Shareholders to Parent and Sub in accordance with their terms have vested in Parent all right, title, and interest to 100% of the capital stock of the Company; (x) All Leases (as hereinafter defined) and Contracts described in the Disclosure Schedule are valid and subsisting and no default exists thereunder; (xi) There are no pending or threatened legal proceedings against Shareholders or the Company which would have a material adverse impact on their assets or the Business or otherwise prevent consummation of the transaction contemplated herein; - 6 - 11 (xii) there are no liens, mortgages, encumbrances, charges, or other rights of third parties with respect to the Company's assets except as otherwise disclosed in the Disclosure Schedule hereto; (k) Satisfactory evidence that Parent's designees shall be the only authorized signatories with respect to each of the Company's bank accounts and credit facilities listed in the Disclosure Schedule, or otherwise. (l) Written resignations of all of the directors and officers of the Company; and (m) Such other documents, certifications, instruments or Collateral Agreements as may be reasonably required by counsel to Parent and Sub. 4.6 Parent and Sub Performance at Closing. At or prior to the Closing, Parent and Sub shall deliver or cause to be delivered to Shareholders the following: (a) Certificates of Renex Shares duly issued in the names of each Shareholder in accordance with the Exchange Ratio, except that an aggregate of 113,000 Renex Shares, divided proportionately among the Shareholders, shall be issued in the name of such Shareholders, but delivered to Wallace, Bauman, Fodiman & Shannon, P.A. (the "Escrow Agent") to be held in escrow pursuant to that certain Escrow Agreement attached to the Disclosure Schedule as Exhibit "C" (the "Escrow Agreement"); (b) a certificate executed by an officer of Parent and Sub to the effect that all of the representations and warranties made by Parent and Sub in this Agreement are true and correct as of the Closing Date; (c) written evidence that Parent's and Sub's boards of directors approved consummation of the transaction; and (d) an opinion of counsel in form and substance satisfactory to the Company and the Shareholders that: (i) the representations and warranties of Parent and Sub contained in Article VI are correct as of the Closing Date; and (ii) this Agreement and each Collateral Agreement executed in connection therewith, is valid and enforceable against Parent and Sub in accordance with its terms; 4.7 Right of Set-Off. The Renex Shares held in escrow by the Escrow Agent will be subject to a right of set-off in the event the Shareholders are required to provide indemnifica tion pursuant to Section 9.3 of this Agreement. The terms and conditions of the escrow and the right of set-off, are more particularly described in the Escrow Agreement. 4.8 Termination in Absence of Closing. (a) If by the close of business on the Closing Date, the Closing has not occurred, then any party may thereafter terminate this Agreement by written notice to the other parties hereto, without liability of or to any other party to this Agreement, unless the reason for closing having not occurred is (i) such party's breach of any of its obligations, representations, - 7 - 12 warranties or covenants or other provisions of this Agreement; or (ii) the failure of such party to perform its obligations hereunder. (b) This Agreement and the transaction contemplated herein may be terminated and abandoned at any time on or prior to the Closing Date by either party if: (i) any representation or warranty made herein for the benefit of such party or any certificate, schedule or document furnished to such party pursuant to this Agreement is untrue; or (ii) the other party shall have defaulted in any respect in the performance of any obligation under this Agreement; or (iii) a material adverse change has occurred to the other party's financial or business condition. (c) if this Agreement is terminated other than for any reason evidenced in Section 4.8(b) herein, Parent agrees to pay one-half (1/2) of the cost of the audit required pursuant to Section 7.7 herein. ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDERS The Shareholders and the Company represent and warrant to Parent and Sub that, except as set forth in the Disclosure Schedule (which Disclosure Schedule is dated the date hereof and delivered by the Shareholders and the Company to Parent and Sub and deemed a part hereof by this reference), to the best of their knowledge that the representations and warranties contained in Article V are true and correct as of the date hereof and as of the Closing Date: 5.1 Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Mississippi. The Company has the corporate power to carry on its business as it is now being conducted or presently proposed to be conducted and has the power to own, manage, lease and hold its assets where such assets are located. The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the character and location of the properties owned by it or the nature of the business transacted by it makes such qualification necessary. The Company is qualified to do business in each of the states as set forth in the Disclosure Schedule. 5.2 Capitalization. The Company is authorized to issue ten thousand (10,000) Company Shares, no par value, of which two thousand (2,000) Company Shares are issued and outstanding in the names of Shareholders as provided in the Disclosure Schedule. There is no other capital stock authorized by the Company. All Company Shares outstanding are validly issued, fully paid and non-assessable. There are no stockholder agreements, voting trust agreement or any other agreements restricting the transfer of the Company Shares. The Company has not authorized, and there is not outstanding at the date hereof, any preferred stock, options, warrants, calls, puts, convertible securities or other agreements or commitments obligating the Company to issue, or sell shares of its capital stock or other rights to purchase capital stock of the Company. All of the Shareholders' Company Shares are owned free and clear of any and all encumbrances, liens, claims, security agreements, pledges or other restrictions. None of the Company Shares were issued in violation of, or subject to, (i) any - 8 - 13 preemptive rights of any person to acquire securities of the Company or (ii) any Federal or state securities laws. 5.3 Corporate Documents. The Articles of Incorporation and Bylaws of the Company attached as Exhibits "D" and "E" to the Disclosure Schedule are true and correct as of the Closing Date. The stock and minute books of the Company that have been made available to Parent for review contain a complete and accurate record of all shareholders of the Company and all actions of the shareholders and directors (and any committees thereof) of the Company. 5.4 Subsidiaries. The Company does not have any subsidiaries or any interest or investment, direct or indirect, and has no commitment to purchase any interest or make any investment in, any other corporation, partnership, joint venture or other business enterprise or entity. The Company's Business has not been conducted through any direct or indirect subsidiary or affiliate of the Company or the Shareholders. 5.5 Authority. The Company and each Shareholder have full power and authority to enter into this Agreement, to consummate the transaction contemplated hereby and to carry out their obligations hereunder. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated herein have been duly authorized by the Company's Board of Directors and its Shareholders and no other corporate proceeding on the part of the Company and its Shareholders are necessary to approve this Agreement or the transactions contemplated hereby. This Agreement, and any Collateral Agreement executed in connection with the Closing, constitutes, or upon execution and delivery will constitute, the legal, valid and binding obligations of such parties enforceable in accordance with their respective terms. 5.6 Consents and Approvals. Except for the filing and recordation of the Articles of Merger, the transfer of the Certificates of Need with the State of Mississippi, and as otherwise set forth on the Disclosure Schedule, no filing with and no Permit, authorization, consent or approval of, any public or Governmental Authority is necessary for the consummation by the Company of the transactions contemplated by this Agreement. 5.7 Financial Statements. The Financial Statements attached to the Disclosure Schedule are correct and complete and present fairly the financial condition of the Company as of the date of such balance sheet and the results of its operations for the periods of such statements of operations and have been prepared on a consistent basis with all prior periods and in accordance with generally accepted accounting principles ("GAAP") except for the omission of substantially all disclosures and the statements of cash flows for such period. Since the date of the Financial Statements, there has been no material adverse change in the assets, liabilities, business, operations or condition, financial or otherwise of the Company from that shown on the Financial Statements. The Company and Shareholders represent that the Financial Statements and books and records can be audited in accordance with GAAP, without extended auditing procedures. 5.8 Title to Assets. Except as provided in the Disclosure Schedule, the Company has good, marketable and insurable title to its assets, including all assets listed on the Financial Statements, free and clear of any and all liens, mortgages, pledges, conditional sales assignments, security interests, judgments, options, adverse claims, encumbrances or other restrictions or limitations whatsoever. The Company's present assets represent all of the assets necessary to operate the Business in the same manner as operated prior to the date hereof, and for the balance of their estimated useful lives, will be suitable and sufficient for the conduct of the Business in the same manner as presently conducted. - 9 - 14 5.9 Liabilities. As of the date hereof, the Company had no liabilities, fixed or contingent, which are not fully shown or provided for in the Financial Statements or as listed in the Disclosure Schedule. The Company shall provide a list of all liabilities of the Company as of the Closing Date which shall be certified as true and correct by the Company and each Shareholder and shall be incorporated herein. All of such liabilities were incurred in the ordinary course of business. 5.10 Obligations to Affiliates. Except as described in the Disclosure Schedule, the Company does not owe any amount to, have any contract with, or commitment to, any of its Shareholders, directors, officers, employees, consultants or affiliates, or any of the foregoing, and none of such persons owe any amounts to the Company. 5.11 Real Property. The Company does not own any real property other than as identified on the Disclosure Schedule (the "Real Property"). The Disclosure Schedule identifies each lease (the "Leases") devising to the Company all leasehold interests in all Real Property entered into by the Company (the "Leased Property"). Each Lease so listed is valid, subsisting and fully enforceable in accordance with its terms, and there exists no default thereunder by either the lessee or lessor thereof. The Company has not received any notice, and has no knowledge, of any defaults by the Company under any lease. The Real and Leased Properties are free and clear of any and all liens, mortgages and restrictions as a condition to transfer or assignment. No person other than the Company is in actual possession of any of such Leased Property. The Real and Leased Properties are not subject to any pending or threatened special assessments or threatened condemnation or eminent domain proceedings. 5.12 Employee Benefits Plans. (a) Attached to the Disclosure Schedule is a description of all employee benefit plans sponsored, maintained, or contributed to, by the Company for the benefit of the Company's employees or has been sponsored, maintained or contributed to anytime during the Company's existence, including the following plans: (i) each employee benefit plan as such term is defined in Section 3(3) of the Employment Retirement Income Security Act of 1974 ("ERISA"), including but not limited to employee benefit plans which are not subject to the provisions of ERISA (collectively referred to as "Plans"); (ii) each personnel policy, stock option plan, collective bargaining agreement, bonus plan or arrangement, incentive award plan or arrangement, vacation policy, severance pay policy or agreement, deferred compensation agreement or arrangement and each other employee benefit plan, agreement, arrangement, program, practice or understanding which is not described in Section 5.12(a) above ("Benefit Programs") (b) True, correct and complete copies of each of the Plans, related trusts and Benefit Programs, including all amendments thereto, have been furnished to Parent. (c) there has been furnished to Parent and Sub, with respect to all Plans or Benefit Programs required to comply with ERISA, all reports and summary plan descriptions. Except as otherwise set forth in the Disclosure Schedule: (i) the Company does not contribute to or have any obligation to contribute to, and has not at any time contributed to or had an obligation to contribute to, a multi-employer plan within the meaning of Section 3(37) of ERISA ("Multi-Employer Plan") or a multiple - 10 - 15 employer plan within the meaning of Section 413(b) and (c) of the Internal Revenue Code of 1986, as amended (the "Code"); (ii) the Company has performed all obligations whether arising by operation of law or by contract required to be performed by it in connection with the Plans and Benefit Programs and there have been no defaults or violations by any other party to the Plans or Benefit Programs. (iii) all reports and disclosures relating to the Plans required to be filed with or furnished to governmental agencies, Plan participants or Plan beneficiaries have been filed or furnished in accordance with applicable law in a timely manner and each Plan and each Benefit Program has been administered in compliance with its governing documents; (iv) each of the Plans intended to be qualified under Section 401 of the Code satisfies the requirements of the Code and has received a favorable determination letter from the Internal Revenue Service regarding such status and has not, since receipt of the most recent favorable determination letters, been amended or operated in a way which could adversely affect such qualified status; (v) there are no actions, suits, or claims pending (other than routine claims for benefits) or threatened against or with respect to, any of the Plans, Benefit Programs or their respective assets; (vi) all contributions required to be made to the Plans and Benefit Programs pursuant to their respective terms and provisions and applicable law have been timely made; (vii) as to any Plan subject to ERISA, no event or condition which presents a risk of Plan termination or accumulated funding deficiency within the meaning of Section 302 of ERISA or Section 412 of the Code has occurred. No reportable event within the meaning of Section 4043 of ERISA has occurred, no notice of intent to terminate the Plans has been given, no proceeding to terminate the Plan has been instituted, there has been no termination of the Plan and no liability to the Pension Benefit Guaranty Corporation has been incurred; (viii) none of the Plans or their trustees has engaged in any prohibited transactions or party in intent transactions as such terms are defined in Section 4975 of the Code and Section 406 of ERISA; (ix) there is no matter pending with respect to any Plan or Benefit Program before the Internal Revenue Service, the U.S. Department of Labor, or the Pension Benefit Guaranty Corporation; (d) Except as otherwise set forth on the Disclosure Schedule, neither the execution or delivery of this Agreement or the consummation of the transactions contemplated hereby will: (i) entitle any current or former employee of the Company to severance pay, unemployment compensation or any similar payment; (ii) accelerate the time of payment or vesting or cause any increase in the amount of any compensation due to any such employee or former employee; or - 11 - 16 (iii) directly or indirectly result in any payment made to or on behalf of any person to constitute a parachute payment within the meaning of Section 2805 of the Code. 5.13 Labor and Employment Matters. (a) The Company is presently, and has at all times been, in compliance with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation the following: The Fair Labor Standards Act ("FLSA"), the Immigration and Control Act ("IRCA"), the Workers Adjustment and Retraining Notification Act ("WARN"), the Americans with Disabilities Act ("ADA") and such laws respecting employment discrimination, equal opportunity, affirmative action, workers compensation, occupational safety and health requirements and unemployment insurance and related matters. (b) No investigation or review by, or before, any Governmental Authority is pending, nor is any investigation threatened, or has any investigation occurred during the last three (3) years and no Governmental Authority has provided any notice to the Company or any Shareholder asserting an intention to conduct any such investigation. (c) The Company does not have any (i) controversies between it and its employees, (ii) unresolved labor liens, grievances or organization efforts; or (iii) unfair labor practices or labor arbitration proceedings pending or threatened. (d) Except as described in the Disclosure Schedule, the Company is not a party to any agreement and has not established any policy or practice requiring the Company to make a payment or provide any other form of compensation or benefit to any person including any officer, director or Shareholder performing services for the Company upon termination of such services. (e) The Disclosure Schedule sets forth, by number and employment classification, the approximate number of employees of the Company as of the date hereof. None of such employees are subject to collective bargaining agreements with the Company. The Company has not at any time had, or been threatened with, any work stoppages or other labor disputes or controversies with respect to its employees. 5.14 Personal Property. The Disclosure Schedule contains a list of all personal property owned or leased by the Company. All assets and properties reflected in the Disclosure Schedule or the Financial Statements or acquired after such date, other than such assets and properties sold or otherwise disposed of in the ordinary course of Business subsequent to such date, and all of such equipment and other assets and properties are owned free and clear of all liens, mortgages, pledges, claims and encumbrances. 5.15 Insurance. The Disclosure Schedule contains a list of all policies of insurance owned by the Company, and the amounts of such coverage of each policy, all premiums on such policies or renewals thereof having been paid. All policies of insurance insuring the Company or its business, assets, employees, officers and directors are in full force and effect. The Company has previously delivered copies of all such insurance policies and proof of payment of such premiums to Parent. There are no material claims by the Company under any such policy as to which any insurance company is denying liability or defending under a reservation of rights. 5.16 Contracts and Commitments. Except as set forth on the Disclosure Schedule, the Company is not a party to, or bound or affected by any contract, lease, agreement, covenant, license, instrument or commitment (whether written or oral) of any type, including the following: - 12 - 17 (a) contracts for the employment or compensation of any officer or individual employee, not terminable without further liability at any time: (b) contracts with any labor union; (c) continuing contracts for the future purchase of materials, supplies or equipment, at a cost of $1,000 or more, or to be delivered more than thirty (30) days after the date hereof; (d) continuing contracts for the future provision of its services; (e) distribution or agency contracts, franchise contracts, or advertising commitments, which cannot be terminated without further liability to the Company upon no more than thirty (30) days' notice; (f) pension, profit sharing, deferred compensation, retirement or stock option or stock purchase plans in effect with respect to officers, employees or others; (g) leases under which it is lessor or lessee; (h) underwriting agreements or agreements with a broker or finder; (i) consulting agreements; (j) contracts for the acquisition of a business, or substantially all of the property, assets, or stock of a business under which there are any continuing or unperformed obligations on the part of any of the parties thereto; or (k) Any other contract, agreement, or commitment involving $1,000 or more or which is not terminable without further liability to the Company upon no more than thirty (30) days' notice. There have been delivered to Parent true and correct copies of each of the Contracts listed in the Disclosure Schedule. All Contracts are valid, binding and in full force and effect and are enforceable in accordance with their terms against all other parties to such Contracts. The Company has performed all obligations required to be performed by it to date and is not in default in any material respect under any Contract to which it is a party. None of the Contracts were arrived at, or otherwise reflect, less than arms length negotiations or bargaining. 5.17 Contracts with Physicians, Hospitals, HMO's and Third Party Payors. The Disclosure Schedule contains a list of all outstanding contracts, partnerships, joint ventures and other arrangements or understandings (written or oral) between the Company and any physicians, hospital, HMO, other managed care organization or other third party payor related to the provision of medical or other services, treatments, patients, referrals or similar activities. 5.18 Inspection of Records. The Company and Shareholders have made, or will make, available for inspection by Parent and Sub full and complete information concerning the Company's patients, suppliers, vendors and all aspects of the Company's business, including complete copies of any customer, vendor, or supplier contracts. 5.19 Inventories. The inventory of the Company as of the Closing Date shall, in all material respects, consist of items of a quality, condition and quantity consistent with normal inventory levels of the Company and be useable and saleable in the ordinary and usual course - 13 - 18 of business for the purposes for which intended. Such inventory is carried on the Company's books of account in accordance with GAAP consistently applied. 5.20 Equipment and Other Tangible Property. The Company's equipment, furniture, machinery, vehicles, structures, fixtures and other tangible property included in the Financial Statements or as listed in the Disclosure Schedule shall, as of the Closing Date, be in all material respects suitable for the purposes for which intended and in good operating condition and repair consistent with normal industry standards, except for reasonable and ordinary wear and tear. 5.21 Permits. The Company has all material Permits necessary to construct, own, operate, use and/or maintain its assets and the Business in all locations where the Company conducts such business. Such Permits are valid and subsisting and all fees required to be paid thereon have been paid. No proceeding is pending or threatened to modify, suspend, revoke, withdraw, terminate or otherwise limit any Permit which could adversely affect the ability of the Company to own, operate, use or conduct the Business currently operated. 5.22 Intangible Rights. The Company owns or has the right to use all of the Intangible Rights listed on the Disclosure Schedule. The conduct of the Business does not infringe or conflict with, and has not in the past infringed or conflicted with, and the Company is not in receipt of any notice or complaint of conflict with or infringement of, the asserted rights of others in any Intangible Rights of others. 5.23 Litigation. Except as listed on the Disclosure Schedule: (a) There is no action, suit, judicial or administrative proceeding (whether or not on behalf of the Company), arbitration or investigation pending or threatened against or affecting or involving the Company, the Shareholders or their properties or which involve the possibility of any judgment or liability before any court, arbitrator or other Governmental Authority; (b) There is no judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against the Company or any Shareholders. The Company is not in default with respect to any order, writ, injunction or decree of any court or Governmental Authority. The Company is in compliance in all material respects with all laws, rules, regulations and orders materially applicable to its Business. 5.24 Compliance with Laws. (a) The Company is and has been in compliance in all respects with any and all laws, regulations, ordinances, rules, orders or decrees applicable to the Company. The Company has not received or entered into any citation, complaints, consent order, compliance schedules or other similar enforcement order or received written notice from any Governmental Authority that would indicate that the Company is not currently in compliance with all such laws, regulations, ordinances, rules, orders or decrees. (b) Neither the Company or any Shareholder has directly or indirectly paid or delivered any fees, commission or any money or property, however characterized, to any physician or any other party for the referral of patients to the Company or its Business or any business or operation of the Company or the Shareholders. 5.25 Absence of Material Changes. From the date of the Financial Statements to the date hereof, the Company has not: - 14 - 19 (a) issued any capital stock or other corporate securities or granted any option to any person for the acquisition of any capital stock or other corporate securities; (b) incurred any obligations or liabilities (absolute or contingent) except current liabilities incurred, and obligations under contracts entered into, in the ordinary course of business; (c) discharged or satisfied any lien or encumbrance or paid any obligation or liability (absolute or contingent) other than obligations or liabilities referred to in (b) above; (d) declared or made any payment or distribution to shareholders, or purchased or redeemed any shares of its capital stock; (e) mortgaged, pledged, or subjected to any lien, charge, or other encumbrance, any of its assets, tangible or intangible, other than liens for taxes not yet due or which are being contested in good faith by appropriate proceedings; (f) sold or transferred any of its tangible assets or canceled any debts or claims, except in each case in the ordinary course of business; (g) sold, assigned, or transferred any Intangible Rights; (h) suffered any material operating or extraordinary loss or waived any right of substantial value; (i) made any loan to, borrowed money from, or entered into any contract or understanding with, any employee, officer, director or Shareholder of the Company; (j) made any payment or contracted for payment of any bonus, gratuity, or other compensation to employees other than wages and salaries in effect as of the date of the Financial Statements, except wage and salary adjustments made in the ordinary course of business for employees who are not officers or directors of the Company; (k) had any union or labor difficulties or work stoppage; (l) entered into any transaction other than in the ordinary course of business (as defined in Section 7.1 herein); (m) entered into any leases of real or personal property; or (n) received any notice of termination of any contract, lease or other agreement which in the aggregate would have a material adverse affect on the Company. (o) entered into any contracts for which the Company will incur a loss from the provision of services. 5.26 Banking Information. The Disclosure Schedule contains a list of all bank accounts and credit facilities and authorized signatories on bank accounts and credit facilities of the Company. No other persons, other than as listed on the Disclosure Schedule, are authorized to withdraw any funds on the bank accounts or to draw down on such credit facilities. 5.27 Tax Returns. The Company has duly filed, or duly received extensions for the filing, of all federal, state, local or foreign tax returns required to have been filed by it and have - 15 - 20 paid the tax shown to be due on any such returns filed and no waivers or extension of the statutory period of limitation within which assessments may be made have been granted with respect to any such tax return. For the purpose of this Agreement, the term "tax" (including "taxes" and "taxable") shall include all federal, state, local and foreign income, profit, franchise, gross receipts, payroll, sales, employment, use, property, withholding, excise and other taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such matters. Such tax returns are accurate and complete in all material respects. No federal, state or local tax returns of the Company have ever been examined by the Internal Revenue Service or any other Governmental Authority. The Company is not a party to any action or proceeding by any governmental authority for assessment or collection of taxes nor have any claims for assessment and collection been asserted against the Company. The reserves made for taxes, governmental charges and duties on the Company's balance sheet are sufficient in all material respects for the payment of all unpaid taxes, governmental charges and duties payable by the Company, attributable to all periods on or before the date of the Company's balance sheet and there is no basis or claim for any penalties or interest through the Closing Date. The Company shall (i) make adequate provision on its books for all taxes accruable and (ii) timely remit all withholding, 1099's, 1120's, employment, sales, ad valorem, personal property and estimated income taxes due and payable to date and which becomes due prior to, or on, the Closing Date. The Company has made available to Parent copies of all the Company's federal, state and local tax returns. 5.28 Accounts Receivable. The accounts receivable and other receivables shown on the Financial Statements or thereafter acquired prior to the Closing Date hereof, have been collected or are collectible in amounts not less in the aggregate than the net book amount thereof. All such accounts receivable arose from bona fide transactions in the ordinary course of business and the goods and services involved have been sold, delivered and performed for the Company's patients. No further goods are required to be provided and no services are required to be rendered in order to complete the sales and to entitle the Company to collect the account receivables. None of the accounts receivable are subject to set-off or counterclaim. Since the date of the Financial Statements, there has been no significant reduction in the accounts receivable and other receivables of the Company. The Company's accounts receivable as of the date herein are listed on the Disclosure Schedule. 5.29 Medicare Matters. The Company is receiving payments under Titles XVIII and XIX of the Social Security Act and the Medicaid programs in each state in which it conducts business. There is no pending or threatened termination of such status. The Company and Shareholders have no knowledge of and have not received any notice of any claims, actions, payment reviews or appeals pending or threatened before any commission, board or agency, including without limitation, any intermediary or carrier or the Administrator of the Health Care Financing Administration with respect to any Medicare and Medicaid claims filed by or on behalf of the Company, or program compliance matters, which if adversely determined would have a material adverse effect on the Company or its Business. The Company and Shareholders have no knowledge of, and has not received any notice of, any validation review or program integrity review or investigation or review with respect to false claims, fraud and abuse or other violations of federal or state laws, rules and regulations respecting the Medicare and Medicaid programs or the delivery of payment for health care services, by any commission, board or agency in connection with the Medicare and Medicaid programs, including the Health Care Financing Administration, the U.S. Department of Justice or the HHS Office of Inspector General and no such reviews are scheduled, pending or threatened against the Company. All of the Company's Medicare and Medicare billings and collections thereof are in all respects appropriate and in compliance with all applicable federal and state laws, rules, regulations and orders and there are no denials, past payment denials or recoupments pending or threatened with respect to the - 16 - 21 billings and collections. The Medicare and Medicaid accounts receivables reflected on the Company's books and records are valid claims in the full amounts so reflected. 5.30 Compliance with Instruments. The consummation of the transaction contemplated by this Agreement will not result in a breach or violation of any of the terms, provisions or conditions of, or constitute a default under, or result in the creation of any lien, charge or encumbrance on any property or assets of the Company pursuant to its Articles of Incorporation, all amendments thereto, By-Laws, any provision of law, judgment, decree, indenture, agreement or instrument to which the Company is a party or by which it is bound. 5.31 Brokers' Commissions. Neither the Company or any Shareholder have entered into any agreement or understanding with any person, firm or entity or have become indirectly a party to any agreement for the payment or any commission, finders or brokerage fee in connection with this Agreement and the transaction contemplated hereof. The Company and the Shareholders hereby agree to indemnify and hold harmless the Parent and Sub from any claims for a commission, finder's or broker's fee. 5.32 Books and Records. The books of account and other records of the Company are materially complete and correct and in the aggregate present and reflect all of the transactions entered into by it or to which it is a party. The Company and the Shareholders have no knowledge of any condition whether pending or threatened which would have a material adverse effect upon the Business of the Company or prevent such Business from being carried on in substantially the same manner in which it is presently carried on. 5.33 Accuracy of Information. All information provided to Parent and Sub by the Company and Shareholders as an inducement to Parent and Sub to enter into this Agreement or in compliance with the provisions of this Agreement are accurate and complete and do not contain any untrue statement of a material fact or omit any material fact necessary to make the information provided not misleading. 5.34 Environmental Regulations. The Business and the Company are in compliance with all applicable federal, state and local laws and regulations governing the environment, public health and safety and employee health and safety (including all provisions of the Occupational Safety and Health Act) and no charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand or notice has been filed or commenced against the Company or the Shareholders alleging any failure to comply with any such law or regulation. Neither the Company or any of its affiliates, agents or licensees has engaged in the storage, release, holding, emission, discharge, generation, processing, disposition, handling or transportation of any substance or material designated as a Hazardous Material in violation of any federal, state or local law, ordinance or regulation. There are no Hazardous Materials at, on or in any of the Company's properties in violation of any federal, state or local laws, ordinances or regulations and there is no proceeding or inquiry pending or threatened by any federal, state or local governmental agency with respect thereto. 5.35 Accounting Matters. Neither the Company, nor any Shareholder nor any of their affiliates, have taken, or agreed to take, any action that would hinder or prevent Parent from accounting for the Merger as a "pooling of interest." - 17 - 22 ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub represents and warrants that: 6.1 Parent Organization. Parent is duly organized and validly existing as a corporation in good standing under the laws of the State of Florida and has full corporate power to carry on its business as now conducted and is entitled to own or lease its properties and to carry on its business as now conducted in the places where such properties are now leased, owned or operated or such business is now conducted. 6.2 Sub Organization. Sub is duly organized and validly existing as a corporation in good standing under the laws of the State of Mississippi and has full corporate power to carry on its business as now conducted and is entitled to own or lease its properties and to carry on its business as now conducted in the places where such properties are now leased, owned or operated or such business is now conducted. 6.3 Parent Capitalization. Parent is authorized to issue 30,000,000 shares of capital stock, consisting of 25,000,000 Renex Shares and 5,000,000 shares of preferred stock $.01 par value. As of November 30, 1995, Parent has 5,946,500 Renex Shares and 1,000,000 shares of Series A Preferred Stock outstanding, all of which are validly issued, fully paid and nonassessable. Each share of Series A Preferred Stock is convertible under certain circumstances, into two (2) shares of Common Stock. In addition, as of November 30, 1995 the Company has outstanding common stock purchase warrants entitling the holders to purchase an aggregate of 738,500 Renex Shares for an exercise price of $3.00 per share and common stock purchase warrants entitling the holder to purchase an aggregate of 633,029 Renex Shares for an exercise price of $2.00 per share. The Company has a Directors Stock Option Plan ("Directors Plan") and an Employee Stock Option Plan ("Employee Plan"). The Directors and Employee Plan each have 500,000 Renex Shares available for issuance upon grants of options. As of the date of this Agreement, there were outstanding options to purchase 35,000 Renex Shares under the Directors Plan, options to purchase 271,000 Renex Shares under the Employee Plan and options to purchase 110,000 Renex Shares not granted under any plan. 6.4 Sub Capitalization. Sub is authorized to issue 1,000 shares of common stock par value $1.00 per share, of which 100 shares of common stock are validly issued and outstanding, fully paid and non-assessable. All such shares of common stock are owned by Parent. 6.5 Authority. Parent and Sub have full power and authority to enter into this Agreement and the consummation of the transaction contemplated by this Agreement will not result in any breach of any of the terms, provisions, or conditions of, or constitute a default under, or result in the creation of, any lien, charge, or encumbrance of any property or assets of Parent and Sub pursuant to their respective Articles of Incorporation, By-Laws or any indenture, agreement, instrument, order, judgment, or decree to which they are parties or by which they are bound. 6.6 Litigation. (a) There is no action, suit, judicial or administrative proceeding (whether or not on behalf of the Parent or Sub), arbitration or investigation pending or threatened against or affecting or involving the Parent, Sub, or their properties or which involve the possibility of any judgment or liability before any court, arbitrator or other Governmental Authority; - 18 - 23 (b) There is no judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against the Parent or Sub. Parent and Sub are not in default with respect to any order, writ, injunction or decree of any court or Governmental Authority. Parent and Sub are in compliance in all material respects with all laws, rules, regulations and orders materially applicable to its Business. 6.7 Medicare Matters. Parent is receiving payments under Titles XVIII and XIX of the Social Security Act and the Medicaid programs in each state in which it conducts business. There is no pending or threatened termination of such status. Parent has no knowledge of and has not received any notice of any claims, actions, payment reviews or appeals pending or threatened before any commission, board or agency, including without limitation, any intermediary or carrier or the Administrator of the Health Care Financing Administration with respect to any Medicare and Medicaid claims filed by or on behalf of Parent, or program compliance matters, which if adversely determined have a material adverse effect on Parent or its business. Parent has no knowledge of, and has not received any notice of, any validation review or program integrity review or investigation or review with respect to false claims, fraud and abuse or other violations of federal or state laws, rules and regulations respecting the Medicare and Medicaid programs or the delivery of payment for health care services, by any commission, board or agency in connection with the Medicare and Medicaid programs, including the Health Care Financing Administration, the U.S. Department of Justice or the HHS Office of Inspector General and no such reviews are scheduled, pending or threatened against Parent. All of Parent's Medicare and Medicaid billings and collections thereof are in all respects appropriate and in compliance with all applicable federal and state laws, rules, regulations and orders and there are no denials, past payment denials or recoupments pending or threatened with respect to the billings and collections. The Medicare and Medicaid accounts receivables reflected on Parent's books and records are valid claims in the full amounts so reflected. 6.8 Brokers' Commissions. Except for a finder's fee payable to Thomas Carter, neither the Parent or Sub have entered into any agreement or understanding with any person, firm or entity or have become indirectly a party to any agreement for the payment or any commission, finders or brokerage fee in connection with this Agreement and the transaction contemplated hereof. Parent hereby agrees to indemnify and hold harmless the Shareholders from any claims for a commission, finder's or broker's fee resulting from any agreement by Parent. ARTICLE VII. OBLIGATIONS PRIOR TO CLOSING 7.1 Operation of Business. The Company and Shareholders agree that, from the date hereof to the Closing Date, the Company shall conduct its Business and affairs only in the ordinary course. For the purpose of this Agreement, the phrases "the ordinary course" and "the ordinary course of business" shall mean the conduct and operation of the Business of the Company only in the manner in which it conducted and operated such Business during the period represented by the Financial Statements, its usual and ordinary accounting practices, making ordinary accruals, incurring ordinary liabilities and expenditures, and making ordinary commitments for merchandise, insurance, rentals, and other ordinary Business purposes. 7.2 Access to Books and Records. From and after the date hereof, the Company shall (a) afford to the officers, employees and representatives of Parent and Sub full and free access to its assets, personnel, properties, records and books of account at all reasonable times during business hours, (b) to furnish to such officers, employees and representatives such other information as Parent and Sub may reasonably request, and (c) to authorize its accountants and auditors to permit Parent's independent public accountants and representatives to examine - 19 - 24 records pertaining to the Company's Financial Statements and other books and records of the Company. Parent and Sub agree to treat all such material as confidential and not make use of such materials except for the purposes expressed in this Agreement unless such use comes into the public domain. 7.3 Negative Covenants. The Company and Shareholders covenant that from and after the date hereof and through the Closing Date, without the prior written consent of Parent, the Company will not: (a) enter into any material written or oral contract, agreement, or commitment of any type, including the following, (i) contracts for the employment or compensation of any officer, director, or individual employee; (ii) contracts with any labor union; (iii) continuing contracts for the future purchase of inventory, materials, supplies, or equipment at a cost of $5,000 or more; (iv) continuing contracts for future services; (v) distribution or agency contracts, franchise contracts, or advertising commitments; (vi) pension, profit sharing, deferred compensation retirement, stock option, stock purchase plans, group health insurance, or similar plans with respect to officers, directors, employees, or others; (vii) leases under which the Company is a lessor or lessee; (viii) underwriting agreements or agreements with a broker or finder; (ix) consulting agreements; (x) contracts for the acquisition of a business or substantially all of the property, assets or capital stock of a business; (xi) any other contract, agreement, or commitment involving $1,000 or more. (b) declare or pay any dividend, or make any distribution of its properties or assets to its shareholders, or allow the issuance of any of its securities. (c) discharge or satisfy any lien or encumbrance or pay any obligation or liability except in the ordinary course of business; (d) make any change in its Articles of Incorporation or By-Laws; (e) issue any capital stock or other corporate securities or grant options, warrants or rights of any kind to purchase any of its capital stock or corporate securities; - 20 - 25 (f) mortgage, pledge or subject to any lien, charge or other encumbrance any of its tangible or intangible assets; (g) make any payment, or enter into any contract for payment of any bonus, gratuity or other compensation, or increase the rate or form of compensation payable to any agent or employee, except salary adjustments in the ordinary course of business for employees who are not officers, directors or stockholders of the Company; (h) dispose of any of its properties or assets except in the ordinary course of business; (i) incur any indebtedness, except for operating expenses in the ordinary course of business, nor allow any material adverse change to be made in its financial affairs, nor allow any tax or other liability to be extended by waiver of the statutes of limitation or otherwise; (j) make any loan to, borrow any money from, or entered into any contract or understanding with, any officer, director or shareholder of the Company; or (k) enter into any transaction other than in the ordinary course of business. (l) fail to use all reasonable efforts to take, or omit to take, any action which would make any representation or warranties of the Company and Shareholders herein untrue or incorrect in any material subject. 7.4 Affirmative Covenants. The Company and Shareholders covenant that from and after the date hereof and through the Closing Date, the Company and the Shareholders will: (a) keep the Company's properties and assets insured consistent with its prior practices in respect thereto; (b) perform in the normal course of business all of their obligations under contracts, leases and documents relating to or affecting its assets, properties and business; (c) materially preserve intact the Company's Business, organization, agencies and goodwill, to the end that Parent shall continue to operate the Company as a going business as now constituted, after the consummation of the Transaction contemplated hereunder; 7.5 Company Acquisition Proposals. The Company and the Shareholders will not, and will cause each of their respective directors, officers, employees, financial advisors, legal counsel, accountants and agents and representatives not to initiate, encourage or solicit, directly or indirectly, any inquiries or the making of any proposal with respect to or engage in negotiation concerning, providing any non-public or confidential information or data to, or have any discussions with, or otherwise assist any person relating to, any acquisition, business combination or purchase of all or any significant position of the Business or assets of, or any equity interest in the Company other than in connection with the Merger. The Company and each Shareholder will promptly notify Parent if any such inquiries or proposals are received by Company or a Shareholder or if any negotiations or discussions are sought to be initiated or continued with the Company or any Shareholders. 7.6 Accounting Matters. Except as contemplated under this Agreement, neither the Company nor any Shareholder shall (i) take any action which could jeopardize the treatment of the Merger as a pooling of interest or (ii) take or allow to be taken or fail to take any action which - 21 - 26 act or omission would jeopardize qualification of the Merger as a reorganization within the meaning of Section 368(a) of the Code. 7.7 Current Information. From the date of this Agreement to the Effective Time, the Company and each Shareholder will cause one or more of its designated representatives to confer on a regular and frequent basis with representatives of the Parent and to report the status of the Business and to deliver to Parent (not less than monthly) unaudited consolidated balance sheets and related consolidated statements of income and cash flows for each month end prior to the Effective Time. The Company shall promptly notify Parent of any material changes to the operations or financial condition of the Company. From the date of this Agreement to the Closing Date, Parent shall deliver to the Shareholders monthly unaudited consolidated financial statements within forty-five (45) days of each month end and shall keep Shareholders informed of any material changes to the operations or financial conditions of Parent. 7.8 Public Announcements. Prior to the Closing Date, the parties hereto agree that they will not issue any press release or other information regarding the transaction contemplated hereby, without the prior approval of the other party. 7.9 Leases for Facilities. (a) Jackson Clinic. Following the Closing Date, a partnership consisting of the Shareholders (the "JCD Partnership") shall cause to be constructed a new 5,000 square foot building on the real property where the Company's present Jackson clinic is located. The JCD Partnership shall pay all costs of construction of the building. The Company will lease the building from the JCD Partnership for a period of ten (10) years at the rate of $11 per square foot, which amount includes maintenance of the structure and other items not included in tenant finishes, taxes and insurance, all subject to, and in accordance with, a lease substantially in the form attached as Exhibit "F" to the Disclosure Schedule. The JCD Partnership shall build-out the facility in accordance with plans, specifications and budget approved by Parent at Parent's expense not to exceed $175,000. Any amounts in excess of $175,000 would be paid by the JCD Partnership. The Company shall provide insurance covering its leasehold improvements and damages caused by its use of such property. The JCD Partnership shall ensure adequate parking for all of the Company's personnel and patients. In addition, the JCD Partnership shall lease to the Company the existing facility at 1828 Raymond Road, Jackson, Mississippi for use as additional office space and home training for a period of five (5) years at the rate of $2,200 per month on the same terms and conditions as the new facility, with an option to extend such lease for a period of five (5) years at the same rent and terms. (b) Delta Clinic. Following the Closing Date, the Company will lease the real property on which the Delta clinic is situated to the JCD Partnership at the rate of $160 per month, for a term of thirty (30) years with an option to purchase the real property at the end of the second lease year for its book value as shown on the Financial Statements, all subject to, and in accordance with, a lease substantially in the form attached as Exhibit "G" to the Disclosure Schedule. The JCD Partnership shall cause to be constructed on such real property a 7,500 square foot building for use as a dialysis clinic. The Company will lease the building from the JCD Partnership for a period of ten (10) years at the rate of $11 per square foot, which amount includes maintenance of the structure and other items not included in tenant finishes, taxes and insurance, all subject to the lease substantially in the form attached as Exhibit "H" to the Disclosure Schedule. The JCD Partnership shall build out the facility in accordance with plans, specifications and budget approved by Parent at Parent's expense not to exceed $262,500. The Company shall provide insurance covering its leasehold improvements and damages caused by its use of the property. Any amounts in excess of $262,500 would be paid by the JCD - 22 - 27 Partnership. The JCD Partnership shall ensure adequate parking for all of the Company's personnel and patients. ARTICLE VIII. CONDITIONS PRECEDENT TO THE CLOSING 8.1 Conditions to Obligations of Parent and Sub. The obligations of Parent and Sub to consummate this Agreement shall be subject to, and be conditioned upon, each of the following conditions: (a) Properties Intact. No properties or assets of the Company shall have suffered any destruction or damage by fire, accident or other casualty or act of God not fully covered by insurance or affecting in a material and adverse way the conduct of the Business of the Company considered as a whole. (b) Representations and Warranties. The representations and warranties made by the Company and Shareholders in Article V hereof shall be correct in all material respects on and as of the Closing Date with the same force and effect as though such representations had been on and as of the Closing Date; none of the covenants of the Company or Shareholders contained in Articles VII hereof shall have been breached in any material respect as of the Closing Date. (c) No Material Adverse Changes. That since the date of the Financial Statements, there has been no material adverse change in the condition of the Company, financial or otherwise, from that set forth in the Financial Statements. (d) Approvals and Consents. All consents, approvals, authorizations or orders of any individual entity, court or Governmental Authority or administrative body, if any, shall have been obtained and in effect on the Closing Date which are required for the consummation of the transaction be contemplated by this Agreement, including any approvals or consents necessary with regard to the certificates of need issued by the Mississippi State Department of Health as a result of the change of control of the Company. (e) No Litigation. No claim, proceeding, investigation, or litigation, either administrative or judicial, shall be threatened or be pending against the Parent, Sub, Company or any Shareholder which, in the opinion of counsel for Parent, presents a reasonable probability that the transaction contemplated by this Agreement would be enjoined or prevented or that the right of Parent to continue the operations of the property, assets and Business of the Company would be materially affected. (f) Due Diligence. Parent shall have completed its due diligence investigation and the results thereof shall not have revealed that any of the representations, warranties or covenants made by the Company or any Shareholder in this Agreement are untrue or incorrect in any material respect or otherwise be unsatisfactory to Parent. (g) No Violations of Law. At the Closing Date, there shall exist no violations of any Federal, state or local law, ordinance or regulation materially affecting the assets, properties or Business of the Company. (h) Performance by Shareholders and the Company. All of the terms and conditions of this Agreement to be complied with and performed by the Shareholders and the Company on or before the Closing Date shall have been complied with and performed. - 23 - 28 (i) Leases. All consents or approvals regarding any Contracts or Leases shall have been obtained, if necessary. (j) Medical Director's Employment Agreement. C. DAVID FINCH, JR., M.D. shall have entered into a new Medical Director's employment agreement with the Company as Medical Director as required in Section 4.5(e) hereof. (k) Financial Statements. Parent shall have commenced the audit of its financial statements as of December 31, 1994 and for the year then ended. (l) Accounting Treatment. Parent shall have received a letter dated no later than the Closing Date from Parent's independent auditors, addressed to Parent, in form and substance satisfactory to it, to the effect that the Merger qualifies for "pooling of interests" treatment for financial reporting requirements and that such accounting treatment is in accordance with generally accepted accounting principles. 8.2 Conditions to Obligations of the Company and Shareholder. The obligations of the Company and Shareholders to consummate this Agreement are subject to, and shall be conditioned upon, each of the following conditions: (a) Representations and Warranties. The representations and warranties made by Parent and Sub herein shall be correct in all material respects on and as of the Closing Date with the same force and effect (except as affected by the transactions contemplated herein or otherwise approved in writing by the Company and the Shareholders and changes occurring after the date hereof in the ordinary course of Parent's business) as though such representations had been made on and as of the Closing Date. The covenants of Parent and Sub contained herein shall not have been breached in any material respects as of the Closing Date, and Parent and Sub shall have delivered to the Shareholders and the Company, a certificate to such effect signed by a duly authorized officer of Parent. (b) Performance by Parent and Sub. All of the terms, covenants and conditions of this Agreement to be complied with and performed by Parent and Sub on or before the Closing Date shall have been complied with and performed. ARTICLE IX. POST-CLOSING OBLIGATIONS 9.1 Survival of the Closing. All covenants, agreements, representations, and warranties made hereunder and in any certificates delivered at the Closing pursuant hereto shall be deemed to have been relied upon by Parent, Sub, Shareholders and the Company, and shall survive the Closing for the applicable statute of limitation period. 9.2 Further Assurances. Following the Closing, each of the Shareholders, the Company and Parent shall execute and deliver such documents, and take such other action as shall be reasonably requested by any other party hereto to carry out the transaction contemplated by this Agreement. 9.3 Indemnification by Shareholders. The Shareholders agree to indemnify, reimburse and hold harmless Parent, Sub and the Surviving Corporation against and from: (a) All damages in excess of $50,000 in the aggregate suffered, incurred, or sustained by Parent or the Surviving Corporation as a result of (i) the existence on or before the Closing Date of any material liabilities, absolute or contingent, of the Company which were not - 24 - 29 disclosed to Parent in accordance with the terms of this Agreement or any Collateral Agreement and which the Shareholders knew or should have known existed; (ii) the material untruth of any other representation or the breach of any other warranty made in this Agreement or any Collateral Agreement; (iii) the material untruth of any certificate required under this Agreement or any Collateral Agreement to be delivered by the Shareholders or the Company to Parent on the Closing Date; (iv) the material breach of this Agreement by the Company or the Shareholders. (b) Parent shall give the Shareholders prompt notice of any claim to indemnification it may wish to assert pursuant to this Article IX as soon as reasonably practicable. Before being required to make any payments pursuant to this Section 9.3, the Shareholders may, in their discretion and at their expense, take all necessary steps properly to contest any claim or liability or action in respect thereof involving third parties, or to prosecute such contest or action to conclusion or settlement satisfactory to Parent and themselves. Parent shall cooperate fully with the Shareholders in the reasonable conduct of any such contest or action, legal proceedings, negotiation, or settlement and will not permit compromise voluntarily or settle any such contest, action, legal proceeding, claim or demand without prior notice to and approval by the Shareholders. (c) Upon the payment to Parent by the Shareholders of any amount which Parent is entitled to receive by way of indemnification under this Article IX, Parent and the Surviving Corporation shall forthwith assign to the Shareholders all of their right, title, and interest in any item for which indemnification shall so be made, including claims against third parties. (d) In the event that the Shareholders shall dispute the right of Parent to be indemnified under this Article IX of any item with respect to which Parent shall so request indemnification, or if the Shareholders shall dispute the amount which Parent shall be entitled to receive with respect to such item by way of indemnification, such dispute shall be submitted to arbitration in the City of Miami, in accordance with the rules then in effect of the American Arbitration Association. (e) Parent shall have the right to set-off any amounts due it pursuant to a claim for indemnification against the Renex Shares held by the Escrow Agent pursuant to the Escrow Agent. 9.4 Non-Competition Agreement. The Shareholders shall enter into agreements at the Closing substantially in the form attached as Exhibit "I" of the Disclosure Schedule, in which such Shareholders agree as follows: (a) The Shareholders covenant and agree that for a period of ten (10) years from the Closing Date without the prior written consent of Parent, they will not be an employee (except with Parent or the Surviving Corporation), independent contractor, agent, director, stockholder or owner (except of not more than one percent (1%) of the securities of a publicly traded entity), partner, consultant, financial backer, creditor or be otherwise directly or indirectly connected with or participate in the management, operation or control of any business, firm, proprietorship, corporation, partnership, association, entity or venture engaged in a business similar to the Business within fifty (50) miles of any existing or future location of the Surviving Corporation for any remuneration. (b) The Shareholders covenant and agree that for a period of ten (10) years from the Closing without the prior written consent of Parent, they will not contact, call upon, solicit business from, sell or render services to any patient or customer of the Surviving Corporation or Parent with respect to the provision of any services or supplies similar to the Business or otherwise directly or indirectly aid or assist any other person, firm or entity to do any of the - 25 - 30 aforesaid acts, except on behalf of the Surviving Corporation, Parent or their subsidiaries or affiliates. (c) The Shareholders covenant and agree that for a period of ten (10) years from the Closing without the prior written consent of Parent, they will not directly or indirectly as principal, agent, owner, partner, stockholder, officer, director, employee, independent contractor or consultant or in any individual or representative capacity for themselves or on behalf of any business firm, corporation, partnership, association or proprietorship enter into any agreements with or solicit, or directly or indirectly cause others to solicit, the employment of any officer or other employee of the Surviving Corporation, Parent or any of their subsidiaries and affiliates for the purpose of causing said officer or employee to terminate employment with the Surviving Corporation, Parent or their subsidiaries and affiliates. (d) The Shareholders agree that they shall not at any time disclose directly or indirectly to any person, firm or entity any confidential information about the Surviving Corporation, the Business or Parent or any information concerning their respective financial condition, customers, sources of patients and methods of obtaining business or any other methods generally of doing and operating the Business, except to the extent that such information is a matter of public knowledge or is required to be disclosed by law through judicial or administrative process. (e) It is recognized and acknowledged by the parties hereto that a breach, threatened breach, or violation by any Shareholder of any of the covenants and agreements contained in Section 9.4 may cause irreparable harm and Damage to the Surviving Corporation and Parent in a monetary amount which may be impossible to ascertain. Each Shareholder agrees that Parent shall be entitled to an injunction from any court of competent jurisdiction enjoining or restraining any breach or violation of any or all of the covenants and agreements contained in this Section 9.4 and that such right to injunction shall be cumulative and in addition to whatever other rights or remedies the Parent or the Surviving Corporation may possess hereunder at law or in equity. (f) Parent and Sub agree that the provisions of this Section 9.4 shall not be enforceable by Parent or Sub: (i) following termination of the leases described in Section 7.9 herein, if such termination results from a default in the provisions thereof by the Surviving Corporation following the Closing; or (ii) upon exercise of the right of first refusal contained in Section 9.9 herein. 9.5 Publicity. The Company and Shareholder shall not issue or make, or cause to have made, any public release or announcement concerning this Agreement or the transaction contemplated hereby, without the advance written approval of the form and substance by Parent, which approval shall not be unreasonably withheld. 9.6 Employment Arrangement. The Surviving Corporation agrees to employ JEFFERY FINCH and CHARLES D. FINCH, SR. following the Closing on the terms and conditions set forth in those Employment Letters attached to the Disclosure Schedule as Exhibits "J" and "K." 9.7 Audit. The Company shall cause to be completed an audit of its financial statements as of December 31, 1994 and December 31, 1995 and for the twelve (12) months in each of the periods then ended, by an independent public accounting firm to be chosen by Parent. The financial statements shall be audited in accordance with GAAP. - 26 - 31 9.8 Board of Directors. Parent shall use its best efforts to cause the nomination and election of C. DAVID FINCH, JR., M.D. to Parent's Board of Directors in accordance with Parent's Articles of Incorporation and By-laws. 9.9 Right of First Refusal. Parent and Shareholders shall enter into Right of First Refusal Agreement substantially in the form attached to the Disclosure Schedule as Exhibit "L", whereby Parent shall grant to Shareholders a right of first refusal on the sale of the Company. In the event of a bona fide offer, accepted by Parent, in which Parent agrees to sell the Company or substantially all of its assets to a third party, the Shareholders shall have the right to purchase the Company on the same terms and conditions of the bona fide offer. The right of first refusal shall not apply to any sale or other transaction involving other assets of Parent not involving the Company or the sale of the Company in conjunction with the sale of other assets of Parent, which assets have a value in excess of the value of the Company's assets. The right of first refusal shall terminate on the earlier of (a) ten (10) years; or (b) upon the sale by Shareholders of more than thirty percent (30%) of the Renex Shares issued in connection with this transaction. 9.10 Personal Guarantees of Shareholders. Parent shall use its best efforts to have personal guarantees of the Shareholders which were executed for the benefit of the Company, terminated following the Closing. If any lender, lessor or other party obligor on such liabilities refuses to terminate such guarantees, Parent agrees to indemnify the Shareholders against any claims or liabilities arising out of their guarantees. Parent shall take no action which would in any way cause such guarantees to be increased. ARTICLE X. MISCELLANEOUS 10.1 Costs and Expenses. Except as otherwise provided if this Agreement is terminated in accordance with Section 4.8, each of the parties to this Agreement shall bear their own expenses incurred in connection with the negotiation, preparation, execution and closing of this Agreement and the transaction contemplated hereby, including but not limited to, transfer taxes, legal fees and accounting fees. 10.2 Remedies. The rights and remedies provided by this Agreement are cumulative, and the use of any one right or remedy by any party hereto shall not preclude or constitute a waiver of its right to use any and all other remedies. Such rights and remedies are given in addition to any other rights and remedies a party may have by law, statute or otherwise. 10.3 Exhibits and Schedules. The Exhibits and Schedules referred to herein, including the Disclosure Schedule and its exhibits, are incorporated herein by this reference. 10.4 Attorneys' Fees. In the event of any litigation or arbitration proceedings arising out of this Agreement, the prevailing party shall be entitled to an award of its attorneys' fees and costs (including any fees and costs incurred in appellate proceedings) against the losing party. 10.5 Risk of Loss. Prior to the Closing, the risk of loss, damage to, or destruction of any assets of the Company shall remain with the Company and the Shareholders. 10.6 Assignment and Amendment of Agreement. This Agreement shall not be assignable by any of the parties hereto except with the written consent of the other party. This Agreement may be amended by written agreement of the parties hereto and any such amendment may: (a) change the time or place for performance of any of the obligations or acts of the parties hereto, including changes of time and date of the Closing Date or of the place of Closing, (b) waive any inaccuracies in or modify the representations contained in this Agreement or in any Exhibits or Schedules hereto or in any documents delivered pursuant hereto, and (c) waive compliance with or modify any of the covenants herein contained and waive or modify performance of any of the obligations of the parties hereto. - 27 - 32 10.7 Notices. Any notice or communication given pursuant hereto by either party to the other party shall be in writing and delivered or mailed by certified mail, return receipt requested, postage prepaid, as follows: If to Parent or Sub: Renex Corp. 2222 Ponce de Leon Boulevard, Suite 300 Coral Gables, Florida 33140 Attention: James P. Shea, President Copy to: Wallace, Bauman, Fodiman & Shannon, P.A. 2222 Ponce de Leon Boulevard, Sixth Floor Coral Gables, Florida 33134 Attention: Bryan W. Bauman, Esq. If to the Company Dialysis Facilities, Inc. or Shareholders: 1828 Raymond Road Jackson, Mississippi Attention: Jeffery C. Finch Copy to: Daniel Coker Horton & Bell 111 East Capital Street, Suite 600 Jackson, Mississippi 39205 Attention: Rex D. Harvey, Esq. or at such other address as hereafter shall be furnished in writing by any party hereto to the other parties. 10.8 Entire Agreement. This Agreement, the Disclosure Schedule and all exhibits attached thereto, constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written of the parties. 10.9 Waiver. Any forbearance, failure or delay by any of the parties hereto to exercise any right, power or remedy hereunder shall not be deemed a waiver of such right, power or remedy and any single or partial exercise of any such right, power or remedy hereunder shall not preclude the further exercise thereof and every right, power or remedy of either party shall continue in full force and effect unless waived specifically by an instrument in writing executed by such party. 10.10 Governing Law. This Agreement shall be construed in accordance with the laws of the State of Florida. Each party hereto irrevocably submits to the jurisdiction of the Circuit Court of Dade County, Florida, in any action or proceeding arising out of or relating to this Agreement and each party irrevocably agrees that all claims in respect of any such action or proceeding must be brought and/or defended in such court. 10.11 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 10.12 Captions. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. - 28 - 33 10.13 Successors and Assigns. All of the terms of this Agreement shall be binding upon and inure to the benefit of, and be enforceable by and against the parties and their respective successors and assigns. 10.14 Interpretation. Handwritten provisions inserted in this Agreement, initialed in ink, shall control all typewritten provisions in conflict therewith. This Agreement shall not be construed more strongly against or in favor of any party, regardless of who is responsible for its preparation. 10.15 Severability. In the event any provision of this Agreement or the application of such provision to any part shall be held by a court of competent jurisdiction to be contrary to any rule of law or public policy, the remaining provisions of this Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. Signed, sealed, and delivered in the PARENT: presence of: RENEX CORP., a Florida corporation - ------------------------------------- Print Name: -------------------------- By: /s/ JAMES P. SHEA - ------------------------------------- ------------------------------------ Print Name: JAMES P. SHEA, President -------------------------- SUB: RENEX ACQUISITION CORP., a Mississippi corporation Print Name: -------------------------- By: /s/ JAMES P. SHEA - ------------------------------------- ------------------------------------ Print Name: JAMES P. SHEA, President -------------------------- - 29 - 34 COMPANY: DIALYSIS FACILITIES, INC., a Mississippi corporation - ------------------------------------- Print Name: -------------------------- By: /s/ C. DAVID FINCH, JR., M.D. - ------------------------------------- ------------------------------------- Print Name: Name: C. DAVID FINCH, JR., M.D. -------------------------- ----------------------------------- Title: President ---------------------------------- SHAREHOLDERS: /s/ C. DAVID FINCH, JR., M.D. ---------------------------------------- C. DAVID FINCH, JR., M.D. /s/ CHARLES D. FINCH, SR. ---------------------------------------- CHARLES D. FINCH, SR. /s/ JEFFERY C. FINCH ---------------------------------------- JEFFERY C. FINCH - 30 - EX-3.1 3 ARTICLES OF INCORPORATION 1 Exhibit 3.1 ARTICLES OF INCORPORATION OF RENEX CORP. The undersigned does hereby execute, acknowledge and file the following Articles of Incorporation for the purpose of creating a corporation under the laws of the State of Florida: FIRST: The name of the Corporation is: RENEX CORP. (hereinafter the "Corporation"). SECOND: This Corporation shall commence its perpetual existence on the date these Articles of Incorporation are filed with the Secretary of State. THIRD: The general purpose of the Corporation is to engage in any lawful act or activity for which a corporation may now or hereafter be organized under the Laws of the State of Florida. FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is 35,000,000 shares, consisting of 30,000,000 shares of common stock, par value $.001 per share (the "Common Stock"), and 5,000,000 shares of preferred stock, par value $.01 per share (the "Preferred Stock"). Shares of Preferred Stock of the Corporation may be issued from time to time in one or more classes or series, each of which class or series shall have such a distinctive designation or title as shall be fixed by the Board of Directors of the Corporation (the "Board of Directors") prior to the issuance of any shares thereof. Each such class or series of Preferred Stock shall have such voting powers, full or limited. or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of Preferred Stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof pursuant to the authority hereby expressly vested in it, all in accordance with the laws of the State of Delaware. FIFTH: The street address of the initial registered office of the Corporation and the initial registered agent as well as the mailing address of the Corporation are as follows: BISCAYNE REGISTERED AGENTS, INC 100 S.E. 2nd Street, Suite 2100 Miami, FL 33131 SIXTH: The name and mailing address of the first Director of the Corporation is as follows: MARIA T. ZUCKER 100 S.E. 2nd Street, Suite 2100 Miami, FL 33131 2 SEVENTH: The name and mailing address of the Incorporator is as follows: MARIA T. ZUCKER 100 S.E. 2nd Street, Suite 2100 Miami, FL 33131 EIGHTH: The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors consisting of not less than three (3) directors nor more than twenty-one (21) directors, the exact number of directors to be determined from time to time by resolution adopted by the Board of Directors. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The term of the initial Class I directors shall terminate on the date of the 1994 annual meeting of stockholders; the term of the initial Class II directors shall terminate on the date of the 1995 annual meeting of stockholders and the term of the initial Class III directors shall terminate on the date of the 1996 annual meeting of stockholders. At each annual meeting of stockholders beginning in 1994, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement disqualification or removal from office. Any vacancy on the Board of Directors, howsoever resulting, may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Articles of Incorporation or the resolution or resolutions adopted by the Board of Directors pursuant to Article FOURTH applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article EIGHTH unless expressly provided by such terms. NINTH: Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any or all of the directors of the Corporation, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of an eighty (80%) majority of the outstanding securities of the Corporation then entitled to vote generally in the election of directors, considered for purposes of this Article NINTH as one class. TENTH: Elections of directors at an annual or special meeting of stockholders shall be by written ballot unless the Bylaws of the Corporation shall otherwise provide. ELEVENTH: Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken only upon the vote of the stockholders at an annual or - 2 - 3 special meeting duly noticed and called, as provided in the By-laws of the Corporation, and may not be taken by a written consent of the stockholders pursuant to the Florida Business Corporation Act ("FBCA"). TWELFTH: Special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board of Directors or the President. Special meetings of the stockholders of the Corporation may not be called by any other person or persons. THIRTEENTH: A. In addition to any affirmative vote required by law or these Articles of Incorporation or the Bylaws of the Corporation, and except as otherwise expressly provided in Section B of this Article THIRTEENTH, a Business Combination (as hereinafter defined) with, or proposed by or on behalf of, any Interested Stockholder (as hereinafter defined) or any Affiliate or Associate (as hereinafter defined) of any Interested Stockholder or any person who thereafter would be an Affiliate or Associate of such Interested Stockholder shall require the affirmative vote of not less than sixty-six and two-thirds (66-2/3%) percent of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock (as hereinafter defined), voting together as a single class, excluding Voting Stock beneficially owned by any Interested Stockholder (as hereinafter defined). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified, by law or in any agreement with any national securities exchange or otherwise. B. The provisions of Section A of this Article THIRTEENTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law or by any other provision of these Articles of Incorporation or the By-laws of the Corporation, or any agreement with any national securities exchange, if all of the conditions specified in either of the following Paragraphs 1 or 2 are met or, in the case of a Business Combination not involving the payment of consideration to the holders of the Corporation's outstanding Capital Stock (as hereinafter defined), if the condition specified in the following Paragraph 1 is met: 1. The Business Combination shall have been approved, either specifically or as a transaction which is within an approved category of transactions, by a majority (whether such approval is made prior to or subsequent to the acquisition of, or announcement or public disclosure of the intention to acquire beneficial ownership of the Voting Stock that caused the Interested Stockholder to become an Interested Stockholder) of the Continuing Directors (as hereinafter defined). 2. All of the following conditions shall have been met: (a) The aggregate per share amount of cash and the Fair Market Value (as hereinafter defined), as of the date of the consummation of the Business Combination, of consideration other than cash to be received by holders of Common Stock in such Business Combination shall be at least equal to the highest amount determined under clauses and (i), (ii), (iii) and (iv) below: - 3 - 4 (i) The highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of Common Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of Common Stock: (x) within the two-year period immediately prior to the first public announcement of the proposed Business Combination (the "Announcement Date") or (y) in the transaction in which it became an Interested Stockholder, whichever is higher, in either case as adjusted for any subsequent stock split stock dividend, subdivision or reclassification affecting or relating to the Common Stock; (ii) The Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification affecting or relating to the Common Stocks; (iii) The price per share equal to the Fair Market Value per share of Common Stock determined pursuant to the immediately preceding clause (ii), multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of Common Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of Common Stock within the two-year period immediately prior to the Announcement Date, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification affecting or relating to the Common Stock to (y) the Fair Market Value per share of Common Stock on the day immediately preceding the first day in such two-year period on which the Interested Stockholder acquired beneficial ownership of any share of Common Stock, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification affecting or relating to the Common Stock; and (iv) The Corporation's net income per share of Common Stock for the four full consecutive fiscal quarters immediately preceding the Announcement Date, multiplied by the higher of the then price/earnings multiple (if any) of such Interested Stockholder or the highest price/earnings multiple of the Corporation within the two-year period immediately preceding the Announcement Date (such price/earnings multiples being determined as customarily computed and reported in the financial community). (b) The aggregate amount per share of cash and the Fair Market Value, as of the date of the consummation of the Business Combination, of consideration other than cash to be received by holders of shares of any class or series of outstanding Capital Stock, other than Common Stock, shall be at least equal to the highest amount determined under clauses (i), (ii), (iii) and (iv) below: (i) The highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of such class or series of Capital Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of such class or series of Capital Stock: (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Stockholder, whichever is higher, in either case as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification affecting or relating to such class or series of Capital Stock; - 4 - 5 (ii) The Fair Market Value per share of such class or series of Capital Stock on the Announcement Date or on the Determination Date, whichever is higher, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification affecting or relating to such class or series of Capital Stock; (iii) The price per share equal to the Fair Market Value per share of such class or series of Capital Stock determined pursuant to the immediately preceding clause (ii), multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Interested Stockholder for any share of such class or series of Capital Stock in connection with the acquisition by the Interested Stockholder of beneficial ownership of shares of such class or series of Capital Stock within the two-year period immediately the Announcement Date, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification affecting or relating to such class or series of Capital Stock to (y) the Fair Market Value per share of such class or series of Capital Stock on the day immediately preceding the first day in such two-year period on which the Interested Stockholder acquired beneficial ownership of any share of such class or series of Capital Stock, as adjusted for any subsequent stock split, stock dividend, subdivision or reclassification affecting or relating to such class or series of Capital Stock; and (iv) The highest preferential amount per shares to which the holders of shares of such class or series of Capital Stock would be entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation regardless of whether the Business Combination to be consummated constitutes such an event. The provisions of this Subparagraph (b) shall be required to be met with respect to every class or series of outstanding Capital Stock, whether or not the Interested Stockholder has previously acquired beneficial ownership of any share of a particular class or series of Capital Stock. (c) The consideration to be received by holders of a particular class or series of outstanding Capital Stock shall be in cash or in the same form as previously has been paid by or on behalf of the Interested Stockholder in connection with its direct or indirect acquisition of beneficial ownership of shares of such class or series of Capital Stock. If the consideration so paid for shares of any class or series of Capital Stock varied as to form, the form of consideration for such class or series of Capital Stock shall be either cash or the form used to acquire beneficial ownership of the largest number of shares of such class or series of Capital Stock previously acquired by the Interested Stockholder. (d) After the Determination date and prior to the consummation of such Business Combination: (i) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular dates therefor any full quarterly dividends (whether or not cumulative) payable in accordance with the terms of any outstanding capital stock; (ii) there shall have been no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any stock split, stock dividend or subdivision of the Common stock), except as approved by a majority of the Continuing Directors; (iii) there shall have been an increase in the annual rate of dividends paid on the Common Stock as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of Common Stock, unless the failure to so increase such annual rate is approved by a majority of the Continuing - 5 - 6 Directors; and (iv) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Capital Stock except as part of the transaction that results in such Interested Stockholder becoming an Interested Stockholder and except in a transaction that, after giving effect thereto, would not result in any increase in the Interested Stockholder's percentage of beneficial ownership of any class or series of Capital Stock. (e) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act"), or any subsequent provisions replacing the Exchange Act, shall be mailed to all stockholders of the Corporation at least thirty (30) days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to the Exchange Act or subsequent provisions). The proxy or information statement shall contain on the first page thereof, in a prominent place, any statement as to the advisability (or inadvisability) of the Business Combination that the Continuing Directors, or any of them, may choose to make and, if deemed advisable by a majority of the Continuing Directors, the opinion of an investment banking firm selected by a majority of the Continuing Directors as to the fairness (or absence thereof) of the terms of the Business Combination from a financial point of view to the holders of the outstanding shares of Capital Stock other than the Interested Stockholder and its Affiliates or Associates, such investment banking firm to be paid a reasonable fee for its services by the Corporation. (f) Such Interested Stockholder shall not have any major change in the Corporation's business or equity capital structure without the approval of a majority of the Continuing Directors. C. The following definitions shall apply with respect to this Article THIRTEENTH: 1. The term "Business Combination" shall mean: (a) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Stockholder or (ii) any other company (whether or not itself an Interested Stockholder) which is or after such merger or consolidation would be an Affiliate or Associate of an Interested Stockholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security arrangement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of transactions) with or for the benefit of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder involving any assets, securities, obligations or commitments of the Corporation, any Subsidiary or any interested Stockholder or any Affiliate or Associate of any Interested Stockholder which has an aggregate Fair Market Value and/or involves aggregate commitments of $2,500,000 or more or constitutes more than five 5% percent of the book value of the total assets (in the case of transactions involving assets or commitments other than capital stock) or five 5% percent of the stockholders' equity (in the case of transactions in capital stock) of the entity in question (the "Substantial Part"), as reflected in the most recent fiscal year-end consolidated balance sheet of such entity existing at the time the stockholders of the Corporation would be required to approve or authorize the Business Combination involving the assets, securities, obligations and/or commitments constituting any Substantial Part; PROVIDED that any arrangement, whether as employee, consultant or otherwise, other than as a director, pursuant - 6 - 7 to which any Interested Stockholder or any Affiliate or Associate thereof shall, directly or indirectly, have any control over or management of any aspect of the business or affairs of the Corporation, shall be deemed to be a "Business Combination" irrespective of the value test set forth above; or (c) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation or for any amendment to the Corporation's By-laws; or (d) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or otherwise involving an interested Stockholder) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of Capital Stock, or any securities convertible into Capital Stock or into equity securities of any Subsidiary, that is beneficially owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder, or (e) any agreement, contract or other arrangement providing for any one or more of the actions specified in the foregoing clauses (a) to (d). 2. The term "Capital Stock" shall mean all capital stock of the Corporation authorized to be issued from time to time under Article FOURTH of these Articles of Incorporation, and the term "Voting Stock" shall mean all Capital Stock which by its terms may be voted on all matters submitted to stockholders of the Corporation generally. 3. The term "person" shall mean any individual, firm, company or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Capital Stock. 4. The term "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary and other than any profit sharing, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who (a) is or has announced or publicly disclosed a plan or intention to become the beneficial owner of Voting Stock representing ten (10%) percent or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or (b) is an Affiliate or Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of Voting Stock representing ten (10%) percent or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock, but excluding any person who owned 10% or more of the voting shares prior to January 1, 1994. 5. A person shall be a "beneficial owner" of any Capital Stock (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (b) which such person or any of its Affiliates or Associates has, directly or indirectly, (i) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, - 7 - 8 arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Capital Stock. For the purposes of determining whether a person is an interested Stockholder pursuant to Paragraph 4 of this Section C, the number of shares of Capital Stock deemed to be outstanding shall include shares deemed beneficially owned by such person through application of this Paragraph 5 of Section C, but shall not include any other shares of Capital Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. 6. The term "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Exchange Act as in effect on July 24, 1986 (the term "registrant" in said Rule 12b-2 meaning in this case the Corporation). 7. The term "Subsidiary" means any company of which a majority of any class of equity security is beneficially owned by the Corporation; PROVIDED, however, that for the purposes of the definition of Interested Stockholder set forth in Paragraph 4 of this Section C, the term "Subsidiary" shall mean only a company of which a majority of each class of equity security is beneficially owned by the Corporation. 8. The term "Continuing Director" means (i) any member of the initial Board Of Directors of the Corporation, while such person is a member of the Board of Directors of the Corporation (the "Board of Directors"), (ii) any member of the Board of Directors, while such person is a member of the Board of Directors, who is not an Interested Stockholder or an Affiliate or Associate or representative of the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested stockholder, and (iii) any person who subsequently becomes a member of the Board of Directors, while such person is a member of the Board of Directors, who is not an Interested Stockholder or an Affiliate or Associate or representative of the Interested Stockholder if such person's nomination for election or election to the Board of Directors is recommended or approved by a majority of the Continuing Directors then in office. 9. The term "Fair Market Value" means (a) in the case of cash, the amount of such cash; (b) in the case of stock, the highest closing sale price during the thirty (30) day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the composite tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Exchange Act on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the thirty (30) day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any similar system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Continuing Directors in good faith; and (c) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the Continuing Directors. 10. In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in Paragraphs 2.(a) and 2.(b) of Section B of this Article THIRTEENTH shall include the shares of Common Stock and/or the shares of any other class or series of Capital Stock retained by the holders of such shares. - 8 - 9 D. A majority of the Continuing Directors shall have the power and duty to determine for the purposes of this Article THIRTEENTH on the basis of information known to them after reasonable inquiry, all questions arising under this Article THIRTEENTH, including without limitation, (a) whether a person is an Interested Stockholder, (b) the number of shares of Capital Stock or other securities beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another, (d) whether a Proposed Action (as hereinafter defined) is with, or proposed by, or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder, (e) whether the assets that are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $2,500,000 or more, and (f) whether the assets or securities that are the subject of any Business Combination constitute a Substantial Part. Any such determination made in good faith shall be binding and conclusive on all parties. E. Nothing contained in this Article ELEVENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. F. The fact that any Business Combination complies with the provisions of Section 9 of this Article THIRTEENTH shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the stockholders of the Corporation, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination. G. For the purposes of this Article THIRTEENTH, a Business Combination or any proposal to amend, repeal or adopt any provision of these Articles of Incorporation inconsistent with this Article THIRTEENTH (collectively, "Proposed Action") is presumed to have been proposed by, or on behalf of, an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder or a person who thereafter would become such if (1) after the interested Stockholder became such, the Proposed Action is proposed following the election of any director of the Corporation who with respect to such Interested Stockholder, would not qualify to serve as a Continuing Director, or (2) such Interested Stockholder, Affiliate, Associate or person votes for or consents to the adoption of any such Proposed Action, unless as to such Interested Stockholder, Affiliate, Associate or person a majority of the Continuing Directors makes a good faith determination that such Proposed Action is not proposed by or on behalf of such Interested Stockholder, Affiliate, Associate or person, based on information known to them after reasonable inquiry. H. Notwithstanding any other provisions of these Articles of Incorporation or the By-laws of the Corporation (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, these Articles of Incorporation or the By-laws of the Corporation), any proposal to amend, repeal or adopt any provision of these Articles of Incorporation inconsistent with this Article THIRTEENTH which is proposed by or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder shall require the affirmative vote of the holders of not less than sixty-six and two-thirds (66-2/3%) percent of the votes entitled to be cast by the holders of all the then outstanding shares of voting Stock, voting together as a single class, excluding Voting Stock beneficially owned by such Interested Stockholder; PROVIDED, however, that this Section H shall not apply to, and such sixty-six and two-thirds (66-2/3%) percent vote shall not be required for, any amendment, repeal or adoption unanimously recommended by the Board of - 9 - 10 Directors if all such directors are persons who would be eligible to serve as Continuing Directors within the meaning of Section C, Paragraph 8 of this Article THIRTEENTH. FOURTEENTH: The officers of the corporation shall be chosen in such manner, shall hold their offices for such terms and shall carry out such duties as are determined solely by the Board of Directors, subject to the right of the Board of Directors to remove any officer or officers at any time with or without cause. FIFTEENTH: The Corporation shall indemnify to the full extent authorized or permitted by law any person made, or threatened to be made, a party to any action or proceeding (whether civil or criminal or otherwise) by reason of the fact that he, his testator or intestate, is or was a director or officer of the Corporation or by reason of the fact that such director or officer, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. Nothing contained herein shall affect any rights to indemnification to, which employees other than directors and officers may be entitled by law. No amendment to or repeal of this Article FIFTEENTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. SIXTEENTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend or rescind the By-laws of the Corporation. SEVENTEENTH: The Corporation reserves the right to repeal, alter, amend, or rescind any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned, being the Incorporator of the above named corporation, for the purpose of forming a corporation to do business both within and without the State of Florida, under the laws of the State of Florida, does make and file these Articles of Incorporation, hereby declaring and certifying the facts hereon stated are true and execute these Articles of Incorporation on this 6th day of July, 1993. /s/ Maria T. Zucker ------------------- MARIA T. ZUCKER - 10 - 11 CERTIFICATE DESIGNATING PLACE OF BUSINESS OR DOMICILE FOR THE SERVICE OF PROCESS WITHIN THIS STATE, NAMING AGENT UPON WHOM PROCESS MAY BE SERVED ******************* Pursuant to Chapter 48.091, FLORIDA STATUTES, the following is submitted in compliance with said Act: RENEX CORP., desiring to organize under the laws of the State of Florida with its principal office, as indicated in the Articles of Incorporation, at 100 S.E. 2nd Street, Suite 2100, Miami, Florida 33131, has named Biscayne Registered Agents, Inc. as its agent to accept service of process within this State. ACCEPTANCE: Having been named to accept service of process for the above-stated corporation, at the place designated in this Certificate, I hereby agree to act in this capacity, and agree to comply with the provisions of said Act relative to keeping said office open. BISCAYNE REGISTERED AGENTS, INC. By: /s/ Maria T. Zucker --------------------- Maria T. Zucker (Registered Agent) - 11 - EX-3.2 4 BY-LAWS 1 Exhibit 3.2 BY - LAWS OF RENEX CORP. (A FLORIDA CORPORATION) ARTICLE I STOCKHOLDERS 1. CERTIFICATES - REPRESENTING STOCK. Certificates representing stock in the Corporation shall be signed by, or in the name of, the corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation. Any or all signatures on any such certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be an officer, transfer agent, or registrar before such certificate is issued, such certificate may be issued by the corporation with the same effect as if he were still such officer, transfer agent, or registrar at the date of issue. Whenever the corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, and whenever the corporation shall issue any shares of its stock as partly paid stock, the certificates representing shares of any such class or series or of any such partly paid stock shall contain thereon the statements prescribed by the Florida Business Corporation Law. Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificates representing such shares. The corporation may issue a new certificate of stock or uncertificated shares in place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Board of Directors may require the owner of the lost, stolen, or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of any such certificate or uncertificated shares. 2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the Florida Business Corporation Law, the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of the stock of the corporation shall be uncertificated shares. Within a reasonable time after the issuance or transfer of any uncertificated shares, the corporation shall send to the registered owner thereof the written notice prescribed by the Florida Business Corporation Law. 2 3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (1) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered form (either represented by a certificate or be uncertificated) or bearer form (represented by a certificate) which shall entitle the holder to receive a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share or an uncertificated fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing the full shares or uncertificated full shares before a specified date, or, subject to the conditions that the shares for which scrip or warrants are exchangeable, may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose. 4. STOCK TRANSFERS. Upon compliance with any provisions restricting the transfer or registration of transfer of shares of stock, if any, transfer or registration of transfers of shares of stock of the corporation shall be made only on the stock ledger of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and, in the case of shares represented by certificates, on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon. 5. RECORD DATE. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or for the purpose of determining stockholders entitled to receive payment of any dividend or the allotment of any right, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of stockholders. Such date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If no record date is fixed, such record date shall be determined in accordance with the provisions of the Florida Business Corporation Law. 6. MEANING OF CERTAIN TERMS. As used herein with respect to the right to notice of a meeting of stockholders or a waiver thereof or,to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "share of stock" or "shares of stock" or "stockholder" or "stockholders" refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the articles of incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the Florida Business Corporation Law confers such rights notwithstanding that the articles of incorporation may provide for more than one class or - 2 - 3 series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the articles of incorporation, except as any provision of law may otherwise require. 7. STOCKHOLDER MEETINGS. (a) Time. The annual meeting shall be held on the date and at the time fixed from time to time, by the Board of Directors. A special meeting shall be held on the date and at the time fixed by the Board of Directors. (b) Place. Annual meetings and special meetings shall be held at such place, within or without the State of Florida, as the Board of Directors may, from time to time, fix. Whenever the Board of Directors shall fail to fix such place, the meeting shall be held at the registered offices of the corporation in the State of Florida. (c) Call. Annual meetings and special meetings may be called by a majority of the Board of Directors, the Chairman of the Board, or by such officers instructed by the Board of Directors to call the meeting. (d) Notice or Waiver of Notice. Written notice of all meetings shall be given, stating the place, date, and hour of the meeting and stating the place within the city or other municipality or community at which the list of stockholders of the corporation may be examined. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting and shall, (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the Florida Business Corporation Law. Except as otherwise provided by the Florida Business Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten (10) days nor more than sixty (60) days before the date of the meeting, unless the lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States Mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, - 3 - 4 any annual or special meeting of the stockholders need be specified in any written waiver of notice. (e) Advance Notice of Stockholder Nominations of Directors at Annual Meetings. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the corporation at an annual meeting, except as may be otherwise provided in the articles of incorporation of the corporation with respect to the rights of holders of preferred stock of the corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 7 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 7. In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the corporation. To be timely, a stockholder's notice to the Secretary with respect to an annual meeting must be delivered to or mailed and received at the principal executive offices of the corporation, not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty-one (31) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares for capital stock of the corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filing required - 4 - 5 to be made in connection with the solicitation of proxies for the election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to be named as a nominee and to serve a director if elected. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 7. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded. (f) Advance Notice of Proposed Business at Annual Meeting. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof), or (c) otherwise properly brought before the annual meeting by any stockholder of the corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 7 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 7. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the secretary of the corporation. To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the corporation not less than sixty (60) days nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty-one (31) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs. To be in proper written form, a stockholder's notice to the secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the names and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such - 5 - 6 stockholder intends to appear in person or by proxy at the annual meeting to bring valid business before the meeting. No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 7; provided, however, that, once business had been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 7 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. (g) Business at Special Meetings. No business may be transacted at a special meeting of stockholders, other than business that is specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof). (h) Stockholder List. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city or other municipality or community where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote at any meeting of stockholders. (i) Conduct of Meeting. Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting - the Chairman of the Board, if any, the Vice Chairman of the Board, if any, the President, a Vice President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the chairman of the meeting shall appoint a secretary of the meeting. (j) Proxy Representation. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact, No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient - 6 - 7 in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled with an interest in the stock itself or an interest in the corporation generally. (k) Inspectors. The Board of Directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenger question or matter determined by him or them and execute a certificate of any fact found by him or them. (l) Quorum. The holders of a majority of the outstanding shares of stock shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum. (m) Voting. Except as otherwise provided in the corporation's Articles of Incorporation, each share of common stock shall entitle the holder thereof to one (1) vote. In the election of directors, a plurality of the votes cast at the meeting, or by written consent, shall elect such director subject to any rights of outstanding preferred stock. Any other action shall be authorized by a majority of the votes cast except where the Florida Business Corporation Law prescribes a different percentage of votes and/or a different exercise of voting power, and except as may be otherwise prescribed by the provisions of the Articles of Incorporation and these By-Laws. ARTICLE II DIRECTORS 1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors of the corporation. The Board of Directors shall have the authority to fix the compensation of the members thereof. The use of the phrase "whole board" herein refers to the total number of directors which the corporation would have if there were no vacancies. - 7 - 8 2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Florida. The initial Board of Directors shall consist of at least one person. Thereafter, the number of directors constituting the whole board shall be at least one. Subject to the foregoing limitation and except for the first Board of Directors, such number may be fixed from time to time by action of the stockholders or of the directors, or, if the number is not fixed, the number shall be three. The number of directors may be increased or decreased by action of the stockholders or of the directors not to exceed the maximum number specified in the Articles of Incorporation. 3. ELECTION AND TERM. The first Board of Directors, unless the members thereof shall have been named in the articles of incorporation, shall be elected by the incorporator or incorporators and shall hold office until the first annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon written notice to the corporation. Thereafter, directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the term of the position expires as provided in the Articles of Incorporation and until their successors are elected and qualified or until their earlier resignation or removal. In the interim between annual meetings of stockholders or of special meetings of stockholders called for the election of directors and/or for the removal of one or more directors and for the filling of any vacancy in that connection, newly created directorships and any vacancies in the Board of Directors, including unfilled vacancies resulting from the removal of directors for cause or without cause, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director. 4. MEETINGS. (a) Time. Meetings shall be held at such times as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble. (b) Place. Meetings shall be held st such place within or without the State of Florida as shall be fixed by the Board. (c) Call. No call shall be required for regular meetings for which the time and place have been fixed. Special meetings may be called by or at the direction of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of the President, or of a majority of the directors in office. (d) Notice or Actual or Constructive Waiver. No notice shall be required for regular meetings for which the time and place have been fixed written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he attends a meeting for the express - 8 - 9 purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice. (e) Quorum and Action. A majority of the whole Board shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided, that such majority shall constitute at least one-third of the whole Board. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the Florida Business Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the Florida Business Corporation Law and these By-Laws which govern a meeting of directors held to fill vacancies and newly created directorships in the Board or action of disinterested directors. Any member or members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of the Board, or any such committee, as the case may be, by means of telephone conference or similar communications equipment by means of which all persons participating in the meeting can hear each other. (f) Chairman of the Meeting. The Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the Board, shall preside. 5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the Florida Business Corporation Law, any director or the entire Board of Directors may be removed only with cause, by the holders of a majority of the shares then entitled to vote at an election of directors. 6. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, In the absence or disqualification of any member of any such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the corporation with the exception of any authority the delegation of which is prohibited by the Florida Business Corporation Law, and may authorize the seal of the corporation to be affixed to all papers which may require it. - 9 - 10 7. WRITTEN ACTION. Any action required or permitted to be taken at, any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. ARTICLE III OFFICERS The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive Vice-President, one or more other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers with such titles as the resolution of the Board of Directors choosing them shall designate. Except as may otherwise be provided in the resolution of the Board of Directors choosing him, no officer other than the Chairman or Vice-Chairman of the Board, if any, need be a director, Any number of offices may be held by the same person, as the directors may determine. Unless otherwise provided in the resolution choosing him, each officer shall be chosen for a term which shall continue until the meeting of the Board of Directors following the next annual meeting of stockholders and until his successor shall have, been chosen and qualified. All officers of the corporation shall have such authority and perform such duties in the management and operation of the corporation as shall be prescribed in the resolutions of the Board of Directors designating and choosing such officers and prescribing their authority and duties, and shall have such additional authority and duties as are incident to their office, except to the extent that such resolutions may be inconsistent therewith. The Secretary or an Assistant Secretary of the corporation shall record all of the proceedings of all meetings and actions in writing of stockholders, directors, and committees of directors, and shall exercise such additional authority and perform such additional duties as the Board shall assign to him. Any officer may be removed, with or without cause, by the Board of Directors. Any vacancy in any office may be filled by the Board of Directors. ARTICLE IV INDEMNIFICATION 1. POWER TO INDEMNITY IN ACTIONS, SUITS, OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article IV and without limiting the rights of the directors and officers of the corporation under any provision of the Articles of Incorporation, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or - 10 - 11 completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in. settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. This termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding had reasonable cause to believe that his conduct was unlawful. 2. POWER TO INDEMNIFY INACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article IV and without limiting the rights of the directors and officers of the corporation under any provision of the Articles of Incorporation, the corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is or was a director or officer of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that a court of competent jurisdiction or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses which such other court shall deem proper. 3. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under this Article IV (unless ordered by a court) shall be made by the corporation (subject to any other requirement by contract or otherwise) only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or section 2 of this Article IV, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described - 11 - 12 above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case. 4. GOOD FAITH DEFINED. For purposes of any determination under Section 3 of this Article IV, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the corporation or another enterprise, or on information supplied to him by the officers of the corporation or another enterprise in the courts of their duties, or on the advice of legal counsel for the corporation or another enterprise or on information or records given or reports made to the corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this Article IV, as the case may be. 5. INDEMNIFICATION BY A COURT. Notwithstanding any contrary determination in the specific case under Section 3 of this Article IV and the absence of any defemination thereunder, and without limiting the rights of the directors and officers of the corporation under any provision of the Articles of Incorporation, any director or officer may apply to any court of competent jurisdiction in the State of Florida for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article IV. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he has not met the applicable standards of conduct sat forth in Section 1 or 2 of this Article IV, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article IV, nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application. 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a director or officer in defending or in investigating a threatened or pending action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article IV. 7. NON-EXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expenses provided by or granted - 12 - 13 pursuant to this Article IV shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Articles of Incorporation or any By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the corporation that indemnification of the persons specified in Section 1 and 2 of this Article IV shall be made to the fullest extent permitted by law. The provisions of this Article IV shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 and 2 of this Article IV, but whom the corporation has the power or obligation to indemnify under the provisions of the Florida Business Corporation Law, or otherwise. 8. INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was a director and officer of the corporation serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article IV. 9. CERTAIN DEFINITIONS. For purposes of this Article IV, reference to "the corporation", shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger, which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employees benefit plan or other enterprise, shall stand in the same position under the provisions of this Article IV with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article IV, reference to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by such director or officer with respect to an employee benefit plan, its participants or beneficiaries, and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the corporations as referred to in this Article IV. 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The indemnification and advancement of expanses provided by, or granted pursuant to, this Article IV shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executers and administrators of such a person. - 13 - 14 11. LIMITATION ON INDEMNIFICATION. Notwithstanding anything contained in this Article IV to the contrary and without limiting the rights of the directors and officers of the corporation under any provisions of the Articles of Incorporation of the corporation, except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the corporation. 12. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the corporation similar to those conferred in this Article IV to directors and officers of the corporation. 13. REPEAL OR MODIFICATION. All rights to indemnification and to advancement of expenses under this Article IV shall be deemed to be a contract between the corporation and each director and officer who serve or has served in any such capacity, and each other person as to whom the corporation has agreed to grant indemnity at any time while the Article is in effect. Any repeal or modification of this Article IV or any other applicable law shall not in any way diminish any right to indemnification or to advancement of expenses of such director, officer or other person as to whom the corporation has agreed to grant indemnity or the obligations of the corporation, arising hereunder for claims relating to matters occurring prior to such repeal or modification. 14. SEVERABILITY. If this Article IV or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and officer, and each employee, agent and other person an to whom the corporation has agreed to grant indemnity to the full extent permitted by any applicable portion of this Article IV that shall not have been invalidated and to the full extent permitted by applicable law. ARTICLE V CORPORATE SEAL The corporate seal shall be in such form as the Board of Directors shall prescribe. ARTICLE VI FISCAL YEAR The fiscal year of the corporation shall be fixed, and shall be subject to change, by the Board of Directors. - 14 - 15 ARTICLE VII CONTROL OVER BY-LAWS Subject to the provisions of the Articles of Incorporation and the provisions of the Florida Business Corporation Law, the power to amend, alter or repeal these By-Laws and to adopt new By-Laws may be exercised by the Board of Directors. I HEREBY CERTIFY that the foregoing is a full, true and correct copy of the By-Laws of RENEX CORP., a Florida corporation, as in effect on the date hereof. WITNESS my hand and the seal of the corporation. Date: July 9, 1993 /s/ MARK D. WALLACE -------------------------------------- -------------------------------- Secretary [SEAL] - 15 - EX-5.1 5 OPINION OF WALLACE, BAUMAN, FODIMAN & SHANNON 1 EXHIBIT 5.1 OPINION OF WALLACE, BAUMAN, FODIMAN & SHANNON, P.A. July 31, 1997 Renex Corp. 2100 Ponce de Leon Boulevard, Suite 950 Coral Gables, Florida 33134 RE: RENEX CORP. REGISTRATION STATEMENT ON FORM S-1 Gentlemen: We have acted as counsel for Renex Corp., a Florida corporation (the "Company"), in connection with the Company's Registration Statement on Form S-1 (the "Registration Statement") being filed by the Company under the Securities Act of 1933, as amended, with respect to 3,450,000 shares (the "Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"). All such Shares are being sold directly by the Company in accordance with the terms of the Registration Statement. In connection with the preparation of the Registration Statement and this letter, we have examined, considered and relied upon the following documents (collectively, the "Documents"): the Registration Statement; the Company's Articles of Incorporation, as amended and filed with the Secretary of State of the State of Florida; Bylaws and corporate minute book; and such matters of law as we have considered necessary or appropriate for the expression of the opinions contained herein. In rendering the opinions set forth below, we have assumed, without investigation, the genuineness of all signatures and the authenticity of all documents submitted to us as originals, the conformity to authentic original documents of all documents submitted to us as copies, and the veracity of the Documents. As to questions of fact material to the opinions hereinafter expressed, we have relied upon the representations and warranties of the Company made in the Documents. Based solely upon and subject to the Documents, and subject to the qualifications set forth below, we are of the opinion that the Shares have been duly authorized and when the Shares have been duly delivered against payment therefor, the Shares will be validly issued, fully paid and nonassessable. Although we have acted as counsel to the Company in connection with certain other matters, our engagement is limited to certain matters about which we have been consulted. Consequently, there may exist matters of a legal nature involving the Company in connection with which we have not been consulted and have not represented the Company. This opinion letter is limited to the matters stated herein and no opinions may be implied or inferred beyond the matters expressly stated herein. The opinions expressed herein are as of the date hereof, and we assume no obligation to update or supplement such opinions to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. 2 We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the caption "Legal Matters" in the prospectus contained in the Registration Statement. Very truly yours, WALLACE, BAUMAN, FODIMAN & SHANNON, P.A. By: /S/ BRYAN W. BAUMAN ----------------------------- BRYAN W. BAUMAN EX-10.1 6 EMPLOYMENT AGREEMENT - JAMES P. SHEA 1 Exhibit 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT entered into as of this 22nd day of April, 1997 by and between RENEX CORP., a Florida corporation ("Company"), and JAMES P. SHEA ("SHEA"). R E C I T A L S: A. The Company is a provider of kidney dialysis treatments in various parts of the United States to individuals suffering from end stage renal disease (the "Business"); and B. SHEA has been in the continuous employ of the Company since August 1993 as its President/Chief Executive Officer; and C. The Company desires to continue to employ SHEA as the Company's President/Chief Executive Officer and SHEA desires to continue to be employed by the Company in such position on the terms and conditions provided herein; and D. The Company believes that it is in the best interest of the Company to assure Shea of a secure minimum compensation and to diminish the inevitable distraction of SHEA that may result in the event of the possibility, threat or occurrence of a change of control, by providing for certain compensation arrangements upon a change of control. NOW THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement and such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. RECITATIONS. The above recitations are true and correct and are incorporated herein by this reference. 2. EMPLOYMENT. 2.1. Position of Employment. The Company hereby continues the employment of SHEA as its President/Chief Executive Officer upon all of the terms and conditions hereinafter set forth. SHEA shall perform such duties as are usually performed by a President/Chief Executive Officer of a business similar in scope as the Business and such other reasonable additional duties as may be prescribed from time to time by the Company's Board of Directors, taking into account SHEA's education, experience and job responsibilities. SHEA shall report directly to the Chairman of the Board. All actions shall be subject and subordinate to review and approval by the Board of Directors and any and all committees of the Board of Directors. The precise responsibilities of SHEA may be modified from time to time in accordance with reasonable policy established by the Board of Directors of the Company consistent with SHEA' qualifications and experience. 2.2. Board Membership. During the term of this Agreement, the Company shall use its best efforts to nominate and cause the election of SHEA to the Company's Board of Directors. 2.3. Devotion of Time. During the term of SHEA' employment, SHEA shall devote his full business time, ability and attention to the business affairs of the Company. SHEA agrees to use his best efforts to perform faithfully and efficiently such responsibilities. SHEA shall be permitted to (i) serve on corporate, civic or charitable boards or committees; and (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions. All income received from such other endeavors shall be for the exclusive benefit of SHEA and the Company shall have no interest therein. 2 2.4. Working Facilities. During the term of this Agreement, the Company shall furnish, at SHEA's principal place of employment, an office, furnishings, secretary and such other facilities commensurate and suitable to his position and adequate for the performance of his duties hereunder. 2.5. Location of Employment. Unless otherwise agreed to by SHEA, SHEA' principal place of business shall be within Dade or Broward Counties, Florida. 3. TERM OF EMPLOYMENT 3.1. Term of Employment. The term of this Agreement shall begin on the date hereof (the "Commencement Date") and shall end two years thereafter, subject to earlier termination or extension as otherwise set forth in this Agreement. 3.2. Automatic Extension. This Agreement shall be automatically extended for successive two (2) year periods at the end of the initial or any extended term, unless either party provides written notice of termination to the other party at least 120 days prior to the expiration of the initial or extended term respectively. 3.3. Termination of Employment by the Company for Cause. The Company may terminate SHEA' employment upon fifteen (15) days written notice for the reasons set forth in Section 3.3.1 below, if such default is not cured within such notice period, or such additional time as is reasonably necessary to cure such default if SHEA is using diligent efforts to cure such default. The Company shall be entitled to terminate SHEA's employment without notice or an opportunity to cure for the reasons set forth in Section 3.3.2 herein. 3.3.1. Notice. Notice or an opportunity to cure shall be required for the following reasons: (a) A default or breach by SHEA of any of the material provisions of this Agreement detrimental to the Company; (b) refusal to follow reasonable and lawful directives of the Company's Board of Directors or any committee thereof which are consistent with SHEA' duties and responsibility outlined in this Agreement; or 3.3.2. No Notice. No notice or an opportunity to cure shall be required for the following: (a) actions by SHEA constituting fraud, embezzlement or dishonesty; (b) the deliberate and knowing breach by SHEA of the Company's internal financial controls; (c) SHEA furnishing false, misleading, or omissive information or omitting to furnish material information to the Company's Board of Directors, or any committee thereof, in the reasonable judgment of the Board of Directors; (d) any action by SHEA which constitutes a breach of the confidentiality of the Business and/or trade secrets of the Company; - 2 - 3 (e) SHEA' gross negligence in the performance of his duties as outlined in this Agreement; (f) any violation of federal or state law by SHEA which have a material detrimental impact on the Company; (g) at such time as SHEA shall have failed, by reason of mental or physical disability or illness ("Disability" as hereinafter defined), to perform his services pursuant to this Agreement for a period of one hundred eighty (180) days. Disability shall be defined to mean the inability of SHEA to perform his duties under this Agreement, based on injury, illness or physical or mental conditions as determined by the Company's Board of Directors, which determination must be supported by two licensed physicians, one of each selected by the Company and SHEA; provided, however, if the Company maintains a policy insuring against the disability of SHEA, Disability shall have the meaning ascribed in such policy. Upon the Board's initial determination of disability, SHEA will submit to mental and physical examinations which shall be paid by the Company, unless otherwise covered by health benefits provided by the Company to SHEA. The failure of SHEA to submit to such reasonable examinations within fifteen (15) days of such request shall be conclusive that such Disability exists. 3.3.3. No Additional Compensation. Upon termination for the reasons set forth in Section 3.3 herein, the Company shall not be liable for any further compensation or benefits following the date of termination, other than accrued Base Salary. Notwithstanding, SHEA shall be entitled to receive all appropriate benefits mandated by the Consolidated Budget Reconciliation Act of 1985 ("COBRA"). 3.4. Termination by SHEA. SHEA may terminate this Agreement upon thirty (30) days written notice, upon the occurrence of a material default of this Agreement by the Company, which default is not cured within the thirty (30) day notice period. Such notice shall set forth with particularity the facts underlying the claimed default. 3.5. Termination without Cause. The Company shall have the right to terminate this Agreement, without cause, upon thirty (30) days written notice to SHEA. Notwithstanding such termination, the Company shall be obligated to pay to SHEA as severance herein the following: 3.5.1. Prior to Change of Control. If termination without cause is prior to a "Change of Control," SHEA shall be entitled to severance equal to the greater of (i) the Base Salary which would have been paid for the balance of the term of this Agreement if it were not terminated, or (ii) one (1) year's Base Salary. The severance payment under this Section 3.5.1 shall be payable in twelve (12) equal monthly installments commencing on the first day of the month following termination. In addition, during such twelve (12) month period, all benefits to SHEA set forth on Section 4.5 herein shall continue to be paid. 3.5.2. Following a Change of Control. If SHEA is terminated without cause at any time following a Change of Control, SHEA shall be entitled to severance equal to the greater of (i) two times the Base Salary which would have been paid for the remainder of the term had the Agreement not been terminated, or (ii) two times the sum of (A) one year's Base Salary then in effect, and (B) any and all bonuses paid to SHEA in the eighteen (18) months prior to the effective date of termination. The severance payments under this Section 3.5.2 shall be paid 50% in cash on the effective date of termination and the balance in twelve (12) equal monthly payments on the 1st day of each month commencing on the 1st day of the month following termination. In addition, all benefits set forth in Section 4.5 herein shall continue to be paid during such twelve month period. - 3 - 4 3.5.3. Stock Options. Notwithstanding anything herein to the contrary, in the event that SHEA' employment is terminated in accordance with this Section 3.5, SHEA rights under any and all employee stock option programs or individual stock option arrangements shall remain in effect and provide to SHEA the ability to exercise any and all stock options vested as of the date of termination through the remainder of the terms of such options, which termination dates shall not be accelerated based on the termination of employment. 3.6. Termination upon Death. This Agreement shall be terminated immediately upon the death of SHEA. Within thirty (30) days following such termination, the Company shall pay to SHEA' estate: (i) all accrued Base Salary and bonuses; and (ii) a sum equal to six (6) months' Base Salary. In addition, upon the determination of bonuses for the fiscal year in which SHEA died, the Company shall pay to SHEA's estate, a prorated bonus based on the number of days SHEA provided services hereunder during the year of his death. 3.7. Termination by SHEA Upon Change of Control. SHEA may terminate this Agreement at any time within one hundred eighty (180) days following a "Change of Control" of the Company by providing thirty (30) days written notice of termination, which notice must be sent within the 180 day period. Upon such termination, SHEA shall be entitled to a severance payment equal to the greater of (i) two times the Base Salary which would have been paid for the remainder of the term had the Agreement not been terminated, or (ii) two times the sum of (A) one year's Base Salary then in effect, and (B) any and all bonuses paid to SHEA in the eighteen (18) months prior to the effective date of termination. The severance payment under this Section 3.7 shall be paid 50% in cash on the effective date of termination and the balance in twelve (12) equal monthly payments on the 1st day of each month commencing on the 1st day of the month following termination. In addition, all benefits set forth in Section 4.5 herein shall continue to be paid during such twelve month period. Notwithstanding anything herein to the contrary, in the event that SHEA' employment is terminated in accordance with this Section 3.5, SHEA rights under any and all employee stock option programs or individual stock option arrangements shall remain in effect and provide to SHEA the ability to exercise any and all stock options vested as of the date of termination through the remainder of the terms of such options, which termination dates shall not be accelerated based on the termination of employment. 3.8. Definition of Change of Control. Change of Control is defined for the purposes of this Agreement as any of the following acts: 3.8.1. The acquisition by any person, entity or "group" within the meaning of ss. 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty-five (25%) percent or more of either the then outstanding shares of the Company's common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors. Notwithstanding, any purchase by underwriters pursuant to a firm commitment underwriting shall not constitute a Change of Control; or 3.8.2. If the individuals who serve on the Company Board of Directors as of the Commencement Date (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any person who becomes a director subsequent to the Commencement Date whose election or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then compiling the Incumbent Board shall be for purposes of this Agreement considered as if such person was a member of the Incumbent Board; or 3.8.3. Approval by the Company's stockholders of (i) a merger, reorganization or consolidation whereby the Company's shareholders immediately prior to such approval do not, immediately after consummation of such reorganization, merger or consolidation own more than 50% of the combined voting power entitled to vote generally in the election of - 4 - 5 directors of the surviving entity's then outstanding voting securities; or (ii) liquidation or dissolution of the Company; or (iii) the sale of all or substantially all of the assets of the Company. 3.9. Certain Reduction of Payments by the Company. Notwithstanding anything in this Agreement to the contrary, in the event that it is determined that any payment or distribution required to be made by the Company to SHEA following a Change of Control under Sections 3.5.2 or 3.7 herein (a "Change of Control Payment"), would be nondeductible by the Company for Federal income tax purposes because of Section 280G of the Internal Revenue Code of 1986, as amended, then the aggregate amounts payable or distributable pursuant to this Agreement shall be reduced to the "Reduced Amount." The Reduced Amount shall be the greater of (i) an amount which is the maximum amount of Change of Control Payments possible without causing any such Change of Control Payment to be nondeductible by the Company because of Section 280G of the Code, or (ii) the Change of Control Payment, if the Change of Control Payments provides SHEA with a greater after tax benefit than (i) herein. The Reduced Amount specified in (i) above shall be expressed in present value which maximizes the aggregate present value of Change of Control Payments without causing any Reduced Amount to be non-deductible by the Company under Section 280G. In addition, if the Change of Control Payments can be restructured through the provision by SHEA of personal services or otherwise following a Change of Control, then the parties shall in good faith attempt to agree to a change in such relationship necessary for SHEA to receive the full benefits of the Change of Control Payment. However, any restructuring of the relationship shall not require SHEA to be employed by the Company or be subject to a non-competition agreement. The determinations required herein shall be made by the independent certified public accounting firm which was engaged by the Company to audit the Company's financial statements for the fiscal year preceding the year in which the Change of Control occurs. SHEA shall have the right to contest such determination. 4. COMPENSATION AND BENEFITS 4.1. Salary. Subject to the provisions of Section 4.2 herein, the Company shall pay to SHEA, a base salary at a total annual rate of $110,000 (the "Base Salary") payable in cash. Base Salary shall be paid in regular payroll intervals consistent with payroll policy established by the Company from time to time. Base Salary shall be automatically increased to $190,000 per year on the earlier of (i) the date that the Company's registration statement of its initial public offering is declared effective by the Securities and Exchange Commission; or (ii) a Change of Control. 4.2. Cost of Living Increase. On each anniversary date of this Agreement during the term hereof or any extension, Base Salary shall be increased by the greater of (i) six (6%) percent of then existing Base Salary, or (ii) the percentage increase, if any, of the consumer price index for Urban Wage Earners and Clerical Workers (Greater Metropolitan Miami area; all items) issued by the Bureau of Labor Statistics of the U.S. Department of Labor. The Company's Board of Directors shall have the discretion to grant increases in Base Salary in excess of the amounts provided herein. 4.3. Bonus. Prior to the commencement of each fiscal year, the Board of Directors or its compensation committee, if any, shall establish in good faith a reasonable and justifiable incentive bonus plan for SHEA for such fiscal year. The incentive bonus plan shall provide SHEA the ability to earn a bonus based upon certain goals and objectives to be established in such incentive bonus plan. Such bonus, if any, shall be payable within thirty (30) days following the completion of the Company's audit for such fiscal year by its independent auditors. 4.4. Stock Options. SHEA shall be eligible from time to time to receive grants of stock options, under stock option plans or otherwise, in such amounts and at such times as determined by the Board of Directors or any committee thereof. All options granted to SHEA shall: (a) have a minimum term of five (5) years within which to exercise such options; (b) have a vesting schedule of no worse than twenty-five (25%) percent as of the date of grant and twenty-five (25%) on each anniversary date of such grant thereafter; (c) vesting shall be accelerated upon a change of control of the Company; (d) have an exercise price no greater than the market price of the underlying securities as of the date of grant; and (e) such other terms and conditions as are customary for similar types of options. 4.5. Additional Benefits. 4.5.1. Vacation. SHEA shall be entitled to a reasonable number of discretionary paid vacation days consistent with his level of employment, duties and seniority during each twelve-month period during the term of this Agreement, but in no event less than twenty (20) days during each period. Vacation time may be accumulated for a period of not longer than two (2) years. SHEA shall not receive compensation for days not used. 4.5.2. Automobile Expenses. During the term of this Agreement, the Company shall pay to SHEA an automobile allowance of $700 per month, which shall be inclusive - 5 - 6 of all expenses associated with the operation of such automobile, including depreciation, gasoline, insurance, repairs and maintenance. 4.5.3. Reimbursement of Expenses. SHEA shall be reimbursed by the Company, upon presentation of adequate receipts, for all business expenses which are reasonably incurred by SHEA in the performance of his duties under this Agreement, including but not limited to travel, cellular phone and similar expenses. All travel expenses shall be incurred in accordance with reasonable policy established by the Board of Directors. 4.5.4. Participation in Employee Benefit Plans. SHEA shall be entitled to participate, subject to eligibility and other terms generally established by the Company's Board of Directors, in any group hospitalization, health, dental care, profit sharing and pension, and other benefit plans, as may be adopted or amended by the Company from time to time as affecting employees of similar status. The Company shall provide health insurance for SHEA and his dependents and shall pay all premiums incurred thereby. 5. REPRESENTATIONS. SHEA hereby represents to the Company that he is in good health, he is physically and mentally capable of performing his duties hereunder and he has no knowledge of any present or past physical or mental condition which would cause an insurance company to reject an application by SHEA for life insurance or for accident, sickness or disability insurance. SHEA represents and warrants that to the best of his knowledge he is not subject to any restrictive covenants under any other agreements prohibiting his performance in full hereunder, or which would subject the Company to any valid claims for tortious interference. 6. CONFIDENTIALITY AND NON-DISCLOSURE OF INFORMATION. 6.1. Confidentiality. SHEA shall not, during the term of this Agreement or at any time thereafter, divulge, furnish or make accessible to anyone without the Company's prior written consent, any knowledge or information with respect to any aspect of the Business, including but not limited to: the Company's costs; fees or models; physician or patient names; provider names; referral sources; addresses and telephone numbers of patients and referral sources; billing procedures, prices and terms; its business techniques, computer programs and printouts; identity of prospective patients, providers or referral sources; information disclosed by the Company's patients to the Company; or other information concerning the Business or its employees. All information given to SHEA in connection with his employment shall be considered confidential and proprietary. 6.2. Ownership of Information. SHEA recognizes that all records; patient lists; provider lists; referral lists; material cost data; fees or models; files and correspondence with patients, referral services, physicians, and providers of services; computer printouts; contracts; reports; notes; business plans; compilations of other recorded matter; and copies or reproductions thereof, relating to the Company's operations and activities made or received by SHEA in the course of his employment are the exclusive property of the Company and SHEA holds and uses same as trustee for the Company and subject to the Company's sole control and will deliver same to the Company at the termination of his employment, or earlier if so requested. All of such information, which if used by SHEA outside the scope of his employment, could cause irreparable and continuing injury to the Business for which there may not be an adequate remedy at law. 7. RESTRICTIVE COVENANT. As an inducement to cause the Company to enter into this Agreement, SHEA covenants and agrees that during his employment, and for a period of one (1) year after he ceases to be employed by the Company, regardless of the manner or cause of termination: 7.1. Non-Competition. SHEA will not be an employee, agent, director, stockholder or owner (except of not more than 1% of the securities of any publicly traded entity), - 6 - 7 partner, consultant, financial backer, creditor or be otherwise directly or indirectly connected with or participate in the management, operation or control of any business, firm, proprietorship, corporation, partnership, association, entity or venture engaged in the provision of services similar to the Company's business as of termination (a "Competing Business") within 100 miles of any office, center, clinic or other location of the Company, or any of its subsidiaries or affiliates; 7.2. Solicitation of Business. SHEA will not contact, call upon, solicit business from, sell or render services to any patient, provider, insurer, HMO, managed care company or contract party of the Company, or any of its affiliates with respect to a Competing Business or purchase from any supplier or potential supplier any materials for same and SHEA shall not directly or indirectly aid or assist any other person, firm or corporation to do any of the aforesaid acts; or 7.3. Solicitation of Employees. SHEA will not directly or indirectly, as principal, agent, owner, partner, stockholder, officer, director, employee, independent contractor or consultant or in any individual or representative capacity for himself or on behalf of any business, firm, corporation, partnership, association or proprietorship enter into any agreements with, solicit, or directly or indirectly cause others to solicit the employment of any officer, sales person, agent, or other employee of the Company, or any of its subsidiaries or affiliates for the purpose of causing said officer, sales person, agent or other employee to terminate employment with the Company. 7.4. Non-Enforcement of Restrictive Covenant: Notwithstanding anything herein to the contrary, if this Agreement is terminated (a) by SHEA as a result of the material breach of this Agreement by the Company, (b) if the Company fails to make any severance payment required herein within ten (10) days after such payment is due, or (c) in accordance with Sections 3.5.2 or 3.7 herein, then in such event the Restrictive Covenants contained in this Section 7 shall thereafter be unenforceable by the Company. Notwithstanding termination of the restrictive covenants, the Company will still be obligated to pay the remaining severance due. 8. ACKNOWLEDGEMENT. SHEA HEREBY ACKNOWLEDGES AND UNDERSTANDS THIS AGREEMENT INHIBITS SHEA'S ABILITY TO WORK FOR THE SAME OR SIMILAR KIND OF BUSINESS FOR A PERIOD OF ONE (1) YEAR AFTER THE END OF SHEA' EMPLOYMENT WITH THE COMPANY. SHEA acknowledges and confirms that the length of the term and geographic restrictions contained in this Agreement are fair and reasonable and not the result of overreaching, duress or coercion of any kind. SHEA further acknowledges and confirms that his full, uninhibited and faithful observance of each of the covenants contained in this Agreement will not cause any undue hardships, financial or otherwise and that enforcement of this Agreement will not impair SHEA' ability to obtain employment commensurate with SHEA' abilities and on terms fully acceptable to SHEA. SHEA acknowledges that SHEA will be receiving significant information regarding the Business which SHEA has not previously received and would not receive without being employed by the Company. SHEA acknowledges and confirms that such information would cause the Company serious injury and loss if used by SHEA for the benefit of a competitor. 9. MATERIAL VIOLATION. A violation of Sections 6 or 7 shall constitute a material and substantial breach of this Agreement and shall result in the imposition of the Company's remedies contained in Section 11. SHEA acknowledges that compliance with the provisions of Sections 6 and 7 are necessary to protect the goodwill and proprietary interests of the Company and is a material condition of employment. SHEA acknowledges and agrees that proof of one such personal solicitation by SHEA of a patient, referral source, HMO, managed care company, insurance company, supplier or employee, shall constitute absolute and conclusive evidence that SHEA has substantially and materially breached the provisions of this Agreement. 10. MATERIAL COVENANTS. It is understood by and between the parties that the foregoing covenants set forth in Sections 6 and 7 are essential elements of this Agreement, and that but for the agreement of SHEA to comply with such covenants, the Company would not have - 7 - 8 entered into this Agreement. Such covenants by SHEA shall be construed as agreements independent of any other provision of this Agreement and the existence of any claim or cause of action SHEA may have against the Company whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of these covenants. 11. REMEDIES. SHEA hereby acknowledges, covenants and agrees that in the event of a material default or breach under this Agreement: (a) the Company will suffer irreparable and continuing damages as a result of such breach and its remedy at law will be inadequate. SHEA agrees that in the event of a violation or breach of this Agreement, in addition to any other remedies available to them, the Company shall be entitled to an injunction restraining any such default or any other appropriate decree of specific performance, without any requirement to prove actual damages or to post any bond or any other security and to any other equitable relief the court deems proper; and (b) Any and all of the Company's remedies described in this Agreement shall not be exclusive and shall be in addition to any other remedies which the Company may have at law or in equity including, but not limited to, the right to monetary damages. 12. INDEMNIFICATION. The Company agrees to indemnify SHEA for any and all liabilities to which he may be subject as a result of his service to the Company as an officer, director, or agent or of any other enterprise in which he serves at the request of the Company, or otherwise as a result of his employment hereunder, including all expenses, including legal fees and costs incurred as a result of any proceedings brought or threatened against SHEA, to the fullest extent permitted by law. Counsel's fees, to the fullest extent permitted by law, shall be paid by the Company in advance of any final disposition of a proceeding upon receipt of an undertaking by SHEA that he will repay such fees if it is ultimately determined by a court of competent jurisdiction that he is not entitled to indemnification. The Company will use its best efforts to obtain and keep in force adequate director and officer liability insurance during the term of this Agreement and for six (6) years thereafter, if available at a reasonable cost. 13. SEVERABILITY. The invalidity of any one or more of the words, phrases, sentences, clauses, sections, subdivisions, subparagraphs, paragraphs or articles contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being legally valid. In the event that one or more of the words, phrases, sentences, clauses, sections, subdivisions, subparagraphs, paragraphs or articles are determined to be unenforceable and if such invalidity shall be caused by the length of any period of time or the size of any area set forth in any part hereof, such period of time or such area, or both, shall be considered to be reduced to a period or area which would cure such invalidity. 14. NOTICE. Any notices or other communications to any party pursuant to or relating to this Agreement must be in writing and shall be deemed to have been given or delivered when hand-delivered, mailed through the U.S. Postal Service via certified mail, return receipt requested, postage prepaid, through a nationally recognized overnight courier, or via facsimile to the party at their addresses below: Company: Renex Corp. 2100 Ponce de Leon Boulevard, Suite 950 Coral Gables, Florida 33134 Attention: Chairman of the Board - 8 - 9 with a copy to: Bryan W. Bauman, Esq. Wallace, Bauman, Fodiman & Shannon, P.A. 2222 Ponce de Leon Boulevard, Sixth Floor Coral Gables, Florida 33134 SHEA: James P. Shea 10295 Collins Avenue #1420 Bal Harbor, FL 33154 or such other address given by such party to the other party at any time hereafter. 15. ENTIRE AGREEMENT. This Agreement contains the sole and entire agreement between the parties with respect to the subject matter hereof and supersedes any and all other prior written or oral agreements between them as to such subject matter. 16. AMENDMENT. No amendment, waiver or modification of this Agreement or any provisions of this Agreement shall be valid unless in writing and duly executed by both parties. 17. BINDING AGREEMENT. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors and assigns. 18. WAIVER. Any waiver by any party of any breach of any provision of this Agreement shall not be considered as or constitute a continuing waiver or waiver of any other breach of any provision of this Agreement. 19. ASSIGNMENT. No party may assign their rights hereunder without the prior written consent of the other, except that the Company may assign its rights to any affiliate or successor entity without the consent of SHEA subject to the provisions of Section 3.7 herein. 20. CAPTIONS. Captions contained in this Agreement are inserted only as a matter of convenience or for reference and in no way defines, limits, extends, or describes the scope of this Agreement or the intent of any provisions of this Agreement. 21. ATTORNEYS' FEES. In the event of any litigation arising out of this Agreement, the prevailing party shall be entitled to recover its attorneys' fees and costs, including attorneys' fees and costs incurred on appeal. 22. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Florida. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. RENEX CORP., a Florida corporation By: /s/ Orestes L. Lugo ----------------------------------- Name: Orestes L. Lugo -------------------------------- Title: Vice President ------------------------------- /s/ James P. Shea -------------------------------------- JAMES P. SHEA - 9 - EX-10.2 7 EMPLOYMENT AGREEMENT - ORESTES L. LUGO 1 Exhibit 10.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT entered into as of this 22nd day of April, 1997 by and between RENEX CORP., a Florida corporation ("Company"), and ORESTES L. LUGO ("LUGO"). R E C I T A L S: A. The Company is a provider of kidney dialysis treatments in various parts of the United States to individuals suffering from end stage renal disease (the "Business"); and B. LUGO has been in the continuous employ of the Company since August 1995 as its Vice President/Chief Financial Officer; and C. The Company desires to continue to employ LUGO as the Company's Vice President/Chief Financial Officer and LUGO desires to continue to be employed by the Company in such position on the terms and conditions provided herein; and D. The Company believes that it is in the best interest of the Company to assure LUGO of a secure minimum compensation and to diminish the inevitable distraction of LUGO that may result in the event of the possibility, threat or occurrence of a change of control, by providing for certain compensation arrangements upon a change of control. NOW THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement and such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. RECITATIONS. The above recitations are true and correct and are incorporated herein by this reference. 2. EMPLOYMENT. 2.1. Position of Employment. The Company hereby continues the employment of LUGO as its Vice President/Chief Financial Officer upon all of the terms and conditions hereinafter set forth. LUGO shall perform such duties as are usually performed by a Vice President/Chief Financial Officer of a business similar in scope as the Business and such other reasonable additional duties as may be prescribed from time to time by the Company's Board of Directors, taking into account LUGO's education, experience and job responsibilities. LUGO shall report directly to the President. All actions shall be subject and subordinate to review and approval by the Board of Directors and any and all committees of the Board of Directors. The precise responsibilities of LUGO may be modified from time to time in accordance with reasonable policy established by the Board of Directors of the Company consistent with LUGO' qualifications and experience. 2.2. Devotion of Time. During the term of LUGO' employment, LUGO shall devote his full business time, ability and attention to the business affairs of the Company. LUGO agrees to use his best efforts to perform faithfully and efficiently such responsibilities. LUGO shall be permitted to (i) serve on corporate, civic or charitable boards or committees; and (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions. All income received from such other endeavors shall be for the exclusive benefit of LUGO and the Company shall have no interest therein. 2.3. Working Facilities. During the term of this Agreement, the Company shall furnish, at LUGO's principal place of employment, an office, furnishings, secretary and such other facilities commensurate and suitable to his position and adequate for the performance of his duties hereunder. 2 2.4. Location of Employment. Unless otherwise agreed to by LUGO, LUGO's principal place of business shall be within Dade or Broward Counties, Florida. 3. TERM OF EMPLOYMENT 3.1. Term of Employment. The term of this Agreement shall begin on the date hereof (the "Commencement Date") and shall end two years thereafter, subject to earlier termination or extension as otherwise set forth in this Agreement. 3.2. Automatic Extension. This Agreement shall be automatically extended for successive two (2) year periods at the end of the initial or any extended term, unless either party provides written notice of termination to the other party at least 120 days prior to the expiration of the initial or extended term respectively. 3.3. Termination of Employment by the Company for Cause. The Company may terminate LUGO's employment upon fifteen (15) days written notice for the reasons set forth in Section 3.3.1 below, if such default is not cured within such notice period, or such additional time as is reasonably necessary to cure such default if LUGO is using diligent efforts to cure such default. The Company shall be entitled to terminate LUGO's employment without notice or an opportunity to cure for the reasons set forth in Section 3.3.2 herein. 3.3.1. Notice. Notice or an opportunity to cure shall be required for the following reasons: (a) A default or breach by LUGO of any of the material provisions of this Agreement detrimental to the Company; (b) refusal to follow reasonable and lawful directives of the Company's Board of Directors or any committee thereof which are consistent with LUGO' duties and responsibility outlined in this Agreement; or 3.3.2. No Notice. No notice or an opportunity to cure shall be required for the following: (a) actions by LUGO constituting fraud, embezzlement or dishonesty; (b) the deliberate and knowing breach by LUGO of the Company's internal financial controls; (c) LUGO furnishing false, misleading, or omissive information or omitting to furnish material information to the Company's Board of Directors, or any committee thereof, in the reasonable judgment of the Board of Directors; (d) any action by LUGO which constitutes a breach of the confidentiality of the Business and/or trade secrets of the Company; (e) LUGO's gross negligence in the performance of his duties as outlined in this Agreement; - 2 - 3 (f) any violation of federal or state law by LUGO which have a material detrimental impact on the Company; (g) at such time as LUGO shall have failed, by reason of mental or physical disability or illness ("Disability" as hereinafter defined), to perform his services pursuant to this Agreement for a period of one hundred eighty (180) days. Disability shall be defined to mean the inability of LUGO to perform his duties under this Agreement, based on injury, illness or physical or mental conditions as determined by the Company's Board of Directors, which determination must be supported by two licensed physicians, one of each selected by the Company and LUGO; provided, however, if the Company maintains a policy insuring against the disability of LUGO, Disability shall have the meaning ascribed in such policy. Upon the Board's initial determination of disability, LUGO will submit to mental and physical examinations which shall be paid by the Company, unless otherwise covered by health benefits provided by the Company to LUGO. The failure of LUGO to submit to such reasonable examinations within fifteen (15) days of such request shall be conclusive that such Disability exists. 3.3.3. No Additional Compensation. Upon termination for the reasons set forth in Section 3.3 herein, the Company shall not be liable for any further compensation or benefits following the date of termination, other than accrued Base Salary. Notwithstanding, LUGO shall be entitled to receive all appropriate benefits mandated by the Consolidated Budget Reconciliation Act of 1985 ("COBRA"). 3.4. Termination by LUGO. LUGO may terminate this Agreement upon thirty (30) days written notice, upon the occurrence of a material default of this Agreement by the Company, which default is not cured within the thirty (30) day notice period. Such notice shall set forth with particularity the facts underlying the claimed default. 3.5. Termination without Cause. The Company shall have the right to terminate this Agreement, without cause, upon thirty (30) days written notice to LUGO. Notwithstanding such termination, the Company shall be obligated to pay to LUGO as severance herein the following: 3.5.1. Prior to Change of Control. If termination without cause is prior to a "Change of Control," LUGO shall be entitled to severance equal to the greater of (i) the Base Salary which would have been paid for the balance of the term of this Agreement if it were not terminated, or (ii) one (1) year's Base Salary. The severance payment under this Section 3.5.1 shall be payable in twelve (12) equal monthly installments commencing on the first day of the month following termination. In addition, during such twelve (12) month period, all benefits to LUGO set forth on Section 4.5 herein shall continue to be paid. 3.5.2. Following a Change of Control. If LUGO is terminated without cause at any time following a Change of Control, LUGO shall be entitled to severance equal to the greater of (i) two times the Base Salary which would have been paid for the remainder of the term had the Agreement not been terminated, or (ii) two times the sum of (A) one year's Base Salary then in effect, and (B) any and all bonuses paid to LUGO in the eighteen (18) months prior to the effective date of termination. The severance payments under this Section 3.5.2 shall be paid 50% in cash on the effective date of termination and the balance in twelve (12) equal monthly payments on the 1st day of each month commencing on the 1st day of the month following termination. In addition, all benefits set forth in Section 4.5 herein shall continue to be paid during such twelve month period. 3.5.3. Stock Options. Notwithstanding anything herein to the contrary, in the event that LUGO's employment is terminated in accordance with this Section 3.5, LUGO's rights under any and all employee stock option programs or individual stock option arrangements shall remain in effect and provide to LUGO the ability to exercise any and all stock options vested - 3 - 4 as of the date of termination through the remainder of the terms of such options, which termination dates shall not be accelerated based on the termination of employment. 3.6. Termination upon Death. This Agreement shall be terminated immediately upon the death of LUGO. Within thirty (30) days following such termination, the Company shall pay to LUGO' estate: (i) all accrued Base Salary and bonuses; and (ii) a sum equal to six (6) months' Base Salary. In addition, upon the determination of bonuses for the fiscal year in which LUGO died, the Company shall pay to LUGO's estate, a prorated bonus based on the number of days LUGO provided services hereunder during the year of his death. 3.7. Termination by LUGO Upon Change of Control. LUGO may terminate this Agreement at any time within one hundred eighty (180) days following a "Change of Control" of the Company by providing thirty (30) days written notice of termination, which notice must be sent within the 180 day period. Upon such termination, LUGO shall be entitled to a severance payment equal to the greater of (i) two times the Base Salary which would have been paid for the remainder of the term had the Agreement not been terminated, or (ii) two times the sum of (A) one year's Base Salary then in effect, and (B) any and all bonuses paid to LUGO in the eighteen (18) months prior to the effective date of termination. The severance payment under this Section 3.7 shall be paid 50% in cash on the effective date of termination and the balance in twelve (12) equal monthly payments on the 1st day of each month commencing on the 1st day of the month following termination. In addition, all benefits set forth in Section 4.5 herein shall continue to be paid during such twelve month period. Notwithstanding anything herein to the contrary, in the event that LUGO's employment is terminated in accordance with this Section 3.7, LUGO's rights under any and all employee stock option programs or individual stock option arrangements shall remain in effect and provide to LUGO the ability to exercise any and all stock options vested as of the date of termination through the remainder of the terms of such options, which termination dates shall not be accelerated based on the termination of employment. 3.8. Definition of Change of Control. Change of Control is defined for the purposes of this Agreement as any of the following acts: 3.8.1. The acquisition by any person, entity or "group" within the meaning of ss. 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty-five (25%) percent or more of either the then outstanding shares of the Company's common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors. Notwithstanding, any purchase by underwriters pursuant to a firm commitment underwriting shall not constitute a Change of Control; or 3.8.2. If the individuals who serve on the Company Board of Directors as of the Commencement Date (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any person who becomes a director subsequent to the Commencement Date whose election or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the directors then compiling the Incumbent Board shall be for purposes of this Agreement considered as if such person was a member of the Incumbent Board; or 3.8.3. Approval by the Company's stockholders of (i) a merger, reorganization or consolidation whereby the Company's shareholders immediately prior to such approval do not, immediately after consummation of such reorganization, merger or consolidation own more than 50% of the combined voting power entitled to vote generally in the election of directors of the surviving entity's then outstanding voting securities; or (ii) liquidation or dissolution of the Company; or (iii) the sale of all or substantially all of the assets of the Company. 3.9. Certain Reduction of Payments by the Company. Notwithstanding anything in this Agreement to the contrary, in the event that it is determined that any payment or distribution required to be made by the Company to LUGO following a Change of Control under Sections 3.5.2 or 3.7 herein (a "Change of Control Payment"), would be nondeductible by the Company for Federal income tax purposes because of Section 280G of the Internal Revenue Code of 1986, as amended, then the aggregate amounts payable or distributable pursuant to this Agreement shall be reduced to the "Reduced Amount." The Reduced Amount shall be the greater of (i) an amount which is the maximum amount of Change of Control Payments possible without causing any such Change of Control Payment to be nondeductible by the Company because of Section 280G of the Code, or (ii) the Change of Control Payment, if the Change of Control Payments provides LUGO with a greater after tax benefit than (i) herein. The Reduced Amount specified in (i) above shall be expressed in present value which maximizes the aggregate present value of Change of Control Payments without causing any Reduced Amount to be non-deductible by the Company under Section 280G. In addition, if the Change of Control Payments can be restructured through the provision by LUGO of personal services or otherwise following a Change of Control, then the parties shall in good faith attempt to agree to a change in such relationship necessary for LUGO to receive the full benefits of the Change of Control Payment. However, any restructuring of the relationship shall not require LUGO to be employed by the Company or be subject to a non-competition agreement. The determinations required herein shall be made by the independent certified public accounting firm which was engaged by the Company to audit the Company's financial statements for the fiscal year preceding the year in which the Change of Control occurs. LUGO shall have the right to contest such determination. - 4 - 5 4. COMPENSATION AND BENEFITS 4.1. Salary. Subject to the provisions of Section 4.2 herein, the Company shall pay to LUGO, a base salary at a total annual rate of $102,500 (the "Base Salary") payable in cash. Base Salary shall be paid in regular payroll intervals consistent with payroll policy established by the Company from time to time. Base Salary shall be automatically increased to $155,000 per year on the earlier of (i) the date the Company's registration statement of its initial public offering is declared effective by the Securities and Exchange Commission; or (ii) a Change of Control. 4.2. Cost of Living Increase. On each anniversary date of this Agreement during the term hereof or any extension, Base Salary shall be increased by the greater of (i) six (6%) percent of then existing Base Salary, or (ii) the percentage increase, if any, of the consumer price index for Urban Wage Earners and Clerical Workers (Greater Metropolitan Miami area; all items) issued by the Bureau of Labor Statistics of the U.S. Department of Labor. The Company's Board of Directors shall have the discretion to grant increases in Base Salary in excess of the amounts provided herein. 4.3. Bonus. Prior to the commencement of each fiscal year, the Board of Directors or its compensation committee, if any, shall establish in good faith a reasonable and justifiable incentive bonus plan for LUGO for such fiscal year. The incentive bonus plan shall provide LUGO the ability to earn a bonus based upon certain goals and objectives to be established in such incentive bonus plan. Such bonus, if any, shall be payable within thirty (30) days following the completion of the Company's audit for such fiscal year by its independent auditors. 4.4. Stock Options. LUGO shall be eligible from time to time to receive grants of stock options, under stock option plans or otherwise, in such amounts and at such times as determined by the Board of Directors or any committee thereof. All options granted to LUGO shall: (a) have a minimum term of five (5) years within which to exercise such options; (b) have a vesting schedule of no worse than twenty-five (25%) percent as of the date of grant and twenty-five (25%) on each anniversary date of such grant thereafter; (c) vesting shall be accelerated upon a change of control of the Company; (d) have an exercise price no greater than the market price of the underlying securities as of the date of grant; and (e) such other terms and conditions as are customary for similar types of options. 4.5. Additional Benefits. 4.5.1. Vacation. LUGO shall be entitled to a reasonable number of discretionary paid vacation days consistent with his level of employment, duties and seniority during each twelve-month period during the term of this Agreement, but in no event less than fifteen (15) days during each period. Vacation time may be accumulated for a period of not longer than two (2) years. LUGO shall not receive compensation for days not used. 4.5.2. Automobile Expenses. During the term of this Agreement, the Company shall pay to LUGO an automobile allowance of $600 per month, which shall be inclusive of all expenses associated with the operation of such automobile, including depreciation, gasoline, insurance, repairs and maintenance. 4.5.3. Professional Education. During each calendar year during the term of this Agreement, the Company shall pay for the cost of 40 hours of continuing professional education ("CPE") credits necessary for LUGO to maintain his certified public accounting license. Such CPE costs shall include LUGO's attendance at one national out-of-town CPE class of his choice during each calendar year, up to a maximum of $3,000 for such attendance, which expenses shall include the cost of the CPE credits, travel, hotel accommodations and other reimbursement of expenses consistent with normal Company travel policy. 4.5.4. Reimbursement of Expenses. LUGO shall be reimbursed by the Company, upon presentation of adequate receipts, for all business expenses which are reasonably - 5 - 6 incurred by LUGO in the performance of his duties under this Agreement, including but not limited to travel, cellular phone and similar expenses. All travel expenses shall be incurred in accordance with reasonable policy established by the Board of Directors. 4.5.5. Participation in Employee Benefit Plans. LUGO shall be entitled to participate, subject to eligibility and other terms generally established by the Company's Board of Directors, in any group hospitalization, health, dental care, profit sharing and pension, and other benefit plans, as may be adopted or amended by the Company from time to time as affecting employees of similar status. The Company shall provide health insurance for LUGO and his dependents and shall pay all premiums incurred thereby. 5. REPRESENTATIONS. LUGO hereby represents to the Company that he is in good health, he is physically and mentally capable of performing his duties hereunder and he has no knowledge of any present or past physical or mental condition which would cause an insurance company to reject an application by LUGO for life insurance or for accident, sickness or disability insurance. LUGO represents and warrants that to the best of his knowledge he is not subject to any restrictive covenants under any other agreements prohibiting his performance in full hereunder, or which would subject the Company to any valid claims for tortious interference. 6. CONFIDENTIALITY AND NON-DISCLOSURE OF INFORMATION. 6.1. Confidentiality. LUGO shall not, during the term of this Agreement or at any time thereafter, divulge, furnish or make accessible to anyone without the Company's prior written consent, any knowledge or information with respect to any aspect of the Business, including but not limited to: the Company's costs; fees or models; physician or patient names; provider names; referral sources; addresses and telephone numbers of patients and referral sources; billing procedures, prices and terms; its business techniques, computer programs and printouts; identity of prospective patients, providers or referral sources; information disclosed by the Company's patients to the Company; or other information concerning the Business or its employees. All information given to LUGO in connection with his employment shall be considered confidential and proprietary. 6.2. Ownership of Information. LUGO recognizes that all records; patient lists; provider lists; referral lists; material cost data; fees or models; files and correspondence with patients, referral services, physicians, and providers of services; computer printouts; contracts; reports; notes; business plans; compilations of other recorded matter; and copies or reproductions thereof, relating to the Company's operations and activities made or received by LUGO in the course of his employment are the exclusive property of the Company and LUGO holds and uses same as trustee for the Company and subject to the Company's sole control and will deliver same to the Company at the termination of his employment, or earlier if so requested. All of such information, which if used by LUGO outside the scope of his employment, could cause irreparable and continuing injury to the Business for which there may not be an adequate remedy at law. 7. RESTRICTIVE COVENANT. As an inducement to cause the Company to enter into this Agreement, LUGO covenants and agrees that during his employment, and for a period of one (1) year after he ceases to be employed by the Company, regardless of the manner or cause of termination: 7.1. Non-Competition. LUGO will not be an employee, agent, director, stockholder or owner (except of not more than 1% of the securities of any publicly traded entity), partner, consultant, financial backer, creditor or be otherwise directly or indirectly connected with or participate in the management, operation or control of any business, firm, proprietorship, corporation, partnership, association, entity or venture engaged in the provision of services similar to the Company's business as of termination (a "Competing Business") within 100 miles of any office, center, clinic or other location of the Company, or any of its subsidiaries or affiliates; - 6 - 7 7.2. Solicitation of Business. LUGO will not contact, call upon, solicit business from, sell or render services to any patient, provider, insurer, HMO, managed care company or contract party of the Company, or any of its affiliates with respect to a Competing Business or purchase from any supplier or potential supplier any materials for same and LUGO shall not directly or indirectly aid or assist any other person, firm or corporation to do any of the aforesaid acts; or 7.3. Solicitation of Employees. LUGO will not directly or indirectly, as principal, agent, owner, partner, stockholder, officer, director, employee, independent contractor or consultant or in any individual or representative capacity for himself or on behalf of any business, firm, corporation, partnership, association or proprietorship enter into any agreements with, solicit, or directly or indirectly cause others to solicit the employment of any officer, sales person, agent, or other employee of the Company, or any of its subsidiaries or affiliates for the purpose of causing said officer, sales person, agent or other employee to terminate employment with the Company. 7.4. Non-Enforcement of Restrictive Covenant: Notwithstanding anything herein to the contrary, if this Agreement is terminated (a) by LUGO as a result of the material breach of this Agreement by the Company, (b) if the Company fails to make any severance payment required herein within ten (10) days after such payment is due, or (c) in accordance with Sections 3.5.2 or 3.7 herein, then in such event the Restrictive Covenants contained in this Section 7 shall thereafter be unenforceable by the Company. Notwithstanding termination of the restrictive covenants, the Company will still be obligated to pay the remaining severance due. 8. ACKNOWLEDGMENT. LUGO HEREBY ACKNOWLEDGES AND UNDERSTANDS THIS AGREEMENT INHIBITS LUGO'S ABILITY TO WORK FOR THE SAME OR SIMILAR KIND OF BUSINESS FOR A PERIOD OF ONE (1) YEAR AFTER THE END OF LUGO' EMPLOYMENT WITH THE COMPANY. LUGO acknowledges and confirms that the length of the term and geographic restrictions contained in this Agreement are fair and reasonable and not the result of overreaching, duress or coercion of any kind. LUGO further acknowledges and confirms that his full, uninhibited and faithful observance of each of the covenants contained in this Agreement will not cause any undue hardships, financial or otherwise and that enforcement of this Agreement will not impair LUGO's ability to obtain employment commensurate with LUGO's abilities and on terms fully acceptable to LUGO. LUGO acknowledges that LUGO will be receiving significant information regarding the Business which LUGO has not previously received and would not receive without being employed by the Company. LUGO acknowledges and confirms that such information would cause the Company serious injury and loss if used by LUGO for the benefit of a competitor. 9. MATERIAL VIOLATION. A violation of Sections 6 or 7 shall constitute a material and substantial breach of this Agreement and shall result in the imposition of the Company's remedies contained in Section 11. LUGO acknowledges that compliance with the provisions of Sections 6 and 7 are necessary to protect the goodwill and proprietary interests of the Company and is a material condition of employment. LUGO acknowledges and agrees that proof of one such personal solicitation by LUGO of a patient, referral source, HMO, managed care company, insurance company, supplier or employee, shall constitute absolute and conclusive evidence that LUGO has substantially and materially breached the provisions of this Agreement. 10. MATERIAL COVENANTS. It is understood by and between the parties that the foregoing covenants set forth in Sections 6 and 7 are essential elements of this Agreement, and that but for the agreement of LUGO to comply with such covenants, the Company would not have entered into this Agreement. Such covenants by LUGO shall be construed as agreements independent of any other provision of this Agreement and the existence of any claim or cause of action LUGO may have against the Company whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of these covenants. - 7 - 8 11. REMEDIES. LUGO hereby acknowledges, covenants and agrees that in the event of a material default or breach under this Agreement: (a) the Company will suffer irreparable and continuing damages as a result of such breach and its remedy at law will be inadequate. LUGO agrees that in the event of a violation or breach of this Agreement, in addition to any other remedies available to them, the Company shall be entitled to an injunction restraining any such default or any other appropriate decree of specific performance, without any requirement to prove actual damages or to post any bond or any other security and to any other equitable relief the court deems proper; and (b) Any and all of the Company's remedies described in this Agreement shall not be exclusive and shall be in addition to any other remedies which the Company may have at law or in equity including, but not limited to, the right to monetary damages. 12. INDEMNIFICATION. The Company agrees to indemnify LUGO for any and all liabilities to which he may be subject as a result of his service to the Company as an officer, director, or agent or of any other enterprise in which he serves at the request of the Company, or otherwise as a result of his employment hereunder, including all expenses, including legal fees and costs incurred as a result of any proceedings brought or threatened against LUGO, to the fullest extent permitted by law. Counsel's fees, to the fullest extent permitted by law, shall be paid by the Company in advance of any final disposition of a proceeding upon receipt of an undertaking by LUGO that he will repay such fees if it is ultimately determined by a court of competent jurisdiction that he is not entitled to indemnification. The Company will use its best efforts to obtain and keep in force adequate director and officer liability insurance during the term of this Agreement and for six (6) years thereafter, if available at a reasonable cost. 13. SEVERABILITY. The invalidity of any one or more of the words, phrases, sentences, clauses, sections, subdivisions, subparagraphs, paragraphs or articles contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being legally valid. In the event that one or more of the words, phrases, sentences, clauses, sections, subdivisions, subparagraphs, paragraphs or articles are determined to be unenforceable and if such invalidity shall be caused by the length of any period of time or the size of any area set forth in any part hereof, such period of time or such area, or both, shall be considered to be reduced to a period or area which would cure such invalidity. 14. NOTICE. Any notices or other communications to any party pursuant to or relating to this Agreement must be in writing and shall be deemed to have been given or delivered when hand-delivered, mailed through the U.S. Postal Service via certified mail, return receipt requested, postage prepaid, through a nationally recognized overnight courier, or via facsimile to the party at their addresses below: Company: Renex Corp. 2100 Ponce de Leon Boulevard, Suite 950 Coral Gables, Florida 33134 Attention: President with a copy to: Bryan W. Bauman, Esq. Wallace, Bauman, Fodiman & Shannon, P.A. 2222 Ponce de Leon Boulevard, Sixth Floor Coral Gables, Florida 33134 LUGO: 1900 Sunset Harbor Drive, Unit 1102 Miami Beach, FL - 8 - 9 or such other address given by such party to the other party at any time hereafter. 15. ENTIRE AGREEMENT. This Agreement contains the sole and entire agreement between the parties with respect to the subject matter hereof and supersedes any and all other prior written or oral agreements between them as to such subject matter. 16. AMENDMENT. No amendment, waiver or modification of this Agreement or any provisions of this Agreement shall be valid unless in writing and duly executed by both parties. 17. BINDING AGREEMENT. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors and assigns. 18. WAIVER. Any waiver by any party of any breach of any provision of this Agreement shall not be considered as or constitute a continuing waiver or waiver of any other breach of any provision of this Agreement. 19. ASSIGNMENT. No party may assign their rights hereunder without the prior written consent of the other, except that the Company may assign its rights to any affiliate or successor entity without the consent of LUGO subject to the provisions of Section 3.7 herein. 20. CAPTIONS. Captions contained in this Agreement are inserted only as a matter of convenience or for reference and in no way defines, limits, extends, or describes the scope of this Agreement or the intent of any provisions of this Agreement. 21. ATTORNEYS' FEES. In the event of any litigation arising out of this Agreement, the prevailing party shall be entitled to recover its attorneys' fees and costs, including attorneys' fees and costs incurred on appeal. 22. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Florida. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. RENEX CORP., a Florida corporation By: /s/ James P. Shea --------------------------------------- Name: James P. Shea -------------------------------------- Title: President ------------------------------------- /s/ Orestes L. Lugo -------------------------------------------- ORESTES L. LUGO - 9 - EX-10.3 8 LOAN AND SECURITY AGREEMENT 1 Exhibit 10.3 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated as of August 23, 1996 by and between DVI BUSINESS CREDIT CORPORATION, a Delaware corporation ("Lender") and RENEX CORPORATION, a Florida corporation, RENEX DIALYSIS CLINIC OF MIAMI BEACH, INC., a Florida corporation, RENEX DIALYSIS CLINIC OF TAMPA, INC., a Florida corporation, RENEX DIALYSIS HOMECARE OF TAMPA, INC., a Florida corporation, RENEX DIALYSIS CLINIC OF PHILADELPHIA, INC., a Pennsylvania corporation, RENEX DIALYSIS CLINIC OF PITTSBURGH, INC., a Pennsylvania corporation, RENEX DIALYSIS HOMECARE OF GREATER PITTSBURGH, INC., a Pennsylvania corporation, RENEX DIALYSIS CLINIC OF AMESBURY, INC., a Massachusetts corporation, RENEX DIALYSIS CLINIC OF CREVE COUER, INC., a Missouri corporation, RENEX DIALYSIS HOMECARE OF GREATER ST. LOUIS, INC., a Missouri corporation, RENEX DIALYSIS CLINIC OF UNIVERSITY CITY, INC., a Missouri corporation, RENEX DIALYSIS CLINIC OF BRIDGETON, INC., a Missouri corporation, and RENEX DIALYSIS FACILITIES, INC., a Mississippi corporation (collectively hereinafter referred to as "Borrower") . SECTION 1 DEFINITIONS SECTION 1.1. SPECIFIC DEFINITIONS The following definitions shall apply: (a) "Account Debtors" shall mean Borrower's customers and all other persons who are obligated or indebted to Borrower in any manner, whether directly or indirectly, primarily or secondarily, contingently or otherwise, with respect to Accounts. (b) "Accounts" shall mean all accounts, accounts receivable, monies and debt obligations in any form owing to Borrower (whether arising in connection with contracts, contract rights, instruments, general intangibles or chattel paper) arising out of the rendition of services by Borrower whether or not earned by performance; all deposit accounts. credit insurance, guaranties. letters of credit, advises of credit and other security for any of the above; Borrower's Books relating to any of the foregoing. (c) "Advance" shall mean an advance of loan proceeds constituting all or a part of the Loan. (d) "Borrower's Books" shall mean all of Borrower's books and records including but not limited to: minute books, ledgers; records indicating, summarizing or evidencing Borrower's assets, liabilities and the Accounts; all information relating to Borrower's business operations or financial condition; and all computer programs, disk or tape files, printouts, runs and other computer prepared information and the equipment containing such information; provided, however, that confidential patient records shall not be included therein, except to the extent otherwise provided by law. (e) "Prime Rate" shall mean the rate of interest announced publicly by Bank of America from time to time as its prime rate. (f) "Borrowing Base" shall mean, on the date of determination thereof, an amount equal to the sum of eighty percent (80%) of the Net Collectible Value for each type of Eligible Account. (g) "Closing Date" shall mean the date of the first Advance of the Loan. (h) "Collateral" shall have the meaning specified in Section 3.1 hereof. (i) "Commitment Amount" shall have the meaning set forth in Section 2.1. (j) "Distribution" shall mean, with respect to any shares of capital stock or any warrant or right to acquire shares of capital stock or any other equity security, (i) the retirement, redemption, purchase or other acquisition, directly or indirectly, for value by the issuer of any such security, except to the extent that the consideration therefor consists of shares of stock, (ii) the declaration or (without duplication) payment of - 1 - 2 any dividend in cash, directly or indirectly, on or with respect to any such security, (iii) any investment in the holder of five percent (5%) or more of any such security if a purpose of such investment is to avoid characterization of the transaction as a Distribution, and (iv) any other cash payment constituting a distribution under applicable laws with respect to such security. (k) "Eligible Accounts" shall mean Borrower's accounts receivable from commercial insurance, Medicare, Medicaid, and HMO/PPO payors (collectively referred to as "Retail Accounts"), which have been due and payable for one hundred eighty (180) or fewer days, and Borrower's account receivable under contracts with hospitals and other similar health service providers (referred to as "Institutional Accounts") which have been due and payable for one hundred eighty (180) or fewer days. (l) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and all references to sections thereof shall include such sections and any predecessor provisions thereto, including any rules or regulations issued in connection therewith. (m) "Event of Default" shall have the meaning specified in Section 10 hereof. (n) "Fair Value" means (i) with respect to Borrower's assets, if Net Fair Value is being determined as of a date on or prior to the first anniversary of the date hereof, the lower of (1) the value of such assets as determined in accordance with Bankruptcy Code ss.5487 or (2) the value of such assets as determined in accordance with the state fraudulent conveyance or fraudulent transfer law that would be applicable to the determination whether the obligations and/or the security interest relating thereto would constitute a fraudulent conveyance or a fraudulent transfer (the "Applicable State Law"), (ii) with respect to Borrower's assets, if Net Fair Value is being determined as of a date after the first anniversary of the date hereof, the value of such assets as determined in accordance with the Applicable State Law, (iii) with respect to Borrower's liabilities, if Net Fair Value is being determined as of a date on or prior to the first anniversary of the date hereof, the lower of (1) the value of such liabilities as determined in accordance with Bankruptcy Code ss.548 or (2) the value of such liabilities as determined in accordance with the Applicable State Law, and (iv) with respect to Borrower's liabilities, if Net Fair Value is being determined as of a date after the first anniversary of the date hereof, the value of such liabilities as determined in accordance with the Applicable State Law. (o) "GAAP" means generally accepted accounting principles set forth in the opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board, consistently applied. (p) "Governmental Authority" shall mean any governmental or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality thereof, or any court, tribunal, grand jury or arbitrator, in any case whether foreign or domestic. (q) "Health Care Laws" shall mean all federal, state and local laws specifically relating to health care providers and healthcare services, including, but not limited to, Section 1877(a) of the Social Security Act as amended by the Omnibus Budget Reconciliation Act of 1993, 42 U.S.C. ss. 1395nn. (r) "Indebtedness" of a Person shall mean (i) all items (except items of capital stock, capital or paid-in surplus or of retained earnings) which, in accordance with GAAP, would be included in determining total liabilities as shown on the liability side of the balance sheet of such Person as of the date as of which Indebtedness is to be determined, including any lease which, in accordance with GAAP would constitute indebtedness; (ii) all indebtedness secured by any mortgage, pledge, security, lien or conditional sale or other title retention agreement to which any property or asset owned or held by such Person is subject, whether or not the indebtedness secured thereby shall have been assumed; and (iii) all indebtedness of others which such Person has directly or indirectly guaranteed, endorsed (otherwise than for the collection or deposit in the ordinary course of business), discounted or sold with recourse or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire, or in respect of which such Person has agreed to supply or - 2 - 3 advance funds (whether by way of loan, stock or equity purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable. (s) "Lender Expenses" shall mean (i) all costs or expenses (including, without limitation, taxes and insurance premiums) required to be paid by Borrower under this Agreement or under any of the other Loan Documents that are paid or advanced by Lender; (ii) filing, recording, publication and search fees paid or incurred by Lender in connection with Lender's transactions with Borrower; (iii) costs and expenses incurred by Lender to correct any Event of Default or enforce any provision of the Loan Documents or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, and preparing for sale or advertising to sell the Collateral, whether or not a sale is consummated, after the occurrence of an Event of Default; (iv) costs and expenses of suit incurred by Lender in enforcing or defending the Loan Documents or any portion thereof, (v) reasonable costs and expenses incurred by Lender to convert any data submitted to Lender by Borrower to an acceptable form; and (vi) Lender's reasonable attorney fees and expenses incurred (before or after execution of this Agreement) in advising Lender with respect to, or in structuring, drafting, reviewing, negotiating, amending, terminating, enforcing, defending or otherwise concerning, the Loan Documents or any portion thereof, irrespective of whether suit is brought. (t) "Lien" shall mean any security interest, mortgage, pledge, assignment, lien or other encumbrance of any kind, including any interest of a vendor under a conditional sale contract or consignment and any interest of a lessor under a capital lease. (u) "Loan" shall mean each loan or any other loan or loans made by Lender to Borrower pursuant to this Agreement. (v) "Loan Availability" shall mean the lesser of (a) the Commitment Amount or (b) the Borrowing Base minus the aggregate Advances and other Obligations outstanding under this Agreement. (w) "Loan Documents" shall mean (i) this Agreement; (ii) the Note; (iii) any other agreements or documents hereafter delivered to secure repayment of the Loan; (iv) the Lock Box Agreement and (v) any other certificates, documents, instruments, or financing statements delivered by Borrower to Lender pursuant to the terms of this Agreement. (w) "Lock Box Agreement" shall mean those certain Lock Box Agreements between Borrower and any lock box servicer(s) ("servicer(s)") chosen by Lender and Borrower and the letter of instructions with respect thereto among Lender, Borrower and Servicer. (y) "Net Collectible Percentage" shall mean the percentages described on Exhibit A attached hereto. Based on a quarterly review of billings, collections and adjustments, conducted by Lender in accordance with its standard and consistently applied procedures, Lender reserves the right to amend the Net Collectible Percentages from time to time, written notification of which shall be given to Borrower by Lender. (z) "Net Collectible Value" shall mean, for each type of Eligible Account, the Net Collectible Percentage times the aggregate current outstanding amount for such type of Eligible Account. (aa) "Net Fair Value" the amount by which the Fair Value of Borrower's assets exceeds the Fair Value of Borrower's liabilities (including contingent liabilities). (bb) "Note" shall mean the Secured Promissory Note executed by Borrower pursuant to the terms of this Agreement. (cc) "Obligations" means (i) all obligations (monetary or otherwise) of Borrower arising under or in connection with this Agreement, the Note and all other Loan Documents. - 3 - 4 (dd) "Permitted Liens" shall mean (i) Liens for property taxes and assessments or governmental charges or levies and Liens securing claims or demands of mechanics and materialmen, provided that payment thereof is not yet due or is being contested as permitted in this Agreement; (ii) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which has not expired, or in respect of which Borrower is in good faith prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review has been secured; (iii) Liens and priority claims incidental to the conduct of business or the ownership of properties and assets (including warehouse's and attorney's Liens and statutory landlord's Liens); deposits, pledges or Liens to secure the performance of bids, tenders, or trade contracts, or to secure statutory obligations; and surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money; provided that in each case the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate actions or proceedings; and further provided that any such warehouse's or statutory landlord's Liens have been subordinated to the Liens of Lender in a manner satisfactory to Lender; and (iv) Liens existing on the date of this Agreement that secure Indebtedness of Borrower outstanding on such date and that are disclosed on Schedule 1.1 hereto; (ee) "Person" shall mean an individual, corporation, partnership, limited liability company, trust, unincorporated association, joint venture, joint-stock company, government (including political subdivisions), Governmental Authority or any other entity. (ff) "Proceeds" shall mean all proceeds and products of Collateral and documents covering Collateral; all property received wholly or partly in trade or exchange for Collateral; all claims against third parties arising out of damage, destruction or decrease in value of the Collateral; all leases of Collateral; and all rents, revenues, issues, profits and proceeds arising from the sale, lease, license, encumbrance, collection or any other temporary or permanent disposition of the Collateral or any interest therein. (gg) "Subordinate Obligations" shall mean all Indebtedness of Borrower subordinated to the Obligations pursuant to subordination and/or intercreditor agreements in form satisfactory to Lender. (hh) "Termination Date" shall mean the last day of any term as to which a written notice of nonrenewal pursuant to Section 2.7 has been received or, in the case of a termination due to a prepayment under Section 2.7, the date of such prepayment. (ii) "Unmatured Default" shall mean any event or condition that, with notice, passage of time, or a determination by Lender or any combination of the foregoing would constitute an Event of Default. SECTION 1.2. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND UNIFORM COMMERCIAL CODE. All financial terms used in this Agreement, other than those defined in this Section 1, have the meanings accorded to them under GAAP. All other terms used in this Agreement, other than those defined in this Section 1, have the meanings accorded to them in the Uniform Commercial Code as enacted in any applicable jurisdiction. SECTION 1.3. CONSTRUCTION (a) Unless the context of this Agreement clearly requires otherwise, the plural includes the singular, the singular includes the plural, the part includes the whole, "including" is not limiting, and "or" has the inclusive meaning of the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder" and other similar terms in this Agreement refer to this Agreement as a whole and not exclusively to any particular provision of this Agreement. (b) Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Lender or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by each of the parties and its counsel and shall be construed and - 4 - 5 interpreted according to the ordinary meaning of the words used so as to accomplish the purposes and intentions of all parties hereto fairly. SECTION 2 LOAN SECTION 2.1. THE LOAN Subject to the terms and conditions and relying on the representations and warranties set forth herein, Lender agrees to make Advances to Borrower from time to time in an aggregate amount not to exceed the lesser of (i) Four Million Dollars ($4,000,000.00) (the "Commitment Amount"), and (ii) the Borrowing Base. Within the limits of the Loan Availability, Borrower may borrow, make repayments pursuant to Section 2.4 and reborrow. If, at any time, the aggregate Advances and other Obligations outstanding exceed the then Loan Availability, then Borrower shall pay to Lender a sum sufficient to reduce the Advances and other Obligations outstanding to an amount not greater than the Loan Availability. Lender's commitment to make Advances shall expire, and the amount of the Loan then outstanding shall mature and be repaid by Borrower, without further action on the part of Lender, on the Termination Date. SECTION 2.2. NOTE All Loans made by the Lender under this Agreement shall be evidenced by, and repaid with interest in accordance with, a single promissory note of Borrower in substantially the form of Exhibit 2.02 duty completed, in the original principal amount equal to the initial Commitment Amount, dated the Closing Date, payable to the Lender and maturing as to principal on the Termination Date (the "Note"). The amount of each Advance and payment of principal amount received by the Lender shall be recorded in the books and records of the Lender, which books and records shall, in the absence of manifest error, be conclusive as to the outstanding balance of and other information related to the Loan. Lender shall be entitled at any time to endorse on a schedule attached to the Note the amount and type of each Advance and information relating thereto. SECTION 2.3. THE BORROWING BASE On no less than a monthly basis the Borrowing Base will be recalculated by adding monthly billings to the prior month's Eligible Accounts and subtracting deposits and adjustments, if applicable, and then multiplying this amount by the Net Collectible Percentage. The Borrowing Base shall be calculated on the basis of the reports delivered to Lender pursuant to Section 5.4. SECTION 2.4. NOTICE OF BORROWING Whenever Borrower desires to borrow under Section 2.1, Borrower shall deliver to Lender a Drawdown Request Form, in a form reasonably satisfactory to Lender, signed by an authorized officer no later than 2:00 p.m. Pacific Standard Time at least one (1) business day in advance of the proposed funding date. The Drawdown Request Form shall specify (i) the funding date (which shall be a business day) with respect to the requested Loan and (ii) the amount of the proposed Advance. SECTION 2.5. USE OF PROCEEDS The proceeds of the Loan shall be used by Borrower to provide working capital and new clinics under development. SECTION 2.6. LOAN REPAYMENT VIA LOCK BOX/SERVICER ACCOUNT. Upon the execution hereof, Borrower shall become a party to the Lock Box Agreement which provides for the receipt and processing of Account payments. Borrower shall irrevocably direct: (i) all non-government payors to remit payment to the servicer's post office box in Lenders name and control, and (ii) all government payors to remit payment to a second post office box of such servicer in Borrower's name. Prior to funding and upon receipt of the lock box post office box number(s), Borrower shall provide Lender re-direct letters (in a form satisfactory to Lender) to all of Borrower's payors on Borrower's letterhead, including envelopes for Lender to process and mail (Lender will add postage which shall be charged to Borrower). The Lock Box Agreement provides for the servicer to deposit daily all receipts of the post office boxes into deposit accounts, with non-government payor receipts paid into an account subject to Lender's control and, government payor receipts paid into an account in Borrower's name; such accounts shall be (i) at a financial institution acceptable to Lender, and (ii) governed by terms and conditions acceptable to Lender. Borrower agrees and acknowledges that all government pavor - 5 - 6 receipts will be immediately transferred to an account in the name and control of Lender. Deposits (net of fees) shall be applied to reduce the Loan balance including Advances, interest charged monthly, fees, all applicable charges and other payments, if applicable, within 24 hours. Any receipts (net of such servicer's fees) remaining after all such payments to Lender will be paid to Borrower within 24 hours of receipt. Borrower shall bear all charges for establishing and maintaining the post office box accounts and all bank charges for such deposit accounts. Lender shall deduct from the deposit accounts all sums Borrower owes to it hereunder, including fees, interest, reimbursements and principal payments. Any Obligations not paid by such deduction shall be satisfied by direct payment to Lender at 4041 MacArthur Blvd., Suite 401, Newport Beach, California 92660. Any amounts hereunder not paid as agreed shall be assessed a late payment penalty of five percent (5%). SECTION 2.7. TERM OF AGREEMENT; PREPAYMENT. The Tenn of this Agreement is two (2) years. Provided that no Event of Default or any Unmatured Event of Default exists, Borrower may terminate this Agreement provided that it pays to Lender an amount equal to two and one half percent (2.5%) of the Commitment Amount if canceled in year 1 of the initial term; and one half percent (.5%) of the Commitment Amount if canceled in year 2. This Agreement shall be renewed for consecutive one (1) year terms unless this Agreement is terminated, effective as of the last day of a term. by written notice by Lender or Borrower no later than thirty (30) days before the expiration of such term. All of Lender's obligations, responsibilities and duties shall cease upon the date of termination of this Agreement, except for its obligation to remit excess receipts from the lock box deposit accounts in accordance with the terms of this Agreement. SECTION 2.8. LENDER'S FEES Upon execution hereof, Lender shall be entitled to an origination fee equal to Thirty Five Thousand and 00/100 Dollars ($35,000), less Fifteen Thousand and 00/100 Dollars ($15,000) currently on deposit. On or before the first day of each month Borrower shall pay Lender a monthly maintenance fee of Two Thousand Five Hundred Ninety Five and 00/100 Dollars ($2,595). The monthly maintenance fee shall cover costs incurred by Lender including but not limited to daily handling of the account/deposits, interfacing with lock box processor, monthly tracking of Borrowing Base Report and quarterly on-site due diligence. Lender's fees will be deducted, when due, directly from receipts from accounts receivable deposited in accordance with Section 2.6 SECTION 2.9. INTEREST ON THE LOANS All Advances shall bear interest on the unpaid principal amount thereof from the date made until paid in full at a fluctuating rate equal to the Prime Rate plus two percent (2%). Interest shall be payable monthly in arrears on the first day of each month for the preceding month. Interest shall be calculated on the basis of a year of 360 days, but for the actual number of days elapsed. Interest accrued but not paid pursuant to Section 2.6 shall be treated as an Advance if not otherwise paid within five (5) days of the end of the month in which it accrues. Unpaid Interest charges being treated as an Advance shall not be considered an Event of Default. SECTION 2.10. CONDITIONS TO THE CLOSING Lender's obligation to make the initial Advance hereunder on the Closing Date is subject to Lender's determination that Borrower as of the date of the Advance has satisfied, and continues to satisfy, the following conditions: (a) The representations and warranties set forth in this Agreement and in the other Loan Documents shall be true and correct on and as of the date hereof and shall be true and correct in all material respects as of the Closing Date and Borrower shall have performed all obligations which were to have been performed by it hereunder. (b) Borrower shall have executed and delivered to Lender (or shall cause to be executed and delivered to Lender by the appropriate Persons) the following: (i) this Agreement; (ii) the Note; - 6 - 7 (iii) UCC-I Financing Statements; (iv) the Lock Box Agreement/Tri-Party Agreement; (v) Subordination Agreement by Berkeley; (vi) pay-off letters, UCC Termination Statements and Lien Releases as required to grant Lender a first priority security interest other than Permitted Liens in Collateral pledged as security for repayment of the Loan; (vii) certified copies of resolutions of the Board of Directors of Borrower authorizing the execution and delivery of Loan Documents to be executed by Borrower; and (viii) copies of the Articles of Incorporation of Borrower certified by the Secretary of State of the applicable issuing state. (ix) a certificate from an officer of Borrower indicating that the representations and warranties contained herein are true and correct as of the Closing Date. (c) Neither an Event of Default nor an Unmatured Default shall have occurred and be continuing as of the Closing Date, (d) Borrower shall not have suffered a material adverse change in its business, operations or financial condition from that reflected in the Financial Statements of Borrower delivered to Lender or otherwise. (e) Lender shall have received such additional supporting documents, certificates and assurances as Lender shall reasonably request which shall be satisfactory to Lender in form and substance. SECTION 2.11. If there is more than one Borrower, the obligations hereunder are joint and several obligations of the Borrowers. Notwithstanding any other provision hereof, a Borrower's liability for the obligations at any time shall not exceed the greater of (1) the sum of (a) the total principal of the obligations that such Borrower directly or indirectly received and (b) the interest and expenses accrued with respect to such principal, and (2) the greater of (a) ninety-five percent (95%) of such Borrower's Net Fair Value on the date hereof, and (b) ninety-five percent (95%) of such Borrower's highest Net Fair Value during the period commencing after such date and terminating on the date of determination of liability hereunder SECTION 3 SECURITY INTEREST SECTION 3.1. GRANT OF SECURITY INTEREST In order to secure prompt payment and performance of all Obligations, Borrower hereby grants to Lender a continuing first-priority pledge and security interest in the following property of Borrower (the "Collateral"), whether now owned or existing or hereafter acquired or arising and regardless of where located, subject only to Permitted Liens. This security interest in the Collateral shall attach to all Collateral without further action on the part of Lender or Borrower. The Collateral shall consist of the following, subject in each case only to Permitted Liens together with such third-party consents, lien waivers and estoppel certificates as Lender shall reasonably require: All of Borrower's present and future Accounts. - 7 - 8 SECTION 4 SPECIFIC REPRESENTATIONS SECTION 4.1. NAME OF BORROWER The exact names, state law under which Borrower was organized, prior legal names, current or prior trade names are set forth on Schedule 4.1. SECTION 4.2. MERGERS AND CONSOLIDATIONS Except as disclosed on Schedule 4.2, no entity has merged into any of Borrower or been consolidated with Borrower. SECTION 4.3. PURCHASE OF ASSETS Except as disclosed on Schedule 4.3 no entity has sold substantially all of its assets to Borrower or sold assets to Borrower outside the ordinary course of such seller's business at any time in the past. SECTION 4.4. CHANGE OF NAME OR IDENTITY Borrower shall not change its name, business structure or identity or use a new trade name without prior notification to Lender or merge into or consolidate with any other entity. SECTION 5 PROVISIONS CONCERNING ACCOUNTS SECTION 5.1. OFFICE AND RECORDS OF BORROWER Borrower's chief executive offices are located at: 2222 Ponce De Leon Blvd., Suite 300, Coral Gables, Florida 33134. Borrower maintains all of its records with respect to Accounts at 2222 Ponce De Leon Blvd., Suite 300, Coral Gables. Florida 33134. Borrower has not at any time within the past four (4) months maintained their chief executive office or their records with respect to Accounts at any other location and shall not do so hereafter except with the prior written consent of Lender. SECTION 5.2. REPRESENTATIONS Borrower represents and warrants that each Account at the time of its assignment to Lender (a) will be owned solely by Borrower, (b) will be for a liquidated amount maturing as stated in Borrower's Books; (c) will be a bona fide existing obligation created by the rendition of services to Account Debtors or their insured by Borrower in the ordinary course of its business; and (d) will not be subject to any known deduction, offset, counterclaim, return privilege, or other condition, except as reflected on Borrower's Books. Borrower shall neither redate any invoices nor reissue new invoices in full or partial satisfaction of old invoices. Allowances, if any, as between Borrower and its customers will be on the same basis and in accordance with the usual customary practices of Borrower as they exist on the date of this Agreement. SECTION 5.3. RETURNS AND REPOSSESSIONS Borrower shall notify Lender within five (5) business days of occurrence of all material claims asserted by Account Debtors. SECTION 5.4. BORROWING BASE REPORTS Borrower shall on no less than a monthly basis execute and deliver to Lender, in form and content satisfactory to Lender, (i) a Borrowing Base report; (ii) a detailed aging of Accounts; and (iii) a charges, collections and adjustment summary for the month. Borrower shall, upon the request of Lender execute and deliver to Lender an updated Borrowing Base report reflecting additional billings, write-offs and deposits and all of Borrower's accounts receivable data in a computer disc or tape fori-nat acceptable to Lender. Lender shall periodically review Borrower's actual adjustments to cash receipts and write-offs, as well as Borrower's payor profile. To the extent Borrower's adjustments, write-offs and payor profile materially changes, Lender may, in its reasonable discretion, change the Net Collectible Percentage attributable to each type of account by written notice to Borrower of such change. - 8 - 9 SECTION 5.5. COMPLIANCE CERTIFICATE. With each final month-end Borrowing Base report which Borrower delivers to Lender, Borrower also shall deliver to Lender a Compliance Certificate in the form of Exhibit 5.5 attached hereto, which Compliance Certificate shall be completed and signed by an officer of Borrower. SECTION 5.6. LENDER'S RIGHTS Any officer, employee or agent of Lender shall have the right, in Lender's reasonable discretion, at any time or times hereafter, in the name of Lender or its nominee (including Borrower), with prior notice to Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone or otherwise; and all reasonable out-of-pocket costs thereof shall be payable by Borrower to Lender. Lender, or its designee may at any time after default by Borrower hereunder notify customers or Account Debtors that Accounts have been assigned to Lender or of Lender's security interest therein and after default by Borrower hereunder collect the same directly and charge all reasonable collection costs and expenses to Borrower's account. SECTION 5.7. DISCLAIMER OF LIABILITY Lender shall not be liable to Borrower or any third person for the correctness, validity or genuineness of any instruments or documents released or endorsed to Borrower by Lender (which shall automatically be deemed to be without recourse to Lender in any event) or for the existence, character, quantity, quality, condition, value or delivery of any goods purporting to be represented by any such documents; and Lender, by accepting a Lien on the Collateral or by releasing any Collateral to Borrower, shall not be deemed to have assumed any obligation or liability to any supplier or creditor of Borrower or to any other third party. Borrower agrees to indemnify and defend Lender and hold it harmless in respect to any claim or proceeding arising out of any matter referred to in this Section 5.7. SECTION 5.8. POST DEFAULT RIGHTS If an Event of Default has occurred and is continuing hereunder, no discount, credit or allowance shall be granted or permitted by Borrower to any Account Debtor; provided, however, that, notwithstanding the existence of an Event of Default, (i) Borrower may continue to invoice and bill Account Debtors under discount, credit and allowance arrangements that Borrower maintained in the ordinary course of business prior to such Event of Default occurring, and (ii) Account Debtors may, during the continuance of an Event of Default, utilize discount, credit and allowance arrangements that Borrower extended to them in the ordinary course of business. Lender may, after default by Borrower, settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms that Lender considers advisable, and in such cases, Lender will credit Borrower's account with only the net amounts received by Lender in payment of such disputed Accounts, after deducting all Lender Expenses incurred in connection therewith. SECTION 5.9. ACCOUNTS OWED BY FEDERAL GOVERNMENT If any Accounts shall arise out of a contract with the United States of America or any department, agency, subdivision or instrumentality thereof, Borrower shall promptly notify Lender thereof in writing and take all other action requested by Lender to protect Lender's Lien on such Accounts under the provisions of the federal laws on assignment of claims. SECTION 5.10. BUSINESS ACTIVITY REPORTS Borrower has filed and shall file all legally required notices and reports of its business activities with all the appropriate taxing authorities and the appropriate Governmental Authority of each jurisdiction in which Borrower is legally required to file such a notice or report. SECTION 6 PROVISIONS CONCERNING GENERAL INTANGIBLES SECTION 6.1. CONTRACTS (a) Schedule 6.1. is a true and complete list of all material contracts and agreements pertaining to the Collateral to which Borrower is a party. - 9 - 10 (b) Borrower shall not amend, modify or supplement any contract or agreement included in the Collateral or waive any provision thereof other than in accordance with Borrower's standard business practice, nor shall such standard business practice be materially changed without Lender's consent, which shall not be unreasonably withheld. (c) Borrower shall remain liable to perform all of its duties and obligations under any contracts and agreements included in the Collateral to the same extent as if this Agreement had not been executed; and Lender shall not have any obligation or liability under such contracts and agreements by reason of this Agreement or otherwise. (d) Borrower need not pay any amount due under any contract or agreement listed on Schedule 6.1, nor otherwise perform any action required under the terms of any such contract or agreement, if such payment or performance is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted, if Lender is notified in advance of such contest, and if Borrower establishes any reserve or other appropriate provision required by GAAP and deposits with Lender cash or an acceptable bond reasonably requested by Lender. SECTION 7 OTHER PROVISIONS CONCERNING COLLATERAL SECTION 7.1. FURTHER ASSURANCES Borrower shall execute and deliver to Lender, concurrent with Borrower's execution of this Agreement and at any time or times hereafter at the request of Lender, all financing statements, continuation financing statements, security agreements, chattel mortgages, assignments, endorsements of certificates of title, applications for titles. affidavits, reports, notices, schedules of Accounts, letters of authority and all other documents Lender may reasonably request, in form satisfactory to Lender, to perfect and maintain perfected Lender's Liens in the Collateral and in order to consummate fully all of the transactions contemplated under the Loan Documents. Borrower hereby irrevocably makes, constitutes and appoints Lender (and any of Lender's officers, employees or agents designated by Lender) as Borrower's true and lawful attorney with power to sign the name of Borrower on any of the above-described documents or on any other similar documents that need to be executed, recorded or filed in order to perfect or continue to be perfected Lender's Liens in the Collateral. SECTION 7.2. LENDER'S DUTY OF CARE Lender shall have no duty of care with respect to the Collateral except that Lender shall exercise reasonable care with respect to the Collateral in Lender's custody. Lender shall be deemed to have exercised reasonable care if such property is accorded treatment substantially equal to that which Lender accords its own property or if Lender takes such action with respect to the Collateral as Borrower shall request or agree to in writing provided that neither failure to comply with any such request nor any omission to do any such act requested by Borrower shall be deemed a failure to exercise reasonable care. Lender's failure to take steps to preserve rights against any parties or property shall not be deemed to be failure to exercise reasonable care with respect to the Collateral in Lender's custody. A@11 risk, loss, damage or destruction of the Collateral shall be borne by Borrower. SECTION 7.3. REINSTATEMENT OF LIENS If, at any time after payment in full by Borrower of all Obligations and termination of Lender's Liens, any payments on Obligations previously made by Borrower or any other Person must be disgorged by Lender for an reason whatsoever (including, without limitation, the insolvency, bankruptcy, or reorganization of Borrower or such other Person), this Agreement and Lender's Liens granted hereunder shall be reinstated as to all disgorged payments as though such payments had not been made, and Borrower shall sign and deliver to Lender all documents and other items necessary to perfect all terminated Liens. SECTION 7.4. LENDER EXPENSES To the extent Lender determines that its interest in the Collateral might have been materially adversely affected by Borrowers' failure, as required by the terms hereof (i) to pay any moneys (whether taxes, assessments, insurance premiums or otherwise) due to third persons or entities, - 10 - 11 (ii) to make any deposits or furnish any required proof of payment or deposit or (iii) to discharge any Lien not permitted hereby, then Lender may, in its reasonable discretion and without prior notice to Borrower, make payment of the same or any part thereof. Any amounts paid or deposited by Lender shall constitute Lender Expenses, shall become part of the Obligations, shall bear interest at the rate of eighteen percent (I 8%) per annum, and shall be secured by the Collateral. Any payments made by Lender shall not constitute (a) an agreement by Lender to make similar payments in the future or (b) a waiver by Lender of any Event of Default under this Agreement. Lender need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance or Lien and the receipt of the usual official notice for the payment of moneys to a governmental entity shall be conclusive evidence that the same was validly due and owing. Borrower shall immediately and without demand reimburse Lender for all sums expended by Lender that constitute Lender Expenses, and Borrower hereby authorizes and approves all advances and payments by Lender for items constituting Lender Expenses. SECTION 7.5. INSPECTION OF RECORDS During usual business hours, Lender shall have the right to inspect Borrower's Books and records in order to verify the amount or condition of, or any other matter relating to, the Collateral and Borrower's financial condition and to copy and make extracts therefrom. Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by Lender pursuant to this Agreement and agrees that Lender may directly contact any such accounting firm or service bureau in order to obtain such information. SECTION 7.6. WAIVERS Except as specifically provided for herein, Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, documents, instruments, chattel paper and guaranties at any time held by Lender on which Borrower may in any way be liable. SECTION 8 REPRESENTATIONS AND WARRANTIES As of the date hereof Borrower hereby warrants and represents to Lender the following: SECTION 8.1. CORPORATE STATUS Borrower is a corporation validly existing and in good standing under the laws of the state of its incorporation; and is qualified and licensed to do business and is in good standing in any state in which the conduct of its business or its ownership of property requires that it be so qualified or licensed, and has the power and authority (corporate and otherwise) to execute and carry out the terms of the Loan Documents to which it is a party, to own its assets and to carry on its business as currently conducted. SECTION 8.2. AUTHORIZATION The execution, delivery, and performance by Borrower of this Agreement and each other Loan Document have been duly authorized by all necessary corporate or partnership action. Borrower, has duly executed and delivered this Agreement and each other Loan Document to which it is a party, and each of them constitutes a valid and binding obligation of Borrower, as applicable, enforceable according to its terms except as such enforceability may be limited by equitable principles and by bankruptcy, insolvency or similar laws affecting the rights of creditors generally. SECTION 8.3. NO BREACH The execution, delivery and performance by Borrower of this Agreement and each other Loan Document to which they are a party (a) will not contravene any law or any governmental rule or order binding on Collateral; (b) will not violate any provision of the articles of incorporation, bylaws or partnership agreement, as applicable, of Borrower; (c) will not violate any agreement or instrument by which Borrower, as applicable, is bound; (d) do not require any notice to consent by any Governmental Authority; - 11 - 12 and (e) will not result in the creation of a Lien on any assets of Borrower except the Lien to Lender granted herein. SECTION 8.4. TAXES All assessments and taxes, whether real, personal or otherwise, due or payable by or imposed, levied or assessed against Borrower or any of its property have been paid in full before delinquency or before the expiration of any extension period; and Borrower has made due and timely payment or deposit of all federal. state, and local taxes, assessments or contributions required of it by law, except only for items that Borrower is currently contesting diligently and in good faith and that have been fully disclosed in writing to Lender. SECTION 8.5. DEFERRED COMPENSATION PLANS Borrower has made all required contributions to all deferred compensation plans to which it is required to contribute, and Borrower has no liability for any unfunded benefits of any single-employer or multi-employer plans. Borrower is not and at no time has been a sponsor of, provided. or maintained for any employees any defined benefit plan. SECTION 8.6. LITIGATION AND PROCEEDINGS Except as set forth on Schedule 8.6 attached hereto, there are no outstanding judgments against Borrower or any of its assets and there are no material actions or proceedings pending by or against Borrower before any court or administrative agency. Borrower has no knowledge or belief of any material pending, threatened, or imminent litigation, governmental investigations, or claims, complaints, actions, or prosecutions involving Borrower, except for ongoing collection matters in which Borrower is the plaintiff and except as set forth in Schedule 8.6 hereto. SECTION 8.7. BUSINESS Borrower has all franchises, authorizations, patents, trademarks, copyrights and other rights necessary to advantageously conduct its business. They are all in full force and effect and are not in known conflict with the rights of others. Borrower is not a party to or subject to any agreement or restriction that is so unusual or burdensome that it might have a material adverse effect on Borrower's business, properties or prospects. SECTION 8.8. LAWS AND AGREEMENTS Borrower is in compliance with all material agreements applicable to it, including obligations to contribute to any employee benefit plan or pension plan regulated by ERISA. Borrower is in material compliance with all laws applicable to it. SECTION 8.9. FINANCIAL CONDITION All financial statements and information relating to Borrower that have been or may hereafter be delivered by Borrower to Lender are accurate and complete and have been prepared in accordance with GAAP. Borrower has no material obligations or liabilities of any kind not disclosed in that financial information, and there has been no material adverse change in the financial condition of Borrower since the date of the most recent financial statements submitted to Lender. SECTION 8.10. HEALTH CARE LAWS (a) Borrower has obtained all permits, licenses and other authorizations that are required under Health Care Laws applicable to Borrower and it and is in compliance in all material respects with all terms and conditions of the required pen-nits, licenses and authorizations, and is also in compliance in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in such Health Care Laws. (b) Borrower is not aware of, and has not received notice of, any past, present or future events, conditions, circumstances, activities, practices, incidents, actions or plans that may interfere with or prevent compliance or continued compliance in any material respect with Health Care Laws. (c) There is no civil, criminal or administrative action, suit, demand. claim, hearing, notice or demand letter, notice of violation, investigation or proceeding pending or threatened against Borrower, relating in any way to Health Care Laws. - 12 - 13 SECTION 8.11. CUMULATIVE REPRESENTATIONS The warranties, representations and agreements set forth herein shall be cumulative and in addition to any and all other warranties, representations and agreements that Borrower shall give, or cause to be given. to Lender, either now or hereafter. SECTION 9 COVENANTS SECTION 9.1. ENCUMBRANCE OF COLLATERAL Borrower shall not create, incur, assume or permit to exist any Lien on any Collateral now owned or hereafter acquired by Borrower, except for Liens to Lender and Permitted Liens. SECTION 9.2. BUSINESS Borrower shall engage primarily in business of the same general character as that now conducted by Borrower. SECTION 9.3. CONDITION AND REPAIR Borrower shall maintain in good repair and working order all properties used in their business and from time to time shall make all appropriate repairs and replacements thereof. SECTION 9.4. TAXES Borrower shall pay all taxes, assessments and other governmental charges imposed upon it or any of its assets or in respect of any of its franchises, business. income or profits before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or might become a Lien or charge upon any of its assets, provided that (unless any material item or property would be lost, forfeited or materially impaired as a result thereof) no such charge or claim need be paid if it is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted, if Lender is notified in advance of such contest, and if Borrower establishes any reserve or other appropriate provision required by GAAP. Borrower shall make timely payment or deposit of all FICA payments and withholding taxes required of it by applicable laws and will, upon request, famish Lender with proof satisfactory to Lender indicating that Borrower has made such payments or deposits. SECTION 9.5. ACCOUNTING System Borrower at all times hereafter shall maintain a standard and modem system of accounting in accordance with GAAP, with ledger and account cards or computer tapes, disks, printouts and records that contain information pertaining to the Collateral that may from time to time be requested by Lender. Borrower shall not modify or change its method of accounting or enter into any agreement hereafter with any third-party accounting firm or service bureau for the preparation or storage of Borrower's accounting records without said accounting firm's or service bureau's agreeing to provide to Lender information regarding the Collateral and Borrower's financial condition. SECTION 9.6. QUARTERLY FINANCIAL STATEMENTS. Borrower shall famish Lender as soon as practicable but in no event later than forty-five (45) days after the end of each of the first three quarterly fiscal periods of each fiscal year with unaudited quarterly financial statements in form and substance as required by Lender, including a balance sheet and an income statement prepared in accordance with GAAP together with a certificate executed by the chief financial officer of Borrower stating that the financial statements fairly present the financial condition of Borrower as of the date and for the periods covered and that as of the date of such certificate there has not been any violation of any provision of this Agreement or the happening of any Event of Default or Unmatured Default hereunder. SECTION 9.7. ANNUAL FINANCIAL STATEMENTS. Borrower shall famish Lender as soon as practicable but in no event later than one hundred twenty (120) days after the close of each fiscal year commencing with fiscal 1996 with audited annual financial statements, which financial statements shall be prepared in accordance with GAAP and shall be certified without qualification by an independent national certified public accounting firm. With all financial statements, Borrower will also deliver a certificate of its chief - 13 - 14 financial officer attesting that no Event of Default or Unmatured Default under the Agreement has occurred and is continuing. SECTION 9.8. FURTHER INFORMATION Borrower shall promptly supply Lender with such other information concerning its affairs as Lender may reasonably request from time to time hereafter and shall promptly notify Lender of any material adverse change in Borrower's financial condition and any condition or event that constitutes a breach of or event that constitutes an Event of Default under this Agreement. In addition, Borrower authorizes Lender to contact credit reporting agencies concerning, Borrower's credit standing. Borrower also authorizes Lender to utilize Borrower's name in Lender's marketing materials. SECTION 9.9. ERISA COVENANTS Guarantor or Borrower shall comply with all applicable provisions of ERISA and all other laws applicable to any deferred compensation plans with which Guarantor or Borrower is associated, and shall promptly notify Lender of the occurrence of any event that could result in any material liability of Borrower to any person to any person whatsoever with respect to any such plan. SECTION 9.10. FINANCIAL COVENANTS, Borrower shall maintain at all times during the term hereof the following financial covenants, measured in accordance with GAAP: (i) not permit the sum of Subordinated Debt (not including current maturities) plus Tangible Net Worth (defined as total equity organization costs deferred loan costs goodwill) to be less than $6,000,000; and (ii) not permit the ratio of Total Liabilities minus Subordinated Debt divided by Tangible Net Worth plus Subordinated Debt to be greater than 1.2:1. SECTION 9.11. REQUIRED CONSENTS ON MERGER, CONSOLIDATION, SALE OF ASSETS, ISSUANCE OF STOCK, ETC Without prior written consent of Lender, Borrower shall not: (a) merge or consolidate with any Person in which Borrower is not the surviving entity; (b) sell, lease or otherwise dispose of its assets in any transaction or series of related transactions (other than sales in the ordinary course of business), however, the sale of the Miami Beach facility shall be permitted; (c) liquidate, dissolve or effect a recapitalization or reorganization in any form of transaction; (d) acquire interests of any business in excess of Five Million and 00/100 Dollars ($5,000,000.00) in the aggregate in any calendar year in any business (whether by purchase of assets, purchase of stock, merger or otherwise); (e) become subject to any agreement or instrument which by its terms would restrict Borrower's right or ability to perform any of its obligations to Lender pursuant to the terms of the Loan Documents; or SECTION 9.12. HEALTH CARE COVENANTS (a) Borrower shall comply in all material respects with, and shall obtain all permits required by, all Health Care Laws applicable to Borrower. (b) Borrower shall promptly furnish to Lender a copy of any communication from any Governmental Authority concerning any possible violation of any Health Care Laws or any occurrence of which Borrower would be required to notify any Governmental Authority with jurisdiction over Health Care Laws. SECTION 9.13. DISTRIBUTIONS Borrower shall not make any Distributions except as (i) set forth on Schedule 9.13 hereto, and (ii) authorized by Lender, upon Borrower's request, which authorization shall not be unreasonably withheld and which authorization shall not be deemed to authorize any Distributions while an Event of Default is continuing or if such Distribution would cause an Event of Default to occur. - 14 - 15 SECTION 9.14. SUBORDINATE OBLIGATIONS Borrower shall not voluntarily prepay any principal (including the making of any sinking fund payment), interest or any other amount in respect of Subordinate Obligations. SECTION 9.15. AMENDMENTS Borrower shall not amend any provision of any Subordinate Obligation if such amendment would (i) affect any of the subordination provisions thereof, (ii) advance the date of any required payment or prepayment thereunder, (iii) make covenants therein more burdensome, when considered in their entirety, to Borrower, (iv) reduce any default or grace period therein provided, or (v) otherwise have a material adverse effect on the interests of Lender. SECTION 10 EVENTS OF DEFAULT An Event of Default shall be deemed to exist if any of the following events shall have occurred and be continuing: (a) Borrower fails to make any payment of principal or interest or any other payment on the Note or any other Obligation when due and payable, by acceleration or otherwise, and such failure shall continue for five (5) business days after the payment is due; (b) Borrower fails to observe or perform any covenant condition or agreement to be observed or performed pursuant to the terms hereof or any other Loan Document to which it is a party and such failure is not cured as soon as reasonably practicable and in any event within thirty (30) days after written notice thereof by Lender; (c) A court enters a decree or order for relief in respect of Borrower in an involuntary case under any applicable bankruptcy, insolvency, or other similar law then in effect, or appoints a receiver, liquidator, assignee, custodian, trustee, or sequestrator (or other similar official) of Borrower or for any substantial part of its property, or orders the windup or liquidation of Borrower's affairs; or a petition initiating an involuntary case under any such bankruptcy, insolvency, or similar law is filed against Borrower and is pending for sixty (60) days without dismissal; (d) Borrower commences a voluntary case under any applicable bankruptcy, insolvency or other similar law then in effect, makes any general assignment for the benefit of creditors, fails generally to pay its debts as such debts become due, or takes corporate action in furtherance of any of the foregoing; (e) Final judgment for the payment of money on any claim in excess of $100,000 is rendered against Borrower and remains undischarged (failure to comply) for twenty (20) days during which execution is not effectively stayed; (f) Any guarantor of the Obligations revokes or attempts to revoke its guaranty of any of the Obligations, or becomes the subject of an insolvency proceeding of the type described in clauses (c) or (d) above with respect to Borrower or fails to observe or perform any covenant, condition or agreement to be performed under any Loan Document to which it is a party; (g) Borrower makes any payment on account of any Subordinate Obligations, other than payments specifically permitted by the terms of such subordination or this Agreement; (h) Any Person holding any Subordinate Obligations becomes the subject of any proceeding resulting in the termination of the subordination arrangement, terminates the subordination arrangement or asserts that it is terminated. - 15 - 16 (i) Any Collateral or any part thereof is sold, agreed to be sold, conveyed or allocated by operation of law or otherwise; (j) Borrower defaults under the terms of any Indebtedness or lease involving total payment obligations of Borrower in excess of $100,000 and such default is not cured within the time period permitted pursuant to the terms and conditions of such Indebtedness or lease, or an event occurs that gives any creditor or lessor the right to accelerate the maturity of any such indebtedness or lease payments; (k) Demand is made for payment of any Indebtedness in excess of $100,000 that was not originally payable upon demand when incurred but the terms of which were later changed to provide for payment upon demand; (l) Borrower is enjoined, restrained or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; (m) A judgment or other claim in excess of $100,000 becomes a Lien upon any or all of Borrower's assets, other than a Permitted Lien; (n) A notice of Lien, levy or assessment in excess of $100,000 is filed of record with respect to any or all of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal or other Government Authority; or any tax or debt owing at any time hereafter to any one or more of such entities becomes a Lien upon any or all of Borrower's assets and the same is not paid on the payment date thereof, except to the extent such tax or debt is being contested by Borrower as permitted in Section 8.4; (o) There is a material impairment of the value of the Collateral or priority of Lender's Liens on the Collateral; (p) Any of Borrower's assets in excess of $100,000 or any Collateral are seized, subjected to a distress warrant, levied upon or come into the possession of any judicial officer; (q) Any representation or warranty made in writing to Lender by any officer of Borrower in connection with the transactions contemplated in this Agreement is materially incorrect when made; (r) If the aggregate dollar value of all judgments, defaults, demands, claims and notices of Liens under clauses (e), (j), (k), (m) and (n) hereof exceeds $200,000; or (s) Borrower shall intentionally fail to direct all receipts for Accounts to the Lock Box. SECTION 11 REMEDIES SECTION 11.1. SPECIFIC REMEDIES Upon the occurrence of any Event of Default: (a) Lender may cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any other Loan Document, or under any other agreement between Borrower and Lender. (b) Lender may declare all Obligations to be due and payable immediately, whereupon they shall immediately become due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by Borrower. - 16 - 17 (c) Lender may set off against the Obligations all Collateral, balances, credits, deposits, accounts, or moneys of Borrower then or thereafter held with Lender, including amounts represented by certificates of deposit. (d) Lender may pay, purchase, contest or compromise any encumbrance, charge or Lien that, in the opinion of Lender, appears to be prior or superior to its Lien and pay all reasonable expenses incurred in connection therewith. (e) Lender may (i) notify Account Debtors to make payment on Accounts directly to Lender; (ii) settle, adjust, compromise, extend or renew Accounts, whether before or after legal proceedings to collect such Accounts have commenced; (iii) prepare and file any bankruptcy proofs of claim or similar documents against any Account Debtor; (iv) prepare and file any notice, assignment, satisfaction, or release of Lien, UCC termination statement or any similar document; (v) sell or assign Accounts, individually or in bulk, upon such terms, for such amounts, and at such time or times as Lender deems advisable; and (vi) complete the performance required of Borrower under any contract or agreement to which Borrower is a party and out of which Accounts arise or may arise. (f) Lender may (i) endorse Borrower's name on all checks, notes, drafts, money orders or other forms of payment of or security for Accounts or other Collateral; (ii) sign Borrower's name on drafts drawn on Account Debtors or issuers of letters of credit; and (iii) notify the postal authorities in Borrower's name to change the address for delivery of Borrower's mail to an address designated by Lender, receive and open all mail addressed to Borrower, copy all mail, return all mail relating to Collateral, and hold all other mail available for pickup by Borrower. SECTION 11.2. POWER OF ATTORNEY Borrower hereby appoints Lender (and any of Lender's officers, employees, or agents designated by Lender) as Borrower's attorney, with power whether before or after the occurrence of an Event of Default: (a) to endorse Borrower's name on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into Lender's possession; (b) to sign Borrower's name on drafts against Account Debtors, on schedules and assignments of Accounts, on verifications of Accounts, and on notices to Account Debtors; (c) to notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Lender, to receive and open all mail addressed to Borrower and to retain all mail relating to the Collateral and forward all other mail to Borrower; (d) to send requests for verification of Accounts; (e) to execute UCC Financing Statements; and (f) to do all things necessary to carry out this Agreement. The appointment of Lender as Borrower's attorney and each and every one of Lender's rights and powers, being coupled with an interest, are irrevocable as long as any Obligations are outstanding. Lender agrees not to exercise the power granted in clause 11.2(b) prior to the occurrence of an Event of Default and agrees not to exercise the power granted in clause 11.2(d) prior to notification of Borrower of its intent to do so, but such limitations do not limit the effectiveness of such power of attorney at any time. Any person dealing with Lender shall be entitled to rely conclusively on any written or oral statement of Lender that this power of attorney is in effect. Lender may also use Borrower's stationery in connection with exercising its rights and remedies and performing the Obligations of Borrower. SECTION 11.3. EXPENSES SECURED All expenses, including attorney fees, incurred by Lender in the exercise of its rights and remedies provided in this Agreement, in the other Loan Documents or by law shall be payable by Borrower to Lender, shall be part of the Obligations, and shall be secured by the Collateral. SECTION 11.4. EQUITABLE RELIEF Borrower recognizes that in the event Borrower fails to perform, observe, or discharge any of its Obligations or liabilities under this Agreement, no remedy of law will provide adequate relief to Lender, and Borrower agrees that Lender shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. - 17 - 18 SECTION 11.5. REMEDIES ARE CUMULATIVE No remedy set forth herein is exclusive of any other available remedy or remedies, but each is cumulative and in addition to every other right or remedy given under this Agreement or under any other agreement between Lender and Borrower or now or hereafter existing at law or in equity or by statute. Lender may pursue its rights and remedies concurrently or in any sequence, and no exercise of one right or remedy shall be deemed to be an election. No delay by Lender shall constitute a waiver, election or acquiescence by it. SECTION 12 INDEMNITY SECTION 12.1. GENERAL INDEMNITY Borrower shall protect, indemnify and defend and save harmless Lender and its directors, officers, agents and employees from and against any and all loss, cost, liability (including negligence, tort and strict liability), expense, damage, suits or demands (including fees and disbursements of counsel) on account of any suit or proceeding before any Governmental Authority which arises from the transactions contemplated in this Agreement or otherwise arising in connection with or relating to the Loan and any security therefor, unless such suit, claim or damages are caused by the negligence or intentional malfeasance of Lender or its directors, officer, agents or employees. Upon receiving knowledge of any suit, claim or demand asserted by A third-party that Lender believes is covered by this indemnity, Lender shall give Borrower timely notice of the matter and an opportunity to defend it, at Borrower's sole cost and expense, with legal counsel acceptable to Lender. Lender may, at its option, also require Borrower to so defend the matter. This obligation on the part of Borrower shall survive the termination of this Agreement and the repayment of the Note. SECTION 13 MISCELLANEOUS SECTION 13.1. DELAY AND WAIVER No delay or omission to exercise any right shall impair any such right or be a waiver thereof, but any such right may be exercised from time to time and as often as may be deemed expedient. A waiver on one occasion shall be limited to that particular occasion. SECTION 13.2. COMPLETE AGREEMENT This Agreement and the Schedules are the complete agreement of the parties hereto and supersede all previous understandings relating to the subject matter hereof. This Agreement may be amended only by an instrument in writing that explicitly states that it amends this Agreement and is signed by the party against whom enforcement of the amendment is sought. This Agreement may be executed in counterparts, each of which will be an original and all of which will constitute a single agreement. SECTION 13.3. SEVERABILITY; HEADINGS If any part of this Agreement or the application thereof to any Person or circumstance is held invalid, the remainder of this Agreement shall not be affected thereby. The section headings herein are included for convenience only and shall not be deemed to be a part of this Agreement. SECTION 13.4. BINDING EFFECT This Agreement shall be binding upon and inure to the benefit of the respective legal representatives, successors and assigns of the parties hereto; however, Borrower may not assign any of its rights or delegate any of its Obligations hereunder. Lender (and any subsequent assignee) may transfer and assign this Agreement and deliver the Collateral to the assignee, who shall thereupon have all of the rights of Lender; and Lender (or such subsequent assignee who in turn assigns as aforesaid) shall then be relieved and discharged of any responsibility or liability with respect to this Agreement and said Collateral. SECTION 13.5. NOTICES Any notices under or pursuant to this Agreement shall be deemed duly sent when delivered in hand or when mailed by registered or certified mail, return receipt requested, or when - 18 - 19 delivered by courier or when transmitted by telex, telecopy, or similar electronic medium to the following addresses: To Borrower: Renex Corporation 2222 Ponce de Leon Blvd., Suite 300 Coral Gables, FL 33134 Attention: Orestes Lugo, Chief Financial Officer Telephone: (305) 448-2044; Telecopier: (305) 448-1154 To Lender: DVI Business Credit Corporation 4041 MacArthur Blvd., Suite 401 Newport Beach, CA 92660 Attention: Cynthia J. Cohn, Executive Vice President Telephone: (714) 474-6100; Telecopier: (714) 474-6199 Copies to: DVI Business Credit Corporation 500 Hyde Park Doylestown, PA 18901 Attention: Melvin C. Breaux, Esquire General Counsel Telephone: (215) 230-2931; Telecopier: (215) 230-3537 Either party may change such address by sending notice of the change to the other party; such change of address shall be effective only upon actual receipt of the notice by the other party. SECTION 13.6. GOVERNING LAW ALL ACTS AND TRANSACTIONS HEREUNDER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA, WITHOUT GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES. SECTION 13.7. WAIVER OF TRIAL BY JURY LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE RELATIONSHIP BETWEEN LENDER AND BORROWER. SECTION 13.8. SUBMISSION TO JURISDICTION. (a) BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY CALIFORNIA OR FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA, OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. BORROWER HEREBY AGREES THAT SERVICE OF COPIES OF SUMMONS AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY ACTION OR PROCEEDING ARISING HEREUNDER MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH AT THE BEGINNING OF THIS AGREEMENT. (b) NOTHING IN THIS PARAGRAPH 13.8 SHALL AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ANY OF ITS PROPERTIES IN THE COURTS OF OTHER JURISDICTIONS TO THE EXTENT OTHERWISE PERMITTED BY LAW. (c) TO THE EXTENT THAT BORROWER HAS OR HEREAFTER MAY ACQUIRE (i) ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF CALIFORNIA OR ANY FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA OR FROM ANY LEGAL PROCESS OUT OF ANY SUCH COURT (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, - 19 - 20 OR (ii) ANY OBJECTION TO THE LAYING OF THE VENUE OR OF AN INCONVENIENT FORUM OF ANY SUIT, ACTION OR PROCEEDING, IF BROUGHT IN CALIFORNIA OR FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA UNDER PROCESS SERVED IN ACCORDANCE WITH SUBPARAGRAPH (a) ABOVE, BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY OR OBJECTION IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE LOANS. IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement by their duly authorized officers as of the date first above written. LENDER: DVI BUSINESS CREDIT CORPORATION By: /s/ Cynthia J. Cohn ------------------------------------------ Print Name: Cynthia J. Cohn ---------------------------------- Title: Executive Vice President --------------------------------------- BORROWER: RENEX DIALYSIS CLINIC OF MIAMI BEACH, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- RENEX DIALYSIS HOMECARE OF TAMPA, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- RENEX DIALYSIS CLINIC OF PITTSBURGH, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- RENEX DIALYSIS CLINIC OF AMESBURY, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- BORROWER: RENEX CORPORATION By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- RENEX DIALYSIS CLINIC OF TAMPA, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- RENEX DIALYSIS CLINIC OF PHILADELPHIA, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- RENEX DIALYSIS HOMECARE OF GREATER PITTSBURGH, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- RENEX DIALYSIS CLINIC OF CREVE COUER, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- - 20 - 21 RENEX DIALYSIS HOMECARE OF GREATER ST. LOUIS, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- RENEX DIALYSIS CLINIC OF BRIDGETON, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- RENEX DIALYSIS CLINIC OF UNIVERSITY CITY, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- RENEX DIALYSIS FACILITIES, INC. By: /s/ James P. Shea ------------------------------------------ Print Name: James P. Shea ---------------------------------- Title: President --------------------------------------- - 21 - EX-10.4 9 DIRECTORS STOCK OPTION PLAN 1 Exhibit 10.4 RENEX CORP. DIRECTORS' STOCK OPTION PLAN ARTICLE I PURPOSE The purpose of the RENEX CORP. Directors' Stock Option Plan (the "Plan") is to secure for RENEX CORP. and its stockholders the benefits arising from stock ownership by its Directors. The Plan will provide a means whereby eligible Directors may purchase shares of the common stock, $.001 par value, of RENEX CORP. pursuant to options granted in accordance with the Plan. ARTICLE II DEFINITIONS The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.1 "Annual Grant Date" shall mean the anniversary date of the Initial Grant Date of each calendar year after 1994 during the term of the Plan or the nearest preceding business day if such anniversary date falls on a weekend or holiday. 2.2 "Board" shall mean the Board of Directors of RENEX CORP. 2.3 "Chairman" shall mean the duly appointed Chairman of any standing Committee of the Board. 2.4 "Change of Control" shall mean the occurrence of any of the following acts: (a) The acquisition, other than (i) from the Company directly or (ii) by any shareholder who at the time of Board adoption of the Plan owns in excess of 10% of the outstanding Common Stock, by any person, entity or group, within the meaning of ss.13(d) or 14(d) of the Exchange Act, of beneficial ownership of twenty-five (25%) percent or more of the outstanding Common Stock; (b) If the individuals who serve on the Board as of the date of stockholder approval of the Plan, no longer constitute a majority of the members of the Board; provided, however, any person who becomes a director subsequent to the date of the stockholder approval of the Plan, who was elected to fill a vacancy by a majority of the individuals then serving on the Board, shall be considered as if a member prior to stockholder approval of the Plan; (c) Approval by a majority of the voting stock of the Company of a merger, reorganization or consolidation whereby the stockholders of the Company immediately prior to such approval do not, immediately after consummation of such reorganization merger or consolidation own more than 50% of the voting stock of the surviving entity; or (d) A liquidation or dissolution of the Company, or the sale of all or substantially all of the Company's assets. 2.5 "Committee" shall mean a duly appointed standing committee of the Board. 2.6 "Common Stock" shall mean the common stock, $.001 par value of the Company. 2.7 "Company" shall mean RENEX CORP. and any subsidiaries. 2.8 "Director" shall mean any person who is a member of the Board of Directors of the Company. 2 2.9 "Eligible Director" shall be any Director who is not a full or part-time employee of the Company. 2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder. 2.11 "Exercise Price" shall mean the price per share at which an Option may be exercised. 2.12 "Fair Market Value" shall mean the closing price of a share of Common Stock on the principal securities exchange on which such Common Stock is traded on the last preceding business day prior to the date as to which Fair Market Value is being determined, or on the next preceding business day on which such Common Stock is traded, if no shares of Common Stock were traded on such date. If the Common Stock is not traded on a securities exchange, Fair Market Value shall be the closing sales price of the Common Stock as reported on the NASDAQ-National Market System for the last preceding business day prior to the date on which Fair Market Value is to be determined or on the next preceding business day if the Common Stock was not traded on such date. If the Common Stock is not quoted on the NASDAQ-National Market System, Fair Market Value shall be the average of the high bid and low asked prices of the Common Stock in the over-the-counter market on the last preceding business day prior to the day as of which Fair Market Value is being determined, or on the next preceding day on which such high bid and low asked prices were recorded. If the Common Stock is not publicly traded, Fair Market Value shall be determined by the Board, in good faith, but only during any period in which no equity security of the Company's is registered pursuant to ss. 12 of the Exchange Act. In no case shall Fair Market Value be less than the par value per share of the Common Stock. Fair market value shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse. 2.13 "Grant Date" shall mean the Initial Grant Date or the Annual Grant Date as appropriate. 2.14 "Initial Grant Date" shall mean with respect to each Eligible Director, the latter of (i) the date such Eligible Director is first elected as a member of the Board, and (ii) the date on which the plan is approved by the Company's Shareholders. 2.15 "Option" shall mean an Option, including a Reload Option, to purchase shares of Common Stock granted pursuant to the Plan. 2.16 "Option Agreement" shall mean the written agreement described in Article VI herein. 2.17 "Permanent Disability" shall mean the condition of an Eligible Director who is unable to participate as a member of the Board by reason of any medically determined physical or mental impairment which can be expected to result in death or which can be expected to last for a continuous period of not less than twelve (12) months. 2.18 "Purchase Price" shall be the Exercise Price multiplied by the number of whole shares of Common Stock with respect to which an Option may be exercised. 2.19 "Plan" shall mean this RENEX CORP. Directors' Stock Option Plan. 2.20 "Reload Option" means an option granted to an Eligible Director equal to the number of shares of Common Stock delivered by the Eligible Director to pay for the exercise of an option as more fully described in Article XIII - RELOAD OPTIONS. ARTICLE III ADMINISTRATION 3.1 General. This Plan shall be administered by the Board in accordance with the express provisions of this Plan, subject to the restrictions contained in ss.16 of the Exchange Act. - 2 - 3 3.2 Powers of the Board. The Board shall have full and complete authority to adopt such rules and regulations and to make all such other determinations not inconsistent with the Plan or ss.16 of the Exchange Act (once the Common Stock is registered pursuant to ss.12 of the Exchange Act), as may be necessary for the administration of the Plan. 3.3 Section 16 Compliance. It is the intention of the Company that the Plan, and the administration of the Plan (once the Company's Common Stock is registered pursuant to ss.12 of the Exchange Act) comply in all respects with ss.16 of the Exchange Act and the rules and regulations promulgated thereunder. If any Plan provision, or any aspect of the administration of the Plan, is found not to be in compliance with ss.16 of the Exchange Act, the provision or administration shall be deemed null and void, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3 promulgated under the Exchange Act. ARTICLE IV SHARES SUBJECT TO PLAN Subject to adjustment in accordance with Articles IX and XII an aggregate of 500,000 shares of Common Stock are reserved for issuance under the Plan. Shares of Common Stock reserved under this Plan may be either authorized, but unissued shares of Common Stock or reacquired shares of Common Stock. If an Option, or any portion thereof, shall expire or terminate for any reason without having been exercised in full, the unpurchased shares of Common Stock covered by such Option shall be available for future grants of Options. Any shares of Common Stock used to pay the purchase price of any options in connection with Article XIII shall be added to the shares of Common Stock reserved for issuance under the Plan. ARTICLE V NON-DISCRETIONARY GRANTS 5.1 Initial Grants. On the Initial Grant Date, each Eligible Director shall receive the grant of an option to purchase 2,500 shares of Common Stock. 5.2 Annual Grants. On each Annual Grant Date, each Eligible Director shall receive the grant of an Option to purchase 2,500 shares of Common Stock. 5.3 Committee Service. Each Eligible Director who serves on a Committee, other than the Executive Committee, shall receive the grant of additional Options to purchase 1,000 shares of Common Stock on the Initial Grant Date and each Annual Grant Date, for each Committee he serves on as of the Grant date. Service on the Executive Committee shall entitle an Eligible Director to receive Options to purchase 2,500 shares of Common Stock on the initial Grant Date and each Annual Grant Date. The grant of Options pursuant to this Section 5.3 shall be in addition to the grant of Options contained in Sections 5.1 and 5.2, respectively. 5.4 Chairman of Committee. Each Eligible Director who serves as a Chairman of a Committee as of a Grant Date, other than the Chairman of the Executive Committee, shall receive an additional grant of Options to purchase 1,000 shares of Common Stock for each Chairmanship, on the Initial Grant Date and each Annual Grant Date. Service as Chairman of the Executive Committee shall entitle an Eligible Director to receive additional Options to purchase 2,500 shares of Common Stock on the Initial Grant Date and each Annual Grant Date. The grant of Options pursuant to this Section 5.4 shall be in addition to the grant of Options contained in Sections 5.1, 5.2 and 5.3, respectively. - 3 - 4 ARTICLE VI TERMS OF OPTION Each Option shall be evidenced by a written Option Agreement executed by the Company and the Eligible Director which shall specify the Grant Date, the number of shares of Common Stock subject to the Option, the Exercise Price and shall also include or incorporate by reference the substance of all of the following provisions and such other provisions consistent with this Plan as the Board may determine: 6.1 Term. The term of the Option shall be five (5) years from the Grant Date of each Option, subject to earlier termination in accordance with Articles VI and X of the Plan. 6.2 Restriction on Exercise. No Option shall be exercisable until six (6) months after the Grant Date, except in the case of the Eligible Director's death or permanent disability, upon which events the Option will become immediately exercisable. Thereafter, an Option, or any portion thereof, may be exercised until the earlier of the expiration of the option's term or termination of the Option in accordance with this Article VI. 6.3 Exercise Price. The Exercise Price for each share of Common Stock subject to an Option shall be the Fair Market Value of the Common Stock as determined in Section 2.12 herein. 6.4 Manner of Exercise. An option shall be exercised in accordance with its terms, by delivery of a written notice of exercise to the Company and payment of the full purchase price of the shares of Common Stock being purchased. An Eligible Director may exercise an Option with respect to all or less than all of the shares of Common Stock for which the Option may then be exercised, but an eligible Director must exercise the Option in full shares of Common Stock. 6.5 Payment. The Purchase Price pursuant to an Option or portion thereof, may be paid: (a) in United States dollars, in cash or by check, bank draft or money order payable to the Company; or (b) by delivery of shares of Common Stock owned by an Eligible Director which has an aggregate Fair Market Value on the date of exercise equal to the purchase price, subject to the provisions of ss.16(b) of the Exchange Act and the rules and regulations promulgated thereunder; or (c) to the extent authorized by the Board, or if specified in the Option being exercised, by a promissory note from Optionee to the Company, upon such terms and conditions determined by the Board and secured by the Common Stock issuable upon exercise of the Option; or (d) by any combination of the above methods of payment. 6.6 Transferability. No Option shall be transferable otherwise than by will or the laws of descent and distribution, and an Option shall be exercisable during the Eligible Director's lifetime only by the Eligible Director, his guardian or legal representative. 6.7 Termination of Membership on the Board. If an Eligible Director's membership on the Board terminates for any reason, an Option held on the date of termination may be exercised in whole or in part at any time within one (1) year after the date of such termination (but in no event after the actual expiration of the term of the Option) and shall thereafter terminate. ARTICLE VII GOVERNMENT AND OTHER REGULATIONS 7.1 Delivery of Common Stock. The obligation of the Company to issue or transfer and deliver shares of Common Stock for exercised Options under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect. - 4 - 5 7.2 Holding of Stock After Exercise of Option. The Option Agreement shall provide that the Eligible Director, by accepting such option, represents and agrees, for the Eligible Director and his permitted transferees that none of the shares of Common Stock purchased upon exercise of the Option shall be acquired with a view to any sale, transfer or distribution of the Common Stock in violation of the Securities Act of 1933, as amended (the "Act") and the person exercising an Option shall furnish evidence satisfactory to that Company to that effect, including an indemnification of the Company in the event of any violation of the Act by such person. ARTICLE VIII WITHHOLDING TAX The Company may, in its discretion, require an Eligible Director to pay to the Company, at the time of exercise of an Option an amount that the Company deems necessary to satisfy its obligations, if any, to withhold federal, state or local income or other taxes (which for purposes of this Article VIII includes an Eligible Director's FICA obligation) incurred by reason of such exercise. When the exercise of an Option does not give rise to the obligation to withhold federal income taxes on the date of exercise, the Company may, in its discretion, require an Eligible Director to place shares of Common Stock received upon exercise of the Option in escrow for the benefit of the Company until such time as federal income tax withholding is required on amounts included in the Eligible Director's gross income as a result of the exercise of an Option. At such time, the Company, in its discretion, may require an Eligible Director to pay to the Company an amount that the Company deems necessary to satisfy its obligation to withhold federal, state or local taxes incurred by reason of the exercise of the Option, in which case the shares of Common Stock will be released from escrow upon such payment by an Eligible Director. ARTICLE IX ADJUSTMENTS 9.1 Proportionate Adjustments. If the outstanding shares of Common Stock are increased, decreased, changed into or exchanged into a different number or kind of shares of Common Stock or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and proportionate adjustment shall be made to the maximum number and kind of shares of Common Stock as to which Options may be granted under this Plan. A corresponding adjustment changing the number or kind of shares of Common Stock allocated to unexercised Options or portions thereof, which shall have been granted prior to any such change, shall likewise be made. Any such adjustment in the outstanding Options shall be made without change in the Purchase Price applicable to the unexercised portion of the Option with a corresponding adjustment in the Exercise Price of the shares of Common Stock covered by the Option. Notwithstanding the foregoing, there shall be no adjustment for the issuance of shares of Common Stock on conversion of notes, preferred stock or exercise of warrants or shares of Common Stock issued by the Board for such consideration as the Board deems appropriate. 9.2 Dissolution or Liquidation. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon a sale of substantially all of the property or more than 50% of the then outstanding shares of Common Stock of the Company to another corporation, the Company shall give to each Eligible Director at the time of adoption of the plan for liquidation, dissolution, merger or sale either (1) a reasonable time thereafter within which to exercise the Option prior to the effective date of such liquidation or dissolution, merger or sale, or (2) the right to exercise the Option as to an equivalent number of shares of Common Stock of the corporation succeeding the Company or acquiring its business by reason of such liquidation, dissolution, merger, consolidation or reorganization. - 5 - 6 ARTICLE X AMENDMENT OR TERMINATION OF PLAN 10.1 Amendments. The Board may at any time amend or revise the terms of the Plan, provided no such amendment or revision shall, unless appropriate stockholder approval of such amendment or revision is obtained: (a) materially increase the maximum number of shares of Common Stock which may be sold pursuant to Options granted under the Plan; (b) materially increase the benefits accruing to participants under the Plan; (c) materially modify the requirements as to eligibility for participants in the Plan. 10.2 Termination. The Board may suspend or terminate this Plan at any time. This Plan, unless sooner terminated, shall terminate on the tenth (10th) anniversary of its adoption by the Board. No Option may be granted under this Plan, while this Plan is suspended or after it is terminated. 10.3 Holder of Consent. No amendment, suspension or termination of the Plan shall, without the consent of the holder of Options, alter or impair any rights or obligations under any Option theretofore granted under the Plan. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1 Privilege of Stock Ownership. No Eligible Director entitled to exercise any Option granted under the Plan shall have any of the rights or privileges of a stockholder of the Company with respect to any shares of Common Stock issuable upon exercise of an Option until certificates representing the shares of Common Stock shall have been issued and delivered. 11.2 Plan Expenses. Any expenses incurred in the administration of the Plan shall be borne by the Company. 11.3 Use of Proceeds. Payments received from an Eligible Director upon the exercise of Options shall be used for general corporate purposes of the Company. 11.4 Governing Law. The Plan has been adopted under the laws of the State of Delaware. The Plan and all Options which may be granted hereunder and all matters related thereto, shall be governed by and construed and enforceable in accordance with the laws of the State of Delaware as it then exists. 11.5 Gender and Number. Except as otherwise indicated by the context, reference to the masculine gender shall include the feminine gender, the plural shall include the singular and the singular shall include the plural. 11.6 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. - 6 - 7 ARTICLE XII STOCKHOLDER APPROVAL AND EFFECTIVE DATE The Plan shall be submitted for approval by the holders of the outstanding voting stock of the Company within twelve (12) months from the date the Plan is adopted by the Board; provided, however, that if such vote was not solicited substantially in accordance with the rules and regulations, if any, in effect under ss.14(a) of the Exchange Act, at the time of such vote, the Company will furnish in writing to the holders of record of the securities entitled to vote for the Plan substantially the same information concerning the Plan which would be required by the rules and regulations in effect under ss.14(a) of the Exchange Act, as if proxies to be voted with respect to the approval or disapproval of the Plan were then being solicited, on or prior to the date of the first annual meeting of security holders held subsequent to the later of (i) the first registration of an equity security under ss.12 of the Exchange Act; or (ii) the acquisition of an equity security for which an exemption is claimed. The Plan shall be deemed approved by the holders of the outstanding voting stock of the Company by the affirmative vote of the holders of a majority of the voting shares of the Company represented and voting at a duly held meeting at which a quorum is present. Any Options granted under the Plan prior to obtaining such stockholder approval shall be granted under the conditions that the Options so granted (i) shall not be exercisable prior to such approval, and (ii) shall become null and void if such stockholder approval is not obtained. ARTICLE XIII RELOAD OPTIONS 13.1 Reload Option. Whenever the Optionee holding any Option outstanding under the Plan (including Reload Options granted under this Article XIII) exercises the Option and makes payment of the Exercise Price pursuant to Section 6.5(b) by tendering Common Stock previously held by the Optionee, then the Company shall automatically grant a Reload Option for the number of shares of Common Stock that is equal to the number of shares tendered by the Optionee on payment of the Exercise Price of the Option being exercised. 13.2 Reload Option Exercise Price. The Reload Option Exercise Price per share shall be an amount equal to the Fair Market Value per share of the Company's Common Stock determined as of the date of receipt by the Company of the notice by Optionee to exercise the option. 13.3 Term of Reload Option. The exercise period of the Reload Option shall expire, and the Reload Option shall no longer be exercisable, on the later of (i) expiration date of the original surrendered Option, or (ii) one year from the date of grant. 13.4 Restriction on Exercise. Any Reload Option granted under this Article XIII shall vest immediately, but shall not be exercisable until the end of six months after the date of its issuance, except in the case of the death or permanent disability of the Optionee, upon which event the Reload Option will become immediately exercisable. 13.5 Other Terms of Reload Options. All other terms of the Reload Options granted hereunder shall be identical to the terms and conditions of the original Option, the exercise of which gives rise to the grant of the Reload Option. - 7 - EX-10.5 10 1994 EMPLOYEE STOCK OPTION PLAN 1 Exhibit 10.5 RENEX CORP. 1994 EMPLOYEE STOCK OPTION PLAN ARTICLE I PURPOSE The purpose of the 1994 Employee Stock Option Plan (the "Plan") of RENEX CORP., a Florida corporation, is to secure for the Company and its stockholders the benefits arising from stock ownership by employees of the Company or its subsidiaries. The Plan will provide a means whereby (i) such employees may purchase shares of the Common Stock, $.001 par value (the "Common Stock"), of the Company pursuant to options which will qualify as "incentive stock options" under Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) such employees may purchase shares of the Common Stock pursuant to "non-statutory" stock options. ARTICLE II DEFINITIONS The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.1 "Board" shall mean the Board of Directors of RENEX CORP. 2.2 "Change of Control" shall mean the occurrence of any of the following acts: (a) The acquisition (other than from the Company directly) by any person, entity or group within the meaning of ss. 13(d) or 14(d) of the Exchange Act, of beneficial ownership of twenty-five (25%) percent or more of the outstanding Common Stock; (b) If the individuals who serve on the Board as of the date of stockholder approval of the Plan, no longer constitute a majority of the members of the Board; provided, however, any person who becomes a director subsequent to the date of the stockholder approval of the Plan, who was elected to fill a vacancy by a majority of the individuals then serving on the Board, shall be considered as if a member prior to stockholder approval of the Plan; (c) Approval by a majority of the voting stock of the Company of a merger, reorganization or consolidation whereby the stockholders of the Company immediately prior to such approval do not, immediately after consummation of such reorganization merger or consolidation own more than 50% of the voting stock of the surviving entity; or (d) A liquidation or dissolution of the Company, or the sale of all or substantially all of the Company's assets. 2.3 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.4 "Committee" shall mean the committee appointed by the Board in accordance with Paragraph 3 of the Plan. 2.5 "Common Stock" shall mean the common stock, $.001 par value, of the Company. 2.6 "Company" shall mean RENEX CORP. and each of its subsidiaries, if any. 2.7 "Control Person" shall mean any person who, as of the date of grant of an option owns (within the meaning of Section 422A(b)(6) of the Code) stock of the Company possessing more than ten (10%) percent of the total combined voting power or value of all classes of stock of the Company or of any subsidiary. 2.8 "Disinterested Director" shall mean a director who is not, during the one year prior to service on the Committee, granted or awarded equity securities pursuant to the Plan or any other plan of the Company, except as would otherwise be permitted, pursuant to Rule 16b-3, promulgated pursuant to the Exchange Act, for Disinterested Directors. 2.9 "Employee" shall mean any person (who may be an officer or director) employed by the Company (within the meaning of Section 3401(c) of the Code and the regulations promulgated thereunder), or any successor corporation by merger or consolidation. 2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 2.11 "Exercise Price" shall mean the price per share of Common Stock as determined by the "Committee or the Board at which an Option may be exercised. 2 2.12 "Fair Market Value" shall mean the closing price of a share of Common Stock on the principal securities exchange on which such Common Stock is traded on the last preceding business day prior to the date as to which Fair Market Value is being determined, or on the next preceding business day on which such Common Stock is traded, if no shares of Common Stock were traded on such date. If the Common Stock is not traded on a securities exchange, Fair Market Value shall be the closing sales price of the Common Stock as reported on the NASDAQ-National Market System for the last preceding business day prior to the date on which Fair Market Value is to be determined or on the next preceding business day if the Common Stock was not traded on such date. If the Common Stock is not quoted on the NASDAQ-National Market System, Fair Market Value shall be the average of the high bid and low asked prices of the Common Stock in the over-the-counter market on the last preceding business day prior to the day as of which Fair Market Value is being determined, or on the next preceding day on which such high bid and low asked prices were recorded. If the Common Stock is not publicly traded, Fair Market Value shall be determined by the Committee, or the Board, in good faith. In no case shall Fair Market Value be less than the par value per share of the Common Stock. Fair market value shall be determined without regard to any restriction other than a restriction which, by its terms, will never lapse. 2.13 "Incentive Stock Option" or "ISO" shall mean an Option granted pursuant to the Plan intended to qualify under Section 422A of the Code. 2.14 "Non-Statutory Stock Option" or "NSO" shall mean an Option which is not qualified as an ISO under Section 422A of the Code. 2.15 "Option" shall mean an Option, including Reload Options, to purchase Common Stock as granted pursuant to the Plan. 2.16 "Optionee" shall mean any person whom the Committee or the Board, as the case may be, has granted an Option. 2.17 "Permanent Disability" shall mean the condition of an Employee who is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. 2.18 "Plan" shall mean this RENEX CORP. 1994 Employee Stock Option Plan. 2.19 "Purchase Price" shall mean the Exercise Price multiplied by the number of whole shares of Common Stock with respect to which an Option can be exercised. 2.20 "Reload Option" means an Option granted to an Employee equal to the number of shares of Common Stock tendered by the Employee to pay for the Exercise Price of an Option as more fully described in Article XVI Reload Options. 2.21 "Subsidiary" shall mean one or more subsidiaries of the Company as defined in Section 424 of the Code. ARTICLE III ADMINISTRATION 3.1 Committee. The Plan shall be administered by the Board, or by a Committee consisting of two (2) or more Disinterested Directors appointed by the Board. The Board from time to time may remove members from, or add members to, the Committee. Vacancies in the Committee, however caused, shall be filled by the Board. 3.2 Activities of Committee. Any action of the Board or the Committee with respect to administration of the Plan shall be taken by a majority vote or written consent of its members. If a Committee is appointed by the Board, the Committee shall hold meetings at such times and places as it may determine. 3.3 Construction of Plan. Subject to the provisions of the Plan and such policies and criteria adopted by the Board, the Board or Committee, as the case may be, shall have authority: (a) to construe and interpret the Plan, (b) to define the terms used therein, (c) to prescribe, amend and rescind rules and regulations relating to the Plan, (d) to determine the individuals to whom and the time or times at which Options shall be granted, (e) to determine whether such options will be ISO or NSO, (f) to determine the number of shares subject to each Option, (g) to determine the Exercise Price, (h) to determine the number of installments, advertising requirements, if any, in which each Option may be exercised, (i) to determine the duration of each Option, (j) to approve and determine the duration of leaves of absence which may be granted to Employees without constituting a termination of their Employment for the purposes of the Plan, and (k) to make all other determinations necessary or advisable for the administration of the Plan. -2- 3 The Board, or the Committee, as the case may be, shall have the sole discretion to make all other determinations which may be necessary or advisable for the administration of the Plan, including without limitation, the discretion to construe and interpret the Plan and establish, amend and revoke rules and regulations for the administration of the Plan. To the extent permitted by law, and Rule 16b-3 promulgated under the Exchange Act, the Board or the Committee may delegate its authority as identified hereunder. 3.4 Interpretations Under Plan. All determinations and interpretations made by the Board or Committee shall be binding and conclusive on all Optionees and their legal representatives and beneficiaries. 3.5 Section 16 Compliance. It is the intention of the Company that the Plan, and the administration of the Plan, comply in all respects with ss. 16 of the Exchange Act and the rules and regulations promulgated thereunder. If any Plan provision, or any aspect of the administration of the Plan, is found not to be in compliance with ss. 16 of the Exchange Act, the provision or administration shall be deemed null and void, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3 promulgated under the Exchange Act. ARTICLE IV SHARES SUBJECT TO PLAN The total number of shares of Common Stock available for grants under the Plan shall be 2,000,000 subject to adjustment in accordance with Articles XII and XVI of the Plan. These shares may be either authorized, but unissued, or reacquired shares of Common Stock. If an Option or portion thereof shall expire or terminate for any reason without having been exercised in full, the unpurchased shares covered by such Option shall be available for future grants of Option. For purposes of determining the number of shares that have been issued or are available for issuance under the Plan, any shares received in connection with the issuance of a Reload Option shall be added to the number of shares available for grants under the Plan. ARTICLE V ELIGIBILITY 5.1 Incentive Stock Options. Incentive Stock Options shall only be granted to Employees (including individuals who may be officers and directors of the Company) for services connected with an Employee's employment by the Company or any of the Company's subsidiaries. 5.2 Non-Statutory Stock Option. Non-Statutory Stock Options may be granted to Employees who have performed, or reasonably may be expected to perform, services of special importance to the management, operation or development of the business of the Company or any subsidiary as the Committee or the Board, as the case may be, shall determine, but subject to the terms and conditions set forth in the Plan. 5.3 Board Members. Options may be granted to members of the Board if such individuals are Employees, provided such Optionee is not a member of the Committee. ARTICLE VI TERMS OF OPTIONS 6.1 Option Agreements. Each Option shall be evidenced by a written agreement executed by the Company and the Optionee. Such Options shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Board or Committee may prescribe. All agreements evidencing Options shall among other things specify the total number of shares of Common Stock subject to each grant, the Exercise Price, the dates after which Options may be exercised, the Option term and vesting requirements. Those Options that comply with the requirement of an Incentive Stock Option shall be designated as such and all other Options shall be designated as Non-Statutory Stock Options. 6.2 Exercise Price. The Exercise Price of the shares of Common Stock covered by each Option shall be determined by the Board or the Committee, as the case may be, but in the case of Incentive Stock Options shall not be less than one hundred (100%) percent of the Fair Market Value of such Common Stock at the time of grant. The Board, or the Committee, as the case may be, shall have the authority, subject to the requirements of the Code and the Exchange Act, to reduce the exercise price at any time after the grant in its sole discretion. 6.3 Duration of Options. Each Option and all rights associated therewith shall expire on such date as the Board or Committee, as the case may be, may determine, but in no event later than ten (10) years from the date on which the Option is granted, and shall be subject to earlier termination as provided herein. Notwithstanding any determination by the Board or the Committee regarding the exercise periods of any installments of Options, all such -3- 4 Options shall immediately become exercisable upon a Change of Control of the Company, subject in all cases to the provision of Paragraph 6.7, which shall prevail. 6.4 Limitations on Grants to Control Persons. No Incentive Stock Option may be granted to an Employee, if at the time of the grant, the Employee is a Control Person. However, a Control Person shall be eligible to receive Options if: (a) the exercise price of any Incentive Stock Option is at least 110% of the Fair Market Value and the Incentive Stock Option by its terms is not exercisable after the expiration of five (5) years from the date such Option was granted; and (b) The exercise price of an NSO is at least 85% of the Fair Market Value. 6.5 Manner of Exercise and Payment. An Option, or any portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and payment of the full price of the shares being purchased pursuant to the Option. An Optionee may exercise an Option with respect to less than the full number of shares for which the Option may then be exercised, but an Optionee must exercise the Option in full shares of Common Stock. The Exercise Price of Common Stock purchased pursuant to an Option, or portion thereof, may be paid: (a) in United States dollars, in cash or by check, bank draft or money order payable to the order of the Company; (b) through the delivery of shares of Common Stock with an aggregate Fair Market Value on the date of exercise equal to the Exercise Price; (c) to the extent authorized by the Committee or the Board, by delivery of irrevocable instructions to a financial institution to deliver promptly to the Company the portion of sale or loan proceeds sufficient to pay the Exercise Price; (d) to the extent authorized by the Board, or the Committee, as the case may be, through the written election of the Optionee to have shares of Common Stock withheld by the Company from the shares otherwise to be received, with such withheld shares having an aggregate Fair Market Value on the date of exercise equal to the Purchase Price; (e) to the extent authorized by the Board, or the Committee, as the case may be, or if specified in the Option being exercised, by a promissory note made by the Optionee in favor of the Company, upon the terms and conditions as determined by the Board or the Committee, and secured by the Common Stock issuable upon exercise of the Option, or (f) by any combination of the above methods of payment. The Board, or Committee, shall determine acceptable methods for tendering or withholding Common Stock as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Common Stock to exercise an Option as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid certain accounting consequences which may result from the use of Common Stock as payment upon exercise of an Option. 6.6 Notification of Sales of Common Stock. Any Optionee who disposes of shares of Common Stock acquired upon the exercise of an Incentive Stock Option either (a) within two years after the date of the grant of the Incentive Stock Option under which the Common Stock was acquired or (b) within one year after the transfer of such shares to the Optionee, shall notify the Company of such disposition and of the amount received upon such disposition. 6.7 Restriction on Exercise. No Option shall be exercisable until the end of six months after the date of grant, except in the case of the Employee's death or Permanent Disability, upon which event the Option will become immediately exercisable. ARTICLE VII GOVERNMENT AND OTHER REGULATIONS 7.1 Delivery of Common Stock. The obligation of the Company to issue or transfer and deliver shares for Options exercised under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by governmental entities. 7.2 Holding of Stock After Exercise of Option. At the discretion of the Board or Committee, any Option may provide that the Optionee, by accepting such Option, represents and agrees, for the Optionee and his permitted -4- 5 transferees (by will or the laws of descent and distribution), that none of the Common Stock purchased upon exercise of the Option will be acquired with a view to any sale, transfer or distribution of said Common Stock in violation of the Securities Act of 1933 as amended (the "Act"), and the person entitled to exercise the same shall furnish evidence satisfactory to the Company (including a written and signed representation) to that effect in form and substance satisfactory to the Company, including an indemnification of the Company in the event of any violation of the Act by such person. ARTICLE VIII WITHHOLDING TAX The Company may, in its discretion, require an Optionee to pay to the Company at the time of exercise, an amount that the Company deems necessary to satisfy its obligations to withhold Federal, state or local income or other taxes (which for purposes of this Article includes an Optionees FICA obligation), incurred by reason of such exercise. When the exercise of an Option does not give rise to an obligation to withhold Federal income taxes on the date of exercise, the Company may, in its discretion, require an Optionee to place shares of Common Stock purchased under the Option in escrow for the benefit of the Company until such time as Federal income tax withholding is required on amounts included in the gross income of the Optionee as a result of the exercise of an Option. At such time, the Company in its discretion may require an Optionee to pay to the Company the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local taxes incurred by reason of the exercise of the Option, in which case the shares of Common Stock will be released from escrow upon such payment by Optionee. ARTICLE IX NON-TRANSFERABILITY No Option granted under the Plan shall be transferable by the Optionee, otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder. Options shall be exercisable during the Optionee's lifetime only by the Optionee, regardless of any community property interest therein of the Optionee's spouse, or such spouse's successors in interest. If the Optionee's spouse shall have acquired a community property interest in such Option, the Optionee, or the Optionee's permitted successors in interest, may exercise the Option on behalf of the Optionee's spouse or such spouse's successors in interest. ARTICLE X TERMINATION OF EMPLOYMENT 10.1 Resignation of Employee. If an Optionee ceases to be employed by the Company for any reason other than the Optionee's death or Permanent Disability, the Optionee's Options shall immediately become void and of no further force or effect; provided, however, that if such cessation of Employment shall be due to the Optionee's voluntary resignation with the consent of the Board, or the Committee, or to the Optionee's retirement under the provisions of any pension or retirement plan of the Company or any Subsidiary then in effect, such Option may be exercised to the extent exercisable on the date of such cessation of Employment within three (3) months after the date the Optionee ceases to be an Employee of the Company; provided, however that in no event shall the exercise period extend beyond the term of the Option. 10.2 Leaves of Absence. For the purpose contained herein, the employment relationship will be treated as continuing intact while the Optionee is on military leave, approved sick leave or other bona fide leave of absence to be approved in writing by the Board or Committee. However, no Option may be exercised during any such leave of absence, except during the first three (3) months thereof; provided, however that in no event shall the exercise period extend beyond the term of the Option. 10.3 Termination by Reason of Death or Permanent Disability. If the holder of an Option dies or suffers a Permanent Disability while the Optionee is employed by the Company, the Optionee's Option shall expire one (1) year after the date of such death or Permanent Disability; provided, however that in no event shall the exercise period extend beyond the term of the Option. During such period after death, such Option may, to the extent that it remains unexercised (but exercisable by the Optionee according to such Option's term) on the date of such death, be exercised by the person or persons to whom the Optionee's rights under the Option shall pass by the Optionee's will or by the laws of descent and distribution. -5- 6 ARTICLE XI LIMITATION ON GRANTS OF INCENTIVE STOCK OPTIONS No one individual may be granted Incentive Stock Options under this Plan or any other plan of the Company in any calendar year for Common Stock having an aggregate Fair Market Value determined at the time the Option is granted, in excess of $100,000. ARTICLE XII ADJUSTMENTS 12.1 Proportionate Adjustments. If the outstanding shares of Common Stock are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, an appropriate and proportionate adjustment shall be made in the maximum number and kind of shares as to which Options may be granted under this Plan. A corresponding adjustment changing the number of kind or shares allocated to unexercised Options or portions thereof, which shall have been granted prior to any such change, shall likewise be made. Any such adjustment in the outstanding Options shall be made without change in the aggregate Purchase Price applicable to the unexercised portion of the Option but with a corresponding adjustment in the Exercise Price for the Common Stock covered by the Option. Notwithstanding the foregoing, there shall be no adjustment for the issuance of Common Stock upon conversion of notes, preferred stock or exercise of warrants or Common Stock issued by the Board for such consideration as the Board deems appropriate. 12.2 Dissolution or Liquidation. Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company with one (1) or more corporations as a result of which the Company is not the surviving corporation, or upon a sale of substantially all the property or more than eighty (80%) percent of the then outstanding shares of Common Stock of the Company to another corporation, the Board or Committee may provide in writing in connection with such transaction for any or all of the following choices (separately or in combinations): (i) for the Options theretofore granted to become immediately exercisable; (ii) for the assumption by the successor corporation of the Options theretofore granted or the substitution by such corporation for such Options of new Options covering the stock of the successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; (iii) for the continuance of the Plan by each successor corporation in which event the Plan and the Options theretofore granted shall continue in the manner and under the terms so provided; or (iv) for termination of the Plan and any Option theretofore granted hereunder. 12.3 Board Determination. Adjustments under this Article 12 shall be made by the Board or Committee, whose determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional shares of Common Stock shall be issued under the Plan on any such adjustment. ARTICLE XIII AMENDMENT AND TERMINATION OF PLAN 13.1 Amendments. The Board or the Committee may at any time suspend or terminate the Plan. The Board or the Committee may also at any time amend or revise the terms of the Plan, provided that no such amendment or revision shall, unless appropriate stockholder approval of such amendment or revision is obtained: (a) materially increase the benefits accruing to participants under the Plan; (b) materially increase the number of securities which may be issued under Plan; or (c) materially modify the requirements as to eligibility for participation in the Plan. 13.2 Optionee Consent. No amendment, suspension or termination of the Plan shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option theretofore granted under the Plan. ARTICLE XIV MISCELLANEOUS PROVISIONS 14.1 Privileges of Stock Ownership. No person entitled to exercise any Option granted under the Plan shall have any of the rights or privileges of a stockholder of the Company in respect of any shares of Common Stock issuable upon exercise of such Option until certificates representing such shares shall have been issued and delivered. No shares shall be issued and delivered upon exercise of any Option unless and until, in the opinion of counsel for the Company, there shall have been full compliance with any applicable registration requirements of the Act, any applicable listing requirements of any national securities exchange on which stock of the same class is then listed, and any other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery. -6- 7 14.2 Plan Expenses. Any expenses incurred in the administration of the Plan shall be borne by the Company. 14.3 Use of Exercise Proceeds. Payments received from an Optionee upon the exercise of Options shall be used for the general corporate purposes of the Company, except that any Common Stock received in payment may be retired or retained in the Company's treasury and reissued. 14.4 No Employment Rights. Neither the Plan, nor any action taken under the Plan shall be construed as giving any Employee the right to become a participant, nor shall any Option under the Plan be construed as giving a participant any right with respect to continuance of employment by the Company. The Company expressly reserves the right to terminate, whether by dismissal, discharge or otherwise a participant's employment at any time, with or without cause, except as may otherwise be provided in any written agreement between the Company and the Employee. 14.5 Indemnification. In addition to such other rights of indemnification as they may have as members of the Board, or the Committee, the members of the Committee and the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding, such indemnified party shall in writing give the Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such indemnified party undertakes to handle and defend it on such member's behalf. 14.6 No Obligation to Exercise Options. The granting of an Option shall impose no obligation upon the Optionee to exercise such Option. 14.7 Governing Law. The Plan has been adopted under the laws of the State of Delaware. The Plan, all Options which may be granted hereunder, and all matters related thereto, shall be governed by and construed and enforced in accordance with the laws of the State of Delaware as it then exists. 14.8 Gender and Number. Except as otherwise indicated by the context, reference to the masculine gender shall include the feminine gender, the plural shall include the singular and the singular shall include the plural. 14.9 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. ARTICLE XV STOCKHOLDER APPROVAL AND EFFECTIVE DATE The Plan shall be submitted for approval by the holders of the outstanding voting stock of the Company within twelve (12) months from the date the Plan is adopted by the Board; provided, however, that if such vote was not solicited substantially in accordance with the rules and regulations, if any, in effect under ss. 14(a) of the Exchange Act, at the time of such vote, the Company will furnish in writing to the holders of record of the securities entitled to vote for the Plan substantially the same information concerning the Plan which would be required by the rules and regulations in effect under ss. 14(a) of the Exchange Act, as if proxies to be voted with respect to the approval or disapproval of the Plan were then being solicited, on or prior to the date of the first annual meeting of security holders held subsequent to the later of (i) the first registration of an equity security under ss. 12 of the Exchange Act; or (ii) the acquisition of an equity security for which an exemption is claimed. The Plan shall be deemed approved by the holders of the outstanding voting stock of the Company by the affirmative vote of the holders of a majority of the voting shares of the Company represented and voting at a duly held meeting at which a quorum is present. Any Options granted under the Plan prior to obtaining such stockholder approval shall be granted under the conditions that the Options so granted (i) shall not be exercisable prior to such approval, and (ii) shall become null and void if such stockholder approval is not obtained. ARTICLE XVI RELOAD OPTIONS 16.1 Reload Option. Whenever the Optionee holding any Option outstanding under the Plan (including Reload Options granted under this Article XVI) exercises the Option and makes payment of the Exercise Price by tendering Common Stock previously held by the Optionee pursuant to Section 6.5(b), then the Company shall grant a Reload Option for the number of shares of Common Stock that is equal to the number of shares tendered by the Optionee on payment of the Exercise Price of the Option being exercised. -7- 8 16.2 Reload Option Exercise Price. The Reload Option Exercise Price per share shall be an amount equal to the Fair Market Value per share of the Company's Common Stock determined as of the date of receipt by the Company of the notice by Optionee to exercise the Option. 16.3 Term of Reload Option. The exercise period of the Reload Option shall expire, and the Reload Option shall no longer be exercisable, on the later of (i) the expiration date of the original surrendered Option, or (ii) one year from the date of granting, unless otherwise determined by the Board or the Committee, which shall have the discretion to extend the expiration date of the Reload Options. 16.4 Restriction on Exercise. Any Reload Option granted under this Article XVI shall vest immediately, but shall not be exercisable until the end of six months after the date of its issuance, except in the case of the death or permanent disability of the Optionee, upon which event the Reload Option will become immediately exercisable. 16.5 Other Terms of Reload Options. All other terms of the Reload Options granted hereunder shall be identical to the terms and conditions of the original Option, the exercise of which gives rise to the grant of the Reload Option. -8- EX-10.7 11 LEASE AGREEMENT 1 Exhibit 10.7 LEASE AGREEMENT THIS LEASE AGREEMENT ("Lease") is entered into by and between the Landlord and the Tenant hereinafter named. ARTICLE I. DEFINITIONS AND CERTAIN BASIC PROVISIONS 1.01 (1) "Landlord": JCD Partnership (2) "Landlord's Address": 1828 Raymond Road, Jackson, Mississippi 39204 (3) "Tenant": Renex Dialysis Facilities, Inc. (4) Tenant's Address: 1828 Raymond Road, Jackson, Mississippi 39204 (5) "Premises": The commercial office building located at the above referenced address, which is designed and equipped to accommodate outpatient chronic dialysis clinics. (6) "Lease Term": January 1, 1996, through December 31, 2000, with an option by Tenant to renew for an additional five (5) years on the same terms and conditions provided Tenant exercises this option in writing and delivers same to Landlord, not less than 60 days prior to the expiration of the initial term. (7) "Rent": As set forth in Section 3.01 of this Lease. 1.02 Each of the foregoing definitions and basic provisions shall be construed in conjunction with and limited by the references thereto in the other provisions of this Lease. ARTICLE II. GRANTING CLAUSE 2.01 In consideration of the obligation of Tenant to pay Rent as herein provided and in consideration of the other terms, covenants and conditions herein, Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord, the Premises as described in paragraph 1.01(5) to have and to hold the Premises for the Lease Term specified in paragraph 1.01(6), all on the terms and conditions set forth in this Lease. 2 ARTICLE III. RENT 3.01 Tenant shall pay to Landlord Rent in monthly installments of Two Thousand Two Hundred No/100 Dollars ($2,200.00). Installments shall be due and payable on or before the first day of each calendar month during the Lease Term and shall become past due on the tenth day thereof. Rent shall accrue hereunder from January 1, 1996, and shall be payable at the place designated for the delivery of notices to Landlord at the time of payment. ARTICLE IV. USE AND CARE OF PREMISES 4.01 Tenant shall use and occupy the premises solely for purposes directly related to the maintenance of outpatient chronic dialysis facilities or related medical or general office use. 4.02 Tenant shall procure at its sole expense any permits and licenses required for the transaction of its business on the Premises. The Tenant further agrees not to permit anything to be one on the premises which will be contrary to the provisions of the policies of insurance hereon or which will increase the premiums for such insurance, or be contrary to the rules and regulations of any municipal, state or governmental authority. 4.03 Tenant agrees not to permit the premises, including woodwork, floors, carpet, and walls, or any furniture or furnishing fixture, or appliances contained therein to be damaged in any manner. Tenant is also responsible for damage done by wind, or rain, followed by leaving windows or doors open, and by overflow of water or stoppage of water pipes. Tenant agrees to waive all rights and claims against the Landlord in connection with the condition of the Premises after occupancy, and any subsequent action to repair or vacate. After occupancy, Tenant shall keep the premises in good order, neat in appearance, and free from all refuse, and shall promptly remove all garbage and refuse of any kind from the premises during the Lease Term. 4.04 Tenant shall keep the foundation, exterior walls, air conditioning, heating and ventilating systems and roof of the Premises in good repair. ARTICLE V. UTILITIES 5.01 Tenant shall promptly pay all charges for electricity, water, gas, sewerage service, and other utilities furnished to the Premises. ARTICLE VI. INSURANCE 6.01 Tenant shall, from and after the commencement of this Lease, and throughout the entire term of this I-ease, keep the Premises insured against loss or damage by fire, lightning - 2 - 3 and any other casualties and Landlord shall be named as Loss Payee on said insurance policy(s) and Tenant shall maintain property damage insurance on all contents located on the Premises. ARTICLE VII. DAMAGE BY FIRE OR OTHER CASUALTY 7.01 Tenant shall give immediate written notice to Landlord of any damage caused to the Premises by fire or other casualty. 7.02 If the Premises shall be damaged or destroyed by fire or other casualty insurable under standard fire and extended coverage insurance and Landlord does not elect to terminate this Lease as hereinafter provided, Landlord shall proceed with reasonable diligence and at Landlord's sole cost and expense to rebuild and repair the Premises. Landlord shall proceed to rebuild and repair the Premises with reasonable diligence and at Landlord's sole cost and expense. ARTICLE VIII. INDEMNITY CLAUSE 8.01 Tenant agrees that it will protect and save and keep Landlord harmless and indemnified against and from any penalty or damage or charges imposed for any violation of any laws or ordinances, whether occasioned by the neglect of Tenant or those holding under Tenant, and that Tenant will at all times protect, indemnify and save and keep harmless Landlord against and from any and all loss, cost, damage or expense, arising out of or from any accident or other occurrence on or about said premises, causing injury to any person or property whomsoever or whatsoever, and will protect, indemnify and save and keep harmless the Lessor against and from any and all claims and against from any and all loss, cost, damage or expenses arising out of any failure of Tenant in any respect to comply with and perform all the requirements and provisions hereof. ARTICLE IX. EMINENT DOMAIN 9.01 If the Premises should be taken for any public or quasi-public use under any governmental law, ordinance, or regulation or by right of eminent domain such that they are no longer suitable to operate Tenant's business thereon, this Lease shall, at the election of Tenant, terminate and the Rent shall be abated during the unexpired portion of this Lease, effective on the date physical possession is taken by the condemning authority. 9.02 All compensation awarded for any taking of the Premises shall be the property of the Landlord, and Tenant hereby assigns their interest in any such award to Landlord. ARTICLE X. PROPERTY TAXES 10.01 All real estate taxes shall be the responsibility of Landlord. - 3 - 4 10.02 Tenant shall be liable for all taxes levied against personal property and trade fixtures placed by Tenant on the Premises. ARTICLE XI. SUBLETTING 12.01 Tenant shall not sublet the Premises or assign this Lease, or any part thereof, without the prior written consent of Landlord, which consent shall not be unreasonably withheld. ARTICLE XII. INSPECTION 13.01 Landlord may enter said premises at reasonable times to inspect the Premises upon reasonable notice. ARTICLE XIII. ALTERATIONS 14.01 Tenant agrees not to make any material alterations, installations, repairs, or redecorations of any kind to the premises without written permission from the Landlord which consent shall not be unreasonably withheld. ARTICLE XIV. TERMINATION 15.01 Should Tenant fail to vacate on or before the termination date, the rental for the holdover period shall be the maximum permitted by law. In such case, Tenant shall be liable for such other damages incurred through the loss of a prospective tenant, or other expenses incurred due to the breach of this condition of this Lease. ARTICLE XV. DEFAULT 16.01 If the aforesaid rental or any part thereof shall remain unpaid for ten (10) days after written notice, or if Lessee shall violate or be in default on the performance of any of the other covenants or conditions hereof, after thirty (30) days written notice or if Tenant abandons or vacates the Premises during the term of this Lease for a period of time consisting of at least 15 consecutive business days, or if Tenant shall be adjudicated bankrupt, or makes any assignment for the benefit of creditors, Landlord may enter into said premises, and again have and repossess the same as if this Lease had not been made in accordance with applicable law. In case of any such default or entry, Landlord shall thereupon have the right at its option and in its sole discretion: (1) to terminate this Lease and the rent for the entire term shall at once become due and payable and Landlord may proceed to collect the rent for the entire term as if by the terms of this Lease the entire rent for the entire term shall be made payable in advance; or (2) to relet said premises from time-to-time during - 4 - 5 the remainder of the Lease Term for the highest rent obtainable and it may recover from Tenant any deficiency between such amount and the rent herein reserved, it being the intention of the parties that such re-entry and reletting shall not discharge Tenant from liability for rent or for any other obligations of Tenant under the terms of this Lease. In addition, upon default hereunder, Landlord shall also be entitled to recover the cost of reletting the leased premises, including, but not limited to advertising costs. Landlord may waive any default without impairing the right to declare subsequent default hereunder, this right being a continuing one. Should Landlord place the claim for any past-due rent or any other sum due Landlord under the terms and provisions of this Lease in the hands of an attorney for collection, the Tenant shall pay, in addition to the amounts due under any such claim, all reasonable costs, charges and expenses in connection with the collection thereof, including a reasonable attorney's fee to the attorney handling such claim. ARTICLE XVI. NOTICES 17.01 Whenever any notice is required or permitted hereunder, such notice shall be in writing. Any notice or document required or permitted to be delivered hereunder shall be deemed delivered upon actual receipt via the United States mail, postage prepaid, certified mail, return receipt requested, at the respective addresses set out in paragraph 1.01 above, or at such other addresses as the parties hereafter specify by written notice delivered in accordance with this Lease. ARTICLE XVII. MISCELLANEOUS 18.01 Nothing herein contained shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent or of partnership or of joint venture between the parties hereto, or create any relationship between the parties hereto other than the relationship of landlord and tenant. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or entity may require. 18.02 The captions used herein are for convenience only and do not limit or amplify the provisions hereof. 18.03 Whenever a period of time is prescribed for action to be taken by the parties to this lease, the parties shall not be liable or responsible for, and there shall be excused from the computation of any such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, or other causes of any kind whatsoever which are beyond the reasonable control of the affected party. 18.04 Landlord agrees that if Tenant shall perform all of the covenants and agreements herein required to be performed by Tenant, Tenant shall, subject to the terms of this Lease, at all times during the continuance of this Lease have the peaceable and quiet enjoyment and possession of the Premises. - 5 - 6 18.05 This Lease contains the entire agreement between the parties, and no agreement shall be effective to change, modify, or terminate this Lease in whole or in part unless such agreement is in writing and duly signed by the party against whom enforcement of such change, modification, or termination is sought. 18.06 The laws of the State of Mississippi shall govern the interpretation, validity, performance, and enforcement of this Lease. If any provision of this Lease should be held invalid or unenforceable, the validity and enforceability of the remaining provisions of this Lease shall not be affected thereby. 18.07 The terms, provisions, and covenants contained in this Lease shall apply to, inure to the benefit of, and be binding upon the parties hereto and their respective heirs, successors in interest, and legal representatives except as otherwise herein expressly provided. IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed on the dates indicated below to be effective as of January 1, 1995. LANDLORD: JCD PARTNERSHIP By: C. David Finch, Jr., M.D. ---------------------------------------- C. DAVID FINCH, JR., M.D. By: Jeffery C. Finch ---------------------------------------- JEFFERY C. FINCH By: Charles D. Finch ---------------------------------------- CHARLES D. FINCH TENANT: RENEX DIALYSIS FACILITIES, INC. By: C. David Finch, Jr., M.D. ---------------------------------------- C. DAVID FINCH, JR., M.D., President - 6 - 7 STATE OF FLORIDA COUNTY OF DADE Personally appeared before me, the undersigned authority in and for the said county and state, on this 29th day of December, 1995, within my jurisdiction, the within named C. DAVID FINCH, JR., M.D. who acknowledged that he executed the above and foregoing instrument for the intents and purposes therein expressed. My Commission Expires: /s/ Bryan W. Bauman August 04, 1997 ----------------------------------- Commission No.: CC-796271 NOTARY PUBLIC STATE OF FLORIDA COUNTY OF DADE Personally appeared before me, the undersigned authority in and for the said county and state, on this 29th day of December, 1995, within my jurisdiction, the within named JEFFERY C. FINCH who acknowledged that he executed the above and foregoing instrument for the intents and purposes therein expressed. My Commission Expires: /s/ Bryan W. Bauman August 04, 1997 ----------------------------------- Commission No.: CC-796271 NOTARY PUBLIC STATE OF FLORIDA COUNTY OF DADE Personally appeared before me, the undersigned authority in and for the said county and state, on this 29th day of December, 1995, within my jurisdiction, the within named CHARLES D. FINCH who acknowledged that he executed the above and foregoing instrument for the intents and purposes therein expressed. My Commission Expires: /s/ Bryan W. Bauman August 04, 1997 ----------------------------------- Commission No.: CC-796271 NOTARY PUBLIC - 7 - 8 STATE OF FLORIDA COUNTY OF DADE Personally appeared before me, the undersigned authority in and for the said county and state, on this 29th day of December, 1995, within my jurisdiction, the within named C. DAVID FINCH, JR., M.D. who acknowledged that he is President of DIALYSIS FACILITIES, INC., a Mississippi corporation, and that for and on behalf of the said corporation, and as its act and deed he executed the above and foregoing instrument for the intents and purposes therein expressed. My Commission Expires: /s/ Bryan W. Bauman August 04, 1997 -------------------------------- Commission No.: CC-796271 NOTARY PUBLIC 9 EXHIBIT "A" A 3.3 acre parcel being part of Lot 5, SAUNDERS FARM SUBDIVISION as recorded in Book 2 at Page 107 in the office of the Chancery Clerk of Hinds Co., being situated in the NE 1/4 of Sec. 14, T5N, R1W, Hinds Co., Miss., and being more particularly described as follows: Commencing at the intersection of the south line of T.V. Road and the west line of Robinson Road, said point being the northeast comer of said Lot 5 of Saunders Farm, run thence NORTHWESTERLY along the south line of T.V. Road 858.0 ft.; thence S 14'52' E - 1396.5 ft.; thence S 550 25' W - 174.0 ft. to the POINT OF BEGINNING; run thence S 08045' W 460.5 ft. to a point in the northerly right of way of Raymond Rd.; run thence SOUTHWESTERLY along said right of way 155.3 ft. to the southeast comer of Lot 2, Block A of Raymond Road Farms Subdivision; run thence N 29' 00' W along the east side of said Raymond Road Farms 600.0 ft. to the northeast comer of Lot 5 thereof; run thence N 66'46' E - 309.3 ft.; thence S 29'00' E - 116.8 ft. to the POINT OF BEGINNING. EX-10.8 12 LEASE, CONTRACT AND AGREEMENT - JACKSON, MS 1 Exhibit 10.8 Indexing Instructions: The NE 1/4 of Sec. 14, T5N, R1W, Hinds Co., Miss. STATE OF MISSISSIPPI COUNTY OF HINDS LEASE CONTRACT AND AGREEMENT THIS LEASE is made and entered into on December 29, 1995, by and between JCD PARTNERSHIP, a Mississippi Partnership, (hereafter "Lessor" or "Landlord"), and RENEX DIALYSIS FACILITIES, INC., a Mississippi corporation (hereafter "Lessee" or "Tenant"). FOR AND IN CONSIDERATION OF the rental payments herein agreed upon and the mutual covenants and promises herein expressed, and other valuable consideration, the receipt of which is hereby acknowledged, the parties do hereby enter into the following Lease Agreement whereby Lessor leases unto Lessee, and Lessee leases from Lessor the real property described in Exhibit "A" attached hereto and made a part hereof by reference, together with any building located thereon (hereafter "Leased Property"). I. TERM The term of this Lease (hereinafter "primary term") shall be for a period of ten (10) years, commencing upon the date of the Certificate of Occupancy of a 5000 square foot building to be constructed by Lessor on the Leased Property using up to $175,000.00 in funds provided by Lessee for tenant finishes with adequate parking for Lessee's personnel and patients and ending ten (10) years thereafter. Lessor agrees that such construction, including leasehold improvements, shall be substantially completed on or before a date to be agreed upon between the parties, but in no event later than December 31, 1996. Lessor represents and warrants that the building shall be constructed in accordance with plans and specifications as approved by Lessee and will be free of defects, suitable for the purposes intended, built in compliance with applicable building codes and all other statutes, regulations, ordinances and rules pertaining to the Leased Property. The building will include all utility hookups, HVAC unit and foundation plumbing. The actual construction of the tenant fixtures shall be set forth in a separate agreement with a licensed contractor. Lessor agrees to subordinate its lien to Lessee's institutional financing lender upon the condition of Lessee's parent corporation guarantee of Lessee's obligation under this Lease. The term "tenant finishes" as referred to herein shall include all interior walls, finishes on exterior walls, ceilings, insulator, paint, wiring, breakers, HVAC ducts, plumbing, pipes, drains, and associated fixtures, and case work. II. RENTAL Lessee shall pay unto Lessor as rent during the term hereof the sum of Eleven and No/100 Dollars ($11.00) per square foot of rentable area, being approximately 5,000 square feet, or Fifty-Five Thousand and no/100 Dollars ($55,000.00) annual rent, subject to adjustment herein, payable in monthly installments of $4,583.33 per month commencing on the date of the Certificate of Occupancy and on the same day of each month thereafter and continuing throughout the term of this Lease and until the expiration hereof. Upon completion of the tenant finishes, Lessee shall have the right to measure the rentable area and the actual annual rent shall be calculated on the actual square footage of the building. All such rental payments shall be made payable at the office - 1 - 2 of Lessor on the aforesaid day of each month or at such other place as Lessor may designate in writing, without notice or demand from Lessee. It is further agreed that, notwithstanding anything contained herein to the contrary, the property leased is leased for a total rental for the ten-year period of $550,000.00, subject to adjustment above, payable at the time of the completion of the construction of the building and the provisions herein contained for the payment of such rent in installments are for the convenience of the Tenant and that upon default in payment of such rent in installments as herein allowed, the whole of the rent provided for and then remaining unpaid shall at once become due and payable without notice or demand, at the option of Lessor. III. CONDITIONS A. Tenant's Acceptance of Property. At the commencement of the term, Tenant shall have an opportunity to inspect the building, improvements, equipment, sidewalks, parking area, etc., and acknowledge inspection of the same and advise Lessor of any visible defects. In no event shall Landlord have any responsibility for tenant finishes. B. Assignment of Lease. Tenant-shall not assign, mortgage, or encumber this Lease, nor sublet or permit the Leased Property or any part thereof to be used by others without the prior written consent of Landlord in each instance. If this Lease is assigned or if the Leased Property or any part thereof is sublet without the prior written consent of Landlord or occupied by anyone other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, subtenant, or occupant and apply the net amount collected to the rent herein reserved. No such assignment, subletting, occupancy, or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant, or occupant as a tenant, or a release of Tenant from the further performance by Tenant of the covenants in this Lease. The consent by Landlord to an assignment or subletting shall not be construed to relieve Tenant from obtaining the consent in writing of Landlord to any further assignment or subletting. C. Use and Occupancy Restrictions. Tenant hereby agrees to restrict his use and occupancy of the premises herein leased to those activities normally associated with a dialysis clinic and hereby covenants not to use said premises for any unlawful or other purpose or make use of said premises in such way as would cause additional rates of any insurance. Lessee shall have access to the building at all times. D. Lessor's Right of Inspection. At all times during Lessee's business hours, Lessor shall have the right to enter the Leased Property for the purpose of inspecting the Leased Property, provided that such inspection will be performed in a manner to minimize interference with Lessee's business operations. E. Property Taxes. It is agreed and understood by the parties that Lessee shall pay all personal property taxes assessed against its property on the leased premises and its pro rata share of real property taxes resulting from tenant finishes. Lessor shall otherwise pay the real property taxes assessed on the leased premises. F. Maintenance. Lessor shall maintain the exterior of the building hereby leased, including the exterior walls and roof. Lessee shall maintain the leasehold improvements and the interior of the Leased Property, including glass and windows, and shall be responsible for - 2 - 3 all other maintenance including, without limitation, upkeep and maintenance on all appliances, plumbing, air conditioning, and heating units and hot water heaters. In addition, Lessor and Lessee shall share equally in the costs to maintain the lawn and landscape. G. Utilities. Lessee agrees to pay all utilities including, without limitation, all water, gas, telephone, electricity, janitorial and hazardous waste services associated with Tenant's use of said premises during the term of this Lease. H. Improvements. Except for tenant finishes, no material alteration, addition, or improvement to the Leased Property shall be made by Tenant without the written consent of the Landlord, which shall not be unnecessarily withheld. Any alteration, addition, or improvement made to the Leased Property following the issuance of the Certificate of Occupancy shall be made at the sole expense of Tenant and shall become a part of the Leased Property to which all right, title, and interest shall belong to Lessor unless same can be removed with only minimal harm to the Leased Property. I. Public Liability and Property Damages Insurance. Lessee shall, at its own expense, maintain public liability and property damage insurance with a single combined liability limit of not less than One Million and No/100 Dollars ($1,000,000.00), insuring against all liability of Lessee and its authorized representatives arising out of or in connection with the Lessee's lease, use and/or occupancy of the Leased Property, building, and all improvements. Lessor shall be named as an additional insured, and all policies shall contain cross-liability endorsements. All public liability and property damage insurance acquired under this Lease shall: 1. be issued by and binding upon a solvent insurance or insurance companies qualified and admitted to do business in Mississippi; 2. be a primary policy or a combination of a primary policy and an excess liability policy; and 3. contain an endorsement requiring thirty (30) days written notice from the insurance company to Lessor and Lessee before cancellation of the policy shall be effective. A certificate of each policy shall be deposited with Lessor on or before the commencement date of this Lease and, upon renewal or cancellation thereof, a new certificate shall be deposited with Lessor not less than twenty (20) days before the expiration or termination of the policy then in effect. J. Fire and Extended Coverage Insurance. Lessor shall maintain, at its expense, a standard fire and extended coverage insurance policy issued by and binding upon a solvent insurance company licensed, qualified, and admitted to do business in the State of Mississippi, insuring on behalf of Lessor the building and improvements to the extent of their full replacement value. Lessor shall not insure, nor have any duty or obligation to insure, any furniture, equipment, machinery, trade fixtures, goods, or other personal property that Lessee may bring or maintain upon the Leased Property nor shall Lessor be liable for damage or destruction to any of such property from any cause. Lessee shall maintain fire and extended coverage insurance on all of Lessee's tenant finishes, furniture, equipment, machinery, trade fixtures, goods, supplies, or other personal property. - 3 - 4 K. Surrender in Same Good Order and Condition. Tenant's Option to Remove His Property. Landlord's Right to Unremoved Property. Tenant shall vacate the Leased Property in the good order and repair in which such property was at the time of issuance of the Certificate of Occupancy, ordinary wear and tear and casualties by accidental fire not occurring through the Tenant's negligence alone excepted, and shall remove all its personal property therefrom so that the Landlord can repossess the Leased Property not later than noon on the day upon which this Lease or any extension thereof expires, whether upon notice, holdover, or otherwise. Landlord shall have the same rights to enforce this covenant by ejectment and for damages or otherwise as for the breach of any other condition or covenant of this Lease. Tenant may at any time prior to or upon the termination of this Lease or any renewal or extension thereof remove from the Leased Property all materials, equipment, and property of every other sort or nature owned and installed by the Tenant thereon, provided that such property is removed without substantial injury to the Leased Property. No injury shall be considered substantial if it is promptly corrected by restoration to the condition prior to the installation of such property, if so requested by Landlord. Any such property not so removed shall become the property of Landlord. L. Prohibition of Signs. Consent of Landlord Not to be Unreasonably Withheld. Except as hereinafter provided, Tenant shall not, without Landlord's consent, place or erect any signs of any nature on any part of the Leased Property, the sidewalk adjoining the Leased Property, or on any part of Landlord's property adjacent to the Leased Property. Landlord will not unreasonably withhold its consent to the placement of a sign of reasonable size bearing Tenant's trade name, but the location, colors, materials, styles, and size of such sign shall be subject to Landlord's absolute right of approval and the limitations and restrictions of state and local ordinances applicable thereto. M. Landlord to Repair. Rent Abatement During Repair. Where the Leased Property is damaged by fire or other casualty without the fault of Tenant, Landlord shall repair or replace the damage with reasonable dispatch, if Lessor deems reasonable, and if the damage has rendered the Leased Property untenantable, there shall be an apportionment of the rent until the damage to Landlord's property has been repaired. In determining what constitutes reasonable dispatch, consideration shall be given to delays caused by strikes, adjustment of insurance, and other causes beyond Landlord's control. In no event shall Landlord have any responsibility for the repair or replacement of tenant finishes. N. Right of Entry Upon Abandonment. Landlord's Rights to Relet. Liability of Tenant. If at any time during the lease term, the Leased Property or any part thereof shall be abandoned by Tenant, Landlord may, at its option, enter into the Leased Property by force or otherwise without being liable for any prosecution therefor, and without becoming liable to Tenant for damages or for any payment of any kind whatsoever, and may, in its controlled discretion, as agent of Tenant relet the Leased Property, or any part thereof, for the whole or any part of the then unexpired term and, for the purposes of such reletting, Landlord may make alterations and modifications of the Leased Property, and may receive and collect all rent payable by virtue of such reletting and, if Landlord shall, because of nonpayment of rent or other breach of condition or covenant or agreement, re-enter and repossess the Leased Property pursuant to the conditional limitations contained herein, by summary proceedings, force, or otherwise, Landlord may, at its option, hold Tenant liable for the difference between the rent and other charges that would have been payable hereunder during the residue of the lease term, if this Lease had continued in force, and the net rent for such period realized by Landlord by means of reletting to any other tenant(s), on such terms and conditions as may, in the uncontrolled discretion of Landlord be provided, and - 4 - 5 Tenant shall pay monthly in advance, at such periods as the rent hereunder would have fallen due if this Lease continued, the differential between the original amount of each monthly payment, as herein provided plus such sums, if any, due from Tenant as additional and augmented rent, and the net proceeds of reletting after deducting expenses of every nature and description incurred by Landlord, including, without limitation, commissions and the cost of all alterations and modifications to the Leased Property made in reletting same. O. Reimbursement of Litigation Expenses. Expenses Deemed Landlord's Lien. In case either party shall, without fault on its part, be made a party to any litigation commenced by the other, the prevailing party shall recover all costs and reasonable attorney's fees incurred by it in enforcing the covenants, terms, and provisions of this Lease, or in terminating this Lease by reason of default; and all such costs and reasonable attorney's fees, if paid by Landlord and Landlord is the prevailing party, and payment of all monies provided in this Lease to be made by Lessee, shall be, and they are, hereby declared to be a Landlord's lien upon any building and improvement and Lessee's interest in any personal property placed upon the premises at any time during the term of this Lease and upon the leasehold interest hereby created, and upon the rent of any building and improvement situated upon the premises at any time during the term of this Lease. P. Landlord's Right to Cause Expiration Upon Listed Defaults. Recovery of Rent for Balance of Term Less Reasonable Rental Value. 1. Landlord may give Tenant fifteen (15) days notice of intention to terminate this Lease in any of the following circumstances: a. If Tenant shall be in default in the performance of any covenant of this Lease and if such default is not cured within fifteen (15) days after written notice thereof given by Landlord to Tenant or, if such default shall be of such nature that it cannot be cured completely within such fifteen-day period or shall not thereafter proceed with reasonable diligence and in good faith to remedy such default. b. If Tenant shall be adjudicated as bankrupt, make a general assignment for the benefit of creditors, or take the benefit of any insolvency act, or if a permanent receiver or trustee in bankruptcy shall be appointed for Tenant's property and such appointment is not vacated within ninety (90) days. For these purposes, "Tenant" shall mean the tenant then in possession of the Leased Property. c. If the Leased Property appears to have permanently become vacant or deserted for a period in excess of thirty (30) days. d. If this Lease shall be assigned or the Leased Property sublet other than in accordance with the terms of this Lease. e. If Tenant shall be in default in the payment of any rental sums or other monetary obligations incurred hereunder. - 5 - 6 2. If Landlord shall give the fifteen-day notice of termination provided in subparagraph (a) of this paragraph P, then at the expiration of such period, this Lease shall terminate as completely as if that were the date herein definitely fixed for the expiration of the term of this Lease, and Tenant shall then surrender the Leased Property to Landlord. If this Lease shall so terminate, it shall be lawful for Landlord, at its option and without formal demand or notice of any kind, to remove Tenant therefrom without being liable for any damages therefor. Upon termination of this Lease, as herein provided, Landlord shall have the right, at its election, to terminate any sublease then in effect, without the consent of the sublessee concerned. 3. Tenant shall remain liable for all its obligations under this Lease, despite the Landlord's re-entry, and Landlord may relet or use the Leased Property as agent for Tenant, if Landlord so elects. Tenants waives any legal requirement for notice of intention to re-enter and any right of redemption. 4. Nothing in this Article shall be deemed to require Landlord to give Tenant any notice, other than such minimum notice as may be required by statute, prior to the commencement of an unlawful detainer action for nonpayment of any basic rent or additional rent, it being intended that the 15-day notice provided hereunder is only for the purpose of creating a conditional limitation hereunder pursuant to which this Lease shall terminate. 5. Time is of the essence of this Lease with respect to the performance by Tenant of its obligation hereunder. Q. No Waiver of Landlord's Rights Through Failure to Seek Redress or Receipt of Rent. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this Lease shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and affect of an original violation. The receipt of rent by Landlord with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. R. Indemnification. Lessee shall release, indemnify, save and hold harmless Lessor, together with all of its agents, successors, assigns and attorneys, from and against all claims, actions, damages, liability and expenses incurred in connection with loss of life, personal injury and/or damage to the property arising from or out of any occurrence in, upon or at the Leased Property, or the occupancy or use by Lessee of the Leased Property or any part thereof, or occasioned wholly or in part by any act or omission of Lessee, its agents, successors, assigns or invitees. Lessor shall release, indemnify, save and hold harmless Lessee, together with all of its agents, successors, assigns and attorneys, from and against all claims, actions, damages, liability and expenses incurred in connection with loss of life, personal injury and/or damage to the Leased Property arising from or out of any occurrence occasioned wholly or in part by any act or omission of Lessor, its agents, successors, assigns or invitees. S. Notice by Registered or Certified Mail. Any notice under this Lease must be in writing and must be sent by registered or certified mail to the last address of the party to whom the notice is to be given, as designated by such party in writing. Landlord hereby designates its address as 1828 Raymond Road, Jackson, Mississippi 39204. Tenant hereby designates its address as 2222 Ponce De Leon Boulevard, 6th Floor, Coral Gables, Florida 33134. - 6 - 7 T. Lease Binding Upon Heirs, Executors, Administrators, Successors, and Assigns of Landlord and Tenant. The covenants, terms, conditions, provisions, and undertakings in this Lease or in any renewals thereof shall extend to and be binding upon the heirs, executors, administrators, successors, and assigns of the respective parties hereto, as if they were in every case named and expressed, and shall be construed as covenants running with the land; and wherever reference is made to either of the parties hereto, it shall be held to include and apply also to the heirs, executors, administrators, successors, and assigns of such party, as if in each and every case so expressed. U. Entire Agreement. This Lease contains the entire agreement between the parties and cannot be changed, altered, or amended without the express written consent of all parties hereto. This Agreement shall be construed under the laws of the State of Mississippi. JCD PARTNERSHIP, A MISSISSIPPI PARTNERSHIP, LESSOR By: /s/ C. David Finch, Jr., M.D. -------------------------------------- C. DAVID FINCH, JR., M.D., Partner By: /s/ Charles D. Finch, Sr. -------------------------------------- CHARLES D. FINCH, SR., Partner By: /s/ Jeffery C. Finch -------------------------------------- JEFFERY C. FINCH, Partner Attest: RENEX DIALYSIS FACILITIES, INC., A MISSISSIPPI CORPORATION, LESSEE By: /s/ James P. Shea - ----------------------------------- -------------------------------------- Secretary JAMES P. SHEA, President - 7 - 8 STATE OF FLORIDA COUNTY OF DADE PERSONALLY APPEARED BEFORE ME, the undersigned authority in and for the jurisdiction aforesaid, the within named C. DAVID FINCH, JR. M.D., CHARLES D. FINCH, SR., and JEFFERY C. FINCH, who, after having been by me first duly sworn, state on their oath that they are all partners of JCD PARTNERSHIP, a Mississippi Partnership, and that they signed, executed, delivered and entered into the above and foregoing Lease Contract and Agreement for and on behalf of said partnership being first duly authorized so to do. SWORN TO AND SUBSCRIBED BEFORE ME, this 29th day of December, 1995. My Commission Expires: /s/ Bryan W. Bauman August 04, 1997 ---------------------------------- Commission No.: CC-796271 NOTARY PUBLIC STATE OF FLORIDA COUNTY OF DADE PERSONALLY APPEARED BEFORE ME, the undersigned authority in and for the jurisdiction aforesaid, the within named JAMES P. SHEA, who, after having been by me first duly sworn, stated on his oath that he is president of RENEX DIALYSIS FACILITIES, INC., a Mississippi corporation, and that he signed, executed, delivered, and entered into the above and foregoing Lease Contract and Agreement for and on behalf of said corporation being first duly authorized so to do. SWORN TO AND SUBSCRIBED BEFORE ME, this 29th day of December, 1995. My Commission Expires: /s/ Bryan W. Bauman August 04, 1997 ----------------------------------- Commission No.: CC-796271 NOTARY PUBLIC - 8 - 9 EXHIBIT "A" A 3.3 acre parcel being part of Lot 5, SAUNDERS FARM SUBDIVISION as recorded in Book 2 at Page 107 in the office of the Chancery Clerk of Hinds Co., being situated in the NE 1/4 of Sec. 14, T5N, RIW, Hinds Co., Miss., and being more particularly described as follows: Commencing at the intersection of the south line of T.V. Road and the west line of Robinson Road, said point being the northeast comer of said Lot 5 of Saunders Farm, run thence NORTHWESTERLY along the south line of T.V. Road 858.0 ft.; thence S 14'52' E - 1396.5 ft.; thence S 55 0 25' W - 174.0 ft. to the POINT OF BEGINNING; run thence S 08'45' W 460.5 ft. to a point in the northerly right of way of Raymond Rd.; run thence SOUTHWESTERLY along said right of way 155.3 ft. to the southeast comer of Lot 2, Block A of Raymond Road Farms Subdivision; run thence N 29' 00' W along the east side of said Raymond Road Farms 600. 0 ft. to the northeast comer of Lot 5 thereof; run thence N 66'46' E - 309.3 ft.; thence S 29'00' E - 116.8 ft. to the POINT OF BEGINNING. EX-10.9 13 LEASE, CONTRACT AND AGREEMENT - DELTA, LA 1 Exhibit 10.9 STATE OF LOUISIANA PARISH OF MADISON LEASE CONTRACT AND AGREEMENT THIS LEASE is made and entered into on December 29, 1995, by and between JCD PARTNERSHIP, a Mississippi Partnership, (hereafter "Lessor" or "Landlord"), and RENEX DIALYSIS FACILITIES, INC., a Mississippi corporation (hereafter "Lessee" or "Tenant"). For and in consideration of the rental payments herein agreed upon and the mutual covenants and promises herein expressed, and other valuable consideration, the receipt of which is hereby acknowledged, the parties do hereby enter into the following Lease Agreement whereby Lessor leases unto Lessee, and Lessee leases from Lessor the real property described in Exhibit "A" attached hereto and made a part hereof by reference, together with any building located thereon (hereafter "Leased Property"). I. TERM The term of this Lease (hereinafter "primary term") shall be for a period of ten (10) years, commencing upon the date of the Certificate of Occupancy of a 7500 square foot building to be constructed by Lessor on the leased property using up to $262,500.00 in funds provided by Lessee for tenant finishes with adequate parking for Lessee's personnel and patients and ending ten (10) years thereafter. Lessor agrees that such construction, including leasehold improvements, shall be substantially completed on or before a date to be agreed upon. Lessor represents and warrants that the building shall be constructed in accordance with plans and specifications as approved by Lessee and will be free of defects, suitable for the purposes intended, built in compliance with applicable building codes. Lessor agrees to subordinate its lien to Lessee's institutional financing lender upon the condition of Lessee's parent corporation guarantee of Lessee's obligation under this Lease. The term "tenant finishes" as referred to herein shall include all interior walls, finishes or exterior walls, ceilings, insulator, paint, wiring, breakers, HVAC ducts, plumbing, pipes, drains, and associated fixtures, and case work. II. RENTAL Lessee shall pay unto Lessor as rent during the term hereof the sum of Eleven and no/100 Dollars ($11.00) per square foot of rentable area, being approximately 7500 square feet, or Eighty-Two Thousand Five Hundred and no/100 Dollars ($82,500.00) annual rent, payable in monthly installments of $6,875.00 per month and due and owing on the same day of each month as the date of the Certificate of Occupancy of the building, commencing on such date and continuing throughout the term of this Lease and until the expiration hereof. Lessee shall have the right to measure the rentable area. All such rental payments shall be made payable at the office of Lessor on the aforesaid day of each month or at such other place as Lessor may designate in writing, without notice or demand from Lessee. It is further agreed that, notwithstanding anything contained herein to the contrary, the property leased is leased for a total rental for the ten-year period of $825,000.00 payable at the time of the completion of the construction of the building and the provisions herein contained for the payment of such rent in installments are for the convenience of the Tenant and that upon default in payment of such rent in installments as herein allowed, the whole of the rent provided for and - 1 - 2 then remaining unpaid shall at once become due and payable without notice or demand, at the option of Lessor. III. CONDITIONS A. Tenant's Acceptance of Property. At the commencement of the term, Tenant shall have an opportunity to inspect the building, improvements, equipment, sidewalks, parking area, etc., and acknowledge inspection of the same and advise Lessor of any visible defects. In no event shall Landlord have any responsibility for tenant finishes. B. Assignment of Lease. Tenant shall not assign, mortgage, or encumber this Lease, nor sublet or permit the Leased Property or any part thereof to be used by others without the prior written consent of Landlord in each instance. If this Lease is assigned or if the Leased Property or any part thereof is sublet without the prior written consent of Landlord or occupied by anyone other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, subtenant, or occupant and apply the net amount collected to the rent herein reserved. No such assignment, subletting, occupancy, or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant, or occupant as a tenant, or a release of Tenant from the further performance by Tenant of the covenants in this Lease. The consent by Landlord to an assignment or subletting shall not be construed to relieve Tenant from obtaining the consent in writing of Landlord to any further assignment or subletting. C. Use and Occupancy Restrictions. Tenant hereby agrees to restrict his use and occupancy of the premises herein leased to those activities normally associated with a dialysis clinic and hereby covenants not to use said premises for any unlawful or other purpose or make use of said premises in such way as would cause additional rates of any insurance. Lessee shall have access to the building at all times. D. Lessor's Right of Inspection. At all times during Lessee's business hours, Lessor shall have the right to enter the Leased Property for the purpose of inspecting the Leased Property, provided that such inspection will be performed in a manner to minimize interference with Lessee's business operations. E. Property Taxes. It is agreed and understood by the parties that Lessee shall pay all personal property taxes assessed against its property on the leased premises and its pro rata share of real property taxes resulting from tenant finishes. Lessor shall otherwise pay the real property taxes assessed on the leased premises. F. Maintenance. Lessor shall maintain the exterior of the building hereby leased, including the exterior walls and roof. Lessee shall maintain the leasehold improvements and the interior of the Leased Property, including glass and windows, and shall be responsible for all other maintenance including, without limitation, upkeep and maintenance on all appliances, plumbing, air conditioning, and heating units and hot water heaters. In addition, Lessor and Lessee shall share equally in the costs to maintain the lawn and landscape. G. Utilities. Lessee agrees to pay all utilities including, without limitation, all water, gas, telephone, electricity, janitorial and hazardous waste services associated with Tenant's use of said premises during the term of this Lease. - 2 - 3 H. Improvements. Except for tenant finishes, no material alteration, addition, or improvement to the Leased Property shall be made by Tenant without the written consent of the Landlord, which shall not be unnecessarily withheld. Any alteration, addition, or improvement made to the Leased Property following the issuance of the Certificate of Occupancy shall be made at the sole expense of Tenant and shall become a part of the Leased Property to which all right, title, and interest shall belong to Lessor unless same can be removed with only minimal harm to the Leased Property. I. Public Liability and Property Damages Insurance. Lessee shall, at its own expense, maintain public liability and property damage insurance with a single combined liability limit of not less than One Million and No/100 Dollars ($1,000,000.00), insuring against all liability of Lessee and its authorized representatives arising out of or in connection with the Lessee's lease, use and/or occupancy of the Leased Property, building, and all improvements. Lessor shall be named as an additional insured, and all policies shall contain cross-liability endorsements. All public liability and property damage insurance acquired under this Lease shall: 1. be issued by and binding upon a solvent insurance or insurance companies qualified and admitted to do business in Mississippi; 2. be a primary policy or a combination of a primary policy and an excess liability policy; and 3. contain an endorsement requiring thirty (30) days written notice from the insurance company to Lessor and Lessee before cancellation of the policy shall be effective. A certificate of each policy shall be deposited with Lessor on or before the commencement date of this Lease and, upon renewal or cancellation thereof, a new certificate shall be deposited with Lessor not less than twenty (20) days before the expiration or termination of the policy then in effect. J. Fire and Extended Coverage Insurance. Lessor shall maintain, at its expense, a standard fire and extended coverage insurance policy issued by and binding upon a solvent insurance company licensed, qualified, and admitted to do business in the State of Mississippi, insuring on behalf of Lessor the building and improvements to the extent of their full replacement value. Lessor shall not insure, nor have any duty or obligation to insure, any furniture, equipment, machinery, trade fixtures, goods, or other personal property that Lessee may bring or maintain upon the Leased Property nor shall Lessor be liable for damage or destruction to any of such property from any cause. Lessee shall maintain fire and extended coverage insurance on all of Lessee's tenant finishes and furniture, equipment, machinery, trade fixtures, goods, supplies, or other personal property. K. Surrender in Same Good Order and Condition. Tenant's Option to Remove His Property. Landlord's Right to Unremoved Property. Tenant shall vacate the Leased Property in the good order and repair in which such property was at the time of issuance of the Certificate of Occupancy, ordinary wear and tear and casualties by accidental fire not occurring through the Tenant's negligence alone excepted, and shall remove all its personal property therefrom so that the Landlord can repossess the Leased Property not later than noon on the day upon which this Lease or any extension thereof expires, whether upon notice, holdover, or - 3 - 4 otherwise. Landlord shall have the same rights to enforce this covenant by ejectment and for damages or otherwise as for the breach of any other condition or covenant of this Lease. Tenant may at any time prior to or upon the termination of this Lease or any renewal or extension thereof remove from the Leased Property all materials, equipment, and property of every other sort or nature owned and installed by the Tenant thereon, provided that such property is removed without substantial injury to the Leased Property. No injury shall be considered substantial if it is promptly corrected by restoration to the condition prior to the installation of such property, if so requested by Landlord. Any such property not so removed shall become the property of Landlord. L. Prohibition of Signs. Consent of Landlord Not to be Unreasonably Withheld. Except as hereinafter provided, Tenant shall not, without Landlord's consent, place or erect any signs of any nature on any part of the Leased Property, the sidewalk adjoining the Leased Property, or on any part of Landlord's property adjacent to the Leased Property. Landlord will not unreasonably withhold its consent to the placement of a sign of reasonable size bearing Tenant's trade name, but the location, colors, materials, styles, and size of such sign shall be subject to Landlord's absolute right of approval and the limitations and restrictions of state and local ordinances applicable thereto. M. Landlord to Repair. Rent Abatement During Repair. Where the Leased Property is damaged by fire or other casualty without the fault of Tenant, Landlord shall repair or replace the damage with reasonable dispatch, if Lessor deems reasonable, and if the damage has rendered the Leased Property untenantable, there shall be an apportionment of the rent until the damage to Landlord's property has been repaired. In determining what constitutes reasonable dispatch, consideration shall be given to delays caused by strikes, adjustment of insurance, and other causes beyond Landlord's control. In no event shall Landlord have any responsibility for the repair or replacement of tenant finishes. N. Right of Entry Upon Abandonment. Landlord's Right to Relet . Liability of Tenant. If at any time during the lease term, the Leased Property or any part thereof shall be abandoned by Tenant, Landlord may, at its option, enter into the Leased Property by force or otherwise without being liable for any prosecution therefor, and without becoming liable to Tenant for damages or for any payment of any kind whatsoever, and may, in its controlled discretion, as agent of Tenant relet the Leased Property, or any part thereof, for the whole or any part of the then unexpired term and, for the purposes of such reletting, Landlord may make alterations and modifications of the Leased Property, and may receive and collect all rent payable by virtue of such reletting and, if Landlord shall, because of nonpayment of rent or other breach of condition or covenant or agreement, re-enter and repossess the Leased Property pursuant to the conditional limitations contained herein, by summary proceedings, force, or otherwise, Landlord may, at its option, hold Tenant liable for the difference between the rent and other charges that would have been payable hereunder during the residue of the lease term, if this Lease had continued in force, and the net rent for such period realized by Landlord by means of reletting to any other tenant(s), on such terms and conditions as may, in the uncontrolled discretion of Landlord be provided, and Tenant shall pay monthly in advance, at such periods as the rent hereunder would have fallen due if this Lease continued, the differential between the original amount of each monthly payment, as herein provided plus such sums, if any, due from Tenant as additional and augmented rent, and the net proceeds of reletting after deducting expenses of every nature and description incurred by Landlord, including, without limitation, commissions and the cost of all alterations and modifications to the Leased Property made in reletting same. - 4 - 5 O. Reimbursement of Litigation Expenses. Expenses Deemed Landlord's Lien. In case either party shall, without fault on its part, be made a party to any litigation commenced by the other, the prevailing party shall recover all costs and reasonable attorney's fees incurred by it in enforcing the covenants, terms, and, provisions of this Lease, or in terminating this Lease by reason of default; and all such costs and reasonable attorney's fees, if paid by Landlord and Landlord is the prevailing party, and payment of all monies provided in this Lease to be made by Lessee, shall be, and they are, hereby declared to be a Landlord's lien upon any building and improvement and Lessee's interest in any personal property placed upon the premises at any time during the term of this Lease and upon the leasehold interest hereby created, and upon the rent of any building and improvement situated upon the premises at any time during the term of this Lease. P. Landlord's Right to Cause Expiration Upon Listed Defaults. Recovery of Rent for Balance of Term Less Reasonable Rental Value. 1. Landlord may give Tenant fifteen (15) days notice of intention to terminate this Lease in any of the following circumstances: a. If Tenant shall be in default in the performance of any covenant of this Lease and if such default is not cured within fifteen (15) days after written notice thereof given by Landlord to Tenant or, if such default shall be of such nature that it cannot be cured completely within such fifteen-day period or shall not thereafter proceed with reasonable diligence and in good faith to remedy such default. b. If Tenant shall be adjudicated as bankrupt, make a general assignment for the benefit of creditors, or take the benefit of any insolvency act, or if a permanent receiver or trustee in bankruptcy shall be appointed for Tenant's property and such appointment is not vacated within ninety (90) days. For these purposes, "Tenant" shall mean the tenant then in possession of the Leased Property. c. If the Leased Property appears to have permanently become vacant or deserted for a period in excess of thirty (30) days. d. If this Lease shall be assigned or the Leased Property sublet other than in accordance with the terms of this Lease. e. If Tenant shall be in default in the payment of any rental sums or other monetary obligations incurred hereunder. 2. If Landlord shall give the fifteen-day notice of termination provided in subparagraph (a) of this paragraph P, then at the expiration of such period, this Lease shall terminate as completely as if that were the date herein definitely fixed for the expiration of the term of this Lease, and Tenant shall then surrender the Leased Property to Landlord. If this Lease shall so terminate, it shall be lawful for Landlord, at its option and without formal demand or notice of any kind, to remove Tenant therefrom without being liable for any damages therefor. Upon termination of this Lease, as herein provided, Landlord shall have the right, at its election, to terminate any sublease then in effect, without the consent of the sublessee concerned. - 5 - 6 3. Tenant shall remain liable for all its obligations under this Lease, despite the Landlord's re-entry, and Landlord may relet or use the Leased Property as agent for Tenant, if Landlord so elects. Tenants waives any legal requirement for notice of intention to re-enter and any right of redemption. 4. Nothing in this Article shall be deemed to require Landlord to give Tenant any notice, other than such minimum notice as may be required by statute, prior to the commencement of an unlawful detainer action for nonpayment of any basic rent or additional rent, it being intended that the 15-day notice provided hereunder is only for the purpose of creating a conditional limitation hereunder pursuant to which this Lease shall terminate. 5. Time is of the essence of this Lease with respect to the performance by Tenant of its obligation hereunder. Q. No Waiver of Landlord's Rights Through Failure to Seek Redress or Receipt of Rent. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of any covenant or condition of this Lease shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and affect of an original violation. The receipt of rent by Landlord with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. R. Indemnification. Lessee shall release, indemnify, save and hold harmless Lessor, together with all of its agents, successors, assigns and attorneys, from and against all claims, actions, damages, liability and expenses incurred in connection with loss of life, personal injury and/or damage to the property arising from or out of any occurrence in, upon or at the Leased Property, or the occupancy or use by Lessee of the Leased Property or any part thereof, or occasioned wholly or in part by any act or omission of Lessee, its agents, successors, assigns or invitees. Lessor shall release, indemnify, save and hold harmless Lessee, together with all of its agents, successors, assigns and attorneys, from and against all claims, actions, damages, liability and expenses incurred in connection with loss of life, personal injury and/or damage to the Leased Property arising from or out of any occurrence occasioned wholly or in part by any act or omission of Lessor, its agents, successors, assigns or invitees. S. Notice by Registered or Certified Mail. Any notice under this Lease must be in writing and must be sent by registered or certified mail to the last address of the party to whom the notice is to be given, as designated by such party in writing. Landlord hereby designates its address as 1828 Raymond Road, Jackson, Mississippi 39204. Tenant hereby designates its address as 2222 Ponce De Leon Boulevard, 6th Floor, Coral Gables, Florida 33134. T. Lease Binding Upon Heirs, Executors, Administrators, Successors, and Assigns of Landlord and Tenant. The covenants, terms, conditions, provisions, and undertakings in this Lease or in any renewals thereof shall extend to and be binding upon the heirs, executors, administrators, successors, and assigns of the respective parties hereto, as if they were in every case named and expressed, and shall be construed as covenants running with the land; and wherever reference is made to either of the parties hereto, it shall be held to include and apply also to the heirs, executors, administrators, successors, and assigns of such party, as if in each and every case so expressed. - 6 - 7 U. Entire Agreement. This Lease contains the entire agreement between the parties and cannot be changed, altered, or amended without the express written consent of all parties hereto. This Agreement shall be construed under the laws of the State of Mississippi. JCD PARTNERSHIP, A MISSISSIPPI PARTNERSHIP, LESSOR By: /s/. C. David Finch, Jr., M.D. --------------------------------------- C. DAVID FINCH, JR., M.D., Partner By: /s/ Charles D. Finch, Sr. --------------------------------------- CHARLES D. FINCH, SR. Partner By: /s/ Jeffery C. Finch --------------------------------------- JEFFERY C. FINCH, Partner Attest: RENEX DIALYSIS FACILITIES, INC., A MISSISSIPPI CORPORATION, LESSEE By: /s/ James P. Shea - ---------------------------------- --------------------------------------- Secretary JAMES P. SHEA, President STATE OF FLORIDA COUNTY OF DADE PERSONALLY APPEARED BEFORE ME, the undersigned authority in and for the jurisdiction aforesaid, the within named C. DAVID FINCH, JR. M.D., CHARLES D. FINCH, SR., and JEFFERY C. FINCH, who, after having been by me first duly sworn, state on their oath that they are all partners of JCD PARTNERSHIP, a Mississippi Partnership, and that they signed, executed, delivered and entered into the above and foregoing Lease Contract and Agreement for and on behalf of said partnership being first duly authorized so to do. SWORN TO AND SUBSCRIBED BEFORE ME, this the 29th day of December, 1995. My Commission Expires: /s/ Bryan W. Bauman August 04, 1997 -------------------------------- Commission No.: CC-796271 NOTARY PUBLIC - 7 - 8 STATE OF FLORIDA COUNTY OF DADE PERSONALLY APPEARED BEFORE ME, the undersigned authority in and for the jurisdiction aforesaid, the within named JAMES P. SHEA, who, after having been by me first duly sworn, stated on his oath that he is president of RENEX DIALYSIS FACILITIES, INC., a Mississippi corporation, and that he signed, executed, delivered, and entered into the above and foregoing Lease Contract and Agreement for and on behalf of said corporation being first duly authorized so to do. SWORN TO AND SUBSCRIBED BEFORE ME, this 29th day of December, 1995. My Commission Expires: /s/ Bryan W. Bauman August 04, 1997 ---------------------------------- Commission No.: CC-796271 NOTARY PUBLIC - 8 - 9 EXHIBIT "A" Lots Nine (9) and Ten (10) of Square or Block Ten (10) of the Village of Delta, Louisiana. BEING THE PROPERTY ACQUIRED BY VENDOR FROM MICHAEL J. CHANEY AND HIS WIFE, MARY THURMOND CHANEY, AS EVIDENCED BY ACT OF SALE BEARING DATE OF NOVEMBER 27,1987, RECORDED IN THE NOTARIAL RECORDS OF MADISON PARISH, LOUISIANA IN CONVEYANCE BOOK "86', PAGE 228, UNDER REGISTER NUMBER 75375. LESS AND EXCEPT THEREFROM that certain portion of the above described property taken in expropriation suit styled "State of Louisiana, Through the Department of Highways vs. J. R. Hill, et al.", bearing docket number 6144 on the docket of the Sixth Judicial District Court, with the Order of Expropriation dated November 20, 1969, being recorded in the Notarial Records of Madison Parish, Louisiana in Conveyance Book "22", page 421 under register number 36640, said land included within the expropriation suit being particularly described as follows, to-wit: A certain tract or parcel of land and all the rights, ways, privileges, servitudes and advantages thereunto belonging or in anywise appertaining, situated in the Parish of Madison, State of Louisiana, in Section 15, Township 16 North, Range 15 East, LAND DISTRICT NORTH OF RED RIVER, and shown as Parcel No. 7-2 on a white print of a plat of survey made by Fred O. Eldred and Phillip C. Holland, Registered I-and Surveyors, dated March 10, 1969, revised, annexed to the above entitled and numbered suit, said tract or parcel of land being outlined in red and being more particularly described according to said plat of survey, as follows: Begin at the point which is the southwest comer of Lot 9 of Block 10; from said point of beginning proceed North 40 degrees 40 minutes 33 seconds West a distance to 15.55 feet and comer; thence proceed North 76 degrees 30 minutes 6 seconds East a distance of 34.02 feet and comer; thence proceed South 49 degrees 17 minutes 28 seconds West a distance of 30.26 feet to the point of beginning. Lots Seven (7) and Eight (8) of Square or Block Ten (10) of the Village of Delta, Louisiana. LESS AND EXCEPT THEREFROM that certain portion of the above described property conveyed to the State of Louisiana and the Department of Highways of the State of Louisiana, by Angelina Griefield, et al., as evidenced by Sale bearing date of October 13, 1969, recorded in the Notarial Records of Madison Parish, Louisiana in Conveyance Book '22", page 125 under register number 36453, which property is particularly described as follows, to-wit: 10 PARCEL NO. 7-1 A certain tract or parcel of land together with all of the improvements thereon and all rights, ways, privileges, servitudes, and advantages thereunto belonging or anywise appertaining, situated in Madison Parish, State of Louisiana, and being a portion of Lot 8 of Block 10 and in Section 15, Township 16 -North, Range 15 East, Land District North of Red River,'the boundary lines of which tract are more particularly described as follows: Begin at a point in the southwest comer of Lot 8 of Block 10 and run thence North 40' 40' 33" West a distance of 46.39 feet to a point and comer; thence North 761 30' 06" East a distance of 67.45 feet to a point and comer; thence South 40' 40' 33" East a distance of 15.55 feet to a point and comer; thence South 49' 17' 28" West a distance of 60 feet to the point of beginning and containing an area of 1,858 Square Feet, more or less, identified as Parcel No. 7-1, as shown on the Right of Way map, prepared by Fred O. Eldred and Philip G. Holland, Registered Land Surveyors, dated March 10, 1969, for the TALLULAH-DELTA INTERSTATE HIGHWAY, STATE PROJECT NO. 45 108-02, RELOCATION LA-US 80 and the I.C.R.R. AT DELTA SECTION, F.A.P. NO. 1-20-4(3)169, MADISON PARISH, said map being filed in the office of the Louisiana Department of Highways in the City of Baton Rouge, Louisiana. Being a portion of the same property acquired by Vendors in the Succession of T.M. Morrissey filed and recorded November 24, 1943, in COB "GG" at page 483 and in the Will of Mrs. Josephine R. Morrissey, dated December 14, 1965, filed September 14, 1966, Probate No. 14, 1966, Chancery Court of Warren County, Mississippi. EX-23.1 14 CONSENT OF DELOITTE & TOUCHE, LLP 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Renex Corp. and Subsidiaries on Form S-1 of our report dated April 18, 1997, except for Note 18 for which the date is April 22, 1997, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. Deloitte & Touche LLP Miami, Florida July 31, 1997 EX-23.2 15 CONSENT OF ERNST & YOUNG, LLP 1 Exhibit 23.2 Consent of Independent Certified Public Accountants We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 8, 1995, in the Registration Statement (Form S-1) and related Prospectus of Renex Corp. for the registration of 3,000,000 shares of common stock. ERNST & YOUNG LLP Miami, Florida July 31, 1997 EX-23.3 16 CONSENT OF LASHLY & BAER 1 Exhibit 23.3 LAW OFFICES LASHLY & BAER A PROFESSIONAL CORPORATION 714 LOCUST STREET ST. LOUIS, MISSOURI 03101-1699 (314) 621-2939 FAX: (314) 621-6844 July 31, 1997 We hereby consent to be named as an expert in the "Experts" section of the Registration Statement on Form S-1 filed with the Securities and Exchange Commission by Renex Corp. Very truly yours, LASHLY & BAER, P.C. By: /s/ Richard Watters ------------------------------ Richard Watters EX-27.1 17 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JAN-01-1997 MAR-31-1997 519,000 0 6,911,000 1,280,000 362,000 6,851,000 8,177,000 1,939,000 16,087,000 4,141,000 0 0 0 3,000 4,012,000 16,087,000 6,007,000 6,007,000 4,735,000 4,735,000 1,016,000 228,000 315,000 (314,000) 0 (314,000) 0 0 0 (314,000) (.08) (.08)
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