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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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RENEX CORP.
(Name of Subject Company)
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RENEX CORP.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE, $.001 PER SHARE
INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS
(Title of Class of Securities)
759683 10 5
(CUSIP Number of Class of Securities)
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JAMES P. SHEA
PRESIDENT/CHIEF EXECUTIVE OFFICER
RENEX CORP.
201 ALHAMBRA CIRCLE, SUITE 800
CORAL GABLES, FLORIDA 33134
(305) 448-2044
(Name, address and telephone number of person authorized to receive
notices and communications on behalf of person(s) filing statement)
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WITH A COPY TO:
BRYAN W. BAUMAN
WALLACE, BAUMAN, LEGON, FODIMAN & SHANNON, P. A.
1200 BRICKELL AVENUE, SUITE 1720
MIAMI, FLORIDA 33131
(305) 444-9991
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Renex Corp., a Florida corporation (the
"Company"). The address of the principal executive offices of the Company is 201
Alhambra Circle, Suite 800, Coral Gables, Florida 33134.
The title of the class of equity securities to which this Schedule 14D-9
relates is common stock, par value $.001 per share of the Company (the
"Shares"), including the associated preferred stock purchase rights (the
"Rights") issued pursuant to a Rights Agreement dated as of November 6, 1998
between the Company and Continental Stock Transfer and Trust Company, as Rights
Agent, as amended (the "Rights Agreement"). Unless the context indicates
otherwise, all references herein to the Shares shall include the associated
Rights.
ITEM 2. TENDER OFFER OF THE BIDDER
This Schedule 14D-9 relates to the tender offer disclosed in that certain
Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") filed with the
U. S. Securities and Exchange Commission on December 30, 1999, by RC Acquisition
Corp., a Florida corporation (the "Purchaser") and a wholly owned subsidiary of
National Nephrology Associates, Inc., a Delaware corporation (the "Parent"), to
purchase all of the outstanding Shares at a price of $10.00 per Share net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated December 30, 1999 (the
"Offer to Purchase") and the related Letter of Transmittal (which together
constitute the "Offer"). The Offer to Purchase and the Letter of Transmittal are
attached to the Schedule 14D-1 as Exhibits.
The Offer is being made by the Purchaser pursuant to an Agreement and Plan
of Merger, dated as of December 28, 1999 (the "Merger Agreement"), among Parent,
Purchaser and the Company. Pursuant to the Merger Agreement, following the
consummation of the Offer, upon the satisfaction or waiver of certain
conditions, the Purchaser will be merged with and into the Company (the
"Merger"), with the Company being the surviving corporation (the "Surviving
Corporation"). A copy of the Merger Agreement is filed as Exhibit 1 hereto and
is incorporated herein by reference. The terms of the Merger Agreement are more
fully described in Item 3 below.
Based upon the information set forth in the Schedule 14D-1, the principal
executive offices of Purchaser and Parent are 511 Union Street, Suite 1800,
Nashville, Tennessee 37219. Purchaser is a wholly-owned subsidiary of Parent.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above.
(b) Except as described herein or in Annex I hereto, which is incorporated
herein by this reference, as of the date hereof there are no material contracts,
agreements, arrangements or understandings, or any actual or potential conflicts
of interest between the Company or its affiliates and (i) the Company, its
directors, executive officers or affiliates or (ii) Parent, Purchaser or their
respective executive officers, directors or affiliates.
ARRANGEMENTS WITH DIRECTORS, EXECUTIVE OFFICERS OR AFFILIATES OF THE COMPANY
Certain contracts, agreements arrangements and understandings between the
Company or its affiliates and certain of its directors, executive officers and
affiliates are described under the captions "Directors and Officers of the
Company -- Directors' Compensation" and "Executive Compensation -- Employment
Agreements" in the Company's Information Statement (the "Information
Statement"), which is attached hereto as Annex I and is incorporated herein by
reference.
The Company has employment agreements with the following officers: Milton
J. Wallace, Chairman, James P. Shea, President/CEO, Arthur G. Shapiro, Vice
Chairman/Director of Medical Affairs, Orestes L. Lugo, Senior Vice
President/CFO, Mignon Early, Vice President -- Operations and Patsy Anders, Vice
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President -- Business Development. The respective employment agreements between
the Company and Messrs. Shea, Lugo and Wallace and Dr. Shapiro grant such
individuals the right to terminate their respective employment agreements at any
time within eighteen months 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 employment agreement had it not been terminated plus three times the
bonus amount paid in the last 12 months or (ii) $500,000. Such "change of
control" severance is payable 100% in cash on the effective date of such
termination. Each individual would also continue to receive all of the employee
benefits to which he was receiving at the date of termination, including health
insurance, car allowance, cellular telephone and similar benefits for a period
of three years following termination. Such payment are also required if the
Company terminates such agreements following a change of control. In addition,
if any of Messrs. Shea, Lugo or Wallace or Dr. Shapiro are terminated without
cause during the term of their respective agreements, such officer will be
entitled to the same severance mentioned above for a change of control. If Ms.
Anders is terminated by the Company, or she terminates her employment agreement
within 180 days following a change of control, she will be entitled to severance
equal to the greater of (i) two times the remaining base salary which would have
been paid for the remainder of the term of her employment agreement or (ii) two
times the sum of one years' base salary and any and all bonuses paid to her in
the eighteen months prior to the effective date of termination. If Ms. Early is
terminated without cause following a change of control, she would be entitled to
one year's base salary. The consummation of the Offer would constitute a change
of control of the Company for purposes of the employment agreements.
The Company's outstanding options to purchase Shares provide that they
become immediately exercisable upon a change of control of the Company. See
"Executive Compensation" in Annex I hereto which contains a description of
options that have been granted by the Company. The consummation of the offer
would constitute a change of control of the Company for purposes of the options.
ARRANGEMENTS WITH PARENT, PURCHASER OR THEIR AFFILIATES
In connection with the transactions contemplated by the Offer and the
Merger, the following agreements and arrangements were entered into: (a) the
Merger Agreement; (b) a Shareholder Agreement between the Purchaser and each
director and executive officer of the Company; (c) a Confidentiality Agreement
by the Parent in favor of the Company dated November 15, 1999 (the "Company
Confidentiality Agreement"); and (d) a Confidentiality Agreement by the Company
in favor of Parent dated December 21, 1999 (the "Parent Confidentiality
Agreement").
The Merger Agreement.
The following is a summary of certain portions of the Merger Agreement.
This summary does not purport to be complete and is qualified in its entirety by
reference to the complete text of the Merger Agreement, a copy of which is filed
as Exhibit 2 hereto and is incorporated herein by reference. Capitalized terms
not otherwise defined below shall have the meanings set forth in the Merger
Agreement.
The Offer. The Merger Agreement provides that Purchaser will commence the
Offer and that, upon the terms and subject to the prior satisfaction or waiver
of the conditions to the Offer, Purchaser will purchase all Shares validly
tendered and not withdrawn pursuant to the Offer. The Merger Agreement provides
that Parent and Purchaser have the right, in their sole discretion, to make any
change in the terms or conditions of the Offer, provided that no change may be
made to the Minimum Condition or which changes the form of consideration to be
paid or decreases the price per Share or the number of Shares sought in the
Offer or which imposes conditions to the Offer in addition to those set forth
under the caption "Certain Conditions to the Offer" below or which otherwise
materially and adversely affects the Company or the holders of the Shares.
The Merger. The Merger Agreement provides that, following the consummation
of the Offer and subject to the terms and conditions set forth therein, at the
Effective Time, Purchaser shall be merged with and into the Company and, as a
result of the Merger, the separate corporate existence of Purchaser shall cease,
and the Company shall continue as the Surviving Corporation as a direct
subsidiary of Parent.
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The respective obligations of Parent and Purchaser, on the one hand, and
the Company, on the other hand, to consummate the Merger are subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions: (i) if required by the Florida Business Corporations Act ("FBCA"),
the Merger Agreement shall have been approved and adopted by the shareholders of
the Company in accordance with the FBCA; (ii) any applicable waiting period
under the Hart-Scott-Rodino Act (the "HSR Act") relating to the Merger shall
have expired or been terminated; (iii) no provision of any applicable law or
regulation and no judgment, injunction, statute, rule, regulation, stay, order
or decree enacted, entered, issued, promulgated or enforced by any court or
governmental authority shall prohibit or restrict the consummation of the
Merger; (iv) Parent and/or Purchaser shall have purchased at least a majority of
the Shares outstanding on a fully-diluted basis pursuant to, and in accordance
with, the Offer; and (v) all actions by or in respect of or filings with any
governmental authority required to permit the consummation of the Merger shall
have been obtained.
The obligations of Parent and Purchaser to consummate the Merger are
subject to the satisfaction of the following further conditions: (i) the Company
shall have performed in all material respects all obligations required under the
Merger Agreement to be performed by it at or prior to the Effective Time; and
(ii) Parent and Purchaser shall have received all documents they may reasonably
request relating to the existence of the Company and its Subsidiaries and the
authority of the Company for the Merger Agreement, all in form and substance
reasonably satisfactory to Parent and Purchaser.
At the Effective Time of the Merger, (i) each issued and outstanding Share
(other than Shares referred to in clause (ii) below or Shares for which
dissenters' rights have been perfected) shall be converted into the right to
receive $10.00 in cash or any higher price paid for each Share in the Offer,
without interest (the "Merger Consideration"), (ii) each Share held by the
Company or any subsidiary of the Company or owned by Parent, Purchaser or any
subsidiary of Parent or Purchaser immediately prior to the Effective Time shall
be canceled, and no payment shall be made with respect thereto and (iii) each
share of common stock of Purchaser outstanding immediately prior to the
Effective Time shall be converted into and become one share of common stock of
the Surviving Corporation with the same rights, powers and privileges as the
shares so converted and shall constitute the only outstanding shares of common
stock of the Surviving Corporation.
The Company's Board of Directors. The Merger Agreement provides that
effective upon the deposit by Purchaser with Continental Stock Transfer and
Trust Company, which is acting as the Depositary (the "Depositary") of payment
for all Shares validly tendered and not withdrawn pursuant to the Offer and all
Options (as defined below under the caption "Options") and Warrants (as defined
below under the caption "Warrants" and payment of all severance which is due and
payable), Purchaser shall be entitled, subject to Section 14(f) of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14f-1 promulgated thereunder, to designate the number of directors, rounded up
to the next whole number, on the Board that equals the product of (i) the total
number of directors on the Board (giving effect to the election of any
additional directors pursuant to this sentence) and (ii) the percentage that the
number of Shares owned by Parent and Purchaser (including Shares accepted for
payment) bears to the total number of Shares outstanding, and the Company shall
take all action necessary to cause Purchaser's designees to be elected or
appointed to the Board. The Company agreed to use its best efforts to cause
individuals designated by Purchaser to constitute the same percentage as such
individuals represent on the Board of (A) each committee of the Board (other
than any committee of the Board established to take action under the Merger
Agreement), (B) each board of directors of each subsidiary of the Company and
(C) each committee of each such board. Notwithstanding the foregoing, until such
time as Purchaser's Designees are elected or appointed to the Board, the Company
shall use its reasonable efforts to ensure that at least two of the members of
the Board and such boards and committees as of the date hereof who are not
employees of the Company shall remain members of the Board and such boards and
committees.
Following the election or appointment of Purchaser's designees and until
the Effective Time, the approval of a majority of the directors of the Company
then in office who were not designated by Purchaser (the "Continuing Directors")
shall be required to authorize any termination of the Merger Agreement by the
Company, any amendment of the Merger Agreement requiring action by the Board,
and any waiver of compliance with any of the agreements or conditions contained
therein for the benefit of the Company.
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Shareholders' Meeting. Pursuant to the Merger Agreement, the Company will,
if required by the FBCA in order to consummate the Merger, cause a meeting of
its shareholders to be duly called and held as soon as reasonably practicable
after (and with a record date after) the purchase of Shares pursuant to the
Offer for the purpose of voting on the approval and adoption of the Merger
Agreement and the Merger. The Merger Agreement provides that the Company will,
in connection with such meeting, promptly file with the Commission will use its
best efforts to have cleared by the Commission, and will mail to shareholders, a
proxy statement in connection with a meeting of the Company's shareholders to
vote upon the Merger Agreement and the transactions contemplated thereby. The
proxy statement shall include the recommendation of the Board that the
transactions contemplated by the Merger Agreement, including the Offer and the
Merger, are advisable and are fair to, and in the best interests of, the
shareholders of the Company, provided, that following receipt of an unsolicited
bona fide written Superior Proposal (as defined below under the caption "Other
Offers"), the Board may withdraw or modify its recommendation, but only to the
extent that the Board shall have concluded in good faith on the basis of advice
from outside counsel that such action is required in order to comply with its
fiduciary duties to the shareholders of the Company. If Purchaser acquires at
least a majority of the Shares, it will have sufficient voting power to approve
the Merger, even if no other shareholder votes in favor of the Merger.
Notwithstanding the foregoing, the Merger Agreement provides that in the
event that Purchaser acquires at least 80% of the Shares, pursuant to the Offer
or otherwise, the Company agrees, at the request of Parent and Purchaser, to
take all necessary and appropriate action to cause the Merger to become
effective as soon as reasonably practicable after such acquisition and the
satisfaction or waiver of the conditions to the Merger, without a meeting of the
shareholders of the Company.
Dissenters' Rights. Notwithstanding any contrary provision of the Merger
Agreement, Shares outstanding immediately prior to the Effective Time and held
by a holder who has not voted in favor of the Merger or consented thereto in
writing and who has demanded dissenters' rights for such Shares in accordance
with the FBCA ("Dissenting Shares") shall not be converted into a right to
receive the Merger Consideration, but such Dissenting Shares shall be converted
into the right to receive such consideration as may be determined to be due to
holders of Dissenting Shares pursuant to the FCBA, unless and until such holder
fails to perfect or withdraws or otherwise loses such holder's right to
dissenters' rights. If after the Effective Time, if such holder fails to perfect
or withdraws or loses his right to dissenters' rights, such Shares shall be
treated as if they had been converted as of the Effective Time into the right to
receive the Merger Consideration. Parent shall have the right to participate in
all negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demands. Notwithstanding the
foregoing, if the Shares continue to be listed on NASDAQ as of the record date
set for the shareholders of the Company to vote on the Merger or, if Purchaser
and Parent own at least 80% of the outstanding Shares, at such time as the
record date would have been set, the Company represents and warrants that no
dissenters' rights, appraisal rights or similar rights will apply to the
transactions contemplated by this Agreement. The Company shall not take any
action prior to consummation of the Offer to delist the Shares from Nasdaq.
Options. Each option to purchase Shares outstanding immediately prior to
the Effective Time (collectively, "Options") shall, at or immediately prior to
the Effective Time, be canceled and shall cease to exist, and each holder of any
such Option, whether or not then vested or exercisable, shall be paid by the
Company promptly after the Effective Time for each such Option an amount,
subject to applicable withholding, determined by multiplying (i) the excess, if
any, of the Merger Consideration per Share over the applicable exercise price of
such Option as in effect immediately prior to the Effective Time by (ii) the
number of Shares such holder could have purchased (assuming full vesting of all
Options) had such holder exercised such Option in full immediately prior to the
Effective Time.
Warrants. Each outstanding warrant to purchase Shares (collectively,
"Warrants") shall, from and after the Effective Time, be canceled by virtue of
the consummation of the Merger and shall cease to exist, and each such Warrant
shall be converted into the right to receive from the Company an amount, subject
to applicable withholding, determined by multiplying (i) the excess, if any, of
the Merger Consideration per Share over the applicable exercise price of such
Warrant as in effect immediately prior to the Effective Time
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by (ii) the number of Shares such holder could have purchased had such holder
exercised such Warrant in full immediately prior to the Effective Time.
Severance. In the Merger Agreement, the Company has agreed that
simultaneously with the deposit by Purchaser with the Depository of payment for
all Shares, options and warrants, the Company will deposit with the Exchange
Agent, funds sufficient to pay (or pay directly to the intended recipients
thereof) certain severance payments to which the executive officers and
directors of the Company shall become entitled pursuant to their employment
agreements upon consummation of the Offer (to the extent such payments are due
and payable immediately after giving effect to waivers of notice referred to in
clause (ii) below upon a Change in Control as defined in such employment
agreements). The payment of severance is conditioned upon each such executive
officer or director (i) confirming in writing to Parent and Purchaser (in a form
reasonably satisfactory to Parent and Purchaser that termination of such
executive officer or director upon consummation of the Offer (whether by
resignation or by notice of termination by the Company) shall constitute
termination by the Company (and not by such executive officer or director) for
purposes of any non-competition, non-solicitation or other restrictive covenants
set forth in such executive officer's or director's employment agreement with
the Company and that such covenants shall apply to such executive officer or
director in accordance with the terms thereof from and after such termination
(ii) waiving any requirement under such employment agreement or otherwise that
notice be given prior to such termination by the Company and (iii) execution of
a general release in favor of the Company and its affiliates, releasing such
Persons from any and all claims against them other than (A) claims for benefits
and other rights to which such executive officer or director would be entitled
under his employment agreement with the Company (B) claims relating to payment,
in accordance with the Merger Agreement, of options, warrants or Shares
beneficially owned by such executive officer or director and (C) claims for
indemnification. From and after consummation of the Offer, Parent will cause the
Company and the Surviving Corporation to pay as and when due for all other
benefits to which such executive officers or directors are entitled in
accordance with the terms of their employment agreements, subject to the
continued compliance by such executive officers and directors with the
provisions of such employment agreements.
Conduct of Business Pending the Merger. In the Merger Agreement, the
Company has agreed that, except as expressly required by the Merger Agreement or
with the prior consent of Parent, from the date of the Merger Agreement until
the Effective Time, the Company and its Subsidiaries will conduct their business
in the ordinary course consistent with past practice and will use their best
efforts to preserve intact their business organizations and relationships with
third parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, from the date of
the Merger Agreement until the Effective Time, without the prior written consent
of Parent, the Company has agreed that it will not, and will cause its
Subsidiaries not to:
(a) adopt or propose any change in its articles of incorporation or
bylaws;
(b) except pursuant to existing agreements or arrangements disclosed
to Parent and Purchaser in the schedules to the Merger Agreement:
(i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof;
(ii) sell, lease or otherwise dispose of a Subsidiary or assets or
securities, in one transaction or a series of related transactions, with
a book value in excess of $50,000 individually or $100,000 in the
aggregate;
(iii) make any investment, whether by purchase of stock or
securities, contributions to capital or any property transfer, other
than investments which mature in less than 30 days and are rated no
lower than A2/P2;
(iv) purchase for an amount in excess of $25,000 in the aggregate,
any property or assets of any other individual or entity other than
supplies or inventory purchased in the ordinary course consistent with
past practice;
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(v) waive, release, grant or transfer any rights of value material
to the Company and the Subsidiaries taken as a whole;
(vi) modify or change in any material respect (A) any existing
license, lease, contract or other document material to the Company and
the Subsidiaries, taken as a whole or (B) any existing contract or other
document with any laboratory, physician, physician group, hospital or
other healthcare provider;
(vii) incur, assume or prepay an amount of long-term or short-term
debt, including obligations in respect of capital leases;
(viii) assume, guarantee, endorse (other than endorsements of
negotiable instruments in the ordinary course of business) or otherwise
become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person (other than any
Subsidiary);
(ix) make any loans or advances to any other person or persons
(other than any Subsidiary) in excess of $25,000 in the aggregate; or
(x) excluding capital expenditures associated with dialysis
facilities under development, make or commit to make any capital
expenditures which, individually, is in excess of $10,000 or, in the
aggregate (including any and all capital expenditures made from and
after November 30, 1999), are in excess of $200,000; or
(c) (i) split, combine or reclassify any shares of its capital stock,
(ii) declare, set aside or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its
capital stock, other than cash dividends and distributions by a
wholly-owned subsidiary of the Company to the Company or to another
wholly-owned subsidiary of the Company, (iii) issue, sell, deliver, grant,
pledge or encumber any shares of its capital stock or securities
convertible into or exchangeable or exercisable for, any shares of its
capital stock or the capital stock of any of its Subsidiaries (other than
the issuance of Shares upon the exercise of issued and outstanding Options
or Warrants), (iv) redeem, repurchase or otherwise acquire or offer to
redeem, repurchase, or otherwise acquire any of its securities or any
securities of its Subsidiaries, or (v) amend any term of any outstanding
security of the Company or any of its Subsidiaries;
(d) adopt or amend any benefit plan or any similar plan or arrangement
for the benefit and welfare of any director, officer or employee, or
(except for normal increases in the ordinary course of business that are
consistent with past practices and that, in the aggregate, do not result in
a material increase in benefits or compensation expense to the Company)
increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any Benefit Plan or
other existing plan or arrangement (including, without limitation, the
granting of stock options, stock appreciation rights, phantom stock rights
or any similar rights, the removal of existing restrictions in any benefit
plans or agreements or the acceleration of the vesting or exercisability of
any options to acquire capital stock of the Company or any of its
Subsidiaries);
(e) except as set forth in a Schedule to the Merger Agreement, revalue
in any material respect any of its assets, including, without limitation,
writing down the value of inventory in any material manner or writing off
of notes or accounts receivable in any material manner;
(f) pay, discharge or satisfy any material claims, liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent
or otherwise) other than the payment, discharge or satisfaction in the
ordinary course of business, consistent with past practices, of liabilities
reflected or reserved against in the consolidated financial statements of
the Company or incurred since the most recent date thereof pursuant to an
agreement or transaction described in the Merger Agreement (including the
schedules hereto) or incurred in the ordinary course of business,
consistent with past practices;
(g) make or change any tax election, change any annual tax accounting
period, adopt or change any method of tax accounting, file any amended tax
return, enter into any closing agreement, settle any tax
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claim or assessment, surrender any right to claim a tax refund, consent to
the extension or waiver of the limitations period applicable to any tax
claim or assessment, surrender any right to claim a tax refund, or take or
omit to take any other action if such action or omission would have the
effect of materially increasing the tax liability of the Company or any of
its Subsidiaries;
(h) take any action other than in the ordinary course of business and
consistent with past practices with respect to accounting policies or
procedures other than any change in accounting policies (that is not
material to the Company and its Subsidiaries taken as a whole) that is
required by regulations of the Commission;
(i) sell, transfer, mortgage, pledge, grant any security interest in,
or permit the imposition of any lien on, any asset or property of the
Company or any Subsidiary with a book value in excess of $50,000
individually or $100,000 in the aggregate, including, without limitation,
any real property owned by the Company or any of its Subsidiaries other
than in the ordinary course of business consistent with past practice;
(j) fail to maintain all insurance policies of the Company and its
Subsidiaries in full force and effect or fail to renew or replace with
equivalent coverage any such insurance policy which has expired;
(k) fail to operate, maintain, repair or otherwise preserve the real
property leased by the Company and its Subsidiaries substantially in
accordance with current practice and within the capital expenditure budget
of the Company previously disclosed to Parent and Purchaser;
(l) fail to comply with all applicable filing, payment and withholding
obligations under all applicable federal, state, local and foreign tax laws
or settle or compromise any material income tax liability;
(m) agree or commit to do any of the foregoing; or
(n) take or agree or commit to take any action that would make any
representation and warranty of the Company hereunder inaccurate in any
respect at, or as of any time prior to, the Effective Time.
Other Offers. The Merger Agreement provides that neither the Company nor
any of its Subsidiaries shall (whether directly or indirectly through advisors,
agents or other intermediaries), nor shall the Company or any of its
Subsidiaries authorize or permit any of its or their officers, directors,
employees, agents, investment bankers, financial advisors, attorneys,
accountants or other representatives or advisors (collectively,
"Representatives") to (i) directly or indirectly solicit, initiate or take any
action designed to facilitate the submission of inquiries, proposals or offers
which constitute or would reasonably be expected to lead to (A) any acquisition
or purchase of 10% or more of the consolidated assets of the Company and its
Subsidiaries or any equity securities of the Company or any of its Subsidiaries,
(B) any tender offer (including a self tender offer) or exchange offer other
than the Offer, that if consummated would result in any third party beneficially
owning any equity securities of the Company or any of its Subsidiaries, (C) any
merger, consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its Subsidiaries, other than the transactions contemplated by
the Merger Agreement, or (D) any other transaction the consummation of which
would reasonably be expected to interfere with in a material way, prevent or
materially delay the Offer or the Merger or which would reasonably be expected
to materially dilute the benefits to Parent and Purchaser of the transactions
contemplated hereby (collectively, "Acquisition Proposals"), (ii) agree to,
endorse or recommend to its shareholders any Acquisition Proposal, (iii) enter
into or participate in any discussions or negotiations regarding any of the
foregoing, or furnish to any third party any information with respect to its
business, properties or assets or any of the foregoing, or otherwise cooperate
in any way with, or knowingly assist or participate in, facilitate or encourage,
any effort or attempt by any third party (other than Parent and Purchaser) to do
or seek any of the foregoing, or (iv) grant any waiver or release under any
standstill or similar agreement with respect to any class of equity securities
of the Company or any of its Subsidiaries; provided, however, that the foregoing
shall not prohibit the Company (either directly or indirectly through advisors,
agents or other intermediaries) from (W) furnishing information concerning the
Company and its businesses, properties or assets to a third party who has made
an unsolicited bona fide written Superior
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Proposal (as defined below), pursuant to an appropriate confidentiality letter
(which letter shall not be less favorable to the Company than the Company
Confidentiality Letter), (X) engaging in discussions or negotiations with such a
third party who has made an unsolicited bona fide written Superior Proposal, (Y)
following receipt of an unsolicited bona fide written Superior Proposal, taking
and disclosing to its shareholders a position contemplated by Rule 14e-2(a)
under the Exchange Act or otherwise making disclosure to its shareholders and/or
(Z) following receipt of an unsolicited bona fide written Superior Proposal,
failing to make or withdrawing or modifying its recommendation to the
shareholders that the transactions contemplated by the Merger Agreement,
including the Offer and the Merger, are advisable and are fair to, and in the
best interests of, the shareholders of the Company, but in each case referred to
in the foregoing clauses (W) through (Z) only to the extent that the Board shall
have concluded in good faith on the basis of advice from outside counsel that
such action by the Board is required in order to comply with the fiduciary
duties of the Board to the shareholders of the Company under applicable law;
provided, further, that (1) the Board and th e Company shall not take any of the
foregoing actions referred to in clauses (W) through (Y) until after reasonable
notice has been given to Parent and Purchaser with respect to such action, (2)
the Board and the Company shall not take any of the actions referred to in
clause (Z) unless (i) a Superior Proposal has been made and has not been
withdrawn, (ii) the Company provides Parent and Purchaser with at least 48 hours
prior notice of any meeting of the Board at which such Board is expected to
consider such Superior Proposal, and (iii) the Board does not withdraw, amend or
modify its unanimous recommendation in favor of the Offer or the Merger for at
least 72 hours after the Company provides Parent and Purchaser with the name of
the person making such Superior Proposal and a copy of such Superior Proposal
and (3) the Board shall continue to advise Parent and Purchaser as to the status
of any negotiations or discussions relating to any Acquisition Proposal after
taking such action. The term "Superior Proposal" means a bona fide proposal made
by a third party to acquire the Company pursuant to a tender or an exchange
offer for not less than a majority of the shares of capital stock of the
Company, a merger or the acquisition of all or substantially all of the
Company's assets that, in any case, the Board determines in its good faith
judgment (based on the advice of its financial advisor) to be more favorable
(including with respect to price) to the holders of Shares than the Merger;
provided, however, that any such proposal shall not be deemed to be a "Superior
Proposal" unless any financing required to consummate the transactions
contemplated by such proposal is either (i) in the possession of such third
party at the time such proposal is made, or (ii) committed on terms no less
favorable than those set forth in the Commitment Letter.
Board of Directors; Officers. The Merger Agreement provides that, promptly
upon the deposit with the Depositary of payment by Purchaser of all Shares
validly tendered and not withdrawn, as well as all options and Warrants and the
severance payments to executive officers and directors, Purchaser shall be
entitled to designate members of the Board, as further described above under the
caption "The Company's Board of Directors." After the time that Purchaser's
designees are elected to the Board and until the Effective Time, any amendment
or termination of the Merger Agreement and any exercise or waiver of the
Company's rights under the Merger Agreement shall also require the approval of a
majority of the Continuing Directors.
Under the Merger Agreement, the directors of Purchaser at the Effective
Time will be the initial directors of the Surviving Corporation, and the
officers of Purchaser at the Effective Time will be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified in accordance with applicable law.
Access to Information. From the date of the Merger Agreement until the
Effective Time, the Company will give Parent, Purchaser, their counsel,
financial advisors, accountants, auditors and other authorized representatives
full access to the offices, dialysis clinics, properties, books and records of
the Company and its Subsidiaries, will furnish to Parent, Purchaser, their
counsel, financial advisors, accountants, auditors and other authorized
representatives such financial, tax and operating data and other information as
such persons may reasonably request and will instruct the Company's employees,
counsel and financial advisors to cooperate with Parent and Purchaser in their
investigation of the business of the Company and its Subsidiaries including,
without limitation, in connection with Parent's and Purchaser's obtaining title
reports, surveys, environmental reports and similar reports or studies with
respect to properties owned or leased by the Company and its Subsidiaries, and
will exercise all reasonable efforts to obtain from landlords such estoppel
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certificates as Parent and Purchaser may request; provided, however, that no
such investigation shall affect any representation or warranty given by the
Company to Parent or Purchaser under the Merger Agreement.
Director and Officer Indemnification. For six years after the Effective
Time, Parent will cause the Surviving Corporation to (i) indemnify and hold
harmless the present and former officers and directors of the Company in respect
of acts or omissions occurring prior to the Effective Time (including, without
limitation, matters related to the transactions contemplated by the Merger
Agreement), (ii) advance expenses in respect of such indemnification and (iii)
retain limitations on personal liability of directors for monetary damages, in
each case, to the fullest extent provided under the Company's articles of
incorporation and bylaws in effect on the date hereof; provided, however, that
such indemnification shall be subject to any limitation imposed from time to
time under applicable law. For six years after the Effective Time, Parent will
cause the Surviving Corporation to use its best efforts to provide officers' and
directors' liability insurance in respect of acts or omissions occurring prior
to and including the Effective Time covering each such person currently covered
by the Company's officers' and directors' liability insurance policy on terms
with respect to coverage and amount no less favorable than those of such policy
in effect on the date hereof, providedthat in satisfying its obligation under
this Section, Parent shall not be obligated to cause the Surviving Corporation
to pay premiums in excess of 150% of the amount per annum the Company paid in
its last full fiscal year (the "Maximum Premium"), which amount has been
disclosed to Parent; provided that if the premium exceeds the Maximum Premium,
the officers and directors covered by such insurance policy shall have the
opportunity, upon 30 days notice from the Surviving Corporation prior to renewal
of any such policy, to pay the difference between the Maximum Premium and the
actual premium.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties with respect to the Company, including, without
limitation, (i) the Company's organization, authority and capitalization, (ii)
that the Board has approved the Merger Agreement and the transactions
contemplated thereby, (iii) noncontravention, (iv) Subsidiaries, (v) material
liabilities, (vi) compliance with laws, (vii) finder's fees, (viii) the
inapplicability of certain restrictions, (ix) insider interests, (x) required
consents, approvals and governmental filings, (xi) the accuracy of the Company's
documents and reports filed with the Commission, the Company's financial
statements and information provided to Parent and Purchaser, (xii) the absence
of certain changes, (xiii) the absence of certain litigation, (xiv) the
Company's employee benefit plans and other employment matters, (xv) title to
property, (xvi) tax matters, (xvii) environmental matters, (xviii) intellectual
property matters, (xix) insurance matters, (xx) business relationships and
restrictive agreements, (xxi) material contracts and (xxii) Year 2000
compliance. The Merger Agreement also includes representations and warranties
with respect to (i) cash and cash equivalents, (ii) indebtedness and capitalized
lease obligations, (iii) due to third party obligations, (iv) inventory , (v)
fees and expenses and (vii) amending the Company's rights agreement.
In the Merger Agreement, Parent and Purchaser have made customary
representations and warranties, including, without limitation, relating to (i)
their respective corporate organization, (ii) their authority to execute,
deliver and perform the Merger Agreement, (iii) required consents, approvals and
governmental filings, (iv) accuracy of information provided to the Company and
of documents filed with the Commission in connection with the Offer, (v) absence
of certain litigation, (vi) financing, (vii) ownership of shares and (viii)
non-contravention.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of the Merger Agreement by the shareholders of the Company):
(i) by mutual written consent of the Company and Parent;
(ii) by either the Company or Parent, if (A) the Offer has not been
consummated by the date that is 90 days after the commencement of the
Offer, (B) Parent terminates the Offer in accordance with its terms without
purchasing any Shares pursuant to the Offer or (C) there shall be any law
or regulation of any governmental authority that makes consummation of the
Merger illegal or otherwise prohibited or if any judgment, injunction,
order or decree enjoining Parent or the Company from consummating the
Merger is entered and such judgment, injunction, order or decree shall
become final and nonappealable;
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provided that the right to terminate the Merger Agreement pursuant to this
Section shall not be available to any party whose failure to fulfill any of
its obligations under the Merger Agreement results in such failure to
consummate the Offer or the Merger, as the case may be;
(iii) by Parent, if the Board shall have (A) withdrawn or materially
modified its recommendation contained in this Schedule 14D-9 or its
recommendation to the shareholders that the transactions contemplated by
the Merger Agreement, including the Offer and the Merger, are advisable and
fair to, and in the best interests of, the shareholders of the Company, in
a manner adverse to Parent, (B) failed to make or reconfirm either of such
recommendations within two business days after a written request to do so
from Parent, (C) approved or recommended any Superior Proposal or (D) shall
have resolved to do any of the foregoing; or
(iv) by the Company, if the Board shall have withdrawn or materially
modified its recommendation contained in this Schedule 14D-9 or its
recommendation to the shareholders that the transactions contemplated by
the Merger Agreement, including the Offer and the Merger, are advisable and
fair to, and in the best interests of, the shareholders of the Company, if
there exists at such time a written Acquisition Proposal that constitutes a
Superior Proposal, provided that the right to terminate the Merger
Agreement pursuant to this Section shall not be available to the Company if
it has breached in any material respect any of its covenants and agreements
set forth in the Merger Agreement.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall, except as set forth therein, become void and have no effect,
without any liability on the part of any party thereto, except that termination
of the Merger Agreement shall be without prejudice to any rights any party may
have thereunder against any other party for wilful breach of the Merger
Agreement.
Termination Fee. If a Payment Event (as defined below) occurs, the Company
shall pay to Parent concurrently with such Payment Event a fee of $2,000,000.
"Payment Event" means (A) the termination of the Merger Agreement by Parent
pursuant to Section (iii) under the caption "Termination" above, (B) the
termination of the Merger Agreement by the Company pursuant to Section (iv)
under the caption "Termination" above; (C) the termination of the Merger
Agreement by Parent pursuant to Section (ii) under the caption "Termination"
above as a result of a material breach by the Company of any representation,
warranty, covenant or agreement set forth in the Merger Agreement; or (D) the
occurrence of any of the following events within 12 months of the termination of
the Merger Agreement pursuant to Section (ii) under the caption "Termination"
above, whereby shareholders of the Company receive, pursuant to such event,
cash, securities or other consideration having an aggregate value, when taken
together with the value of any securities of the Company or its Subsidiaries
otherwise held by the shareholders of the Company after such event, in excess of
$10.00 per Share: the Company is acquired by merger or otherwise by a third
party; a third party acquires more than 50% of the total assets of the Company
and its Subsidiaries, taken as a whole; a third party acquires more than 50% of
the outstanding Shares; or the Company adopts a plan of liquidation,
recapitalization or share repurchase relating to more than 50% of the
outstanding Shares or an extraordinary dividend relating to more than 50% of the
outstanding Shares or 50% of the assets of the Company and its Subsidiaries,
taken as a whole.
Liquidated Damages. In the event that (i) the Minimum Condition and all
other conditions to the Offer set forth below under the caption "Conditions to
the Offer" are satisfied, other than the condition set forth in paragraph (ix)
under the caption "Conditions to the Offer" providing that the Lenders shall
have provided the Required Amounts in accordance with the Commitment Letter,
(ii) the failure of the lenders to provide the Required Amounts (as defined in
the Merger Agreement) is due solely to the failure of one or more of the Buyer's
Risk Conditions (as defined below) to be satisfied in accordance with the terms
thereof set forth in the Commitment Letter and (iii) the Merger Agreement is
terminated pursuant to Section (ii)(A) or (ii)(B) under the caption
"Termination" above by Parent or the Company prior to consummation of the Offer
as a result of such condition in paragraph (ix) under the caption "Conditions to
the Offer" not having been satisfied, then, Parent shall pay to the Company
$2,000,000, as liquidated damages (the "Liquidated Damages") promptly upon such
termination of the Merger Agreement. In such event, payment of the Liquidated
Damages shall be the Company's sole and exclusive remedy and the Company shall
have no
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other remedy under the Merger Agreement or otherwise, whether for breach of
contract, in tort or otherwise resulting or arising from the Merger Agreement or
the transactions contemplated hereby.
Amendments. Any provision of the Merger Agreement may be amended or waived
prior to the Effective Time if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by the Company, Parent and
Purchaser or, in the case of a waiver, by the party against whom the waiver is
to be effective, provided that after the adoption of the Merger Agreement by the
shareholders of the Company, no such amendment or waiver shall, without the
further approval of such shareholders, alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital stock of the
Company, (ii) any term of the articles of incorporation of the Surviving
Corporation or (iii) any of the terms or conditions of the Merger Agreement if
such alteration or change would adversely affect the holders of any shares of
capital stock of the Company.
Conditions to the Offer. Notwithstanding any other provision of the Merger
Agreement or the Offer, Purchaser shall not be required to accept for payment,
purchase or pay for any Shares tendered pursuant to the Offer, may postpone the
acceptance for payment of and payment for any tendered Shares, and may terminate
or, subject to the terms of the Merger Agreement, amend the Offer, if
(a) the Minimum Condition is not satisfied;
(b) any waiting periods applicable to the Offer and the Merger and the
transactions contemplated by the Merger Agreement pursuant to the HSR Act
shall not have expired or been terminated;
(c) on or after the date of the Merger Agreement and prior to or at
the time of acceptance for payment of any such Shares in the Offer (whether
or not any Shares have theretofore been accepted for payment or paid for
pursuant to the Offer) any of the following conditions shall exist (each of
paragraphs (i) through (ix) providing a separate and independent condition
to Parent's and Merger Sub's obligations pursuant to the Offer):
(i) there shall be instituted or pending any action or proceeding
by any Governmental Authority or by any other person, domestic or
foreign, before any court or Governmental Authority (A) challenging or
seeking to make illegal, to delay materially or otherwise directly or
indirectly to restrain or prohibit the making of the Offer, the
acceptance for payment of or payment for some of or all the Shares by
Purchaser or the consummation by the Company, Parent or Purchaser of the
Merger, or seeking to obtain material damages or imposing any material
adverse conditions in connection therewith, (B) seeking to restrain or
prohibit the Company's, Parent's or Purchaser's ownership or operation
(or that of their respective subsidiaries or affiliates) of all or any
material portion of the business or assets of the Company and the
Subsidiaries, taken as a whole, or of Parent and its subsidiaries,
including, without limitation, Purchaser, taken as a whole, or to compel
the Company, Parent or any of their subsidiaries or affiliates,
including, without limitation, Purchaser, to dispose of or hold separate
all or any material portion of the business or assets of the Company and
the Subsidiaries, taken as a whole, or of Parent and its subsidiaries,
including, without limitation, Purchaser, taken as a whole, (C) seeking
to impose or confer limitations on the ability of Parent or any of its
subsidiaries or affiliates, including, without limitation, Purchaser,
effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote any Shares acquired or
owned by Parent or any of its subsidiaries or affiliates, including,
without limitation, Purchaser, on all matters properly presented to the
Company's shareholders, (D) seeking to require divestiture by Parent or
any of its subsidiaries or affiliates, including, without limitation,
Purchaser, of any Shares, or (E) that otherwise would reasonably be
expected to materially adversely affect the business, assets,
liabilities, condition (financial or otherwise), results of operations
or prospects of the Company and the Subsidiaries, or Parent and its
subsidiaries, including, without limitation, Purchaser, in each case
taken as a whole; or
(ii) there shall be any action taken, or any statute, rule,
regulation, judgment, injunction, order or decree proposed, enacted,
enforced, promulgated, issued or deemed applicable to the Offer or the
Merger, by any court or Governmental Authority other than the
application of the waiting period
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provisions of the HSR Act to the Offer or the Merger, that is likely,
directly or indirectly, to result in any of the consequences referred to
in clauses (A) through (E) of paragraph (i) above; or
(iii) any change or worsening of any existing condition shall have
occurred in the business, assets, liabilities, condition (financial or
otherwise), results of operations or prospects of the Company and the
Subsidiaries taken as a whole that is or is likely to have a material
adverse effect; or
(iv) the Company shall have breached or failed to perform in any
material respect any of its covenants or agreements under the Merger
Agreement; or
(v) (A) the representations and warranties of the Company relating
to cash and cash equivalents and indebtedness and capitalized lease
obligations or, any of the representations and warranties of the Company
set forth in the Merger Agreement qualified by materiality or material
adverse effect, shall not be true in any respect, or (B) any of the
other representations and warranties set forth in the Merger Agreement
shall not be true in any material respect, in the case of either clause
(A) or (B), when the applicable representation or warranty is made or at
any time prior to consummation of the Offer as if made at and as of such
time; or
(vi) the Merger Agreement shall have been terminated in accordance
with its terms; or
(vii) the Board shall have withdrawn or modified in a manner
adverse to Parent or Purchaser (including by amendment of this Schedule
14D-9) its approval or recommendation of the Offer or the Merger, or
failed to make or reconfirm its recommendation within two business days
after a written request to do so from Parent or Purchaser, or shall have
approved or recommended any other tender or exchange offer or other
Acquisition Proposal; or
(viii) there shall have occurred (1) any general suspension of
trading in, or limitation on prices for, securities on the New York
Stock Exchange, Inc., any other national securities exchange or NASDAQ
or any decline in either the Dow Jones Industrial Average or the
Standard & Poor's Index of 500 Industrial Companies by an amount in
excess of 20% measured from the close of business on the date of the
Merger Agreement, (2) the declaration of a banking moratorium or any
mandatory suspension of payments in respect of banks in the United
States (3) the commencement of or escalation of a war, armed hostilities
or other international or national calamity directly or indirectly
involving the United States, or (4) in the case of any of the foregoing
existing on the date of the Merger Agreement, a material acceleration or
worsening thereof; or
(ix) the Required Amounts (as defined in the Merger Agreement)
shall not have been made available to Parent and Purchaser in accordance
with the terms and conditions of the Commitment Letter (as defined in
the Merger Agreement); or
The foregoing conditions are for the sole benefit of Parent and Merger Sub
and may be asserted by Parent or Merger Sub regardless of the circumstances
(including any action or omission by Parent or Merger Sub) giving rise to any
such condition and may be waived by Merger Sub or Parent, in whole or in part in
their sole discretion. The failure by Parent or Merger Sub at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of such right with respect to any particular facts or
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances, and each such right will be deemed an ongoing right which may be
asserted at any time and from time to time which, in the reasonable judgment of
Parent or Merger Sub in any such case, and regardless of the circumstances
giving rise to any such condition (including any action or omission by Parent or
Merger Sub), makes it inadvisable to proceed with such acceptance for payment,
purchase or payment.
THE SHAREHOLDERS AGREEMENT
In connection with the Merger Agreement, Purchaser and Parent have entered
into the Shareholders Agreement, with the executive officers and directors of
the Company pursuant to which each Shareholder has, among other things, (a)
agreed to tender (and not withdraw unless the Merger Agreement is terminated in
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accordance with its terms) all Shares and all Shares issuable upon exercise of
any Options or Warrants held by it ("Subject Shares") into the Offer, (b)
granted to Purchaser an irrevocable option (the "Purchase Option") to purchase
such Shareholder's Subject Shares at a price per Share equal to the Merger
Consideration which Purchase Option may be exercised in whole but not in part at
any time on or prior to the 30th day after termination of the Merger Agreement;
provided, that, in the event that the Merger Agreement is terminated by Parent
or the Company pursuant to Section (ii), (iii) or (iv) above under the caption
"Termination" at any time after the Company has received an Acquisition Proposal
from a third party (a "Competing Proposal"), the Purchase Option shall remain
exercisable until such Competing Proposal shall have been withdrawn or any
agreement with such third party with respect to such Competing Proposal shall
have been terminated, (c) agreed to cause the Subject Shares to be voted in
favor of the Merger during the term of the Merger Agreement and against any
Acquisition Proposal during the term of the Shareholders Agreement, and (d) has
irrevocably appointed Parent and any nominee thereof, its proxy, during the term
of the Shareholders Agreement, to take such voting actions.
\If, after purchasing the Subject Shares pursuant to the Purchase Option,
Purchaser has not acquired the remaining outstanding shares of Common Stock and
Purchaser receives any cash or noncash consideration in respect of the Subject
Shares in connection with a Third Party Business Combination (as defined below)
during the period commencing on the date on which the Company purchases any
Subject Shares pursuant to Option and ending on the first anniversary thereof,
Purchaser shall promptly pay over to the Shareholders (pro rata, based on their
holdings of Shares), as an addition to the Merger Consideration, one-half of the
excess, if any, of (i) such consideration over (ii) the aggregate Merger
Consideration paid for the Subject Shares which are sold by Purchaser pursuant
to the Shareholders Agreement. The term "Third Party Business Combination" means
the occurrence of any of the following events: (A) the Company, or more than 50%
of the outstanding shares of the Company's capital stock, is acquired by merger
or otherwise by any Third Party; or (B) a Third Party acquires all or
substantially all of the total assets of the Company and its subsidiaries, taken
as a whole; provided, however, that in no event will any transaction in which
shares of the Company's capital stock or any of its assets are sold or
transferred directly or indirectly in connection with or as a part of a sale or
other transaction involving sale, merger or other similar transaction of Parent
or any of its material assets or business constitute a Third Party Business
Combination, and in no event will a sale of any division, line of business or
similar unit of the Company and its subsidiaries constitute a Third Party
Business Combination.
In the event that the Company enters into a definitive agreement with a
third party with respect to a Third Party Business Combination (i) intended to
qualify as a "pooling of interests" for accounting purposes and (ii) pursuant to
which holders of Common Stock would be entitled to receive at least $13.00 per
share of Common Stock (a "Qualifying Third Party Business Combination"), then,
Purchaser agrees that, prior to termination of the definitive agreement with
respect to such Qualifying Third Party Business Combination, it shall not
exercise the Purchase Option to the extent that the exercise of the Purchase
Option by Purchaser would prevent such Qualifying Third Party Business
Combination from qualifying as a "pooling of interests" for accounting purposes
(or take any other action the sole purpose of which is to prevent consummation
of such a "pooling of interests" transaction); provided, however, that each
Shareholder that receives any cash or noncash consideration in respect of such
Shareholder's Subject Shares in connection with a Qualifying Third Party
Business Combination shall promptly pay over to Purchaser one-half of the excess
of such consideration over the Merger Consideration.
The Shareholders Agreement also prohibits each Shareholder from soliciting
additional Acquisition Proposals from third parties on behalf of the Company
from engaging in any discussions with third parties regarding any Acquisition
Proposal.
The Shareholders Agreement and all rights and obligations of the parties
thereunder terminate immediately upon the earlier of (i) the date on which the
Purchase Option is no longer exercisable or (ii) the Effective Time.
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THE COMPANY CONFIDENTIALITY LETTER
On November 15, 1999, Parent executed a confidentiality letter in favor of
the Company (the "Company Confidentiality Letter"). Pursuant to the Company
Confidentiality Letter, Parent has agreed, among other things, to keep
confidential certain nonpublic confidential or proprietary information of the
Company furnished to Parent and its representatives by or on behalf of the
Company, including notes, analyses, compilations, studies, interpretations or
other documents prepared by Parent and its representatives which contain,
reflect or are based upon such information ("Evaluation Material"), and to use
the Evaluation Material solely for the purpose of evaluating a possible
transaction with the Company. Parent has further agreed to maintain the
confidentiality of any discussions or negotiations with the Company and, upon
request, to redeliver or destroy all the Evaluation Material. Parent also agreed
that, without the prior written consent of the Company, Parent will not directly
or indirectly enter into any agreement, arrangement or understanding or any
discussions which might lead to an agreement, arrangement or understanding, with
any other person regarding a possible transaction involving the Company for a
period of three years from the date of the Company Confidentiality Letter. The
Company Confidentiality Letter further provides that, for a period of three
years from the date of the Company Confidentiality Letter, without the prior
written consent of the Board, neither Parent nor any of its affiliates or
representative, acting alone or as a part of a group, may acquire or offer to
agree to acquire, directly or indirectly, by purchase or otherwise, any voting
securities (or beneficial ownership thereof) of the Company, or otherwise seek
to influence or control, in any manner whatsoever, the management or policies of
the Company. For a period of two years from the date of the Confidentiality
Letter, neither Parent nor any of its affiliates will solicit to employ any of
the current officers or employees or independent contractors (including medical
directors) of the Company so long as they are employed by the Company, without
obtaining the prior written consent of the Company.
THE PARENT CONFIDENTIALITY LETTER
On December 21, 1999, the Company executed a confidentiality letter in
favor of Parent (the "Parent Confidentiality Letter"). Pursuant to the Parent
Confidentiality Letter, the Company has agreed, among other things, to keep
confidential certain non-public confidential information of Parent ("Parent
Evaluation Material") furnished to the Company and its representatives by or on
behalf of Parent, and to use the Parent Evaluation Material solely for the
purpose of evaluating a possible transaction with Parent. The Company has
further agreed to maintain the confidentiality of any discussions or
negotiations with Parent and, upon request, to redeliver back to Parent all of
the Parent Evaluation Material.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS.
The Board of Directors of the Company (the "Board") has unanimously
approved the Merger Agreement, the Offer and the Merger and deemed them to be
advisable, and has determined that the Offer and the Merger are fair to, and in
the best interests of, the Company's shareholders, and unanimously recommends
that the Company's shareholders accept the Offer and tender their Shares in the
Offer.
A letter to the Company's shareholders communicating the Board's
recommendation and a press release announcing the execution of the Merger
Agreement are filed herein as Exhibits 4 and 5 herein, respectively and are
incorporated herein by this reference.
(B) BACKGROUND; REASONS FOR THE BOARD'S RECOMMENDATION.
In October 1998, Dr. Jerome Tannenbaum, current Chairman of the Board and
Chief Executive Officer of the Parent telephoned Milton J. Wallace, Chairman of
the Board of the Company and scheduled a meeting for November 18, 1998. On
November 18, 1998, Mr. Wallace and Mr. Shea, President and Chief Executive
Officer met with Dr. Tannenbaum, Dr. Jeffrey Hymes, a current director,
President and Chief Medical Officer of Parent, Joseph Cashia, current Executive
Vice President and Chief Operating Officer of Parent, Kenneth Kencel, a current
director of Parent and Managing Director of Indosuez Capital ("Indosuez") and
Mr. Harrison at the Palace Hotel in New York to discuss potential business
opportunities between the
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Company and Parent. At that meeting, Parent inquired whether the Company would
be interested in selling to the Parent. Mr. Wallace advised Parent that he did
not believe the Company's Board would consider a proposal for the purchase of
the Company unless the offer was in the range of $10.00 to $14.00 per share.
During the first week of January 1999, Mr. Shea and Mr. Harrison continued
to discuss a potential transaction in a series of telephone conversations. In
discussions, Mr. Shea and Mr. Harrison determined that the Company's asking
price was significantly greater that the price that Parent was prepared to
offer.
During the last week of January 1999, Dr. Tannenbaum and Mr. Wallace had
several telephone conversations about a potential transaction between the
Company and the Parent. On February 10, 1999 while Mr. Wallace was in New York
on other business, he met with Dr. Tannenbaum and continued to discuss the
possibility of Parent acquiring the Company. At the end of March 1999, Dr.
Tannenbaum contacted Mr. Wallace and they scheduled a meeting in Coral Gables,
Florida. On April 7, 1999, Mr Wallace met with Dr. Tannenbaum at Mr. Wallace's
home in Coral Gables, Florida. They continued to discuss the possibility of
pursuing a friendly transaction between Parent and the Company.
During the months of May and June 1999, Mr. Wallace had several
conversations with Dr. Tannenbaum in which the parties discussed, in general
terms, Parent's continuing interest in the Company.
On May 25, 1999, Mr. Wallace and a representative of the Company's
financial advisor, Prudential Vector Healthcare Group, a unit of Prudential
Securities Incorporated ("Prudential"), met with Dr. Tannenbaum, Mr. Kencel and
Steven Segal, a director of Parent, at the offices of Indosuez in New York. At
the meeting, Parent proposed the possibility of acquiring the Company at the
price of $6.00 per share and entering into shareholder "lock-up" agreements with
the directors and certain executive officers of the Company. The Company
declined to pursue a transaction at that price.
In September 1999, management and the Board of the Company began to
consider strategic alternatives to enhance shareholder value. The Board
discussed various alternatives, including the possible sale of the Company. The
Board instructed management to invite Prudential to make a presentation
regarding a possible sale of the Company, as well as other potential
opportunities which may be available to the Company. A Board meeting was
scheduled for November 8, 1999.
On November 4, 1999, Dr. Tannenbaum called Mr. Wallace to discuss the
Parent's continuing interest in acquiring the Company. Mr. Wallace informed Dr.
Tannenbaum that he would discuss Parent's continued interest in the Company with
its Board at its next scheduled meeting. On November 8, 1999, the Board held a
meeting. At that time, Prudential made a presentation as to the strategic
alternatives available to the Company, including a possible sale. Mr. Wallace
also informed the Board of Directors that he had recently received a renewed
indication of interest from Dr. Tannenbaum on behalf of Parent to acquire the
Company. The Board considered the presentation of Prudential, as well as the
comments of management regarding the Company and the industry and authorized
management of the Company and Prudential to pursue a sale of the Company. The
Board also authorized Prudential and management to contact Parent and advise
them of the Company's intent to proceed with a formal sale process and the
Company's interest in discussing a transaction.
During the second week of November, Prudential contacted Dr. Tannenbaum and
advised Dr. Tannenbaum that the Company had engaged Prudential to represent it
in a possible sale of the Company. Prudential stated that it was authorized to
proceed with a formal process, but that the Company would be prepared to
consider any offer that Parent had with regard to the acquisition of the Company
prior to the time Prudential proceeded with such process.
On November 12, 1999, Dr. Tannenbaum telephoned Mr.. Wallace to set up a
meeting for the following week. On November 15, 1999, Dr. Tannenbaum and other
Parent directors met with Mr. Wallace in Miami, Florida and the parties jointly
decided to continue discussions regarding a transaction. On November 15, 1999,
Parent executed the Company Confidentiality Agreement. The Company
Confidentiality Agreement contained certain limitations on Parent's ability to
pursue transactions involving the Company without the Company's consent. A copy
of the Confidentiality Agreement is attached hereto as Exhibit 2 and is
incorporated herein by this reference. Following the execution of the
Confidentiality Agreement, the Company provided Parent with certain confidential
information relating to the Company.
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On November 16, 1999, Leif Murphy, Executive Vice President and Chief
Financial Officer of Parent, Mr. Cashia and other representatives of the Parent,
as well as attorneys' from Baker, Donaldson, Bearman & Caldwell, counsel to
Parent ("BDBC") met with Mr. Shea, Orestes L. Lugo, the Company's Senior Vice
President/Chief Financial Officer and a representative of Prudential in Miami,
Florida to conduct due diligence.
On November 17, 1999, Dr. Tannenbaum telephoned Mr. Wallace in order to set
up a meeting in Nashville, Tennessee, with the Company, the Parent's Board of
Directors and representatives of Parent's lenders.
On November 18, 1999, Philip McSween of BDBC sent a letter to Mr. Lugo
detailing the Parent's request for additional due diligence materials with
respect to the Company.
Over the following week, the Company supplied Parent with additional
information regarding the Company's operations. On November 18, 1999, Prudential
advised Parent that the commencement of the formal sale process was emminent and
invited Parent to make a specific proposal for the acquisition of the Company.
On November 19, 1999, Parent delivered certain terms for discussion to
Prudential which contained a proposal to acquire all of the outstanding shares
of the Company's common stock for $10.00 per share. The term sheet was subject
to several conditions, including Parent's requirement to obtain financing for
the Offer. The term sheet was communicated to the Company on November 19, 1999.
After reviewing the proposal with Prudential, Mr. Shea advised Prudential that
there were several conditions set forth in the term sheet which were not
acceptable to the Company and to communicate such objections to Parent.
On December 2, 1999, Messrs. Shea and Lugo met with Edward Yun, a director
of Parent, Dr. Tannenbaum, Dr. Hymes and Messrs. Harrison, Murphy, Cashia, Segal
and Kencel and Parent's lenders in Nashville, Tennessee. During the course of
the meeting, Messrs. Shea and Lugo gave a presentation to Parent's
representatives regarding the Company's operations and financial condition.
On December 3, 1999, Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel
to Parent ("KSFHH"), delivered a proposed agreement and plan of merger and a
proposed shareholder lock-up agreement (the "Proposed Agreements") to Prudential
and Wallace, Bauman, Legon, Fodiman & Shannon, P. A., counsel to the Company
("WBLFS"). WBLFS circulated drafts of the Proposed Agreements to the Company's
management. Over the next several days, the Company's management discussed the
Proposed Agreements with WBLFS, Prudential and Prudential's counsel. On December
6, 1999, WBLFS circulated it comments on the Proposed Agreements to the
Company's management, Prudential and Prudential's counsel. After additional
discussion, on December 8, 1999, WBLFS sent the Company's initial comments on
the Proposed Agreements to KSFHH.
On December 9, 1999, WBLFS received a supplemental letter from Christopher
Kelly of BDBC requesting additional due diligence materials. On December 11,
representatives of the Parent and Prudential had several telephone conversations
to discuss significant issues with respect to the proposed transaction. On
December 11, 1999, representatives of the Company, WBLFS, Prudential,
Prudential's counsel, KSFHH and Parent participated in a telephone conference
call to discuss the Proposed Agreements, the Company's comments and the initial
responses from Parent. On December 13, 1999, Messrs. Shea, Lugo and Wallace,
together with representatives of WBLFS, Prudential and Prudential's counsel met
with Dr. Tannenbaum, and Messrs. Yun, Segal, Kencel, Murphy and Cashia and
representatives of KSFHH and BDBC at the offices of WBLFS to discuss the
Proposed Agreements.
Over the next several days, Messrs. Shea and Lugo and WBLFS had several
telephone calls with Dr. Tannenbaum, Messrs. Cashia and Murphy and KSFHH to
discuss the Proposed Agreements. Thereafter, on December 16, 1999, KSFHH
delivered revised versions of the Proposed Agreements to WBLFS. WBLFS circulated
the revised drafts to the Company's management and Prudential. On December 18,
1999, Messrs Shea and Lugo of the Company, WBLFS, and Prudential held several
telephone conversations with Messrs. Yun, Segal, Kencel, Cashia and Murphy and
KSFHH in order to finalize certain terms of the
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Proposed Agreements. On December 18, 1999, WBLFS delivered a markup of the
Proposed Agreements to KSFHH.
During the period from December 16, 1999 through December 27, 1999, the
parties continued to negotiate the terms of the Proposed Agreements and the
Parent and its representatives completed their due diligence inquiry with
respect to the Company. Throughout November and December 1999, management
discussed the Proposed Agreement and the transaction informally with the
Company's Board. On December 27, 1999, Parent submitted final drafts of the
Proposed Agreements and the Company scheduled a Board of Directors meeting to
discuss the Proposed Agreements, the Offer and the Merger.
On December 27, 1999, the Board met to consider Parent's $10.00 per Share
cash offer, the Proposed Agreements, the transactions contemplated thereby and
available alternatives. At the meeting counsel advised the Board of its
fiduciary obligations and explained in detail the provisions of the Proposed
Agreements. Following counsel's presentation, Prudential made a presentation to
the Board regarding the Offer and delivered its opinion to the Board to the
effect that, as of the date of the opinion, the proposed consideration to be
received by the shareholders of the Company pursuant to the Offer was fair to
such shareholders from a financial point of view. The Company's Board
unanimously approved the Proposed Agreements and the contemplated transaction.
Following the Board meeting, early in the morning of December 28, 1999, the
Company, Purchaser and Parent signed the Merger Agreement. The transaction was
announced prior to the opening of the Nasdaq National Market on December 28,
1999. Concurrently with the execution of the Merger Agreement, each of the
Company's directors and executive officers executed a Shareholder Agreement with
the Purchaser and Parent.
REASONS FOR THE BOARD'S CONCLUSIONS.
In making its determination and recommendation to the Company's
stockholders with respect to the Offer, the Board of Directors considered a
number of factors. Such factors included, without limitation, the following:
(a) The Board's familiarity with, and information provided by
management, as to the financial condition, results of operations, business,
management, and prospects of the Company, as well as the risks in achieving
those prospects and objectives in the Company's industry, the nature of the
industry and the Company's position in its industry;
(b) The presentation by Prudential at the December 27, 1999 Board
meeting and the written opinion of Prudential that, as of that date, the
consideration to be received by the holders of the Shares was fair to such
holders from a financial point of view. The full text of the written
opinion of Prudential, dated December 27, 1999, which sets forth the
limitations on review undertaken, assumptions made and matters considered,
is attached hereto as Exhibit 6 and is incorporated by reference. The
opinion of Prudential referred to herein does not constitute a
recommendation as to whether or not any holder of Shares should tender such
Shares in connection with the Offer. All shareholders are urged to, and
should, read the opinion of Prudential carefully in its entirety.
(c) The terms and conditions of the Merger Agreement, including (A)
the proposed structure of the Offer and the Merger involving an immediate
cash tender offer followed by a merger for the same consideration and (B)
the fact that the Offer is subject to a minimum tender condition providing
that at least a majority of the outstanding Shares on a fully diluted basis
be tendered, which minimum tender condition cannot be waived by Purchaser
or Parent without the Company's consent;
(d) The advice of counsel concerning certain antitrust issues relating
to the Offer and the Merger;
(e) The relationship of the price to be received by the shareholders
in the Offer and the Merger to current and historical market prices for the
Shares. The Board concluded that, based on the past performance of the
price of the Shares, the competitive nature of the industry, the near-term
growth and profitability potential of the Company and the uncertainty of
future health care reform legislation, it was
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uncertain that a price of $10.00 per Share would be achieved in the near
future and that the Offer was thus an attractive opportunity for the
shareholders;
(f) The fact that the Merger Agreement allows the Company, in the
exercise of the fiduciary duties of the Board on the basis of advice of
counsel, to respond to unsolicited inquiries or expressions of interest by
participating in discussions with, or providing information to, third
parties in connection with an acquisition proposal which is a Superior
Proposal and the fact that the Merger Agreement further provides that the
Board may, in the exercise of its fiduciary duties on the basis of advice
of counsel, withdraw or amend its recommendation, accept a Superior
Proposal and may terminate the Merger Agreement and pay a termination fee
of $2,000,000;
(g) The fact that if Parent or Purchaser terminates the Merger
Agreement pursuant to its terms because of a withdrawal or amendment of the
Board's recommendation of the transactions contemplated by the Merger
Agreement, the Company will only be liable for $2.0 million; and
(h) The likelihood that the transaction would be consummated,
including the conditions to the Offer, the strength of the financing
available to the Parent and Purchaser, and the fact that, if the Parent is
unable to consummate the financing as a result of actions or omissions
within its reasonable control, Parent will pay to the Company $2.0 million
as liquidated damages; and
(i) A consideration of alternatives to the sale of the Company to the
Parent and Purchaser, including without limitation, continuing to operate
the Company as a public company and not engaging in any extraordinary
transaction.
The foregoing discussion addresses the material information and factors
considered by the Board in its consideration of the Offer. In view of the
variety of factors and the amount of information considered, the Board did not
find it practicable to provide specific assessments of, quantify, or otherwise
assign relative weights to the specific factors considered in reaching its
determination. The determination to recommend that shareholders accept the Offer
was made after consideration of all of the factors taken as a whole. Individual
members of the Board may have given different weights to different factors.
ITEM 5. PERSONS, RETAINED, EMPLOYED OR TO BE COMPENSATED
Prudential is acting as financial advisor to the Company in connection with
the Offer and other matters arising in connection therewith. Pursuant to an
engagement letter dated November 19, 1997, as amended (the "Engagement Letter"),
the Company retained Vector Securities International, Inc., the predecessor to
Prudential Vector Healthcare Group, as its financial advisor with respect to
acquisitions, divestitures or other strategic alternatives related to the
Company. The Engagement Letter provided that the Company pay to Prudential a fee
equal to the sum of 5.0% of the first $20 million, 4.0% of the next $10 million,
3.0% of the next $10 million; 2.0% of the next $10 million and 1.0% of the
balance of the consideration received by the shareholders of the Company in the
Offer and Merger, subject to the consummation thereof. For purposes of the
foregoing, the Engagement Letter defines consideration as including, among other
things, cash received by shareholders from, and indebtedness that is repaid or
is assumed by, a purchaser of the Company. The Company also agreed to pay to
Prudential the sum of $350,000 in connection with the rendering of the fairness
opinion referred to in Item 4 and filed as Exhibit 6 hereto. The fee for the
fairness opinion will be credited against the fees otherwise payable to
Prudential. In addition, the Company has agreed to reimburse Prudential for its
reasonable out-of-pocket expenses (other than legal expenses associated with
this transaction not specifically related to the issuance of the fairness
opinion) and to indemnify Prudential against certain liabilities.
In the ordinary course of business, Prudential and its affiliates may
actively trade or hold the Company's Shares for its own account or for the
account of its customers and accordingly, may at any time hold a long or short
position in such Shares. Vector Securities International, Inc. served as the
Company's managing underwriter in its initial public offering in October 1997.
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Except as otherwise described herein, neither the Company nor any person
acting on its behalf has, or currently intends to, employ, retain or compensate
any person to make solicitations or recommendations to the holders of Shares
with respect to the Offer or the Merger
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the best of the Company's knowledge, no transactions in Shares have
been effected during the last 60 days by the Company or any executive officer,
director, affiliate or subsidiary of the Company.
(b) Each director and executive officer of the Company has entered into a
Shareholders' Agreement with the Purchaser whereby they have each agreed to
tender pursuant to the Offer all Shares owned of record by them. The form of the
Shareholders' Agreement is attached hereto as Exhibit 8.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY
(a) Other than as set forth in Items 3, 4 or 6 of this Schedule 14D-9, no
negotiation is being undertaken or is underway by the Company in response to the
Offer which relates to or would result in (i) an extraordinary transaction, such
as a merger or reorganization, involving the Company or any subsidiary of the
Company; (ii) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company; (iii) a tender offer for or other
acquisition of securities by or of the Company; or (iv) any material change in
the present capitalization or dividend policy of the Company.
(b) Other than as set forth in Items 3, 4 or 6 of this Schedule 14D-9,
there are no transactions, board resolutions, agreements in principle or a
signed contract in response to the Offer which relate to and would result in one
or more of the matters referred to in Item 7(a) of this Schedule 14D-9
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
(a) In connection with the execution of the Merger Agreement, the Company's
Board of Directors authorized an amendment (the "Rights Amendment") to the
Rights Agreement. The Rights Amendment prevents Parent and Purchaser from
becoming an Acquiring Person or an Adverse Person (each as defined in the Rights
Agreement) so long as the Merger Agreement has not been terminated and prevents
a Stock Acquisition Date or Distribution Date (each as defined in the Rights
Agreement) from occurring, in each case as a result of the Offer or other
transactions contemplated by the Merger Agreement. A copy of the Rights
Amendment is filed as Exhibit 7 hereto and is incorporated herein by reference.
(b) As a Florida corporation, the Company is subject to Sections 607.0901
and 607.0902 of the Florida Business Corporations Act ("Florida Law"). Section
607.0901 of the Florida Law provides that certain "business combinations"
(defined to include mergers and consolidations) require the approval of the
holders of at least two-thirds of the voting shares of the corporation, other
than shares owned by an "interested shareholder," in order to effect such
business combination. An "interested shareholder" is defined as a beneficial
owner of 10% or more of the outstanding voting securities of the corporation.
Such two-thirds majority approval is not required where the business combination
is approved by a majority of the disinterested directors of the corporation.
Section 607.0902 of the Florida Law, the Control Share Statute, provides
that acquisitions of "control shares" of certain corporations, 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). The Control Share Statute is triggered by
acquisitions that, when added to all other shares which a person owns or has the
power to vote, would give that person certain thresholds of voting power,
beginning at 20% of the voting power of the corporation. The Control Share
Statute does not apply to limit the exercise of voting power in a control share
acquisition if the board of directors of the corporation approve the acquisition
of the control shares prior to such acquisition.
In accordance with the Merger Agreement and Sections 607.0901 and 607.0902,
at its meeting on December 28, 1999, the Board unanimously approved the Offer
and the Merger and determined to make the
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restrictions of Sections 607.0901 and 607.0902 inapplicable to the Offer, the
Merger and any purchases of Shares by Purchaser following the acquisition of
Shares pursuant to the Offer.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1 -- Agreement and Plan of Merger, dated December 28, 1999 among
National Nephrology Associates, Inc., a Delaware
corporation, RC Acquisition Corp., a Florida corporation and
Renex Corp., a Florida corporation.
Exhibit 2 -- Confidentiality letter dated November 15, 1999 between
National Nephrology Associates, Inc,. and Renex Corp.
Exhibit 3 -- Confidentiality letter dated December 21, 1999 between
National Nephrology Associates, Inc,. and Renex Corp.
Exhibit 4 -- Form of Letter to Shareholders of Renex Corp. dated December
30, 1999
Exhibit 5 -- Form of Press Release issued by Renex Corp. and National
Nephrology Associates, Inc. on December 28, 1999
Exhibit 6 -- Opinion of Prudential Securities, Incorporated dated
December 27, 1999
Exhibit 7 -- Amendment dated as of December 28, 1999 to the Rights
Agreement, between Renex Corp, and Continental Stock
transfer and Trust Company, as Rights Agent
Exhibit 8 -- Shareholders Agreement between each of the Company's
executive officers and directors and National Nephrology
Associates, Inc., a Delaware corporation and RC Acquisition
Corp., a Florida corporation
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
RENEX CORP., a Florida corporation
By: /s/ JAMES P. SHEA
------------------------------------
James P. Shea
President and Chief Executive
Officer
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ANNEX I
RENEX CORP.
201 ALHAMBRA CIRCLE, SUITE 800
CORAL GABLES, FLORIDA 33134
---------------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
---------------------------------
This Information Statement is being mailed on or about December , 1999 as
part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") to the holders of record of the Shares at the close of
business on December 29, 1999. You are receiving this Information Statement in
connection with the possible election of persons designated by the Purchaser to
a majority of the seats on the Board of Directors of the Company (the "Board").
The Merger Agreement requires the Company, at the request of the Purchaser, to
take all action necessary to cause the Purchaser's designees (the "Purchaser
Designees") to be elected to the Board under the circumstances described
therein. This Information Statement is required by Section 14(f) of the Exchange
Act and Rule l4f-1 thereunder. See "Board of Directors -- Right to Designate
Directors; The Purchaser Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
December 30, 1999. The Offer is scheduled to expire at 12:00 midnight on January
28, 2000, New York City time unless otherwise extended, at which time, if all
conditions of the Offer have been satisfied or waived, the Purchaser has
informed the Company that it intends to purchase all Shares validly tendered
pursuant to the Offer and not withdrawn.
The information contained in this Information Statement concerning the
Purchaser and Parent has been furnished to the Company by Parent, and the
Company assumes no responsibility for the accuracy or completeness of such
information.
BOARD OF DIRECTORS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of December 29, 1999, there were
6,926,901 Shares outstanding. The Board currently consists of 9 members
currently divided into three classes, which have three year terms that expire in
successive years. Each director holds office until such director's successor is
elected and qualified or until such director's earlier resignation or removal.
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES
Pursuant to the Merger Agreement, upon consummation of the Offer, the
Purchaser will be entitled to designate up to such number of directors (the
"Purchaser Designees") rounded up to the next whole number on the Board that
equals the product of (i) the total number of directors on the Board (giving
effect to the election of any additional directors pursuant to this sentence)
and (ii) the percentage that the number of shares owned by Parent and Purchaser
(including Shares accepted for payment) bears to the total number of
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Shares outstanding and the Company shall take all action necessary to cause
Purchaser's Designees to be so elected, including without limitation increasing
the number of directors and seeking and accepting resignations of incumbent
directors.
The Purchaser has informed the Company that it will choose the Purchaser
Designees from the directors and executive officers listed in Schedule I to the
Offer to Purchase, a copy of which is being mailed to stockholders together with
this Schedule 14D-9. The information on such Schedule I is incorporated herein
by reference.
It is expected that the Purchaser Designees may assume office at any time
following the purchase by the Purchaser of a specified minimum number of Shares
pursuant to the Offer, which purchase cannot be earlier than January 28, 2000,
and that, upon assuming office, the Purchaser Designees will thereafter
constitute at least a majority of the Board. This step will be accomplished at a
meeting or by written consent of the Board providing that the size of the Board
will be increased and/or sufficient numbers of current directors will resign to
enable the Purchaser Designees to be elected to the Board. It is not currently
known which, if any, current directors of the Company will resign. The Purchaser
has informed the Company that each of the directors and executive officers
listed in Schedule I to the Offer to Purchase has consented to act as a
director, if so designated.
DIRECTORS AND OFFICERS OF THE COMPANY
The names of the current directors and executive officers, their ages as of
December 28, 1999 and certain other information about them are set forth below.
As indicated above, some of the current directors may resign effective
immediately following the purchase of the Shares by Purchaser pursuant to the
Offer.
NAME AGE POSITION
---- --- --------
Milton J. Wallace(1)................ 64 Chairman of the Board
Arthur G. Shapiro, M.D.(1).......... 60 Vice Chairman of the Board, Director of Medical Affairs
James P. Shea(1).................... 58 President, Chief Executive Officer, Director
Senior Vice President -- Finance, Chief Financial
Orestes L. Lugo..................... 41 Officer
Patsy L. Anders..................... 55 Vice President -- Business Development
Mignon B. Early..................... 36 Vice President -- Operations
Jeffery C. Finch.................... 38 Vice President
Eugene P. Conese, Sr.(2)............ 69 Director
C. David Finch, M.D................. 40 Director
John E. Hunt, Sr.(2)................ 81 Director
Charles J. Simons(2)(3)............. 81 Director
Mark D. Wallace(3).................. 31 Director, Secretary
Jeffrey H. Watson(3)................ 41 Director
- ---------------
(1) Member of Executive Committee.
(2) Member of the Compensation and Stock Option Committee.
(3) Member of the Audit Committee.
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 2000, 2001 and 2002,
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.
Milton J. Wallace. Mr. 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
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30 years, and is currently a shareholder in the law firm of Wallace, Bauman,
Legon, 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 when Home
Intensive Care, Inc. was acquired by W.R. Grace & Co. Mr. Wallace is Chairman of
the Board of Med/Waste, Inc., a provider of medical waste management services
and a director of Imperial Industries, Inc., a provider of construction
materials. He is a director of several private companies. Mr. Wallace is a
member of the Executive Committee. Mr. Wallace is the father of Mark D. Wallace,
a Director of the Company.
Arthur G. Shapiro, M.D. Dr. Shapiro 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 is a Director of Med/Waste, Inc. and several private companies. Dr.
Shapiro is Chairman of the Executive Committee.
James P. Shea. Mr. Shea has been President and Chief Executive Officer of
the Company since August 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 National Medical Care, Inc., a kidney
dialysis and infusion therapy provider, which is now owned by Fresenius Medical
Care AG. Mr. Shea is a member of the Company's Executive Committee.
Orestes L. Lugo. Mr. Lugo has served as the Company's Senior 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. Ms. 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. Ms. Early 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. Mr. 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.
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Eugene P. Conese, Sr. Since September 1997, Mr. Conese has been Chairman
of the Board of World Air Lease, Inc. and serves as consultant to General
Electric Company's Engine Services division. From 1987 until September 1997, he
served as 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 which he founded in 1977. Greenwich Air Services, Inc.
was acquired by General Electric Company in September 1997. Mr. Conese was the
founder of The Greenwich Company, Ltd. and served as its Chairman of the Board
and Chief Executive Officer from August 1980 until 1995, when it merged with
Greenwich Air Services, Inc. Mr. Conese is a Director of Trans World Airlines,
Inc., a member of the Board of Trustees of Iona College and of the Board of the
Conese Foundation and the Jackson Memorial Foundation. Mr. Conese is Chairman of
the Company's Compensation and Stock Option Committee.
C. David Finch, M.D. Dr. Finch 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. 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. Mr. Hunt is a member of the Compensation and
Stock Option Committee.
Charles J. Simons. Mr. Simons is the Vice 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 Bessemer Trust of Florida, an investment management
firm; Med/Waste, Inc., and Viragen, Inc., a pharmaceutical company; and a number
of private companies. Mr. Simons is the Chairman of the Board of the Matthew
Thornton Health Plan. Mr. Simons is chairman of the Company's Audit Committee
and a member of the Compensation and Stock Option Committee.
Mark D. Wallace. Mr. Wallace has been Secretary 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, Anderson, Harris & Wallace, P.A. Mr. Wallace is the son of Milton J.
Wallace, Chairman of the Board of the Company. Mr. Wallace is also a member of
the Audit Committee.
Jeffrey H. Watson. Mr. Watson has been Chairman of the Board and President
of J. Watson & Co., a government relations and business consulting firm since
December 1995. 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. Mr. Watson is a member of the Company's Audit Committee.
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BOARD MEETINGS, COMMITTEES AND COMPENSATION
Board Attendance: The Board of Directors met five (5) times in 1998. In
addition, the Board of Directors took action by unanimous written consent once
during 1998. Every director attended in excess of 75% of meetings of the Board
during 1998.
Executive Committee: The Executive Committee is composed of Dr. Shapiro as
Chairman and Messrs. Wallace and Shea. When the Board of Directors is not in
session, the Executive Committee possesses all of the powers of the Board, other
than certain powers reserved by Florida law to the Board. Although the Executive
Committee has broad powers, in practice it takes formal action in a specific
matter only when it would be impractical to call a meeting of the Board. The
Executive Committee met three (3) times during 1998. All members of the
Executive Committee attended 100% of such meetings
Compensation and Stock Option Committee: The Compensation and Stock Option
Committee, composed of Messrs. Conese, as Chairman, Hunt and Simons met five (5)
times during 1998. Every member attended in excess of 75% of such meetings. The
Compensation Committee reviews the Company's general compensation policies and
procedures; establishes salaries and benefit programs for the Chief Executive
Officer and other executive officers of the Company and its subsidiaries;
reviews, approves and establishes performance targets and awards under incentive
compensation plans for its executive officers; and reviews and approves
employment agreements. The Compensation and Stock Option Committee also
administers the Company's Employee Stock Option Plan and has the authority to
determine, among other things, to whom to grant options, the amount of options,
the terms of options and the exercise prices thereof.
Audit Committee: The Audit Committee is presently composed of Charles J.
Simons, as Chairman, Mark D. Wallace and Jeffrey Watson. Mark D. Wallace was
appointed to the Audit Committee on October 1, 1998. The Audit Committee met
four (4) times during 1998. Every member attended in excess of 75% of such
meetings while such directors were members of the Audit Committee. The principal
duties of the Audit Committee are to recommend the appointment of independent
auditors; meet with the Company's independent auditors to review the
arrangements for, and scope of, the audit by the independent auditors and the
fees related to such work; review the independence of the independent auditors;
consider the adequacy of the system of internal accounting controls; review and
monitor the Company's policies regarding conflicts of interest; and discuss with
management and the independent accountants the Company's annual financial
statements.
Directors' Compensation: Directors who are officers or employees of the
Company receive no additional compensation for their service as members of the
Board of Directors. Non-employee directors receive an annual retainer of $5,000;
$500 per board meeting attended; and $500 for each committee meeting attended.
Charles J. Simons receives annual compensation of $15,000 for service as
chairman of the Audit Committee. Directors are also reimbursed for expenses
which may be incurred by them in connection with the business and affairs of the
Company. Non-employee directors also receive annual grants of options under the
Directors Stock Option Plan ("Directors Plan") described below. See
"Compensation -- Directors Stock Option Plan."
Compensation Committee Interlocks and Insider Participation: None of the
members of the Board's Compensation and Stock Option Committee is, or has been,
an officer or employee of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
The Company's officers and directors are required to file Forms 3, 4 and 5
with the Securities and Exchange Commission in accordance with Section 16(a) of
the Securities and Exchange Act of 1934, as amended and the rules and
regulations promulgated thereunder. Based solely on a review of such reports
furnished to the Company as required by Rule 16(a)-3, no director or executive
officer failed to timely file such reports in 1998.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
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 two years ended December 31, 1997 and 1998 who received compensation in
excess of $100,000 for any such periods (the "Named Executive Officers").
LONG TERM
COMPENSATION
AWARD
------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION OPTIONS(#)
--------------------------- ---- --------- -------- ------------ ------------
James P. Shea......................................... 1998 $205,200 $190,000 $ 12,540 92,176
President and CEO................................... 1997 128,465 -- $ 8,630 33,334
Orestes L. Lugo....................................... 1998 $167,400 $124,000 $ 10,800 25,235
V.P. Finance and CFO................................ 1997 114,617 -- 7,110 26,667
Milton J. Wallace..................................... 1998 $ 73,077 $100,000 $ 7,940 54,255
Chairman of the Board............................... 1997 -- -- -- 1,667
Patsy L. Anders....................................... 1998 $ 97,200 $ 41,985 $ 8,004 8,000
V. P. Business Development.......................... 1997 70,769 8,600 5,400 20,000
Mignon B. Early....................................... 1998 $ 93,846 $ 38,000 $ -- 8,000
V. P. Operations.................................... 1997 77,580 12,000 -- 20,000
- ---------------
(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 $50,000 or 10% of
his total annual salary and bonus for such year.
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table sets forth information concerning grants of stock
options to the CEO and each other Named Executive Officer named on the Summary
Compensation Table above, for the year ended December 31, 1998:
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATE OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR OPTION
UNDERLYING EMPLOYEES OR BASE TERM($)(4)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) YEAR(3) ($/SHARE) DATE 5% 10%
- ---- ---------------- ---------- ---------- ---------- -------- --------
James P. Shea(2)................................. 16,176 5.0% $ 7.19 2/25/00 $12,000 $24,400
16,000 5.0 6.00 4/22/03 26,600 58,600
60,000 18.6 5.63 12/4/03 93,600 206,400
Orestes L. Lugo(2)............................... 13,235 4.1% $ 7.19 2/25/00 $ 9,800 $20,000
12,000 3.7 6.00 4/22/03 19,900 43,900
Milton J. Wallace(2)............................. 12,255 3.8% $ 7.19 2/25/00 $ 9,100 $18,500
12,000 3.7 6.00 4/22/03 19,900 43,900
30,000 9.3 5.63 12/4/03 46,800 103,200
Patsy L. Anders.................................. 8,000 2.5% $ 6.00 4/22/03 $13,300 $29,300
Mignon B. Early.................................. 8,000 2.5% $ 6.00 4/22/03 $13,300 $29,300
- ---------------
(1) All such options were granted pursuant to the 1994 Employee Stock Option
Plan. Unless otherwise noted all Options 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.
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(2) Options vest 100% immediately but are not exercisable for six months
following grant.
(3) Based on an aggregate of 321,931 options granted to employees in 1998,
including the Named Executive Officers.
(4) 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.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain aggregated option information for
the CEO and each Named Executive Officer named in the Summary Compensation Table
for the year ended December 31, 1998:
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS(#) IN-THE-MONEY OPTIONS(2)
--------------------------- ---------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------- ----------- ------------- ----------- -------------
James P. Shea.................................... 98,845 60,000 $62,600 $97,200
Orestes L. Lugo.................................. 71,903 -- 40,800 --
Milton J. Wallace................................ 45,091 30,000 39,700 48,600
Patsy L. Anders.................................. 29,500 18,500 24,400 10,600
Mignon B. Early.................................. 19,084 17,250 11,400 9,100
- ---------------
(1) No options were exercised by the above Named Executive Officers during the
fiscal year ended December 31, 1998.
(2) The value of unexercised options represents the difference between the
exercise price of the options and the closing sales price of the Company's
Common Stock on December 31, 1998 of $7.25 as reported by NASDAQ/NMS.
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 terms of
these agreements were amended to five years for Mr. Shea and three years for Mr.
Lugo. In January 1998, the Company entered into a five year employment agreement
with Milton J. Wallace, the Company's Chairman of the Board. The employment
agreements initially provided for base salaries of $190,000, $155,000 and
$100,000 for Messrs. Shea, Lugo and Wallace, respectively. Mr. Wallace's base
salary commenced April 1998. Base salary for each officer is increased on each
anniversary date of each agreement 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. The employment agreements for
Messrs. Wallace and Shea are automatically renewed for five years at the end of
the initial term and each extended term, unless either party provides notice of
termination at least 180 days prior to the expiration of such term. Mr. Lugo's
employment agreement is automatically renewed for three years at the end of the
initial term and each extended term, unless either party provides notice of
termination at least 120 days prior to the expiration of such term.
Messrs. Shea, Lugo and Wallace 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 each fiscal year which
would provide a means for each officer to earn a bonus upon the achievement of
established goals and criteria. The respective employment agreements grant to
each of Messrs. Shea, Lugo and Wallace the right to terminate his employment
agreement within eighteen months 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 and three times the bonus amount paid in the last 12
months had it not been terminated; or (ii) $500,000. Such change of control
severance is payable 100% in cash on the effective date of such termination.
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If Messrs. Shea, Lugo or Wallace is terminated without cause during the term of
their respective agreements, such officer will be entitled to the same severance
mentioned above for a "change of control".
In April 1997, the Company entered into a two year employment agreement
with Patsy L. Anders, Vice President -- Business Development. The agreement
initially provided for a base salary of $90,000 per year. Base salary is
increased on the anniversary of each year during the term by a minimum of 6%.
Ms. Anders receives an automobile allowance and certain other non-cash benefits,
including life, health and disability insurance. Ms. Anders, upon the
achievement of established goals and criteria, is entitled to receive a bonus in
each fiscal year during the term of the agreement. Such agreement requires the
Board of Directors to establish an incentive bonus plan for each fiscal year.
Her employment agreement is automatically renewed for two years at the end of
the initial term and each extended term, unless either party provides written
notice of termination at least 120 days prior to the expiration of such term.
If Ms. Anders is terminated without cause prior to a "change of control,"
she will be entitled to severance equal to the greater of the remaining base
salary due under the agreement or one year's base salary. If Ms. Anders is
terminated without cause following a "change of control," she will be entitled
to severance equal to the greater of (i) two times the remaining base salary
which would have been paid for the remainder of the term of the agreement or
(ii) two times the sum of one year's base salary then in effect, and any and all
bonuses paid to Ms. Anders in the eighteen months prior to the effective date of
termination. Ms. Anders' employment agreement grants her the right to terminate
the agreement within 180 days following a "change of control," and entitles her
to the same severance as mentioned above under termination without a cause
following a "change of control." Such "change of control" severance is payable
50% in cash on the effective date of such termination, with the balance payable
over a twelve month period.
In March 1997, the Company entered into a three year employment agreement
with Mignon B. Early, Vice President -- Operations. The agreement initially
provided for a base salary of $80,000 and certain other non-cash benefits,
including life, health and disability insurance. Ms. Early is entitled to
receive a bonus in each fiscal year during the term of her agreement. Such
agreement requires the Board or Directors to establish an incentive bonus plan
for each fiscal year which would provide a means for her to earn a bonus up to
50% of her respective base salary upon the achievement of established goals and
criteria.
If Ms. Early is terminated without cause prior to a "change of control,"
she will be entitled to severance equal to the base salary accrued through the
effective date of termination and six months base salary. If Ms. Early is
terminated without cause following a "change of control," she will be entitled
to severance equal to all accrued base salary through the date of termination
and one year's base salary. In April 1998, Ms. Early's base annual salary was
increased to $100,000. In November 1999, Ms. Early's base annual salary was
increased to $118,000.
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
The Company maintains 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
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performance and to attract and retain qualified personnel. Subject to certain
anti-dilution provisions, the Employee Plan consists of 1,000,000 shares of
Common Stock reserved for issuance upon the exercise of options which may be
granted, including 877,514 shares subject to outstanding options as of December
27, 1999.
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 unvested
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 than one year, the expiration date is
extended to one year from the date of issuance of the reload options.
As of December 27, 1999, options to purchase a total of 877,514 shares of
Common Stock, with a weighted average exercise price of $5.89 have been granted
to executive officers and other employees of the Company. Each option granted
has a term of five years. Options granted to Messrs. Shea, Lugo and Wallace and
Dr. Shapiro are vested 100%. For all other officers and employees, options vest
25% at the end of six months and 25% on each anniversary of such grant until
100% are vested. Options are not exercisable until six months after the date of
grant.
Director Plan
The Company maintains a Director Stock Option Plan (the "Director 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 Director Plan, including 54,548 shares subject to
outstanding options. All non-employee directors are eligible to receive grants
of options ("Eligible Director"). Each Eligible Director receives automatic,
non-discretionary grants of options based upon specific criteria set forth in
the Director Plan. Prior to October 1998, on April 27 of each year, each
Eligible Director received 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. In October 1998, the Board of Directors authorized an
amendment to the Director Plan providing for a special grant of options based on
the formula of annual grants on October 1, 1998. In addition, commencing April
27, 1999, annual option grants are double the amount of options granted in April
1998.
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32
The exercise price of each option granted under the Director 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 Director 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 Director 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 December 27, 1999, options to purchase 54,548 shares of Common Stock,
with a weighted average exercise price of $5.86 per share, have been
automatically granted to Eligible Directors as a group and remain outstanding.
401(K) PLAN
In 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 ($10,000 in 1998). The Company matches 25% of the
contributions of employees up to 4% of each employee's salary. All employees who
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.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee, and the Stock
Performance Graph included elsewhere in this Information Statement do not
constitute soliciting material and should not be deemed filed or incorporated by
reference into any other Company filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates this Report in the Stock Performance Graph by reference therein.
The Company's executive compensation program is administered by the
Compensation and Stock Option Committee (the "Compensation Committee") of the
Company's Board of Directors. The Compensation Committee is comprised entirely
of outside, non-employee directors, whose role is to review and approve salaries
and other compensation of the executive officers of the Company. The
Compensation Committee also reviews and approves various other Company
compensation policies and matters and administers the Company's Employee Stock
Option Plan, including the review and approval of stock option grants to the
executive officers of the Company.
COMPENSATION POLICIES APPLICABLE TO EXECUTIVE OFFICERS
The primary goal of the Compensation Committee is to establish a
relationship between executive compensation and the creation of shareholder
value, while motivating and retaining key employees. The Company's compensation
program for executives consists of two key components:
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- Cash compensation, consisting of (a) a base salary and (b) annual
incentive compensation based principally on targeted profitability
of the Company; and
- Long-term incentive compensation through the periodic grant of stock
options. The grants are made based upon achieving certain
predetermined long term corporate goals.
In order to assist the Compensation Committee in its responsibility, the
Compensation Committee commissioned studies by an expert outside independent
consultant to provide surveys of companies in the same general business segment,
revenue and employee size, related to base salary, annual incentive cash
compensation payments and long-term incentive option grants. In this survey, the
Company's key executives were matched on a "best fit" basis to the key
executives of the surveyed companies. The Compensation Committee also reviewed
the recommendations of the outside consultant as part of its deliberation in
overall compensation matters.
The Company believes that this approach best serves the interests of the
Company and its shareholders. The base salary enables the Company to meet the
requirements of the highly competitive industry environment, while ensuring that
executive officers are compensated in a way that advances both the short and
long term interests of shareholders. Cash bonuses are intended to reward
executive officers for meeting or exceeding current year corporate performance
goals, as measured by financial results of the Company. Long-term incentives
consist of grants of stock options based on the current corporate long-term
goals as established by the Board of Directors.
BASE SALARY
The Compensation Committee is responsible for establishing base salaries
for the Company's executive officers, as well as changes in such salaries (other
than as required by contracts), based upon the recommendation of the Chief
Executive Officer. The Compensation Committee considers such factors as
competitive industry salaries; a subjective assessment of the nature of the
position; the contributions and experience of such officer and the length of the
officers' service with the Company.
PERFORMANCE-BASED CASH COMPENSATION
The Compensation Committee believes that a significant portion of the total
cash compensation for its executive officers should be based upon the Company's
achievement of specific performance criteria, and in particular the Company's
earnings. Annual cash bonuses are paid through a Management Incentive Bonus Plan
("MIBP") adopted by the Compensation Committee prior to the commencement of each
fiscal year. The purpose of the MIBP is to motivate and reward eligible
employees for good performance for the year by making a major portion of their
cash compensation dependent on overall corporate profitability.
Pursuant to the terms of the MIBP, the Compensation Committee establishes
an annual minimum corporate profit target, below which no bonus will be paid.
Using a predetermined formula, additional higher corporate profittiers are also
established. Upon the attainment of the minimum corporate profit target, each
eligible officer receives a cash bonus equal to a percentage of base salary. The
percentage of base salary earned increases as higher corporate profit tiers are
achieved. The maximum percentage of base salary that can be earned as a cash
bonus is established by the Compensation Committee for each executive officer,
with maximum bonuses ranging from 50% for vice presidents to 100% for the Chief
Executive Officer. The Compensation Committee awarded at or near the maximum
cash bonus available to each of the Company's executive officers based on the
MIBP adopted for the fiscal year ended 1998.
STOCK OPTIONS
Stock options are granted by the Company to aid in the hiring of new
employees and to reward key employees as a long-term incentive reward based upon
the Company's achieving certain current corporate long-term goals as established
by the Board of Directors. Stock options have value only if the price of the
Company's stock increases above the fair market value on the grant date and the
employee remains in the Company's employ until the stock options become
exercisable.
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The Company has a 1994 Employee Stock Option Plan (the "Employee Plan") for
executive officers and other employees. The Employee Plan is generally used for
making grants to executive officers and other employees as part of the Company's
performance review. Stock option grants may be made to executive officers upon
initial employment, upon promotion to a new, higher level position that entails
increased responsibility, in connection with the execution of a new employment
agreement or as further incentive to such executive officers. Annual stock
option grants for executives are a key element of a market competitive total
compensation package. In determining the number of stock options to be granted,
the Compensation Committee receives recommendations from the Chief Executive
Officer, as well as its outside independent consultants, and then reviews the
current option holdings of the executive officers; their positions and length of
service with the Company and subjective criteria on their contribution in
realizing certain current long-term goals of the Company. It then determines the
number of options to be granted based upon the principle of rewarding
performance and providing continuing incentives to contribute to stockholder
value. Using these guidelines, the Compensation Committee granted options in
1998 to all executive officers and certain supervisory employees in varying
amounts. Options generally vest over a three year period. Stock options under
the Employee Plan are granted at a price equal to the fair market value of the
common stock on the date of grant.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee's basis for compensation of the Chief Executive
Officer is based on the philosophy discussed above. James P. Shea has been the
Company's President and Chief Executive Officer since August 1993. In
recognition of his service and commitment to the past and future success of the
Company and to secure his services for the future, the Company entered into an
employment agreement in April 1997 which provided for a base salary of $190,000
and minimum annual increases. The term of the employment agreement was extended
to five (5) years in recognition of the Company's performance. In establishing
the Chief Executive Officer's base salary, the Compensation Committee reviewed
salaries of the chief executive officers of comparable companies within its
industry, as well as other industries, and Mr. Shea's responsibilities within
the Company. Factors taken into consideration included a subjective evaluation
of Mr. Shea's performance, changes in the cost of living, competitors' size and
performance and the Company's achievements.
Mr. Shea's employment agreement provides for the right to earn annual cash
bonuses of up to 100% of his base salary in effect at the beginning of the
fiscal year. Such bonus awards are based upon incentive bonus criteria
established by the Compensation Committee in each fiscal year in its discretion.
Mr. Shea participated in the MIBP for the fiscal year ended 1998. Under the
MIBP, Mr. Shea's actual cash bonus for 1998 was $190,000, 100% of his base
salary in effect on January 1, 1998. Such cash bonus was the maximum cash bonus
permitted under his MIBP.
In 1998, the Compensation Committee awarded Mr. Shea options to purchase
92,176 shares of common stock. These options are vested 100% and become
exercisable six months following the respective dates of grant. All such options
expire at the end of five (5) years following the dates of grant, if not
exercised.
EXECUTIVE SEVERANCE PACKAGES
In response to the increase in merger and acquisition activities in recent
years within the industry and to provide the Company's executive officers with
further incentive to remain with the Company, the Compensation Committee in 1997
granted executive severance packages to the Company's executive officers,
including the Chief Executive Officer, protecting them in the event of a change
of control of the Company. These severance packages are contained in the
executive officers' respective employment agreements. The Compensation Committee
reviewed executive severance packages granted by those companies whose
compensation practices were examined in connection with determining executive
officer salaries as described above. The Compensation Committee then determined
to grant the executive officers severance packages in varying amounts depending
on their relative position with the Company. The severance packages for the
Chief Executive Officer and the Chief Financial Officer were increased as a
result of the extension of the terms of their respective employment agreements
and are described in "Summary Compensation" above.
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IMPACT OF SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to publicly-held corporations for compensation in excess of $1,000,000
paid for any fiscal year to the Company's Chief Executive Officer and the four
(4) other most highly compensated officers. However, the statute exempts
qualifying performance-based compensation from the deduction limit if certain
requirements are met. The policy of the Compensation Committee is to structure
the compensation of the Company's executive officers to avoid the loss of the
deductibility of any compensation, even though Section 162(m) does not preclude
the payment of compensation in excess of $1,000,000. Notwithstanding, the
Compensation Committee reserves the authority to award non-deductible
compensation in circumstances as it deems appropriate. The Company believes that
Section 162(m) will not have any effect on the deductibility of the compensation
of any executive officer for 1998 or 1999.
Respectfully submitted,
Compensation Committee
Eugene P. Conese, Sr., Chairman
John E. Hunt, Sr.
Charles J. Simons
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STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return of the
Company's Common Stock from October 8, 1997 (the date that trading of the Common
Stock commenced on the NASDAQ National Market System) to December 31, 1998 with
(a) the Standard and Poors 500 Stock Index; and (b) a Peer Group Index. The
graph assumes that $100 was invested on October 8, 1997 in the Company's Common
Stock, the S&P 500 Index and the Peer Group Index and that all dividends were
reinvested. The Peer Group Index on the graph includes the Common Stock of Renal
Care Group, Inc. and Total Renal Care Holdings, Inc., which the Company believes
are the most comparable to the Company's operations within the dialysis
industry.
COMPARISON OF CUMULATIVE TOTAL RETURNS
RENEX CORPORATION STANDARD & POORS 500 PEER GROUP INDEX
----------------- -------------------- ----------------
October 1997 100.00 100.00 100.00
1997 65.62 102.87 90.68
1998 90.62 132.27 107.33
CERTAIN TRANSACTIONS
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. The Company paid $427,000
and $175,000 to JCD Partnership in connection with the leasehold improvements at
each facility.
C. David Finch, M.D. owed Dialysis Facilities, Inc. ("DFI") approximately
$85,000 at the time of the Company's acquisition of DFI evidenced by a note. The
note bears interest at the rate of 8% per annum and is payable upon demand by
the Company. As of December 31, 1997 and 1998, approximately $85,000 in
principal remained unpaid, together with accrued interest of $13,600 and $20,700
as of such dates, respectively.
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
$102,000 during 1998.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 27, 1999,
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.
NUMBER OF SHARES PERCENT OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) BENEFICIALLY OWNED
- --------------------------------------- --------------------- ------------------
Milton J. Wallace(4)....................................... 812,813 11.6%
Arthur G. Shapiro, M.D.(5)................................. 771,775 11.1
James P. Shea(6)........................................... 410,113 5.7
C. David Finch, M.D.(7).................................... 207,947 3.0
Orestes L. Lugo(8)......................................... 164,555 2.3
John E. Hunt, Sr.(9)....................................... 92,559 1.3
Charles J. Simons(10)...................................... 61,549 *
Patsy L. Anders(11)........................................ 62,817 *
Eugene P. Conese, Sr.(12).................................. 33,342 *
Mignon B. Early(13)........................................ 35,618 *
Mark D. Wallace(14)........................................ 19,674 *
Jeffrey H. Watson(15)...................................... 11,674 *
Forstmann Asset Management Corp.(16)....................... 366,189 5.3
William Anthony Forstmann(17).............................. 377,789 5.5
All executive officers and directors as group (13
persons)(18)............................................. 2,788,650 36.4%
- ---------------
* Less than one percent
(1) Unless otherwise indicated, the address for each beneficial owner is c/o
the Company at 201 Alhambra Circle, Suite 800, 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 December 27, 1999 upon the exercise of
options or warrants.
(3) Based upon 6,926,901 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) Mr. Wallace's address is 1200 Brickell Avenue, Suite 1720, Miami, Florida
33131. 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; (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) 88,091 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.
(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) 40,233 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; (iv) 3,750 shares of Common
Stock issuable upon exercise of Series B Warrants; and (v) 3,750 shares of
Common Stock issuable upon exercise of Series B Warrants owned by Dr.
Shapiro's Individual Retirement Account.
(6) Except as set forth herein all shares of Common Stock and warrants are
owned jointly by Mr. Shea and his wife. Includes: (i) 225,513 shares of
Common Stock issuable upon exercise of stock options;
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(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.
(7) Includes 15,750 shares of Common Stock issuable upon exercise of stock
options.
(8) Includes: (i) 116,904 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.
(9) Includes: (i) 8,341 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) 12,346 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.
(11) Includes 49,000 shares of Common Stock issuable upon exercise of stock
options.
(12) Includes: (i) 8,342 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 34,418 shares of Common Stock issuable upon exercise of stock
options.
(14) Includes 7,674 shares of Common Stock issuable upon exercise of stock
options.
(15) Includes 8,674 shares of Common Stock issuable upon exercise of stock
options.
(16) Forstmann Asset Management Corp.'s ("FAMC") address is 399 Park Avenue, New
York, NY 10020. Includes 366,189 shares owned by two pooled entities
managed by FAMC, to which FAMC is an investment advisor.
(17) Mr. Forstmann's address is 870 Fifth Avenue, Apt 11H, New York, NY 10021.
Mr. Forstmann is the sole shareholder of FAMC, an investment advisor. The
shares above include 11,600 shares beneficially owned by Mr. Forstmann and
366,189 shares beneficially owned by two pooled funds to which FAMC serves
a s investment advisor.
(18) Includes: (i) 624,286 shares of Common Stock issuable upon exercise of
options; (ii) 65,002 shares of Common Stock issuable upon exercise of
warrants; and (iii) 56,476 shares of Common Stock issuable upon exercise of
Series B Warrants.
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