<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1995
REGISTRATION NO. 33-88478
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES EXCHANGE ACT OF 1933
------------------------
VIVRA INCORPORATED
(Exact name of registrant specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 94-3096645 8092/8082
(State or other jurisdiction of (I.R.S. Employer Identification (Primary Standard Industrial
incorporation or organization) Number) Classification Number)
</TABLE>
400 Primrose, Suite 200
Burlingame, California 94010
(415) 348-8200
(Address, including zip code, and telephone number, including
area code of registrant's principal executive offices)
KENT J. THIRY
President and Chief Executive Officer
VIVRA INCORPORATED
400 Primrose, Suite 200, Burlingame, California 94010, (415) 348-8200
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
------------------------
Copy to:
<TABLE>
<S> <C>
SCOTT T. SMITH PATRICK T. SEAVER
CHARLES W. OTT CHARLES K. RUCK
Pillsbury Madison & Sutro Latham & Watkins
2700 Sand Hill Road 650 Town Center, 20th Floor
Menlo Park, CA 94025 Costa Mesa, CA 92626
(415) 233-4500 (714) 540-1235
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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- --------------------------------------------------------------------------------------------------
MAXIMUM PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED(1) REGISTERED(1) PER UNIT OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------
Common Stock, $.01 par
value(2).................... 2,300,000 shares $31.625(3) $72,737,500 $23,579.96(4)
- --------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 300,000 shares that the Underwriters have the option to purchase
from the Company to cover over allotments, if any.
(2) Includes Preferred Stock Purchase Rights which prior to the occurrence of
certain events will not be exercisable and will trade with the Common Stock.
(3) Based on the average of the high and low prices of the Company's Common
Stock on the New York Stock Exchange on February 7, 1995 pursuant to Rule
457.
(4) Includes $17,398.71 and $1,164.87 previously paid as part of the initial
filing and first amendment to the Registration Statement based on
anticipated offerings of 1,725,000 and 1,840,000 shares at maximum offering
prices of $29.25 and $29.375, the average of the high and low prices of the
Company's Common Stock on the New York Stock Exchange on January 17, 1995
and January 23, 1995, respectively.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
FEBRUARY 9, 1995
2,000,000 SHARES
[LOGO]
COMMON STOCK
------------------
Of the 2,000,000 shares of Common Stock offered hereby, 1,925,000 shares
are being sold by VIVRA Incorporated ("Vivra" or the "Company") and 75,000
shares are being sold by the Selling Stockholder. See "Selling Stockholder." The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholder. The Company's Common Stock is listed on the New York Stock
Exchange under the symbol V. On February 7, 1995, the last reported sale price
for the Common Stock was $31 3/4 per share. See "Price Range of Common Stock."
------------------
SEE "INVESTMENT CONSIDERATIONS" REGARDING MATTERS WHICH SHOULD BE CAREFULLY
CONSIDERED BY INVESTORS.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDER
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Per Share............... $ $ $ $
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Total(2)................ $ $ $ $
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</TABLE>
(1) Before deducting expenses of the offering estimated at $210,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
300,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
-----------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about February
, 1995.
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
MONTGOMERY SECURITIES
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1995
<PAGE> 3
VIVRA'S OPERATIONS
[INSERT MAP]
Dialysis Centers
Asthma and Allergy Practices
Diabetes Management Centers
Pharmacies
Rehabilitation Contract Sites
Physician Practice Management
Ambulatory Surgery Centers
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the "Commission") are incorporated by reference in this Prospectus as of their
respective dates:
(1) Annual Report of the Company on Form 10-K (File No. 1-10261) for the
fiscal year ended November 30, 1994.
(2) The description of the Company's Common Stock contained in the
Registration Statement on Form S-1 filed on April 19, 1990,
Registration No. 33-34438, including any amendments and reports filed
for the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 and prior to the
termination of the offering of the shares of Common Stock covered by this
Registration Statement shall be deemed to be incorporated by reference in this
Registration Statement and to be part hereof from the date of filing of such
documents.
Any person to whom a copy of this Prospectus is delivered may obtain
without charge, upon written or oral request, a copy of any of the documents or
information incorporated by reference herein, except for certain exhibits to
such documents. Requests should be directed to William H. Malkmus, Treasurer and
Secretary, VIVRA Incorporated, 400 Primrose, Suite 200, Burlingame, CA 94010
(Telephone: (415) 348-8200).
------------------------
The Company's principal executive offices are located at 400 Primrose,
Suite 200, Burlingame, California 94010, and its telephone number is (415)
348-8200.
------------------------
Any statement contained herein, or in a document incorporated by reference
herein, shall be deemed to be modified or superseded for purposes of this
Prospectus and the Registration Statement of which it is a part to the extent
that a statement contained herein or in any other subsequently filed document
which also is incorporated herein modifies or replaces such statement. Any
statement so modified or superseded shall not be deemed, in its unmodified form,
to constitute a part of this Prospectus or such Registration Statement.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Except as otherwise
specified, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. See "Underwriting." As used herein, a
"fiscal" year means a year ending November 30.
THE COMPANY
Vivra is a provider of specialty health care services, principally the
delivery of dialysis services. The Company is the second largest provider of
dialysis services in the United States and treats approximately 9,000 patients
through 150 centers in 24 states and the District of Columbia. In addition,
through its Chronic Services segment, it provides diabetes management services,
asthma allergy care and specialty pharmacy services. Vivra also provides
rehabilitation therapy, ambulatory surgery services and physician practice
management through its Other Services segment. Vivra's business strategy is to
identify healthcare market segments in which it can partner with physicians to
design, market and deliver services that are differentiated in terms of both
clinical outcomes and overall costs.
INVESTMENT CONSIDERATIONS
See "Investment Considerations" regarding matters which should be carefully
considered by investors.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company..................... 1,925,000 shares
Common Stock offered by the Selling Stockholder......... 75,000 shares
Common Stock to be outstanding after the offering....... 22,811,000 shares(1)
Use of proceeds......................................... For general corporate purposes,
including acquisitions and working
capital.
New York Stock Exchange symbol.......................... V
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------
1990 1991 1992 1993 1994
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenues..................... $98,345 $122,170 $162,255 $216,760 $284,649
Operating costs........................ 68,116 83,507 111,722 148,046 188,529
General and administrative............. 9,646 10,884 14,113 20,722 37,495
Depreciation........................... 3,351 3,878 4,864 7,196 9,552
Interest............................... 654 700 872 912 523
Earnings from continuing operations
before income taxes................. 16,642 24,649 32,182 41,105 50,410
Net earnings from continuing
operations.......................... 9,769 14,789 18,987 23,842 29,742
Net earnings........................... 10,170 15,048 19,139 24,396 30,439
Earnings per share from continuing
operations.......................... $ .62 $ .81 $ .97 $ 1.19 $ 1.45
Weighted average shares outstanding.... 15,801 18,420 19,542 20,073 20,556
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1994
---------------------------
ACTUAL AS ADJUSTED(2)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 97,244 $155,044
Total assets..................................................... 276,007 333,807
Long-term obligations............................................ 4,938 4,938
Stockholders' equity............................................. 211,854 269,654
</TABLE>
- ---------------
(1) Excludes 2,136,692 shares issuable upon exercise of options outstanding
under the Company's stock option plans as of November 30, 1994.
(2) Adjusted to reflect the sale of shares offered hereby and the receipt of the
net proceeds therefrom and excludes the $1,112,250 payable to the Company
upon the Selling Stockholder's exercise of options to purchase 75,000 shares
of Common Stock in connection with this offering. See "Use of Proceeds."
3
<PAGE> 5
INVESTMENT CONSIDERATIONS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.
Medicare and Medicaid Dialysis Reimbursement. The Company estimates that
approximately 70% of its dialysis revenues, including revenues for the
reimbursement of the administration of the drug erythropoietin ("EPO"), for each
of the fiscal years 1991, 1992 and 1993 and 66% for fiscal year 1994 were
reimbursements from Medicare and Medicaid under the End-Stage Renal Disease
("ESRD") program administered by the Health Care Financing Administration
("HCFA"). Numerous Congressional actions have resulted in changes in the average
Medicare reimbursement rate from a fixed fee of $138 per treatment in 1983, to a
low of $125 per treatment in 1986. After a $1 per treatment increase in 1991,
the average rate has remained at $126. The Medicaid programs are also subject to
statutory and regulatory changes that could affect the rate of Medicaid
reimbursement. The Company is not able to predict whether and to what extent
changes to Medicare and Medicaid reimbursement rates will be made in the future.
Any reduction in these reimbursement rates would have a material adverse effect
on the Company's revenues and net earnings. See "Business -- Chronic
Services -- Dialysis Services."
Erythropoietin Reimbursement and Supply. Since June 1, 1989, Medicare and
Medicaid have provided reimbursement for the administration of EPO to dialysis
patients for the treatment of anemia. During fiscal 1993 and 1994, approximately
80% and 82%, respectively, of the Company's dialysis patients received EPO.
Revenues from the administration of EPO were approximately $33.8 million and
$42.0 million, respectively, or 17% of dialysis revenues, for those periods.
Effective January 1, 1994, Medicare and Medicaid reimbursement for the
administration of EPO was reduced from $11.00 to $10.00 per 1,000 units. Any
further reduction in the reimbursement rate for the administration of EPO would
have an adverse effect on the Company's revenues and net earnings. In addition,
EPO is produced by a single manufacturer and any interruption of supply could
adversely affect the Company's revenues and net earnings.
Intradialytic Parenteral Nutrition Therapy Reimbursement. Intradialytic
parenteral nutrition ("IDPN") therapy is a nutritional supplement administered
during dialysis to patients suffering from nutritional deficiencies. The Company
is reimbursed by Medicare and Medicaid for the administration of IDPN therapy.
The Company has two pharmacies which provide IDPN prescriptions and support
services to certain of its dialysis patients and other third-party patients.
During 1993 HCFA designated four durable medical equipment regional carriers
(the "DMERCs") to process reimbursement claims for IDPN therapy. The DMERCs have
established stringent medical policies for reimbursement of IDPN therapy, and
most of the Company's claims for new patients have been denied or delayed. Where
appropriate, the Company intends to appeal denials. In addition, the DMERCs are
reportedly reviewing the existing IDPN medical policies. The final outcome of
appeals and the anticipated review is uncertain and may ultimately reduce the
number of patients eligible to receive reimbursement for IDPN therapy. Patients
receiving IDPN therapy prior to the designation of the DMERCs are
"grandfathered" under the prior local carrier's medical policies until March 1,
1995 or until the national policy for IDPN therapy is clarified. To the degree
that there is a significant reduction in the number of patients eligible to
receive reimbursement for IDPN therapy or a reduction in the amount of Medicare
reimbursement, the Company's revenues and net earnings would be reduced.
Other Sources of Dialysis Reimbursement. The Company estimates that
approximately 30% and 34% of its dialysis revenues for the fiscal years ended
1993 and 1994, respectively, were derived from sources other than Medicare and
Medicaid. Of these revenues, the largest portion came from private insurance for
chronic dialysis treatments. Reimbursement from hospitals for acute dialysis
treatments was also significant. In general, private insurance reimbursement and
reimbursement for treatments performed at hospitals are at rates significantly
in excess of Medicare and Medicaid rates. The Company believes that private
payers may be required in the future to assume a greater percentage of the costs
of dialysis care as the existing ESRD program is reviewed by the United States
Congress, and as a result, private payers will focus on reducing dialysis
payments as their overall dialysis costs increase. In addition, as health
maintenance organizations ("HMOs") and other managed care providers expand, they
will have a strong incentive to further reduce the costs of specialty care and
will aggressively seek to reduce amounts paid for dialysis. The Company is
unable
4
<PAGE> 6
to predict whether and to what extent changes in these reimbursement rates will
be made in the future. Any reduction in the ability of the Company to charge
rates that are in excess of those paid by Medicare and Medicaid would have a
significant negative effect on the Company's revenues and net earnings.
Operating Margins. There can be no assurance that the Company will be able
to maintain its historical operating margins in its dialysis business. The
Company's costs are subject to continuing increases as a result of rising labor
and supply costs, opening and start-up expenses for new dialysis centers, the
development of new managed care products and general inflation. At the same
time, Medicare and Medicaid reimbursement rates for dialysis treatments depend
on a number of factors and may remain fixed or be reduced. In addition, private
payors may seek to reduce the amount which they pay for dialysis treatments. The
Company is seeking to improve operating margins through increased productivity
and various cost containment programs; however, there can be no assurance that
its operating margins will not decline in the future.
Growth of Dialysis Business. The Company is attempting to increase its rate
of acquisition and development of new dialysis centers. Accordingly, the Company
has increased its development staff and budget. The dialysis industry is highly
competitive with respect to acquisitions of existing dialysis facilities and
recruiting Medical Directors for new centers. Certain of the Company's
competitors have substantially greater financial resources than the Company and
compete with the Company for the acquisition of facilities. Competition for
acquisitions has increased significantly in recent years and, as a result, the
cost of acquiring existing dialysis facilities has also increased. To the extent
that the Company is unable to acquire existing dialysis facilities economically,
to develop facilities profitably or to recruit Medical Directors to operate its
facilities, its ability to expand its dialysis business would be reduced
significantly. See "Business -- Business Strategy" and "-- Competition."
Growth of New Business. The Company has acquired and expects to acquire
additional healthcare service businesses outside of the dialysis area. The
development or acquisition of new businesses could require a significant capital
commitment. Such new businesses or new facilities of existing businesses may
incur significant losses and experience delays in attaining profitability and
may never become financially viable. Further, they may not provide the Company
with revenue as predictable as historically provided by the Company's dialysis
business. In addition, certain companies, some of whom have longer operating
histories and greater financial resources than those of the Company, are
providing specialty healthcare and physician practice management services
similar to those that the Company provides or may provide. The Company may be
forced to compete with these entities for the acquisition of the assets of
specialty medical clinics, contracts to manage such clinics and in some cases,
the employment of clinic physicians. There can be no assurance that the Company
will be able to compete effectively with such competitors, that additional
competitors will not enter the Company's markets, or that such competition will
not make it more difficult to expand in such markets on terms profitable to the
Company. In addition, the Company intends to expand its existing businesses by
contracting with managed care payers on a capitated or at-risk basis. Under
capitated or at-risk contracts, the health care provider agrees to provide care
for a fixed rate based on the number of health care plan members, regardless of
the amount of care required. As a result, the service provider bears the risk of
excess utilization. To the extent that a health care plan member requires more
care than anticipated, the capitation rate paid to the health care provider may
be insufficient to cover the costs associated with provided services. If the
aggregate costs associated with providing medical services exceed the aggregate
of the capitation rates, the Company could, directly or indirectly, be forced to
absorb some of these costs which could have a negative effect on the Company's
revenues and net earnings. See "Business -- Business Strategy" and
"-- Competition."
Government Regulation. The Company is subject to extensive federal and
state regulation regarding, among other things, fraud and abuse, health and
safety, environmental compliance and toxic waste disposal. In particular, the
illegal remuneration provisions of the Social Security Act and similar state
laws impose civil and criminal sanctions. These sanctions include
disqualification from participation in the Medicare and Medicaid ESRD programs
for persons who solicit, offer, receive or pay any remuneration, directly or
indirectly, for referring a patient for treatment which is paid for in whole or
in part by Medicare and Medicaid or for otherwise generating revenues reimbursed
by either of these programs. In July 1991 and in
5
<PAGE> 7
November 1992, the federal government published final regulations that provide
exceptions or "safe harbors" from the illegal remuneration prohibitions for
certain business transactions. Transactions that satisfy the criteria under the
applicable safe harbors are deemed not to violate the illegal remuneration
provisions. The Company seeks to comply with the safe harbors in those instances
where possible. Due to the breadth of the statutory provisions and the absence
in certain instances of regulations or court decisions addressing many of the
specific arrangements by which the Company conducts its business, it is possible
that the Company's practices might be challenged under these laws. The Office of
Inspector General (the "OIG") of the Department of Health and Human Services
("HHS") has within the past 18 months published warnings that it believes two
practices common in the dialysis services industry may violate certain statutory
provisions. The Company believes that it has a reasonable basis for continuing
practices which the OIG may regard as within the scope of the OIG's warnings and
that, if challenged by the OIG, it could defend these practices. However, there
can be no assurance that the Company will not be required to change one or more
of these practices or be subject to sanctions. The Company's revenues and net
earnings would be adversely affected as a result of any such change or
sanctions. The Company has never been challenged under these statutes, however,
and believes it complies in all material respects with these and all other
applicable laws and regulations.
Under both the Omnibus Budget Reconciliation Act of 1993 ("Stark II") and
certain state legislation, it is unlawful for a physician to refer patients for
certain designated health services to an entity with which the physician has a
financial relationship. The Company believes that the language and history of
Stark II indicate that Congress did not intend to include dialysis services and
certain services and items provided incident to dialysis services within the
legislative prohibition. However, certain services, including prescription
drugs, clinical laboratory services and parenteral and enteral nutrients,
equipment, and supplies, even when provided in conjunction with dialysis
services, could be construed as designated health services within the meaning of
Stark II. Due to the breadth of the statutory provisions and the absence of
regulations or court decisions addressing the specific arrangements by which the
Company conducts its business, it is possible that certain of the Company's
practices might be challenged under these laws which could result in civil
penalties, including exclusion or suspension of the Company from future
participation in Medicare and Medicaid programs, and substantial fines. Although
there can be no assurance, the Company believes that if Stark II is interpreted
to apply to the Company's operations, the Company will be able to bring its
financial relationships with referring physicians into material compliance under
the provisions of Stark II, including relevant exceptions. If Stark II is
broadly interpreted by HCFA to apply to the Company and the Company cannot
achieve material compliance, it could have a material adverse effect on the
Company's revenues and net earnings. See "Business -- Government Regulation."
National Health Care Reform. There is significant national concern today
about the availability and rising cost of health care in the United States. It
is anticipated that new federal and/or state legislation will be passed and
regulations adopted to attempt to provide broader and better health care and to
manage and contain its cost. The Company is unable to predict the content of any
legislation or what, if any, changes may occur in the method and rates of its
Medicare and Medicaid reimbursement or in other government regulations that may
affect its businesses, or, whether such changes, if made, will have a material
adverse effect on its revenues and net earnings.
Dependence on Physician Referrals. The Company's facilities depend upon
their Medical Directors and to a lesser extent other local nephrologists for
referrals of ESRD patients for treatment. As is generally true in the dialysis
industry, at each facility one or a few physicians account for all or a
significant portion of the patient referral base. The loss of one or more key
referring physicians at a particular facility could have a material adverse
effect on the operations of that facility, and the loss of a significant number
of referring physicians could adversely affect the Company's overall operations.
Advances in Medical Science. The development of new drugs or medical
treatments that prevent kidney disease or reduce the necessity for dialysis
treatments could have a material adverse effect on the Company's business. The
Company is not aware of any developments that would, within the near future,
prevent kidney disease, materially reduce or eliminate the need for dialysis
treatments or render its dialysis equipment obsolete.
6
<PAGE> 8
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby will aggregate approximately $57.8 million (approximately $66.9 million
if the Underwriters' over-allotment option is exercised). The Company will not
receive any of the proceeds from the sale of Common Stock on behalf of the
Selling Stockholder. All of the net proceeds will be used for general corporate
purposes, including future acquisitions and working capital. During 1995 the
Company intends to continue to acquire and develop new dialysis facilities and
may acquire one or more primary care physician practices. The Company is also
continually evaluating acquisition and development opportunities in specialty
health care areas and may use a portion of the net proceeds from this offering
to make investments in such businesses. The Company is currently in negotiations
with respect to a number of acquisitions and asset dispositions, none of which
is material. Initially, all of the proceeds will be invested in short-term
investment grade or U.S. government securities.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the New York Stock Exchange ("the
NYSE") under the symbol "V." The following table sets forth, for the periods
indicated, high and low reported last sale prices for the Company's Common Stock
on the NYSE Composite Tape, giving effect to a 3-for-2 stock split on November
10, 1993.
<TABLE>
<CAPTION>
COMMON STOCK PRICE
------------------
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED NOVEMBER 30, 1993:
First quarter............................................... $19 7/8 $15 1/8
Second quarter.............................................. 18 2/3 14 7/8
Third quarter............................................... 23 1/4 18
Fourth quarter.............................................. 23 2/3 18 7/8
YEAR ENDED NOVEMBER 30, 1994:
First quarter............................................... $26 $19 5/8
Second quarter.............................................. 26 5/8 22 3/4
Third quarter............................................... 25 5/8 22 3/4
Fourth quarter.............................................. 29 1/2 25 1/2
YEAR ENDED NOVEMBER 30, 1995:
First quarter (through February 7, 1995).................... $32 3/8 $26 5/8
</TABLE>
On February 7, 1995, the reported last sale price of the Company's Common
Stock on the New York Stock Exchange was $31 3/4 per share. As of February 8,
1995 there were 1,986 holders of record of the Company's Common Stock.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends. The Board of
Directors does not presently intend to pay regular cash dividends on the Common
Stock. The payment of future dividends will be dependent upon the earnings,
capital requirements and financial condition of the Company and such other
business and economic factors as the Board of Directors considers relevant.
7
<PAGE> 9
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
November 30, 1994 and as adjusted to reflect the receipt of net proceeds from
the sale by the Company of 1,925,000 shares of Common Stock pursuant to this
offering at an assumed public offering price of $31 3/4 per share after
deducting estimated underwriting discounts and commissions and offering expenses
payable by the Company.
<TABLE>
<CAPTION>
NOVEMBER 30, 1994
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current maturities............................... $ 4,938 $ 4,938
Stockholders' equity:
Common Stock:
$.01 par value, 80,000,000 shares authorized, 20,811,000 shares
issued actual and 22,811,000 shares issued as adjusted........... 208 227
Additional paid-in capital(1)....................................... 54,891 112,672
Retained earnings................................................... 156,755 156,755
-------- --------
Total stockholders' equity..................................... 211,854 269,654
-------- --------
Total capitalization........................................ $216,729 $274,592
======== ========
</TABLE>
- ---------------
(1) Excludes $1,552,000 of proceeds and tax benefits to be recorded upon the
exercise by the Selling Stockholder of options to purchase 75,000 shares of
Common Stock in connection with this offering.
8
<PAGE> 10
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information set forth below as of and
for the years ended November 30, 1990, 1991, 1992, 1993 and 1994 has been
derived from the Consolidated Financial Statements audited by Ernst & Young LLP.
This selected consolidated financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with the Company's audited Consolidated Financial Statements and
footnotes which are included herein.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------
1990 1991 1992 1993 1994
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Operating revenues:
Chronic services....................... $98,345 $122,170 $160,152 $210,533 $257,441
Other services......................... 2,103 6,227 27,208
------- -------- -------- -------- --------
Total operating revenues................. 98,345 122,170 162,255 216,760 284,649
Costs and expenses:
Operating costs........................ 68,116 83,507 111,722 148,046 188,529
General and administrative............. 9,646 10,884 14,113 20,722 37,495
Depreciation........................... 3,351 3,878 4,864 7,196 9,552
Interest............................... 654 700 872 912 523
------- -------- -------- -------- --------
Total costs and expenses................. 81,767 98,969 131,571 176,876 236,099
Earnings from continuing operations
before income taxes.................... 16,642 24,649 32,182 41,105 50,410
Income taxes............................. 6,873 9,860 13,195 17,263 20,668
------- -------- -------- -------- --------
Net earnings from continuing
operations............................. 9,769 14,789 18,987 23,842 29,742
Earnings from discontinued operations,
less applicable taxes.................. 401 259 152 554
Gain on sale of discontinued operations,
less applicable taxes.................. 697
------- -------- -------- -------- --------
Net earnings............................. $10,170 $ 15,048 $ 19,139 $ 24,396 $ 30,439
======= ======== ======== ======== ========
Earnings per share from continuing
operations............................. $ .62 $ .81 $ .97 $ 1.19 $ 1.45
Weighted average shares
outstanding............................ 15,801 18,420 19,542 20,073 20,556
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------
1990 1991 1992 1993 1994
------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $30,581 $ 75,756 $ 72,104 $ 88,334 $ 97,244
Total assets........................... 86,742 140,670 170,175 207,478 276,007
Long-term obligations.................. 7,227 7,174 7,457 4,179 4,938
Stockholders' equity................... 68,296 118,235 140,875 172,267 211,854
</TABLE>
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following is a comparative discussion of Vivra's financial condition
and operating results by fiscal year, for the three years ended November 30,
1994. It should be read in conjunction with the selected financial information
on the preceding page and Vivra's Consolidated Financial Statements and related
notes thereto.
On December 1, 1993, the Company sold its home healthcare nursing business,
Personal Care Health Services. Accordingly, the results of operations for this
business are shown separately under discontinued operations for prior years in
the Consolidated Statement of Earnings, restated for comparative purposes.
The Company has two principal business segments, Chronic Services and Other
Services. Chronic Services consists of the dialysis, diabetes management and
specialty pharmacy services businesses and, effective November 30, 1994, the
asthma allergy care business. Other Services consists of the rehabilitation
therapy, ambulatory surgery and physician practice management businesses. The
asthma allergy business was acquired on November 30, 1994, and accordingly, the
results of its operations are not included in the following operating
comparisons.
1994 COMPARED WITH 1993
For fiscal 1994 as compared to fiscal 1993, revenues increased $68.5
million, or 31.4%; costs and expenses $59.2 million, or 33.5%; earnings from
continuing operations before taxes $9.3 million, or 22.6%, and net earnings from
continuing operations $5.9 million, or 24.8%. In addition, during the year the
Company recorded a gain of $697,000, after applicable taxes, on the sale of its
home healthcare nursing business and in the prior year recorded $554,000 in
earnings from discontinued operations, net of applicable taxes. In total, net
earnings for the year increased $6.0 million to $30.4 million, or 24.8% compared
to 1993. The increase in revenues and earnings resulted primarily from the
continued growth of the dialysis business.
Of the $67.9 million increase in operating revenues, revenues from Chronic
Services, 94.4% of which was from dialysis services, increased $46.9 million to
$257.4 million, or 22.3%. Revenues from Other Services increased $21.0 million
to $27.2 million, a 336.9% increase. The increase in Chronic Services revenues
was attributed primarily to a 15.5% increase in the number of treatments from
1,087,385 to 1,256,397 as a result of the addition of 12 new centers and
improved patient census. An improvement in the payer mix, revenues from the
administration of the drug Erythropoietin ("EPO"), prescribed for dialysis
patients suffering from anemia, and other ancillary services contributed to
increase in dialysis revenues. For 1994, revenues from EPO were $42.0 million,
compared to $33.8 million in the prior year, a 24.3% increase, due to an
increase in the number of patients receiving EPO and in the average size of
dosages. As of November 30, 1994, approximately 82% of the Company's dialysis
patients were receiving EPO, compared to 80% in 1993. The balance of Chronic
Services revenues, 5.6% of the total, was attributable to the growth of
specialty pharmacy services, principally for IDPN therapy, and diabetes
management. These businesses experienced growth primarily due to an increased
volume in services provided. The increase in Other Services revenues primarily
reflects the acquisition and growth of the rehabilitation therapy business, and
the addition of new ambulatory surgery centers. Other income, from interest
earned on short-term investments, increased $649,000 to $1.9 million, or 53.2%,
as a result of increased cash balances.
Of the increase in costs and expenses, operating costs increased $40.5
million, or 27.3%, to $188.5 million in 1994. Chronic Services operating costs,
of which dialysis represented 95.5%, increased $24.4 million to $169.4 million,
or 16.8%, while operating costs of Other Services increased $16.1 million to
$19.1 million, or 522.3%. Dialysis operating costs increased due to increased
volume of business, expenses associated with the operation of new dialysis
centers, the cost of the administration of EPO and higher labor and supply
costs. The balance of Chronic Services operating costs, 4.5% of the total costs,
was from the growth in specialty pharmacy services and diabetes management,
which increased $3.0 million to $7.6 million, or 64.4%. Operating costs of Other
Services increased as a result of the acquisition and growth of the
rehabilitation therapy business, the addition of new ambulatory surgery centers
and the start-up of the physician practice management business. General and
administrative expenses increased $16.8 million to $37.5 million, or 80.9%, as a
result of an increased volume of business, the addition of the rehabilitation
therapy business, increased goodwill incurred as a result of acquisitions made
during the past year, costs associated with the development of the ambulatory
surgery and specialty pharmacy service businesses, the development of new
managed care
10
<PAGE> 12
products and increased incentive compensation expense. Depreciation increased
$2.4 million, or 32.7%, to $9.6 million, due to an increase in depreciable
assets of the dialysis and the ambulatory surgery businesses.
As a result of revenues increasing less rapidly than costs and expenses,
earnings from continuing operations before taxes as a percentage of revenues
decreased to 17.6%, compared to 18.9% in 1993. Overall, net earnings from
continuing operations increased $5.9 million, or 24.7%, as a result of increased
revenues, despite a slight decline in before-tax earnings margins.
1993 COMPARED WITH 1992
For fiscal 1993 as compared to fiscal 1992, revenues from continuing
operations increased $54.2 million, or 33.1%; costs and expenses increased $45.3
million, or 34.4%; earnings before taxes increased $8.9 million, or 27.7%; and
net earnings increased $4.9 million, or 25.6%. The increase in operating
revenues in 1993 was driven primarily by the continued growth of the dialysis
business, and while operating profit margins declined slightly, the overall
result was an increase in net earnings.
Of the increase in revenues from continuing operations, revenues from
Chronic Services, of which dialysis services represented 95.2%, increased $50.4
million to $210.5 million, or 31.5%. Other Services increased $4.1 million to
$6.2 million, or 196.1%. The increase in Chronic Services revenues was due to a
22.6% increase in the number of treatments from 886,979 to 1,087,385 as a result
of the addition of 10 new centers and improved patient census. Revenues from the
reimbursement for the administration of EPO and other ancillary services also
contributed to the increase in dialysis revenues. For 1993, revenues from EPO
were $33.8 million compared to $24.2 million in the prior year period, a 39.4%
increase, as a result of an increase in the number of patients receiving EPO and
in the average size of dosages. As of November 30, 1993, approximately 80% of
the Company's dialysis patients were receiving EPO, the same as a year earlier.
The balance of Chronic Services revenues, 4.8% of the total, was attributable to
the growth of specialty pharmacy services, principally for IDPN therapy, and
diabetes management. The increase in Other Services revenues reflects a full
year of operation in 1993 of the two ambulatory surgery centers acquired during
1992. Other income, from interest earned on short-term investments, decreased
$277,000 to $1.2 million, or 18.5%, as a result of lower interest rates.
Of the increase in costs and expenses from continuing operations, operating
costs increased $36.3 million, or 32.5%, to $148.0 million in 1993. Chronic
Services operating costs, of which dialysis represented 96.8%, increased $34.4
million to $145.0 million, or 31.2%, while operating costs of Other Services
increased $1.9 million to $3.1 million, or 158.9%, over the prior fiscal year.
Dialysis costs increased due to increased volume of business, expenses
associated with the operation of new dialysis centers, the cost of the
administration of EPO and higher labor and supply costs. The balance of Chronic
Services operating costs, which represented 3.2% of the total, was attributable
to growth in specialty pharmacy services and diabetes management, which
increased $2.5 million to $4.6 million, or 118%. The increase in operating costs
of Other Services was from growth of the business and a full year's operation in
1993 of the two surgery centers acquired in the third quarter of 1992. General
and administrative expenses increased $6.6 million to $20.7 million, or 46.8%,
as a result of an increased volume of business, costs associated with the
development of the ambulatory surgery and specialty pharmacy services
businesses, increased goodwill incurred as a result of acquisitions made in
1992, and increased incentive compensation expense. Depreciation increased $2.3
million, or 47.9%, to $7.2 million due to an increase in depreciable assets of
the dialysis business and a full year's operation in 1993 of the ambulatory
surgery business.
As a result of revenues from continuing operations increasing less rapidly
than costs and expenses, earnings before taxes as a percentage of revenues
decreased to 18.9%, compared to 19.7% in 1992. Income taxes were 42.0% of
earnings before taxes, compared to 41.0% in 1992. The increase in the tax rate
was the result of an increase in the federal corporate tax rate, from 34% to
35%, retroactive to January 1, 1993, as mandated by the Omnibus Budget
Reconciliation Act of 1993. The impact was an increase in taxes in 1993 of
approximately $410,000. Overall, net earnings from continuing operations
increased $4.9 million, or 25.6%, as a result of increased revenues, despite a
slight decline in before-tax earnings margins.
Net income from discontinued operations increased $402,000 to $554,000 in
1993 as a result of a consolidation of the business and reduction of costs.
Operating revenues were $17.7 million, a decrease of $908,000 from 1992. In
total, net earnings from continuing and discontinued operations increased $5.3
million to $24.4 million, or 27.5%, in 1993.
11
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for the acquisition and development
of dialysis facilities, including the purchase of property, plant and equipment,
as well as the acquisition and development of other businesses. Capital and
acquisition expenditures were $31.1 million, consisting of cash and 442,500
shares of the Company's Common Stock issued in connection with acquisitions and
$36.9 million, consisting of cash and 257,213 shares of the Company's Common
Stock issued in connection with acquisitions for the fiscal years ended November
30, 1993 and 1994, respectively. These capital and acquisition expenditures were
funded primarily by the Company's cash flow from operations.
The Company's primary source of cash flow has been, and is expected to
continue to be from operations. Cash flow from operations was $28.5 million and
$43.2 million, for the years ended November 30, 1993 and 1994, respectively. The
Company's working capital increased by $8.9 million to $97.2 million at November
30, 1994, from $88.3 million at November 30, 1993.
In fiscal 1995, the Company intends to continue to acquire and develop new
dialysis facilities and may acquire one or more primary care physician
practices. The Company is also evaluating acquisition and development
opportunities in other sectors of specialty health care services. The Company
expects that its capital and acquisition expenditures in fiscal 1995 will exceed
expenditures for fiscal 1994. To the extent the Company is able to identify
significant attractive investment opportunities, such expenditures could exceed
$50.0 million. The Company believes that cash generated from operations together
with available cash and the proceeds from this public Common Stock offering will
be adequate to meet the Company's planned expenditure, acquisition and
development and liquidity needs for fiscal 1995.
INFLATION AND PRICE CHANGES
Approximately 70% and 66% of the Company's dialysis revenues were funded by
Medicare and Medicaid, at fixed rates per dialysis treatment, before charges for
ancillary services in 1993 and 1994, respectively. Despite significant
inflation, the reimbursement rate remained constant from 1973 to 1983, was
reduced by $11 per treatment in 1983 by an additional $2 per treatment in 1986
and was further reduced in 1989 and 1990 as a result of budget deficit reduction
measures. Until 1988, the Company was able to offset most of these reductions by
greater economies. From 1988 through 1990, however, the Company's earnings were
adversely affected by increases in labor and supply costs without a compensating
increase in reimbursement. Effective January 1, 1991, the Medicare and Medicaid
reimbursement rate was increased $1 per treatment to an average of $126 per
treatment and the budget deficit reductions from such rates were eliminated.
This increase has helped moderate inflationary cost pressures. The Company is
unable to predict what, if any, future changes may occur in the Medicare and
Medicaid reimbursement rates and, if made, whether such changes will help
alleviate or increase inflationary pressures on the Company's costs.
The balance of dialysis revenues, other than Medicare and Medicaid,
increased to 34% in 1994, compared to 30% in 1993. This change in payer mix was
a result of the Omnibus Budget Reconciliation Act of 1993 which shifted payer
responsibility from the Medicare program to private insurance plans. In general,
non-government revenues are at rates significantly in excess of Medicare and
Medicaid rates. Any restriction or reduction of the Company's ability to charge
rates in excess of those paid by Medicare and Medicaid would have a significant
negative effect on the Company's revenues and earnings. It is expected that the
growth of health maintenance organizations and other managed care organizations
will create a more competitive environment which will require the Company over
time to reduce prices for some of its services. The Company is investing in the
development of managed care products which are intended to offset the negative
impact of such reduced prices. If the new products are not successful, any
reduction in prices will result in significantly lower operating margins for the
dialysis business.
RECENT DEVELOPMENTS
Since the end of the fiscal 1994, the Company has acquired six dialysis
facilities, opened two new facilities and closed two facilities, and as a result
currently operates 156 facilities.
12
<PAGE> 14
BUSINESS
Vivra is a provider of specialty health care services, principally the
delivery of dialysis services. The Company is the second largest provider of
dialysis services in the United States and treats approximately 9,000 patients
through 150 centers in 24 states and the District of Columbia. In addition,
through its Chronic Services segment, it provides diabetes management services,
asthma allergy care and specialty pharmacy services. Vivra also provides
rehabilitation therapy, ambulatory surgery services and physician practice
management through its Other Services segment. Vivra's business strategy is to
identify healthcare market segments in which it can partner with physicians to
design, market and deliver services that are differentiated in terms of both
clinical outcomes and overall costs.
BUSINESS STRATEGY
Healthcare payers are making increasingly proactive and informed decisions
in procuring the services of healthcare providers on behalf of their
beneficiaries with particular attention to the chronically ill. Increasingly,
payers are selecting providers who demonstrate expertise in the management of
chronic conditions, including a capability to reduce clinical complications
leading to hospitalization and avoidable medical procedures. Physicians involved
in the delivery of primary as well as specialty care are seeking to reform and
restructure their practices to more effectively meet the needs of these payers.
Vivra's business strategy is to identify those sectors of healthcare services in
which it can enable physicians to market and provide services that are
differentiated both in terms of outcomes and costs on a sustained basis.
Vivra continues to expand its already significant presence in the dialysis
services market through acquisition and development to further realize economies
of scale. Although the Company currently derives nearly all of its revenues and
earnings from dialysis services, predominantly in a fixed fee-for-service
environment, it is placing strong emphasis on the development of managed care
products in both Chronic Services and Other Services segments. The Company
believes its recent acquisitions in the area of asthma allergy care and
physician practice management offer opportunities for the Company to develop and
market innovative services in a managed care environment. The Company intends to
continue to explore potential new markets where it can apply its expertise in
chronic disease and where it can be a low cost, high quality provider of
healthcare services. See "-- Competition."
Vivra currently participates in the following major markets:
Dialysis. Vivra provides dialysis treatment and ancillary services to
patients suffering from chronic kidney failure, or ESRD. As of November 30,
1994, the Company operated 150 outpatient dialysis facilities in 24 states and
the District of Columbia and treated approximately 9,000 patients. The Company
also provides inpatient dialysis services for acute patients at general
hospitals. Currently it is estimated that the six largest providers constitute
approximately one-third of the estimated $4 billion outpatient dialysis
treatment market and consolidation in the dialysis services market is expected
to accelerate.
Diabetes Management. Vivra is the second largest operator of diabetes
management centers in the United States. The Company, working with primary care
physicians and hospital staffs, attempts to improve the management of patients'
chronic condition to achieve a reduction in clinical complications, lengthy
hospitalization and avoidable medical procedures.
Asthma Allergy Care Services. The Company recently acquired a national
provider of care to asthma and allergy sufferers. The Company believes that with
this acquisition it is the only national provider in the asthma allergy care
market segment. The Company estimates that total expenditures related to asthma
and allergy treatment are approximately $6 billion in the United States. Through
the application of standardized practice management guidelines, including
preventive care, the Company's goal is to provide payers with cost savings
through improved patient health as well as reductions of hospital visits. The
Company recently entered into its first capitation agreement with a managed care
provider covering 300,000 lives. The agreement is scheduled to take effect in
the first half of fiscal 1995.
13
<PAGE> 15
Physician Practice Management. Vivra has also recently entered the
business of managing practices of primary care providers, which it believes
presents significant opportunities for growth. Although a recent entrant to the
market, Vivra's management has acquired experience in dialysis and other
businesses working in partnership with physicians.
CHRONIC SERVICES
DIALYSIS SERVICES
The Company is the second largest provider of dialysis services in the
United States. The Company believes that its 150 established treatment
facilities and the economies of scale inherent in the operations of a
multi-facility business provide a significant base for expansion. The Company
intends to develop and acquire facilities primarily in existing and contiguous
geographic markets and to increase the number of physicians and other sources of
patient referrals.
End-Stage Renal Disease. ESRD is the state of advanced renal impairment
that is irreversible and fatal without treatment. According to HCFA, the number
of patients who require chronic dialysis grew from approximately 66,000 in 1982
to approximately 170,000 in 1993, representing a compound annual growth rate of
9%. The Company attributes the continuing growth in the number of ESRD patients
principally to the aging of the general population, demographic trends and
medical advances resulting in increased life expectancy of patients with
hypertension, diabetes and other illnesses that lead to ESRD. Moreover, improved
technology has enabled older patients and those who previously could not
tolerate dialysis due to other illnesses to benefit from this life-prolonging
treatment. Qualified patients with ESRD have been entitled since 1973 to
Medicare benefits regardless of age or financial circumstances.
Treatment Options for End-Stage Renal Disease. Treatment options for ESRD
include hemodialysis, peritoneal dialysis and kidney transplant surgery. HCFA
estimates that, as of December 31, 1993, 82% of the ESRD patients in the United
States were receiving hemodialysis treatment in outpatient facilities. The
remaining 18% were treated in the home or in the hospital as inpatients.
Patients treated in the home are monitored by a designated outpatient facility
or qualified physician's office.
Hemodialysis uses an artificial kidney called a dialyzer to remove certain
toxins, fluid and salt from the patient's blood, and a machine to control
external blood flow and to monitor certain vital signs of the patient. Typically
dialysis for the chronic patient is performed three times per week, for
approximately four hours per treatment, and continues for the patient's
lifetime.
Peritoneal dialysis is generally performed by the patient at home. The most
common methods are continuous ambulatory peritoneal dialysis ("CAPD") and
continuous cycling peritoneal dialysis ("CCPD"). CAPD offers patients an
improved lifestyle, but is limited in application by a higher incidence of
infection. CAPD uses the patient's peritoneal (abdominal) cavity to eliminate
fluid and toxins from the patient. CCPD uses a mechanical device to cycle
dialysis solution while a patient is sleeping.
An alternative treatment not provided by the Company is kidney
transplantation. While this option, when successful, is the most desirable form
of therapeutic intervention, the shortage of suitable donors limits the
availability of this surgical procedure as a treatment option. In addition,
attempts are being made to develop new drugs or medical treatments that prevent
or reduce the necessity for dialysis. The Company is not aware of any medical
advances that would, within the near future, materially reduce or eliminate the
need for dialysis treatments or render its dialysis equipment obsolete.
Location, Capacity and Operation of Facilities. As of November 30, 1994,
the Company owned and operated 150 facilities of which 123 are located in leased
premises and 27 are located in buildings owned by the Company. The facilities
range in size from 6 to 41 stations; the average size is 15 stations. The
facilities are located as follows: California (29); Florida (20); Georgia and
Texas (14 each); Pennsylvania (12); Alabama and Virginia (10 each); South
Carolina (9); Louisiana and North Carolina (4 each); District of Columbia,
Maryland, Missouri and Tennessee (3 each); New Mexico (2); and Arizona,
Arkansas, Colorado, Connecticut, Kansas, Illinois, Michigan, Oklahoma, Oregon
and West Virginia (1 each). The Company believes that due to its large size it
has economies of scale in areas such as purchasing, billing and collections and
data
14
<PAGE> 16
processing not available to smaller dialysis providers. As an investment, the
Company owns 49% of a clinical laboratory which provides many of the Company's
dialysis testing services.
The number of the Company's facilities has increased during the past four
years; during that period, the Company acquired 23 existing facilities,
developed 32 new facilities and closed 9 facilities. Treatments provided by the
Company have increased by 95.5% during this period through an increase in the
number of patients at existing centers as well as an increase in the number of
centers. During fiscal 1994, Vivra's "same store" patient growth was 7.8%. There
can be no assurance that the Company will continue to experience similar growth.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF TREATMENTS
FISCAL YEAR END FACILITIES PROVIDED
- --------------- --------- ----------
<S> <C> <C>
1990 104 642,567
1991 112 745,987
1992 128 886,979
1993 138 1,087,385
1994 150 1,256,397
</TABLE>
The above table includes total CAPD and CCPD treatments of 48,164, 64,463,
83,579, 114,340 and 136,092 in fiscal 1990 through 1994, respectively.
As required by Medicare regulations, each of the Company's facilities is
supervised by a Medical Director. The Company's Medical Directors are licensed
physicians in private practice who are directly responsible for assuring the
quality of patient care. A Unit Administrator, who is generally a registered
nurse, supervises the day-to-day operation of each facility and the staff. The
staff consists of registered nurses, medical technicians, nurses aides, a unit
clerk, and certain part-time employees, including a social worker, a registered
dietician and a machine repair technician. Each facility is staffed in a manner
that allows the number of personnel to be adjusted efficiently according to the
number of patients receiving treatment. The Company engages in organized and
systematic efforts to measure, maintain and improve the quality of services it
delivers. Each of the Company's facilities collects and analyzes quality
assurance data which is reviewed regularly by regional and corporate management
to continually monitor and improve the standard of care being provided.
Sources of Dialysis Revenues. The Company estimates that approximately 70%
of its dialysis revenues, including revenues for the reimbursement of the
administration of EPO, for each of the fiscal years 1991, 1992 and 1993 and 66%
for fiscal year 1994, were reimbursements from Medicare and Medicaid under ESRD
administered by HCFA and the states. Numerous congressional actions have
resulted in changes in the average Medicare reimbursement rate from a fixed fee
of $138 per treatment in 1983, to a low of $125 per treatment in 1986. After a
$1 per treatment increase in 1991, the average rate has remained at $126. The
Medicaid programs are also subject to statutory and regulatory changes that
could affect the rate of Medicaid reimbursement. The Company is not able to
predict whether and to what extent changes to Medicare and Medicaid
reimbursement rates will be made in the future. Any reduction in these
reimbursement rates would have material adverse effects on the Company's
revenues and net earnings.
New dialysis patients must wait 90 days after commencement of dialysis
treatments to qualify under the Medicare ESRD reimbursement program. Often
patients do not have the means or insurance to pay for treatment during this
90-day waiting period. If new patients do have private insurance, or belong to
an employer group insurance plan, regulations require such insurance to pay for
up to the first 21 months of dialysis treatment before Medicare reimbursement
begins. If a secondary carrier such as Medicaid or a private insurer cannot be
found, the Company may not be reimbursed for the initial waiting period or the
20% copayment of the ESRD rate which is not paid by Medicare. The Company seeks
to assist patients who may not initially have adequate sources of reimbursement
or insurance to obtain coverage, if possible.
Since June 1, 1989, Medicare and Medicaid have provided reimbursement for
the administration of EPO to dialysis patients for the treatment of anemia.
During fiscal 1993 and 1994, approximately 80% and 82%, respectively, of the
Company's dialysis patients received EPO. Revenues from the administration of
EPO were
15
<PAGE> 17
approximately $33.8 million and $42.0 million, respectively, or 17% of dialysis
revenues, for those periods. Effective January 1, 1994, Medicare and Medicaid
reimbursement for the administration of EPO was reduced from $11 to $10 per
1,000 units. Any further reduction in the reimbursement rate for the
administration of EPO would have a negative impact on the Company's revenues and
net earnings. In addition, EPO is produced by a single manufacturer, and any
interruption of supply could adversely affect the Company's revenues and net
earnings.
The Company estimates that approximately 30% of its dialysis revenues for
the fiscal year ended 1993 and 34% for 1994, were derived from sources other
than Medicare and Medicaid. Of these revenues, the largest portion came from
private insurance for chronic dialysis treatments. In general, private insurance
reimbursement and reimbursement for treatments performed at acute care hospitals
are at rates significantly in excess of Medicare and Medicaid rates. The Company
believes that private payers may be required in the future to assume a greater
percentage of the costs of dialysis care as the existing federal ESRD program is
reviewed by the United States Congress, and as a result, private payers will
focus on reducing dialysis payments as their overall dialysis costs increase. In
addition, as HMOs and other managed care providers expand, they will have a
strong incentive to further reduce the costs of specialty care and will
aggressively seek to reduce amounts paid for dialysis. The Company is unable to
predict whether and to what extent changes in these reimbursement rates will be
made in the future. Any reduction in the ability of the Company to charge rates
that are in excess of those paid by Medicare and Medicaid would have a
significant negative effect on the Company's revenues and net earnings.
DIABETES MANAGEMENT
Diabetes mellitus is a chronic metabolic disease caused by the inability to
metabolize carbohydrates, fats and proteins, and is the third leading cause of
death by disease in the United States. Over 14 million patients in the United
States are estimated to have the disease, of whom only half have been diagnosed.
The Company estimates that each year more than 725,000 new cases are diagnosed.
Incidence of the disease increases dramatically with age.
In March 1992, the Company acquired Health Advantage Inc. ("HAI"), a
provider of diabetes management services to hospitals. HAI was founded in 1987
and, as of November 30, 1994, had contracts to provide services in 20 hospitals
in 9 states. Through its diabetes management centers, HAI provides comprehensive
diabetes management and training services to primary care physicians and
hospital staff. The goal of the centers is to enhance the ability of providers
to assist the patients and their families in understanding, controlling and
adapting to the disease. The emphasis is on increasing patient education and
aggressive medical management in cooperation with the attending physicians and
hospital staff to help patients prevent complications, reduce the risk of
hospitalization and achieve a reasonably satisfactory lifestyle.
Services at the centers are provided on an inpatient basis pursuant to
medically approved admission and discharge protocols. Such services are provided
on an outpatient basis by physician referral. Quality assurance and utilization
review procedures have been developed on the basis of the American Diabetes
Association's national standards of care. The Company works closely with each
hospital's quality assurance coordinators and utilization review committees to
tailor these procedures to the requirements of each hospital. The Company plans
to expand its diabetes management services into additional markets.
ASTHMA ALLERGY CARE SERVICES
On November 30, 1994, the Company acquired what it believes is currently
the only national company providing focused medical care for acute and chronic
asthmatics and other allergy sufferers. As a result, the Company currently
manages 17 asthma allergy care practices in 11 states. Asthma is a chronic
disease with periodic acute episodes that range from mildly inconvenient to
life-threatening. Over the past decade, the asthma allergy care market has grown
and the Company estimates that currently over $6.0 billion is spent annually in
the United States on the treatment of these chronic diseases. Over half of this
cost is in hospitalizations and emergency room visits. Studies have shown that
the vast majority of these hospitalizations and emergency room visits can be
avoided by proper management of the patient's care.
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<PAGE> 18
The Company believes that the U.S. asthma population will continue to grow
and intends to expand its asthma allergy care services. The Company's strategy
is to acquire well-regarded allergists who will be included in its existing
practice management organization and to create organized networks to contract
for and manage the delivery of high quality, cost effective care. Its practices
and networks will provide healthcare payers the ability to access geographically
dispersed allergists and standardized treatment management guidelines. The goal
is to improve health and reduce costly hospital admissions. The Company recently
entered into a capitated agreement with a managed care provider covering 300,000
lives under which it will receive a bonus in the event it reduces hospital
stays. The agreement is scheduled to take effect in the first half of fiscal
1995.
SPECIALTY PHARMACY SERVICES
As a part of its strategy of providing a variety of ancillary services, in
September 1991, the Company established Associated Health Services ("AHS") to
provide IDPN pharmacy and support services to its dialysis patients. In 1992,
AHS opened pharmacies in Southern California and Atlanta, Georgia and also began
providing IDPN therapy services to dialysis patients in facilities owned by
third parties, in addition to its own patients. In 1993, the Company initiated
mail order delivery of oral medications for dialysis and transplant patients.
IDPN therapy is a nutritional supplement administered during dialysis to
patients suffering from nutritional deficiencies. The Company is reimbursed by
the Medicare program for the administration of IDPN therapy through two
pharmacies which provide IDPN prescriptions and support services to certain of
its dialysis patients and other third-party patients. Beginning in 1993, HCFA
designated four DMERCs to process reimbursement claims for IDPN therapy. The
DMERCs have established stringent medical policies for reimbursement of IDPN
therapy, and most of the Company's claims for new patients have been denied or
delayed. Where appropriate, the Company intends to appeal denials. In addition,
the DMERCs are reportedly reviewing the existing IDPN medical policies. The
final outcome of appeals and the anticipated review is uncertain and may
ultimately reduce the number of patients eligible to receive reimbursement for
IDPN therapy. Patients receiving IDPN therapy prior to the designation of the
DMERCs are "grandfathered" under the prior local carrier's medical policies
until March 1, 1995 or until clarification in the national policy for IDPN
therapy. To the degree that there is a significant reduction in the number of
patients eligible to receive reimbursement for IDPN therapy or the amount of
Medicare reimbursement is reduced, the Company's revenues and net earnings would
be reduced.
OTHER SERVICES
REHABILITATION THERAPY SERVICES
In January 1994, the Company acquired a 60% ownership interest in South
Coast Rehabilitation Services ("SCRS"), a medical rehabilitation services
provider. SCRS provides occupational, speech and physical therapy services on a
contract basis to patients in 77 skilled nursing facilities located in
California, Indiana, Missouri, Ohio, Texas and Wisconsin. As part of its
rehabilitation services, it has developed a proprietary software system that
monitors the progress of patient therapy on a real-time basis. SCRS uses this
proprietary software system internally and also licenses the system to third
parties.
SCRS's largest customer, a national nursing home provider, has announced
that it intends to reduce materially its use of contract providers, over time,
and to provide therapy services internally. SCRS has recently focused its
marketing efforts on other prospective customers and has been able to reduce its
dependence on this one customer. In addition, HCFA is currently reviewing the
method and rates of reimbursement for speech and occupational therapy
rehabilitation services. The Company is unable to predict what, if any, changes
may occur in such reimbursement policies, or whether such changes, if made, will
have a material adverse effect on its revenues and net earnings.
AMBULATORY SURGERY CENTERS
Outpatient surgery is suitable for less-invasive and traumatic procedures
for which the anesthesia used is typically short-acting and the recovery period
relatively low-risk, allowing the patient to recuperate at home as opposed to
the more traditional and expensive hospital recovery. Many physicians prefer to
use ambulatory surgery centers rather than more traditional hospital facilities
due to more flexible scheduling and efficient
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<PAGE> 19
operations. Government agencies, including HCFA, other third-party payers and
patients have increasingly accepted outpatient surgery because it offers high
quality care at a lower cost.
As of November 30, 1994, the Company operated a total of five ambulatory
surgery centers, two each in California and Washington and one in Louisiana. It
is expected that additional ambulatory surgery centers will be acquired or
established in support of the Company's physician practice management or
specialty care businesses.
PHYSICIAN PRACTICE MANAGEMENT
In April 1994, the Company established Vivra Physician Services ("VPS") to
acquire and manage primary care physician practices. During the year, VPS
acquired a physician practice management company in Louisville, Kentucky, which
manages the practices of 13 independent physicians. It also acquired the assets
of, and a contract to manage, a 15-physician, primary care-oriented
multi-specialty group in Colorado Springs, Colorado.
The growth of managed care organizations is causing physicians to assume
the risk of capitated arrangements to remain competitive. The physicians must
organize into efficient groups which can achieve clinical competencies, focus on
prevention, reduce intervention and, most importantly, achieve successful
clinical outcomes. The Company believes that to achieve these goals the
physicians will need a business partner which can provide both capital and
management. Accordingly, VPS is developing the support and systems to assist
physicians in developing competitive group practices.
COMPETITION
The dialysis business is highly fragmented, with a number of operators with
25 or fewer centers and a small number of larger, multi-center chains. It is
estimated that the six largest providers constitute approximately one-third of
the estimated $4 billion outpatient dialysis treatment market. The balance of
the market is still fragmented into hospital-based centers and facilities owned
by individual nephrologists. Industry consolidation is expected to accelerate as
large providers continue to make acquisitions. As a result, the Company faces
competition for the acquisition and development of new centers as well as
competition for qualified physicians to act as Medical Directors.
A primary consideration in the selection of a dialysis facility is
convenience of location for the patient. Some of the Company's facilities in
California, Florida, Texas, Pennsylvania and Georgia are in urban areas where
there are many competing facilities in close proximity. Most of the Company's
other facilities are in less densely populated areas with few competing
facilities nearby. Other competitive factors include quality of care and
service. Due to its large size relative to most other dialysis operators, the
Company believes it has economies of scale not available to many of its
competitors in areas such as purchasing, billing and collections, and data
processing. While it occurs infrequently, the Company has experienced
competition from the establishment of a facility by a former Medical Director.
Certain companies, some of whom have longer operating histories and greater
financial resources than those of the Company, are providing specialty
healthcare services and physician practice management similar to those that the
Company is providing or pursuing. The Company may be forced to compete with
these entities for the acquisition of the assets of specialty medical clinics,
contracts to manage such clinics and, in some cases, the employment of clinic
physicians. There can be no assurance that the Company will be able to compete
effectively with such competitors, that additional competitors will not enter
the Company's markets, or that such competition will not make it more difficult
to expand in such markets on terms beneficial to the Company. All of the
Company's businesses face significant competition, often from larger companies
with greater financial resources and more operating experience.
GOVERNMENT REGULATION
General. The Company's dialysis operations are subject to extensive
governmental regulation at the federal, state and local levels. These
regulations require the Company to meet various standards relating to,
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<PAGE> 20
among other things, the management of facilities, personnel, maintenance of
proper records, equipment and quality assurance programs. The dialysis
facilities are subject to periodic inspection by state agencies and other
governmental authorities to determine if the premises, equipment, personnel and
patient care meet applicable standards. To receive Medicare reimbursement, the
Company's dialysis facilities must be certified by HCFA.
Any loss by the Company of its various federal certifications, its
authorization to participate in the Medicare or Medicaid programs or its
licenses under the laws of any state or other governmental authority from which
a substantial portion of its revenues is derived or a change resulting from
healthcare reform reducing dialysis reimbursement or reducing or eliminating
coverage for dialysis services would have a material adverse effect on the
Company's business. To date, the Company has not had any difficulty in
maintaining its licenses or its Medicare and Medicaid authorizations. The
healthcare services industry will continue to be subject to intense regulation
at the federal and state levels, the scope and effect of which cannot be
predicted. No assurance can be given that the activities of the Company will not
be reviewed and challenged or that healthcare reform will not result in a
material adverse change to the Company.
Fraud and Abuse. The Company's dialysis operations are subject to the
illegal remuneration provisions of the Social Security Act (sometimes referred
to as the "anti-kickback" statute) and similar state laws that impose criminal
and civil sanctions on persons who knowingly and willfully solicit, offer,
receive or pay any remuneration, whether directly or indirectly, in return for,
or to induce, the referral of a patient for treatment, or, among other things,
the ordering, purchasing, or leasing, of items or services that are paid for in
whole or in part by Medicare, Medicaid or similar state programs. Violations of
the federal anti-kickback statute are punishable by criminal penalties,
including imprisonment, fines and exclusion of the provider from future
participation in the Medicare and Medicaid programs. Federal enforcement
officials also may attempt to impose civil false claims liability with respect
to claims resulting from an anti-kickback violation. If successful, civil
penalties could be imposed, including assessments of $2,000 per improper claim
for payment plus twice the amount of such claim and suspension from future
participation in Medicare and Medicaid programs. Civil suspension for
anti-kickback violations also can be imposed through an administrative process,
without the imposition of civil monetary penalties. Some state statutes also
include criminal penalties. While the federal anti-kickback statute expressly
prohibits transactions that have traditionally had criminal implications, such
as kickbacks, rebates or bribes for patient referrals, its language has been
construed broadly and has not been limited to such obviously wrongful
transactions. Court decisions state that, under certain circumstances, the
statute is also violated when one purpose (as opposed to the "primary" or a
"material" purpose) of a payment is to induce referrals. Congress has frequently
considered federal legislation that would expand the federal anti-kickback
statute to include the same broad prohibitions regardless of payer source.
In July 1991 and in November 1992, the Secretary of HHS published
regulations that create exceptions or "safe harbors" for certain business
transactions. Transactions that satisfy the criteria under the applicable safe
harbors will be deemed not to violate the federal anti-kickback statute.
Transactions that do not satisfy all elements of a relevant safe harbor do not
necessarily violate the statute, although such transactions would be subject to
scrutiny by enforcement agencies. The Company seeks to structure its various
business arrangements to satisfy as many safe harbor elements as possible under
the circumstances, although not all of the Company's arrangements satisfy all of
the elements of the relevant safe harbor. Although the Company has never been
challenged under the anti-kickback statute and believes it complies in all
material respects with this statute and all other applicable related laws and
regulations, there can be no assurance that the Company will not be required to
change its practices or experience a material adverse effect as a result of any
such challenge or any sanction which might be imposed.
On July 21, 1994, the Secretary of HHS proposed a rule that would modify
the original set of safe harbor provisions to give greater clarity to the
rulemaking's original intent. The proposed rule would make changes to the safe
harbors on personal services and management contracts, small entity investment
interests and space rentals, among others. The Company does not believe that the
application of these safe harbors to its current arrangements, as set forth
above, would change if the proposed rule were adopted in the form proposed.
However, the Company cannot predict the outcome of the rulemaking process or
whether changes in the safe harbors rule will affect the Company's position with
respect to the anti-kickback statute.
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<PAGE> 21
Medical Director Relationships. The conditions for coverage under the
Medicare ESRD program mandate that treatment at a dialysis facility be under the
general supervision of a Medical Director who is a physician. Generally, the
Medical Director must be board eligible or board certified in internal medicine
or pediatrics and have had at least 12 months of experience or training in the
care of patients at ESRD facilities. The Company has engaged Medical Directors
at each of its facilities. The compensation of the Medical Directors and other
physicians under contract is separately negotiated and generally depends upon
competitive factors in the local market, the physician's professional
qualifications and responsibilities, and the size and utilization of the
facility or relevant program. The aggregate compensation of the Medical
Directors and other physicians under contract is generally fixed in advance for
periods of one year or more by written agreement and is set to reflect the fair
market value of the services rendered. Because in all cases the Company's
Medical Directors and the other physicians under contract refer patients to the
Company's facilities, the federal anti-kickback statute could apply. However,
the Company believes its contractual arrangements with these physicians are in
material compliance with the anti-kickback statute. Among the safe harbors
promulgated by the Secretary of HHS is one relevant to the Company's
arrangements with its Medical Directors and the other physicians under contract.
The Company endeavors to enter into agreements with its Medical Directors and
other physicians under contracts which satisfy the requirements of the personal
services and management contract safe harbor. Moreover, the Company believes
that the anti-kickback statute's prohibitions are primarily directed at abusive
practices which increase the utilization and cost of services covered by
governmentally funded programs. The dialysis services provided by the Company
generally cannot, by their very nature, be over-utilized since dialysis
treatments are not elective and cannot be prescribed unless there is kidney
failure or malfunction.
Other Relationships. Within the last eighteen months the OIG has published
warnings to the dialysis services industry generally that it believes that the
industry-wide practices of obtaining discounts on certain laboratory charges and
the payment of remuneration for services provided for IDPN therapy at dialysis
centers violate the anti-kickback statute in many, if not most, circumstances.
The Company believes that it has a reasonable basis for continuing practices
which the OIG may regard as within the scope of the warnings and that, if
challenged by the OIG, it could defend these practices. However, there can be no
assurance that the Company will not be challenged under the statutes or that,
whether or not challenged and subject to sanctions, the Company will not be
required to change its current practices. Any such change or challenge,
including any sanctions, would have an adverse effect on the Company's revenues
and net earnings, as well as its competitors that engage in similar practices.
Certain of the Company's other operations also receive Medicare and
Medicaid reimbursement. While the Company believes that its other operations
comply in all material respects with applicable law, there can be no assurance
that the Company's other operations will not be subject to challenge or
sanctions. Any such challenge or sanctions could have a material adverse effect
on the Company's revenues and net earnings.
Stark II. Stark II restricts physician referrals for certain designated
health services to entities with which a physician or an immediate family member
has a "financial relationship." The entity is prohibited from claiming payment
under the Medicare or Medicaid programs for services rendered pursuant to a
prohibited referral and is liable for the refund of amounts received pursuant to
prohibited claims. The entity also can receive civil penalties of up to $15,000
per improper claim and can be excluded from participation in the Medicare and
Medicaid programs. Comparable provisions applicable to clinical laboratory
services became effective in 1992. Stark II provisions which may be relevant to
the Company became effective on January 1, 1995.
A "financial relationship" under Stark II is defined as an ownership or
investment interest in, or a compensation arrangement between, the physician and
the entity. The Company has entered into compensation agreements with its
Medical Directors and other referring physicians; some Medical Directors own
stock in the Company. The Company is not aware of any family relationship
between a Medical Director and staff at its dialysis facilities.
Stark II includes certain exceptions for compensation arrangements and
ownership that satisfy certain criteria. With respect to compensation
arrangements, remuneration from an entity pursuant to a personal
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<PAGE> 22
services compensation arrangement is excepted from Stark II prohibitions if: (i)
the arrangement is set out in writing, signed by the parties, and specifies the
services covered by the arrangement; (ii) the arrangement covers all of the
services to be provided by the physician (or an immediate family member of such
physician) to the entity; (iii) the aggregate services contracted for do not
exceed those that are reasonable and necessary for the legitimate business
purposes of the arrangement; (iv) the term of the arrangement is for at least
one year; (v) the compensation to be paid over the term of the arrangement is
set in advance, does not exceed fair market value, and is not determined in a
manner that takes into account the volume or value of any referrals or other
business generated between the parties; (vi) the services to be performed do not
involve the counseling or promotion or a business arrangement or other activity
that violates any state or federal law; and (vii) the arrangement meets such
other requirements that may be imposed pursuant to regulations promulgated by
HHS.
Another Stark II exception for compensation arrangements applies to bona
fide employment relationships. This exception can apply to amounts paid by an
employer to a physician-employee if: (i) the employment is for identifiable
services; (ii) the amount of remuneration is consistent with the fair market
value of services and is not determined in a manner that takes into account,
directly or indirectly, the volume or value of any referrals by the referring
physician; (iii) the remuneration is provided pursuant to an agreement which
would be commercially reasonable even if no referrals were made to the employer;
and (iv) the employment meets such other standards that HHS may impose to
protect against program or patient abuse. In addition, this exception would
permit certain types of productivity bonuses based on personal services
performed by the physician or an immediate family member.
Stark II also includes an exception for a physician's ownership or
investment interest in shares in an Investment Company or securities listed on
an exchange or quoted on NASDAQ which, in either case, meets certain financial
criteria.
Because of its broad language, Stark II may be interpreted by HHS to apply
to the Company's operations. Consequently, Stark II may require the Company to
restructure certain existing compensation agreements with its Medical Directors
or, in the alternative, to refuse to accept referrals for designated health
services from such physicians. Although there can be no assurance, the Company
believes that if Stark II is interpreted to apply to the Company's operations,
the Company will be able to bring its financial relationships with referring
physicians into material compliance with the provisions of Stark II, including
relevant exceptions. If the Company cannot achieve such material compliance, and
Stark II is broadly interpreted by HHS to apply to the Company, such application
of Stark II could have a material adverse effect on the Company. A broad
interpretation of Stark II to include dialysis services and items provided
incident to dialysis services would apply to the Company's competitors as well.
For purposes of Stark II, "designated health services" include, among other
things: clinical laboratory services; parenteral and enteral nutrients, certain
equipment and supplies; prosthetics; orthotics; prosthetic devices; physical and
occupational therapy services; outpatient prescription drugs; and inpatient and
outpatient hospital services. Dialysis is not a designated health service, and
the Company believes that the language and legislative history of Stark II
indicate that Congress may not have intended to include the services and items
provided incident to dialysis services within the Stark II prohibitions.
However, the Company's provision of, or arrangement and assumption of financial
responsibility for, outpatient prescription drugs, including EPO and IDPN,
clinical laboratory services, facility dialysis services and supplies, home
dialysis supplies and equipment, and services to hospital inpatients and
outpatients, include services and items which could be construed as designated
health services within the meaning of Stark II. Although the Company does not
bill Medicare or Medicaid for hospital inpatient and outpatient services, the
Company's Medical Directors may request or establish a plan of care that
includes dialysis services for hospital inpatients and outpatients that may be
considered a referral to the Company within the meaning of Stark II.
State Referral Regulations. A California statute, which became effective
January 1, 1995, makes it unlawful for a physician who has, or a member of whose
immediate family has, a financial interest with or in an entity to refer a
person to that entity for laboratory, diagnostic nuclear medicine, radiation
oncology,
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physical therapy, physical rehabilitation, psychometric testing, home infusion
therapy, or diagnostic imaging goods or services. Under the statute, "financial
interest" includes, among other things, any type of ownership interest, debt,
loan, lease, compensation, remuneration, discount, rebate, refund, dividend,
distribution, subsidy or other form of direct or indirect payment, whether in
money or otherwise, between a physician and the entity to which the physician
makes a referral for the items described above. The statute also prohibits the
entity to which the referral was made from presenting a claim for payment to any
payor for a service furnished pursuant to a prohibited referral, and prohibits a
payor from paying for such a service. Violation of the statute by a physician is
a misdemeanor, and will subject the physician to civil fines. Violation of the
prohibition on submitting a claim in violation of the statute is a public
offense, subjecting the offender to a fine of up to $15,000 for each violation
and possible action against licensure. Some of the Company's facilities perform
laboratory services incidental to dialysis services pursuant to the orders of
referring physicians; and certain laboratory services, which are performed by
laboratories independent of the Company for all outpatient dialysis patients,
are identified as included among the services for which the Company is
financially responsible under the composite rate under Medicare and under other
payment arrangements. Therefore, although the Company does not believe that the
statute is intended to apply to laboratory services that are provided incident
to dialysis services, it is possible that the statute could be interpreted to
apply to such laboratory services. The statute includes certain exemptions from
its prohibitions; however, the California statute includes no explicit exemption
for Medical Director services or other services for which the Company contracts
with and compensates referring physicians in California. Thus, if the California
statute is interpreted to apply to laboratory services that are provided
incident to dialysis services, the Company could be subject to sanctions and
would be required to restructure some or all of its relationships with referring
physicians with whom it contracts for Medical Director and similar services. The
consequences of such restructuring, if any, cannot be predicted. The Company
believes that other states in which the Company does business have or are
considering similar legislation.
State Laws Regarding Provision of Medicine and Insurance. The laws of many
states prohibit physicians from splitting fees with non-physicians and prohibit
non-physician entities from practicing medicine. These laws vary from state to
state and are enforced by the courts and by regulatory authorities with broad
discretion. Although the Company believes its operations as currently conducted
are in material compliance with existing applicable laws, many aspects of the
Company's business operations, including the unique structure of the
relationship between the Company and physicians, have not been the subject of
state or federal regulatory interpretation. There can be no assurance that
review of the Company's business by courts or regulatory authorities will not
result in determinations that could adversely affect the operations of the
Company or that the health care regulatory environment will not change so as to
restrict the Company's existing operations or their expansion. In addition,
expansion of the operations of the Company to certain jurisdictions may require
structural and organizational modifications of the Company's form of
relationships with physician groups, which could have an adverse effect on the
Company.
Most states have laws regulating insurance companies and HMOs. The Company
is not qualified in any state to engage in the insurance or HMO businesses. As
the managed care business evolves, state regulators may begin to scrutinize the
practices of and relationships between third-party payers, medical service
providers and entities providing management and other services to medical
service providers with respect to the application of insurance and HMO laws and
regulations. The Company does not believe that its practices, which are
consistent with those of other health care companies, would subject it to such
laws and regulations. However, given the limited regulatory history with respect
to such practices, there can be no assurance that states will not attempt to
assert jurisdiction. The Company may be subject to prosecution by state
regulatory agencies, and accordingly may be required to change or discontinue
certain practices which could have a material adverse effect on the Company.
Medicare and Healthcare Reform. Because the Medicare program represents a
substantial portion of the federal budget, Congress takes action in almost every
legislative session to modify the Medicare program for the purpose of reducing
the amounts otherwise payable by the program to health care providers in order
to achieve deficit reduction targets, among other reasons. Legislation or
regulations may be enacted in the future that may significantly modify the ESRD
program or substantially reduce the amount paid for the Company's
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<PAGE> 24
services. Further, statutes or regulations may be adopted which impose
additional requirements in order for the Company to be eligible to participate
in the federal and state payment programs. Such new legislation or regulations
may adversely affect the Company's business operations.
Other Regulations. The Company's operations are subject to various state
hazardous waste disposal laws. Those laws as currently in effect do not classify
most of the waste produced during the provision of dialysis services to be
hazardous, although disposal of non-hazardous medical waste is also subject to
regulation. OSHA regulations require employers of workers who are occupationally
subject to blood or other potentially infectious materials to provide those
workers with certain prescribed protections against bloodborne pathogens. The
regulatory requirements apply to all healthcare facilities, including dialysis
facilities, and require employers to make a determination as to which employees
may be exposed to blood or other potentially infectious materials and to have in
effect a written exposure control plan. In addition, employers are required to
provide hepatitis B vaccinations, personal protective equipment, infection
control training, post-exposure evaluation and follow-up, waste disposal
techniques and procedures, and engineering and work practice controls. Employers
are also required to comply with certain record-keeping requirements. The
Company believes it is in material compliance with the foregoing laws and
regulations.
Some states have established certificate of need ("CON") programs
regulating the establishment or expansion of health care facilities, including
dialysis facilities. The CON laws formerly applicable to freestanding dialysis
facilities in seven of the eight states in which the Company operates dialysis
facilities (Arizona, California, Florida, Louisiana, New Mexico, Texas and
Virginia) have been repealed or have lapsed and have not been re-enacted.
The Company believes it is in material compliance with current applicable
laws and regulations. No assurance can be made that in the future the Company's
business arrangements, past or present, will not be the subject of an
investigation or prosecution by a federal or state governmental authority. Such
investigation could result in any, or any combination, of the penalties
discussed above depending upon the agency involved in such investigation and
prosecution. None of the Company's business arrangements with physicians,
vendors, patients or others have been the subject of investigation by any
governmental authority. No assurance can be given that the Company's activities
will not be reviewed or challenged by regulatory authorities. The Company
monitors legislative developments and would seek to restructure a business
arrangement if the Company determined that one or more of its business
relationships placed it in material noncompliance with such a statute. The
health care service industry will continue to be subject to substantial
regulation at the federal and state levels, the scope and effect of which cannot
be predicted by the Company. Any loss by the Company of its various federal
certifications, its authorization to participate in the Medicare and Medicaid
programs or its licenses under the laws of any state or other governmental
authority from which a substantial portion of its revenues are derived would
have a material adverse effect on its business.
INSURANCE
The Company carries insurance for property damage, public liability and
malpractice covering all of its businesses. The public liability and malpractice
coverage limits are $40 million for each loss occurrence. The all risk property
insurance coverage limits are $10 million based on replacement cost for each
loss occurrence. The loss occurrence limit includes separate annual aggregate
sublimits for earthquake and flood damage of $5 million each for California and
$5 million each for all other states. The Company believes that its insurance
coverage is adequate.
EMPLOYEES
As of November 30, 1994, the Company had approximately 3,490 employees.
Employees at one of the Company's dialysis facilities (representing less than 1%
of total employees) are covered by a union agreement. The Company considers its
labor relations to be satisfactory.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key personnel of the Company and
their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Kent J. Thiry........................ 39 President and Chief Executive Officer and Director
Michael W. Castaldi.................. 51 Senior Vice President, National Dialysis Operations
David P. Barry....................... 36 Vice President, Dialysis Services
Ernest A. Blackwelder................ 35 Vice President, Specialty Partners
William H. Malkmus................... 60 Secretary and Treasurer
Sheri L. Medina...................... 33 President, SouthCoast Rehabilitation Services
John H. Morse........................ 52 Vice President, Physician Practice Management
Robert A. Prosek..................... 51 Vice President, Asthma Allergy Care Services
Ronald G. Perkins.................... 42 Vice President, Diabetes Management Services
LeAnne M. Zumwalt.................... 36 Vice President, Finance and Director
David G. Connor, M.D................. 54 Director
Richard B. Fontaine.................. 51 Director
John M. Nehra........................ 46 Director
Stephen G. Pagliuca.................. 39 Director
</TABLE>
Mr. Thiry was appointed as President and Chief Executive Officer in
September 1992. From April through August 1992, he was President and Co-Chief
Executive Officer; and from September 1991 through March 1992, President and
Chief Operating Officer. From 1983 through 1991, he was a Senior Consultant,
then Vice President, Director of U.S. Health Care Consulting, Bain & Company,
Inc., San Francisco, California.
Mr. Castaldi was appointed as Senior Vice President, National Dialysis
Operations in June 1989. In December 1989, he was appointed President of
Community Dialysis Centers, a subsidiary of the Company. From 1985 through 1989,
he was Vice President, then Senior Vice President, Community Psychiatric
Centers, and was responsible for dialysis operations. During 1995, Mr. Castaldi
intends to relocate to Philadelphia and reduce his responsibility for the
day-to-day operations of the dialysis business. The Company anticipates that Mr.
Castaldi's future responsibilities will focus on corporate development.
Mr. Barry was appointed as Vice President of Vivra in May 1992. In December
1993, he became President, Nephrology Services, responsible for specialty
dialysis services. From May 1992 through November 1993, he was President,
Personal Care Health Services, and was responsible for operations of the home
health care business. From 1984 through 1992, he was employed by Homedco, an
infusion therapy company, and became District Manager for California in 1990.
Mr. Blackwelder was appointed President of Specialty Partners of America in
August 1994 and Vice President of Vivra in November 1994, in charge of the
ambulatory surgery business. From 1991 to 1994, he was District Manager and
Assistant to the President of BMC West Corporation, a building supply company,
and prior to that, from 1988 to 1991, was a consultant with Bain & Company,
specializing in the health care industry.
Mr. Malkmus has been Secretary and Treasurer since August 1989. From 1988
through 1989, he was Principal, Malkmus & Associates, financial consultants.
From 1986 through 1987, he was Vice President at Swergold, Chefitz & Sinsabaugh,
investment bankers, San Francisco, California.
Ms. Medina is president of SouthCoast Rehabilitation Services, which she
founded in 1988. Prior to founding SCRS she was an independent speech
pathologist.
Mr. Morse was appointed Vice President of Vivra and President of Vivra
Physician Services in April 1994. Previously, he had been a senior executive
with Humana, Inc. for 22 years.
24
<PAGE> 26
Mr. Perkins was appointed as Vice President of Vivra and President of
Health Advantage, Inc., in May 1992, responsible for diabetes management
services business. From 1987 through 1992, he was founder and President of
Health Advantage, Inc., Nashville, Tennessee.
Mr. Prosek was appointed Vice President of Vivra in December 1994 and
President of Asthma and Allergy CareAmerica. He was previously President of
AllergyClinics of America during 1994, and from 1991 to 1993 was President of
Care Partners, a homecare company. From 1989 to 1991, he was President of
PSICOR, provider of contract clinical services for cardiac surgery.
Ms. Zumwalt joined Vivra in 1991 and was appointed Vice President, Finance
in November 1993 and a Director in November 1994. Prior thereto, she was a
senior audit manager with Ernst & Young.
Dr. Connor, M.D. has been a physician in private practice in Daly City,
California since 1973, specializing in nephrology and internal medicine. He has
been Medical Director of the Company's dialysis center in Daly City, California,
since 1977. From 1986-1988, he was President of the Medical Staff of Seton
Medical Center, a general hospital in Daly City, California.
Mr. Fontaine has been an independent health care consultant since 1992.
From 1988 through 1992, he was Senior Vice President of CR&R Incorporated, a
waste management company. From 1984 through 1989, he was Vice President,
Business Development, of Caremark, Inc., a health care company.
Mr. Nehra has been Managing General Partner of Catalyst Ventures L.P., a
venture capital partnership, since 1989. From 1983 through 1989, he was Managing
Director of Alex. Brown & Sons, Incorporated, an investment banking firm, and
was responsible for its Capital Markets Group, including health care corporate
finance.
Mr. Pagliuca has been Managing General Partner of Information Partners, a
venture capital firm, since 1989. From 1986 through 1989, he was Vice President
of Bain & Company.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the cash compensation paid during fiscal 1994 by
the Company to its five most highly compensated current executive officers:
<TABLE>
<CAPTION>
ANNUAL CASH COMPENSATION
-------------------------
NAME AND PRINCIPAL POSITIONS SALARY BONUS
----------------------------------------------------------- -------- --------
<S> <C> <C>
Kent J. Thiry.............................................. $225,000 $200,000(1)
President and Chief Executive Officer
Michael W. Castaldi........................................ $178,000 $160,000
Senior Vice President
David P. Barry............................................. $115,000 $121,000
Vice President
Ronald G. Perkins.......................................... $140,500 $ 33,000
Vice President
LeAnne M. Zumwalt.......................................... $108,000 $ 60,000
Vice President
</TABLE>
- ---------------
(1) Mr. Thiry also received contingent cash bonuses of $100,000 and $200,000 for
fiscal years 1992 and 1993, respectively, which will be paid after November
30, 1996, if the Company's earnings per share as of that date represent a
17.5% compound annual growth rate over earnings per share reported for
fiscal 1992.
25
<PAGE> 27
STOCK OWNERSHIP OF EXECUTIVE OFFICERS
The following table shows the stock ownership and options held by the five
most highly compensated current executive officers:
<TABLE>
<CAPTION>
SHARES OWNED VESTED OPTIONS TOTAL OPTIONS EXERCISE PRICE RANGE
------------ -------------- ------------- --------------------
<S> <C> <C> <C> <C>
Kent J. Thiry.................... -- 323,000 633,000 $14.83-$27.75
Michael W. Castaldi.............. -- 122,400 219,000 $15.83-$17.75
David P. Barry................... -- 35,500 93,250 $15.83-$27.75
Ronald G. Perkins................ 10,478 39,375 52,500 $18.67
LeAnne M. Zumwalt................ 751 19,075 49,500 $16.67-$27.75
</TABLE>
SELLING STOCKHOLDER
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock and options to purchase the Company's
Common Stock as of November 30, 1994 and as adjusted to reflect the sale of
shares offered hereby by the Selling Stockholder:
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING OFFERED OFFERING
------------------------ ----------- ------------------------
NAME AND PRINCIPAL POSITIONS NUMBER PERCENT(1) NUMBER PERCENT(1)
- ----------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Kent J. Thiry...................... 323,000 1.5% 75,000 248,000 1.1%
President and Chief Executive
Officer
</TABLE>
- ---------------
(1) The number of shares of Common Stock deemed outstanding prior to this
offering includes 21,134,000 shares of Common Stock outstanding as of
November 30, 1994. The number of shares of Common Stock deemed outstanding
after this offering includes an additional 1,925,000 shares of Common Stock
which are being offered for sale by the Company in this offering.
26
<PAGE> 28
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Dean Witter Reynolds Inc. and Montgomery
Securities, have severally agreed to purchase from the Company and the Selling
Stockholder the following respective numbers of shares of Common Stock at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated...................................................
Dean Witter Reynolds Inc..........................................................
Montgomery Securities.............................................................
---------
Total........................................................................... 2,000,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company and the Selling Stockholder have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
to certain other dealers. After the public offering, the offering price and
other selling terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 2,000,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,000,000 shares are being offered.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
Officers and directors of the Company have agreed not to offer, sell or
otherwise dispose of any such Common Stock for a period of 90 days after the
date of this Prospectus without the prior consent of Alex. Brown & Sons
Incorporated.
27
<PAGE> 29
LEGAL MATTERS
Certain matters with respect to the legality of the securities offered
hereby will be passed upon for the Company by Pillsbury Madison & Sutro, Menlo
Park, California. Certain legal matters in connection with the securities
offered hereby are being passed upon for the Underwriters by Latham & Watkins,
Costa Mesa, California.
EXPERTS
The consolidated financial statements of the Company appearing in this
Prospectus for the three years ended November 30, 1994 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included herein. Such consolidated financial statements are included herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (of which this
Prospectus is a part) with respect to the shares of Common Stock offered hereby
(the "Shares") under the Securities Act of 1933, as amended, with the
Commission. This Prospectus does not contain all of the information in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For information about the Shares
and the Company, reference is made to the Registration Statement, including the
financial statement schedules and exhibits incorporated by reference therein and
filed as part thereof. Information omitted from this Prospectus but contained in
the Registration Statement may be obtained from the Commission in the manner
described below.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the Commission's regional offices located at 75 Park
Place, 14th Floor, New York, New York 10007 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60621, and at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, on which exchange the
Company's Common Stock is listed. Copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
28
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Vivra Incorporated
We have audited the accompanying consolidated balance sheets of Vivra
Incorporated and subsidiaries as of November 30, 1994 and 1993 and the related
consolidated statements of earnings, stockholders' equity, and cash flow for
each of the three years in the period ended November 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Vivra
Incorporated and subsidiaries at November 30, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 1994, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
January 23, 1995
Los Angeles, California
F-1
<PAGE> 31
VIVRA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
REVENUES
Operating revenues......................................... $284,649 $216,760 $162,255
Other income............................................... 1,870 1,221 1,498
-------- -------- --------
286,519 217,981 163,753
COSTS AND EXPENSES
Operating.................................................. 188,529 148,046 111,722
General and administrative (Note 9)........................ 37,495 20,722 14,113
Depreciation............................................... 9,552 7,196 4,864
Interest (principally on long-term debt)................... 523 912 872
-------- -------- --------
Total costs and expenses................................... 236,099 176,876 131,571
-------- -------- --------
Earnings from Continuing Operations before Income Taxes and
Minority Interest........................................ 50,420 41,105 32,182
Minority Interest.......................................... (10)
-------- -------- --------
Earnings from Continuing Operations before Income Taxes.... 50,410 41,105 32,182
Income Taxes (Note 6)...................................... 20,668 17,263 13,195
-------- -------- --------
Net Earnings from Continuing Operations.................... 29,742 23,842 18,987
Earnings from Discontinued Operations, less applicable
taxes (Note 4)........................................... 554 152
Gain on sale of Discontinued Operations, less applicable
taxes (Note 4)........................................... 697
-------- -------- --------
Net Earnings............................................... $ 30,439 $ 24,396 $ 19,139
======== ======== ========
Earnings Per Share:
Continuing operations.................................... $1.45 $1.19 $.97
Discontinued operations.................................. $ .03 $.01
Gain on sale of discontinued operations.................. $ .03
----- ----- ----
Net Earnings............................................... $1.48 $1.22 $.98
Fully Diluted:
Continuing operations.................................... $1.45 $1.19 $.97
Discontinued operations.................................. $ .03 $.01
Gain on sale of discontinued operations.................. $ .03
----- ----- ----
Net earnings............................................... $1.48 $1.22 $.98
Average Number of Shares:
Primary.................................................. 20,556 20,050 19,526
Fully diluted............................................ 20,556 20,073 19,542
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 32
VIVRA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
ASSETS 1994 1993
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Current Assets
Cash and cash equivalents.............................................. $ 79,509 $ 52,535
Accounts receivable, less allowance for doubtful accounts
(1994 -- $10,321 and 1993 -- $7,527)................................. 51,353 45,089
Prepaid expenses and other current assets.............................. 7,348 5,809
Deferred income taxes (Note 6)......................................... 10,674 6,002
Assets held for sale (Note 4).......................................... 3,727
-------- --------
Total Current Assets................................................... 148,884 113,162
Property, Buildings and Equipment -- at cost, less allowances for
depreciation (Notes 5 and 7)......................................... 65,972 54,444
Other Assets........................................................... 5,335 2,131
Goodwill............................................................... 55,816 37,741
-------- --------
$276,007 $207,478
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable....................................................... $ 9,833 $ 4,184
Accrued payroll and related benefits................................... 23,073 14,954
Other accrued expenses................................................. 10,466 2,481
Income taxes (Note 6).................................................. 1,769 605
Current maturities of long-term debt (Note 7).......................... 6,499 2,604
-------- --------
Total Current Liabilities.............................................. 51,640 24,828
Long-Term Debt -- exclusive of current maturities (Note 7)............. 4,938 4,179
Deferred Income Taxes (Note 6)......................................... 6,184 5,886
Minority Interest...................................................... 1,391 318
Stockholders' Equity (Note 8):
Common Stock, par value $.01 per share; authorized 80,000,000 shares;
issued 20,811,000 shares in 1994 and 19,995,000 in 1993.............. 208 200
Additional paid-in capital............................................. 54,891 45,782
Retained earnings...................................................... 156,755 126,285
-------- --------
211,854 172,267
-------- --------
$276,007 $207,478
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 33
VIVRA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TREASURY STOCK
COMMON ADDITIONAL RETAINED ------------------
STOCK PAID-IN CAPITAL EARNINGS SHARES AMOUNT
------ --------------- -------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at December 1, 1991........... $123 $34,897 $ 83,215
Exercise of employees' stock options,
net of treasury stock transactions
(Note 8)............................ 2 283 42 $(1,198)
Income tax benefits derived from
employee stock option
transactions........................ 1,778
Stock issued in connection with
acquisitions (Note 3)............... 2 3,632 (998)
Net earnings for year................. 19,139
---- ------- -------- --- -------
Balance at November 30, 1992.......... 127 40,590 101,356 42 (1,198)
Common Stock split effected by
three-for-two distribution (Note
8).................................. 64 (103) 21
Cash paid in lieu of issuance of
fractional shares................... (12)
Exercise of employees' stock options,
net of treasury stock transactions
(Note 8)............................ 5 2,522 (63) 1,198
Income tax benefits derived from
employee stock option
transactions........................ 2,776
Stock issued in connection with
acquisitions (Note 3)............... 4 9 533
Net earnings for year................. 24,396
---- ------- -------- --- -------
Balance at November 30, 1993.......... 200 45,782 126,285
Exercise of employees' stock options,
net of treasury stock transactions
(Note 8)............................ 6 4,163
Income tax benefits derived from
employee stock option
transactions........................ 3,514
Stock issued in connection with
acquisition (Note 3)................ 2 1,432 31
Net earnings for year................. 30,439
---- ------- -------- --- -------
Balance at November 30, 1994.......... $208 $54,891 $156,755
==== ======= ======== === =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 34
VIVRA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings............................................... $ 30,439 $ 24,396 $ 19,139
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................ 11,473 8,400 5,990
Assets held for sale..................................... (3,261)
Gain on sale of discontinued operations.................. (1,229)
Loss on sale of property and investments................. 1,061 1 671
Other.................................................... (3,626) (81) 936
Changes in assets and liabilities:
Accounts receivable................................... (1,428) (3,610) 529
Prepaid expenses and other current assets............. (942) (57) (1,948)
Deferred income taxes................................. (4,039) (2,094) (568)
Accounts payable...................................... (818) (44) (511)
Accrued payroll and related benefits.................. 6,430 3,416 5,367
Other accrued expenses................................ 4,761 1,071 532
Income taxes.......................................... 1,129 380 (853)
-------- -------- --------
Net cash flow from operations.................... 43,211 28,517 29,284
FINANCING ACTIVITIES
Payments on long-term debt................................. (3,632) (1,494) (847)
Proceeds from long-term borrowing.......................... 2,838
Proceeds from exercise of stock options and related
transactions............................................. 7,683 6,451 857
-------- -------- --------
Net cash flow from financing..................... 6,889 4,957 10
INVESTING ACTIVITIES
Purchase of property, buildings and equipment.............. (20,524) (12,055) (9,377)
Purchase of marketable securities.......................... (485)
Proceeds from sale of property, buildings and equipment.... 193 14 364
Proceeds from sale of discontinued operations.............. 6,238
Proceeds from investments in partnerships.................. 1,627 1,097
Proceeds from sale of marketable securities................ 1,645
Minority interest investment............................... (1,500)
Payment for business acquisitions, net of cash acquired.... (9,160) (9,885) (23,911)
-------- -------- --------
Net cash flow used in investing.................. (23,126) (20,829) (31,764)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 26,974 12,645 (2,470)
Beginning cash and cash equivalents........................ 52,535 39,890 42,360
-------- -------- --------
Ending cash and cash equivalents........................... $ 79,509 $ 52,535 $ 39,890
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 35
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. In December 1993, the Company sold its home healthcare
nursing business, Personal Care Health Services, and accordingly, its assets and
liabilities as of November 30, 1993 are shown as net assets held for sale. The
related gain on the sale is shown separately in 1994 under discontinued
operations. The 1993 and 1992 results of operations for the home healthcare
nursing business are shown separately under discontinued operations, with the
Consolidated Statement of Earnings restated for comparative purposes. All
significant intercompany transactions have been eliminated in the accompanying
consolidated financial statements.
Goodwill
Goodwill resulting from acquisitions is being amortized on a straight-line
basis over 30-40 years.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Financial Instruments
Financial instruments that potentially subject the Company to significant
concentrations of credit or valuation risk consist of cash investments, accounts
receivable and long-term debt.
The Company's cash is invested primarily in a tax-free municipal money
market fund which consists of a diversified portfolio of short-term investment
grade bonds. Management believes there is limited credit risk associated with
this investment due to the diversity and liquidity of this fund.
The Company's accounts receivable are due primarily from the Medicare and
Medicaid programs; as such, management does not believe they present any
significant credit risk.
The carrying amount reported in the balance sheet for cash and cash
equivalents represents fair value.
Property, Buildings and Equipment
Depreciation is computed on the straight-line method based on the estimated
useful lives of buildings or items of equipment.
Preopening Costs
Costs incurred prior to the opening of new facilities are deferred and
amortized on a straight-line basis over a three-year period.
Operating Revenues
Operating revenues include amounts for services reimbursable by Medicare,
Medicaid, certain Blue Cross and other third-party payers under reimbursement
formulas in effect. Operating revenues are recorded net of any related
contractual allowances. Medicare and Medicaid provided approximately 61% of the
Company's operating revenues in fiscal year 1994, of which 60% was for dialysis
and related pharmacy services and 1% was for ambulatory surgery services. The
balance of revenues, approximately 39%, was from insurance, private and other
third-party payers.
Stock Options
Proceeds from the exercise of stock options are credited to Common Stock to
the extent of par value, and the balance to additional paid-in capital. No
charges or credits are made to earnings with respect to options
F-6
<PAGE> 36
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994
granted or exercised. Income tax benefits derived from the exercise of
non-incentive stock options and from sales of stock obtained from incentive
stock options before the minimum holding period are credited to additional
paid-in capital.
Earnings Per Share
Earnings per share have been computed based upon the weighted average
number of shares of Common Stock outstanding during each year after adjusting
for stock splits and giving effect for Common Stock equivalents arising from
stock options.
2. MARKETABLE SECURITIES
Other income includes net realized losses of $496,000 on security
transactions for the year ended November 30, 1992.
3. ACQUISITIONS
During 1994, the Company acquired five dialysis centers, four in Louisiana
and one in Florida. Total consideration paid was $4,285,000, consisting of cash
of $763,000 and 170,518 shares of the Company's Common Stock, which exceeded the
fair value of assets acquired by approximately $1,810,000.
Also during 1994, the Company acquired eight physician practice and related
businesses. Total consideration paid was $8,759,000, consisting of cash of
$6,559,000 and 86,695 shares of the Company's Common Stock, which exceeded the
fair value of assets acquired by approximately $6,218,000.
In January 1994, the Company purchased a 60% interest in South Coast
Rehabilitation Services, a contract provider of occupational, speech and
physical therapies for skilled nursing and sub-acute facilities, for $3,620,000
in cash, which exceeded the fair value of assets acquired by $3,864,000. The
purchase agreement entitles the selling shareholders to receive further
consideration based upon meeting predetermined earnings targets in the years
1994 through 1997. The 1994 earnings target was not met, therefore, no earnout
payment was made.
In November 1994, the Company purchased certain assets and liabilities of
Allergy Clinics of America, Inc., a provider of outpatient asthma allergy care.
Total consideration paid was $4,750,000, consisting of cash of $1,258,000 and
140,401 shares of the Company's Common Stock, which exceeded the fair value of
assets acquired by approximately $2,088,000. The purchase agreement entitles the
selling shareholders to receive further consideration based upon meeting
predetermined earnings targets in the years 1995 through 1998.
During 1993, the Company acquired six dialysis centers, four in California
and two in Texas. Total consideration paid was $17,900,000, consisting of cash
of $9,900,000 and 442,500 shares of the Company's Common Stock, which exceeded
the fair value of assets acquired by approximately $9,200,000.
During 1992, the Company acquired 11 dialysis centers, five in California,
two in North Carolina, and one each in Connecticut, Georgia, Maryland and
Washington, D.C. Total consideration paid was $16,387,000, consisting of cash of
$14,755,000 and 83,892 shares of the Company's Common Stock, which exceeded the
fair value of assets acquired by approximately $14,689,000.
Effective April 1992, the Company acquired 100% of the outstanding capital
stock of Health Advantage, Inc., a diabetes management company, in exchange for
224,073 shares of the Company's Common Stock with an aggregate market value of
approximately $4,400,000.
In June 1992, the Company acquired all of the outstanding capital stock of
a surgery center located in Auburn, Washington, for 66,453 shares of the
Company's Common Stock with an aggregate market value of approximately
$1,329,000.
F-7
<PAGE> 37
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994
In July 1992, the Company purchased all of the net assets, including land
and buildings, of a surgery center located in Bakersfield, California, for
approximately $9,150,000, which exceeded the fair value of assets acquired by
approximately $5,860,000.
The acquisitions of three dialysis centers in 1994, in addition to one
physician practice, two dialysis centers in 1993, in addition to Health
Advantage, Inc., and the Auburn Washington, surgery center in 1992 have been
accounted for as poolings of interest. Consolidated Financial Statements for the
periods prior to the exchanges have not been restated as the effect of the
poolings were not material to the Company.
The acquisitions of the remaining two dialysis centers, seven physician
practice businesses, the rehabilitation therapy and asthma allergy businesses in
1994, the four dialysis centers in 1993, all the dialysis centers acquired in
1992, and the surgery center in Bakersfield, California, in 1992 have all been
accounted for as purchases and, accordingly, have been included in the statement
of earnings since their dates of acquisition. For the 1994 acquisitions,
including the poolings of interest, the results of operations prior to the dates
of acquisition were not material to the Consolidated Financial Statements.
4. DISCONTINUED OPERATIONS
In December 1993, the Company sold its home healthcare nursing business,
Personal Care Health Services, to National Medical Care, a wholly-owned
subsidiary of W.R. Grace & Co. The cash proceeds net of retained assets,
liabilities and taxes were approximately $5,900,000. Accordingly, the home
healthcare nursing business has been classified as a discontinued operation in
the accompanying Consolidated Statement of Earnings.
Net assets held for sale in the accompanying Consolidated Balance Sheet are
composed of $3,225.000 net current assets and $502,000 of net noncurrent assets
as of November 30, 1993. These amounts consist primarily of accounts receivable,
furniture and equipment and related liabilities.
The sale of home healthcare nursing business resulted in a gain on the sale
of discontinued operations in the accompanying Consolidated Statement of
Earnings of $697,000, net of applicable income tax of $505,000, in 1994.
Revenues applicable to discontinued operations were $17,716,000 and
$18,624,000 in 1993 and 1992, respectively. Earnings from discontinued
operations in the accompanying Consolidated Statement of Earnings were $554,000
and $152,000, net of applicable income tax of $402,000 and $107,000, in 1993 and
1992, respectively.
5. PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment are summarized as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land................................................... $ 6,450 $ 5,976
Buildings and improvements............................. 38,290 34,619
Furniture, fixtures and equipment...................... 63,499 47,287
Construction in progress (estimated costs to complete
at November 1994 -- $2,185,000)...................... 1,006 587
-------- --------
109,245 88,469
Less accumulated depreciation.......................... (43,273) (34,025)
-------- --------
$ 65,972 $ 54,444
======== ========
</TABLE>
F-8
<PAGE> 38
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994
6. INCOME TAXES
Effective December 1, 1993, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 109, Accounting for Income Taxes, which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets. There was no cumulative effect of the change in the
method of accounting for income taxes.
The following deferred tax assets and liabilities included deferred
liabilities totaling $250,000 which were acquired as part of the Company's 1994
acquisitions. Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------
1994 1993
------- ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts......................... $ 4,434 $2,453
Accrued compensation.................................... 2,250 1,132
Accrued workers compensation insurance.................. 1,633 535
Accrued healthcare costs................................ 1,062 932
Other assets............................................ 1,295 950
------- ------
Total deferred tax assets................................. 10,674 6,002
Deferred tax liabilities:
Amortization of intangibles............................. 3,241 3,569
Depreciation............................................ 2,086 2,144
Other liabilities....................................... 857 173
------- ------
Total deferred tax liabilities............................ 6,184 5,886
------- ------
Net deferred tax assets................................... $ 4,490 $ 116
======= ======
</TABLE>
Income tax expense from continuing operations consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................... $19,920 $14,114 $10,280
State....................................... 5,372 3,753 2,657
Deferred (credit)............................. (4,624) (604) 258
------- ------- -------
$20,668 $17,263 $13,195
======= ======= =======
</TABLE>
F-9
<PAGE> 39
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994
Deferred income taxes result from timing differences in the recognition of
certain revenues and expenses for tax and financial statement purposes. The tax
effects of these differences are:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Amortization of intangibles................... $ 606 $ 1,297 $ 929
Provision for doubtful accounts in excess of
amounts written off......................... (1,537)
Accrued compensation.......................... (1,118)
Accrued workers compensation insurance........ (1,098)
Health insurance reserves in excess of claims
paid........................................ (129) (912)
Other......................................... (1,348) (989) (671)
------- ------- -------
$(4,624) $ (604) $ 258
======= ======= =======
</TABLE>
The differences between federal income taxes computed at the statutory rate
and the total provision are:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rate........ $17,643 $14,387 $10,942
State taxes on income, net of federal tax
benefit..................................... 2,937 2,328 1,754
Miscellaneous items........................... 88 548 499
------- ------- -------
$20,668 $17,263 $13,195
======= ======= =======
</TABLE>
The Company made income tax payments, net of refunds received, of
$20,629,000, $14,523,000 and $11,727,000 in 1994, 1993 and 1992, respectively.
7. LONG-TERM DEBT
Long-term debt at November 30, 1994, consists of the following:
<TABLE>
<CAPTION>
PRINCIPAL DUE INSTALLMENTS DUE
WITHIN ONE YEAR AFTER ONE YEAR
--------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
8 1/2% Subordinated Guaranteed Debenture due
1995........................................... $4,138
Physician notes payable, collateralized by deeds
of trust on physician practice assets with a
cost of approximately $5,055,000, interest
ranging from 5 1/2% to 8%, due through 2000.... 2,063 $2,154
Notes payable, collateralized by deeds of trust
on land, buildings and equipment with a cost of
approximately $3,200,000, interest ranging from
7 1/4% to 13 1/2%, due through 2004............ 298 2,784
------ ------
$6,499 $4,938
====== ======
</TABLE>
Interest paid was $433,000, $820,000 and $681,000 in 1994, 1993 and 1992,
respectively.
F-10
<PAGE> 40
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994
The approximate annual maturities of long-term debt at November 30, 1994,
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING NOVEMBER 30, (IN THOUSANDS)
------------------------ --------------
<S> <C>
1995................. $6,499
1996................. 915
1997................. 1,039
1998................. 713
1999................. 537
</TABLE>
8. CAPITAL STOCK AND STOCK OPTIONS
The Company declared a three-for-two stock split for shareholders of record
on November 10, 1993, with shares distributed on November 29, 1993. The number
of shares and the earnings per share shown in the Consolidated Financial
Statements, as well as information in this Note and Note 12, have been restated
to reflect the stock split.
The Company has three stock option plans under which stock options may be
granted.
The Company's 1989 Stock Incentive Plan provides for the granting of
options to purchase Common Stock to officers and other employees. Options may be
granted at not less than 100% of fair market value at the date of grant and are
exercisable at various dates and expire no more than 10 years after the date of
grant. Options may be paid for in cash or by the return of previously acquired
shares of Common Stock. Shares acquired by the Company through option exercises
were 77,378 in 1994, 61,347 in 1993 and 199,380 in 1992. These shares were
included in treasury stock and were valued at market at the date of exercise.
Treasury shares issued in lieu of Common Stock to effect stock option exercises
were 77,378 in 1994, 124,685 in 1993 and 136,042 in 1992.
As of November 30, 1994, 3,464,156 options had been granted, of which
1,014,241 are exercisable and 192,329 remain available for grant.
A summary of activity under the plan during 1992, 1993 and 1994 is as
follows:
<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF SHARES PER SHARE OPTION PRICE
--------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Options outstanding at December 1, 1991....... 1,837,762 $ 5.57-17.60 $17,862
Options granted............................. 533,625 $16.67-20.00 10,074
Options cancelled and expired............... (15,295) $ 6.00-17.92 (155)
Common Stock issued on exercise............. (389,250) $ 5.57-10.78 (2,927)
--------- ------------ -------
Options outstanding at November 30, 1992...... 1,966,842 $ 5.57-20.00 24,854
Options granted............................. 484,875 $15.83-23.25 8,387
Options cancelled and expired............... (22,580) $ 5.57-19.33 (377)
Common Stock issued on exercise............. (550,627) $ 5.57-18.67 (4,764)
--------- ------------ -------
Options outstanding at November 30, 1993...... 1,878,510 $ 6.00-23.25 28,100
Options granted............................. 455,475 $20.00-28.38 11,790
Options cancelled and expired............... (11,340) $ 6.00-17.58 (182)
Common Stock issued on exercise............. (450,353) $ 7.30-20.00 (4,384)
--------- ------------ -------
Options outstanding at November 30, 1994...... 1,872,292 $ 6.81-28.38 $35,324
========= ============ =======
</TABLE>
The market value of the Company's Common Stock at the date the options were
exercised was $19.63-$28.75 for 1994, $15.33-$23.67 for 1993 and $16.84-$25.77
for 1992.
F-11
<PAGE> 41
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994
The Company adopted the Transition Consultants Stock Option Plan in
connection with its spin-off from Community Psychiatric Centers on August 31,
1989. On that date options were granted to purchase 877,500 shares of the
Company's Common Stock to four employees of Community Psychiatric Centers at
$8.73, which was the fair market value at that date. As of November 30, 1994,
339,400 shares remain available for exercise, all of which are exercisable.
A summary of activity under the plan during 1992, 1993 and 1994 is as
follows:
<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF SHARES PER SHARE OPTION PRICE
--------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Options outstanding at December 1, 1991 and 1992... 559,875 $8.73 $ 4,888
Common Stock issued on exercise.................. (34,875) $8.73 (305)
-------- ------ -------
Options outstanding at November 30, 1993........... 525,000 $8.73 $ 4,583
Common Stock issued on exercise.................. (185,600) $8,73 (1,620)
-------- ----- -------
Options outstanding at November 30, 1994........... 339,400 $8.73 $ 2,963
======== ===== =======
</TABLE>
The market value of the Company's Common Stock at the date the options were
exercised was $18.33-$21.83 for 1993 and $22.00-$29.00 for 1994.
During 1992, the Company established the Surgical Partners of America,
Inc., 1992 Stock Option Plan. The plan provides for the granting of options to
purchase common stock of the Company's subsidiary, Surgical Partners of America,
Inc., to officers and other employees. Options may be granted at not less than
100% of the fair market value at the date of grant and are exercisable at
various dates and expire no more than 10 years after the date of grant. Options
may be paid for in cash or by the return of previously acquired shares of common
stock. Upon exercise, the optionee is entitled at specific junctures to put
shares received under the plan to the Company. The put price shall be the fair
market value on the date of the put.
As of November 30, 1994, 384,228 options had been granted, of which 225,772
are exercisable, and 455,772 remain available for grant.
A summary of activity under the plan during 1992, 1993 and 1994 is as
follows:
<TABLE>
<CAPTION>
NUMBER AGGREGATE
OF SHARES PER SHARE OPTION PRICE
--------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Options granted on May 18, 1992.................... 238,430 $ .10 $ 24
Options granted.................................. 145,798 $.50-1.65 174
------- --------- ----
Options outstanding at November 30, 1992........... 384,228 $.10-1.65 198
Options cancelled and expired.................... (73,442) $.50-1.65 (63)
------- --------- ----
Options outstanding at November 30, 1993........... 310,786 $.10-1.65 135
Options cancelled and expired.................... (36,232) $.10-1.65 (14)
------- --------- ----
Options outstanding at November 30, 1994........... 274,554 $.10-1.65 $121
======= ========= ====
</TABLE>
9. PROFIT SHARING AND 401(K) PLAN
The Company's Profit Sharing Plan ("the Plan") is a noncontributory,
trusteed profit sharing plan. All regular non-union employees in the United
States (union employees are eligible if the collective bargaining agreement so
specifies) with at least 1,000 hours of service per annum, over 21 years of age,
and employed at fiscal year-end are eligible for participation in the Plan after
one year of employment. Contributions to the Plan are discretionary and are
determined annually by the Board of Directors. Effective February 1, 1993, the
Plan was amended to add a 401(k) provision. Employees may make voluntary
contributions of up to 10% of
F-12
<PAGE> 42
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994
their before tax compensation under the 401(k) provision of the Plan and may
also contribute up to an additional 10% of their after tax compensation in
accordance with the original Plan provisions.
Contributions to the Plan by the Company were $3,134,000, $1,574,000 and
$1,021,000 for 1994, 1993 and 1992, respectively.
10. BUSINESS SEGMENT INFORMATION
The Company is engaged in two principal business segments, Chronic Services
and Other Services. Chronic Services consists of the dialysis, diabetes
management, asthma allergy care and specialty pharmacy services businesses.
Other Services consists of the rehabilitation therapy, ambulatory surgery and
physician practice management businesses.
The following tables have been prepared in accordance with the requirements
of FASB Statement No. 14. This information has been derived from the Company's
accounting records and represents the Company's estimates as to proper
allocation of certain expenses.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues:
Chronic Services......................................... $257,441 $210,533 $160,152
Other Services........................................... 27,208 6,227 2,103
-------- -------- --------
Total operating revenues.............................. $284,649 $216,760 $162,255
======== ======== ========
Operating profit:
Chronic Services......................................... $ 54,616 $ 44,500 $ 35,179
Other Services........................................... (790) 199 (663)
-------- -------- --------
Total operating profit................................ $ 53,826 $ 44,699 $ 34,516
======== ======== ========
Other income............................................... 1,870 1,221 1,498
Corporate expenses......................................... (4,753) (3,903) (2,960)
Interest expense........................................... (523) (912) (872)
-------- -------- --------
Earnings from continuing operations before income
taxes and minority interest......................... $ 50,420 $ 41,105 $ 32,182
======== ======== ========
Identifiable assets:
Chronic Services......................................... $158,783 $135,390 $109,714
Other Services........................................... 26,044 12,278 10,751
Assets held for sale/Home Nursing Services............... 3,727 6,207
Corporate................................................ 91,180 56,083 43,503
-------- -------- --------
$276,007 $207,478 $170,175
======== ======== ========
Depreciation expense:
Chronic Services......................................... $ 8,710 $ 6,746 $ 4,649
Other Services........................................... 717 337 127
Corporate................................................ 125 113 88
-------- -------- --------
$ 9,552 $ 7,196 $ 4,864
======== ======== ========
</TABLE>
F-13
<PAGE> 43
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Capitalized expenditures for property, buildings and
equipment(1):
Chronic Services......................................... $ 14,949 $ 10,258 $ 9,095
Other Services........................................... 5,519 1,663 136
Home Nursing Services.................................... 107
Corporate................................................ 56 134 39
-------- -------- --------
$ 20,524 $ 12,055 $ 9,377
======== ======== ========
</TABLE>
- ---------------
(1) Excludes assets acquired in business acquisitions of $2,107,000, $1,540,000
and $6,165,000 in 1994, 1993 and 1992, respectively.
11. COMMITMENTS AND CONTINGENCIES
Commitments
The Company rents office facilities under lease agreements which are
classified for financial statement purposes as operating leases. The future
minimum rental commitments under noncancellable operating leases at November 30,
1994, are summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1995........................... $ 9,149
1996........................... 7,862
1997........................... 5,902
1998........................... 4,472
1999........................... 3,260
</TABLE>
Total rental expenses amounted to $8,041,000, $6,252,000 and $4,669,000 in
1994, 1993 and 1992, respectively.
Contingencies
On May 20, 1992, in the Pennsylvania Court of Common Pleas in Delaware
County, a complaint was filed against the Company's subsidiary, Community
Dialysis Centers (CDC). In September 1993, the court determined that the suit
could proceed as a class action on behalf of 93 patients, subsequently reduced
to 74, who were treated at one of the CDC facilities, some of whom are alleged
to have died from or have been injured during the course of treatment.
Unspecified compensatory and punitive damages are being claimed. Since May 20,
1992, four other individual actions have been filed asserting similar claims.
The Company's insurer has assumed defense of these actions, and the merit
of the claims and the extent of the damages are still under investigation. As
the investigation is not complete, management is unable to make an informed
judgment as to the ultimate resolution of such proceedings and their impact on
the results of operations; however, it believes insurance coverage is sufficient
to cover any losses likely to result from these actions and therefore any such
claims should not have a material adverse effect on the Company's financial
condition.
The Company is also subject to other claims and suits in the ordinary
course of business. Management believes that insurance is adequate to cover any
such claims and the outcome of such claims should not have a material adverse
effect on the Company's results of operations or financial condition.
F-14
<PAGE> 44
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly data for the three
years ended November 30, 1994.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
FEBRUARY 28/29 MAY 31 AUGUST 31 NOVEMBER 30
-------------- ------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND PRICE DATA)
<S> <C> <C> <C> <C>
1994
Total revenues.................................. $ 63,536 $69,602 $73,887 $77,624
Earnings from continuing operations............. 6,840 7,403 7,678 7,821
Gain on sale of discontinued operations......... 697
-------- ------- ------- -------
Net earnings.................................... 7,537 7,403 7,678 7,821
Earnings per share:
Primary:
Continuing operations......................... .34 .36 .37 .38
Gain on sale of discontinued operations....... .03
-------- ------- ------- -------
Net earnings.................................. .37 .36 .37 .38
Fully diluted:
Continuing operations......................... .34 .36 .37 .38
Gain on sale of discontinued operations....... .03
-------- ------- ------- -------
Net earnings.................................. .37 .36 .37 .38
Stock prices:
High.......................................... 26 26 5/8 25 5/8 29 1/2
Low........................................... 19 5/8 22 3/4 22 3/4 25 1/2
1993
Total revenues.................................. $ 48,693 $52,377 $56,115 $59,575
Earnings from continuing operations............. 5,293 5,862 6,361 6,326
Earnings from discontinued operations........... 84 163 151 156
-------- ------- ------- -------
Net earnings.................................... 5,377 6,025 6,512 6,482
Earnings per share:
Primary:
Continuing operations......................... .28 .30 .31(1) .31
Discontinued operations....................... .01 .01 .01
-------- ------- ------- -------
Net earnings.................................. .28 .31 .32 .32
Fully diluted:
Continuing operations......................... .28 .30 .31(1) .31
Discontinued operations....................... .01 .01 .01
-------- ------- ------- -------
Net earnings.................................... .28 .31 .32 .32
Stock prices:
High.......................................... 19 7/8 18 2/3 23 1/4 23 2/3
Low........................................... 15 1/8 14 7/8 18 18 7/8
</TABLE>
F-15
<PAGE> 45
VIVRA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1994
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
FEBRUARY 28/29 MAY 31 AUGUST 31 NOVEMBER 30
-------------- ------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND PRICE DATA)
<S> <C> <C> <C> <C>
1992
Total revenues.................................. $34,935 $36,877 $43,881 $46,562
Earnings from continuing operations............. 4,380 4,708 4,845 5,054
Earnings from discontinued operations........... 81 37 15 19
------- ------- ------- -------
Net earnings.................................... 4,461 4,745 4,860 5,073
Earnings per share:
Primary:
Continuing operations......................... .23 .24 .25 .25
Discontinued operations(2)
------- ------- ------- -------
Net earnings.................................. .23 .24 .25 .25
Fully diluted:
Continuing operations......................... .23 .24 .25 .25
Discontinued operations(2)
------- ------- ------- -------
Net earnings.................................. .23 .24 .25 .25
Stock prices:
High.......................................... 25 1/8 21 1/8 20 1/2 20
Low........................................... 17 7/8 18 1/2 16 3/8 16 5/8
</TABLE>
- ---------------
(1) As a result of rounding and the restatement of earnings from continuing
operations in 1993, year to date third quarter earnings per share from
continuing operations is $.88 rather than $.89.
(2) Earnings related to the discontinued operations for the 1992 year totaled
$.01; however, no individual quarter exceeded $.005.
F-16
<PAGE> 46
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference............................... 2
Prospectus Summary........................ 3
Investment Considerations................. 4
Use of Proceeds........................... 7
Price Range of Common Stock............... 7
Dividend Policy........................... 7
Capitalization............................ 8
Selected Consolidated Financial
Information............................. 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 10
Business.................................. 13
Management................................ 24
Selling Stockholder....................... 26
Underwriting.............................. 27
Legal Matters............................. 28
Experts................................... 28
Available Information..................... 28
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
MONTGOMERY SECURITIES
February , 1995
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 47
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses being paid by the
Company in connection with the sale and distribution of the securities being
registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the New York Stock Exchange fee and the National Association of
Securities Dealers, Inc. filing fee. None of the expenses will be paid by the
selling stockholder.
<TABLE>
<CAPTION>
PAYABLE BY REGISTRANT
---------------------
<S> <C>
SEC registration fee....................................................... $ 23,580
NASD filing fee............................................................ 5,546
New York Stock Exchange listing fee........................................ 6,038
Blue Sky fees and expenses................................................. 10,000
Accounting fees and expenses............................................... 20,000
Legal fees and expenses.................................................... 60,000
Printing expenses.......................................................... 70,000
Registrar and transfer agent's fees and expenses........................... 5,000
Miscellaneous.............................................................. 9,836
--------
Total............................................................ $210,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits the Company's
board of directors to indemnify any person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding in which such person is made a party by
reason of his being or having been a director, officer, employee or agent of the
Company, in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act"). The
statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise.
Article 8 of the Company's Restated Certificate of Incorporation provides
for indemnification of its directors, officers, employees and other agents to
the maximum extent permitted by law. In addition, the Company has entered into
separate indemnification agreements with its directors and officers that will
require the Company, among other things, to indemnify them against certain
liabilities that may arise by reason of their status or service as directors or
officers to the fullest extent not prohibited by law.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Company, its directors and officers, and by the Company and the Selling
Stockholder of the Underwriters, for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement.
4.1 Form of Common Stock Certificate (filed as Exhibit 4C to Registrant's
Registration Statement on Form 10, File No. 1-10621 and incorporated in
full herein by this reference).
</TABLE>
II-1
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
4.2 Form of Rights Agreement between Registrant and Bank of America National
Trust and Savings Association (filed as Exhibit 4D to Registrant's
Registration Statement on Form 10, File No. 1-10621 and incorporated in
full herein by this reference).
4.3 Certificate of Designation of Series A Junior Participating Preferred
Stock (filed as Exhibit 3.2 to Registrant's Registration Statement on Form
S-1, File No. 33-34438 and incorporated in full herein by this reference).
5.1* Opinion of Pillsbury Madison & Sutro.
23.1 Consent of Pillsbury Madison & Sutro (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1* Powers of Attorney of certain officers and directors of the Company.
24.2* Power of Attorney of David G. Conner, M.D.
</TABLE>
- ---------------
* Previously filed
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Company hereby undertakes:
(1) the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 487(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective;
(2) each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof; and
(3) each filing of the Company's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-2
<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
the Registration Statement on Form S-3 to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Burlingame and State of
California on February 8, 1995.
VIVRA INCORPORATED
By /s/ LEANNE ZUMWALT
---------------------------------
(LeAnne Zumwalt,
Vice President -- Finance)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-3 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KENT J. THIRY* Director, President and February 8, 1995
------------------------------------------ Chief Executive Officer
(Kent J. Thiry) (Principal Executive
Officer)
/s/ DAVID G. CONNOR, M.D.* February 8, 1995
------------------------------------------ Director
(David G. Connor, M.D.)
/s/ JOHN M. NEHRA* February 8, 1995
------------------------------------------ Director
(John M. Nehra)
/s/ RICHARD B. FONTAINE* February 8, 1995
------------------------------------------ Director
(Richard B. Fontaine)
/s/ STEPHEN G. PAGLIUCA* February 8, 1995
------------------------------------------ Director
(Stephen G. Pagliuca)
LEANNE ZUMWALT Director and Vice February 8, 1995
------------------------------------------ President -- Finance
(LeAnne Zumwalt) (Principal Accounting
Officer)
/s/ WILLIAM H. MALKMUS* Treasurer and Secretary February 8, 1995
------------------------------------------ (Principal Financial
(William H. Malkmus) Officer)
*By /s/ LEANNE ZUMWALT
------------------------------------------
LeAnne Zumwalt
Attorney-in-fact
</TABLE>
II-3
<PAGE> 50
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1 Form of Underwriting Agreement
4.1 Form of Common Stock Certificate (filed as Exhibit 4C to Registrant's Registration
Statement on Form 10, File No. 1-10621 and incorporated in full herein by this
reference).
4.2 Form of Rights Agreement between Registrant and Bank of America National Trust and
Savings Association (filed as Exhibit 4D to Registrant's Registration Statement on
Form 10, File No. 1-10621 and incorporated in full herein by this reference).
4.3 Certificate of Designation of Series A Junior Participating Preferred Stock (filed
as Exhibit 3.2 to Registrant's Registration Statement on Form S-1, File No.
33-34438 and incorporated in full herein by this reference).
5.1* Opinion of Pillsbury Madison & Sutro.
23.1 Consent of Pillsbury Madison & Sutro (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1* Powers of Attorney of certain officers and directors of the Company.
24.2* Power of Attorney of David G. Conner, M.D.
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
2,000,000 Shares
VIVRA INCORPORATED
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
February __, 1995
Alex. Brown & Sons Incorporated
Dean Witter Reynolds Inc.
Montgomery Securities
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
Vivra Incorporated, a Delaware corporation (the "Company"),
and a certain stockholder of the Company (the "Selling Stockholder") propose to
sell to the several underwriters (the "Underwriters") named in Schedule I
hereto for whom you are acting as representatives (the "Representatives") an
aggregate of 2,000,000 shares of the Company's Common Stock, $.01 par value
(the "Firm Shares"), of which 1,925,000 shares will be sold by the Company and
75,000 shares will be sold by the Selling Stockholder. The respective amounts
of the Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto. The Company and the Selling
Stockholder are sometimes referred to herein collectively as the "Sellers."
The Company also proposes to sell at the Underwriters' option an aggregate of
up to 300,000 additional shares of the Company's Common Stock (the "Option
Shares") as set forth below.
As the Representatives, you have advised the Company and the
Selling Stockholder (a) that you are authorized to enter into this Agreement on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their pro
rata portion of the Option Shares if you elect to exercise the over-allotment
option in whole or in part for the accounts of the several Underwriters. The
Firm Shares and the Option Shares (to the extent the aforementioned option is
exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and
of the interests of the parties in the transactions contemplated hereby, the
parties hereto agree as follows:
<PAGE> 2
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDER.
(a) The Company represents and warrants as follows:
(i) A registration statement on Form S-3
(File No. 33-88478) with respect to the Shares has been carefully prepared by
the Company in conformity with the requirements of the Securities Act of 1933,
as amended, (the "Act") and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder and has been filed with the Commission under the Act. The Company
has complied with the conditions for the use of Form S-3. Copies of such
registration statement, including any amendments thereto, the preliminary
prospectuses (meeting the requirements of Rule 430A of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, and any and all documents
incorporated by reference therein, have heretofore been delivered by the
Company to you. Such registration statement, herein referred to as the
"Registration Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, has been declared effective by the Commission under the Act
and no post-effective amendment to the Registration Statement has been filed as
of the date of this Agreement. The form of prospectus first filed by the
Company with the Commission pursuant to its Rule 424(b) and Rule 430A is herein
referred to as the "Prospectus." Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus." Any reference herein to any
Preliminary Prospectus or the Prospectus shall be deemed to refer to and
include the documents incorporated by reference therein, as of the date of such
Preliminary Prospectus or Prospectus, as the case may be, and, in the case of
any reference herein to any Prospectus, also shall be deemed to include any
documents incorporated by reference therein, and any supplements or amendments
thereto, filed with the Commission after the date of filing of the Prospectus
under Rules 424(b) and 430A, and prior to the termination of the offering of
the Shares by the Underwriters.
(ii) The Company has been duly organized
and is validly existing as a corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own its properties and
conduct its business as described in the Registration Statement; each of the
subsidiaries of the Company as listed in Exhibit 21 to the Annual Report of the
Company on Form 10K for the fiscal year ended November 30, 1994 (collectively,
the "Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration Statement;
the Company and each of the Subsidiaries are duly qualified to transact
business in all jurisdictions in which the conduct of their business requires
such qualification; the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable and are owned by the Company or another Subsidiary free and
clear of all liens, encumbrances and security interests; and no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital stock or
ownership interests in the Subsidiaries are outstanding, except as included in
the Exhibit 21 to the Company Annual Report on Form 10-K for the year ended
December 31, 1994 or in the Notes to the consolidated financial statements
contained therein.
(iii) The outstanding shares of Common
Stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable; the Shares to be issued and sold by the Company have
been duly authorized and when issued and paid for as contemplated herein will
2
<PAGE> 3
be validly issued, fully paid and non-assessable; and no preemptive rights of
stockholders exist with respect to any of the Shares or the issue and sale
thereof.
(iv) The Shares conform with the
statements concerning them in the Registration Statement.
(v) The Commission has not issued an
order preventing or suspending the use of any Preliminary Prospectus relating
to the proposed offering of the Shares nor instituted proceedings for that
purpose. The Registration Statement contains and the Prospectus and any
amendments or supplements thereto will contain all statements which are
required to be stated therein by, and in all respects conform or will conform,
as the case may be, to the requirements of, the Act and the Rules and
Regulations. The documents incorporated by reference in the Prospectus, at the
time they were or will be filed with the Commission did or will conform at the
time of the filing, in all material respects to the requirements of the
Securities Exchange Act of 1934 or the Act, as applicable, and the Rules and
Regulations of the Commission thereunder. Neither the Registration Statement
nor any amendment thereto, and neither the Prospectus nor any supplement
thereto, including any documents incorporated by reference therein, contains or
will contain, as the case may be, any untrue statement of a material fact or
omits or will omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company makes
no representations or warranties as to information contained in or omitted from
the Registration Statement or the Prospectus, or any such amendment or
supplement, or any documents incorporated by reference therein, in reliance
upon, and in conformity with, written information furnished to the Company by
or on behalf of any Underwriter through the Representatives, specifically for
use in the preparation thereof.
(vi) The consolidated financial
statements of the Company and the Subsidiaries, together with the related notes
and schedules as set forth or incorporated by reference in the Registration
Statement, present fairly the financial position and the results of operations
of the Company and the Subsidiaries consolidated, at the indicted dates and for
the indicated periods. Such financial statements have been prepared in
accordance with generally accepted principles of accounting, consistently
applied throughout the periods involved, and all adjustments necessary for a
fair presentation of results for such periods have been made. The summary
financial and statistical data included or incorporated by reference in the
Registration Statement presents fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein.
(vii) Except as otherwise disclosed in the
Prospectus, there is no action or proceeding pending or, to the knowledge of
the Company, threatened against the Company or any of the Subsidiaries before
any court or administrative agency which might result in any material adverse
change in the business or condition of the Company and of the Subsidiaries
taken as a whole, except as set forth in the Registration Statement.
(viii) The Company and the Subsidiaries
have good and marketable title to all of the properties and assets reflected in
the financial statements (or as described in the Registration Statement)
hereinabove described, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial statements (or
as described in the Registration Statement) or which are not material in
amount. The Company and the Subsidiaries occupy their leased properties under
valid and binding leases conforming to the description thereof set forth in the
Registration Statement.
3
<PAGE> 4
(ix) The Company and the Subsidiaries
have filed all federal, state and foreign income tax returns which have been
required to be filed and have paid all taxes indicated by said returns and all
assessments received by them or any of them to the extent that such taxes have
become due.
(x) Since the respective dates as of
which information is given in the Registration Statement, as it may be amended
or supplemented, there has not been any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and its Subsidiaries taken as
a whole or the earnings, business affairs, management, or business prospects of
the Company and its Subsidiaries taken as a whole, whether or not occurring in
the ordinary course of business, and there has not been any material
transaction entered into by the Company or the Subsidiaries, other than
transactions in the ordinary course of business and changes and transactions
contemplated by the Registration Statement, as it may be amended or
supplemented. The Company and the Subsidiaries have no material contingent
obligations which are not disclosed in the Registration Statement, as it may be
amended or supplemented.
(xi) Neither the Company nor any of the
Subsidiaries is in default under any agreement, lease, contract, indenture or
other instrument or obligation to which it is a party or by which it or any of
its properties is bound and which default is of material significance in
respect of the business or financial condition of the Company and the
Subsidiaries taken as a whole. The consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or any Subsidiary is a party, or of the Charter
or by-laws of the Company or any order, rule or regulation applicable to the
Company or any Subsidiary of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(xii) Each approval, consent, order,
authorization, designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with the
execution and delivery by the Company of this Agreement and the consummation of
the transactions herein contemplated (except such additional steps as may be
required by the National Association of Securities Dealers, Inc. (the "NASD")
or may be necessary to qualify the Shares for public offering by the
Underwriters under State securities or Blue Sky laws) has been obtained or made
and is in full force and effect.
(xiii) The Company and each of the
Subsidiaries holds all material licenses, certificates and permits from
governmental authorities which are necessary to the conduct of their
businesses; and neither the Company nor any of the Subsidiaries has infringed
any patents, patent rights, trade names, trademarks or copyrights, which
infringement is material to the business of the Company and the Subsidiaries
taken as a whole.
(xiv) Ernst & Young LLP, who have
certified certain of the financial statements filed with the Commission as part
of, or incorporated by reference in, the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(b) The Selling Stockholder represents and
warrants as follows:
(i) Such Selling Stockholder at the
Closing Date (as such date is hereinafter defined) will have good and valid
title to the Firm Shares to be sold by such Selling
4
<PAGE> 5
Stockholder, free of any liens, encumbrances, equities and claims, and full
right, power and authority to effect the sale and delivery of such Firm Shares;
and upon the delivery of and payment for such Firm Shares pursuant to this
Agreement, good and valid title thereto, free of any liens, encumbrances,
equities and claims, will be transferred to the several Underwriters.
(ii) The consummation by such Selling
Stockholder of the transactions herein contemplated and the fulfillment by such
Selling Stockholder of the terms hereof will not result in a breach of any of
the terms and provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which such Selling
Stockholder is a party, or of any order, rule or regulation applicable to such
Selling Stockholder of any court or of any regulatory body or administrative
agency or other governmental body having jurisdiction.
(iii) Such Selling Stockholder has not
taken and will not take, directly or indirectly, any action designed to, or
which has constituted, or which might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock of the
Company.
(iv) The Selling Stockholder (A) has no
reason to believe that the representations and warranties of the Company
contained in this Section 1 are not true and correct, (B) is familiar with the
Registration Statement and has no knowledge of any material fact, condition or
information not disclosed in the Registration Statement or the documents
incorporated by reference therein which has adversely affected or may adversely
affect the business of the Company or any of the Subsidiaries, and (C) the sale
of the Firm Shares by such Selling Stockholder pursuant hereto is not prompted
by any information concerning the Company or any of the Subsidiaries which is
not set forth in the Registration Statement or the documents incorporated by
reference therein.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES. On
the basis of the representations, warranties and covenants herein contained,
and subject to the conditions herein set forth, the Sellers agree to sell to
the Underwriters and each Underwriter agrees, severally and not jointly, to
purchase, at a price of $ ______________ per share, the number of Firm Shares
set forth opposite the name of each Underwriter in Schedule I hereof, subject
to adjustments in accordance with Section 9 hereof. The number of Firm Shares
to be purchased by each Underwriter from each Seller shall be as nearly as
practicable in the same proportion to the total number of Firm Shares being
sold by each Seller as the number of Firm Shares being purchased by each
Underwriter bears to the total number of Firm Shares to be sold hereunder. The
obligations of the Company and of the Selling Stockholder shall be several and
not joint.
The Shares to be sold hereunder by the Selling
Stockholder are expected to be issued upon exercise of certain stock options
granted by the Company to the Selling Stockholder. The option agreement
for such options and an irrevocable instruction of exercise (the
"Instruction of Exercise") has been delivered by the Selling Stockholder to
the Representatives. The Selling Stockholder specifically agrees that the
delivery of the option agreement and the Instruction of Exercise are
irrevocable, and that the obligations of the Selling Stockholder hereunder
shall not be terminable by any act or deed of the Selling Stockholder (or by
any other person, firm or corporation including the Company or the
Underwriters) or by operation of law (including the death of the Selling
Stockholder) or by the occurrence of any other event or events. If any such
event should occur prior to the delivery to the Underwriters of the Firm
Shares hereunder, certificates for the Firm Shares, shall be delivered in
accordance with the terms and conditions of this Agreement as if such event
had not occurred.
5
<PAGE> 6
Payment for the Firm Shares to be sold hereunder is
to be made in New York Clearing House funds by certified or bank cashier's
checks drawn to the order of the Company for the shares to be sold by it and to
the order of "Kent J. Thiry" for the shares to be sold by the Selling
Stockholder, subject to such payment instructions as may be delivered to the
Representatives on or before the Closing Date, in each case against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made at the offices of Alex.
Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland, at
10:00 a.m., Baltimore time, on the fifth business day after the date of this
Agreement or at such other time and date not later than five business days
thereafter as you and the Company shall agree upon, such time and date being
herein referred to as the "Closing Date." (As used herein, "business day"
means a day on which the New York Stock Exchange is open for trading and on
which banks in New York are open for business and not permitted by law or
executive order to be closed.) The certificates for the Firm Shares will be
delivered in such form, in such denominations and in such registrations as the
Representatives request in writing not later than the third full business day
prior to the Closing Date, and will be made available for inspection, if such
certificates are to be delivered in certificated form, by the Representatives
at least one business day prior to the Closing Date.
In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in
whole or in part but only once and at any time upon written notice given 30
days after the date of this Agreement, by you, as Representatives of the
several Underwriters, to the Company setting forth the number of Option Shares
as to which the several Underwrites are exercising the option, the names and
denominations in which the Option Shares are to be registered and the time and
date at which such certificates are to be delivered. The time and date at
which certificates for Option Shares are to be delivered shall be determined by
the Representatives but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "Option
Closing Date"). If the date of exercise of the option is three or more days
before the Closing Date, the notice of exercise shall set the Closing Date as
the Option Closing Date. The number of Option Shares to be purchased by each
Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares, adjusted by you in such
manner as to avoid fractional shares. The option with respect to the Option
Shares granted hereunder may be exercised only to cover over-allotments in the
sale of the Firm Shares by the Underwriters. You, as Representatives of the
several Underwriters, may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Company. To
the extent, if any, that the option is exercised, payment for the Option Shares
shall be made on the Option Closing Date in New York Clearing House funds by
certified or bank cashier's check drawn to the order of the Company against
delivery of certificates therefor at the offices of Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland.
3. OFFERING BY THE UNDERWRITERS. It is understood that
the several Underwriters are to make a public offering of the Firm Shares as
soon as the Representatives deem it advisable to do so. The Firm Shares are to
be initially offered to the public at the initial public offering price set
forth in the Prospectus. The Representatives may from time to time thereafter
change the public offering price and other selling terms. To the extent, if at
all, that any Option Shares are purchased pursuant to Section 2 hereof, the
Underwriters will offer them to the public on the foregoing terms. It is
further understood that you will act as the Representatives for the
Underwriters in the offering and sale
6
<PAGE> 7
of the Shares in accordance with a Master Agreement Among Underwriters entered
into by you and the several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDER.
(a) The Company covenants and agrees with the
several Underwriters and the Selling Stockholder that:
(i) The Company will (A) prepare and
timely file with the Commission under Rule 424(b) of the Rules and Regulations
a Prospectus containing information, if any, previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Rules and Regulations, (B) not file any amendment to the Registration Statement
or supplement to the Prospectus or document incorporated by reference therein
of which the Representatives shall not previously have been advised and
furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Rules and
Regulations and (C) file on a timely basis all reports and any definitive proxy
or information statements required to be filed by the Company with the
Commission subsequent to the date of the Prospectus and prior to the
termination of the offering of the Shares by the Underwriters.
(ii) The Company will advise the
Representatives promptly of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, or of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose, and the
Company will use its best efforts to prevent the issuance of any such stop
order preventing or suspending the use of the Prospectus and to obtain as soon
as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the
Representatives in endeavoring to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representatives may reasonably
have designated in writing and will make such applications, file such
documents, and furnish such information as may be reasonably required for that
purpose, provided the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a
consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon
the order of, the Representatives, from time to time, as many copies of any
Preliminary Prospectus as the Representatives may reasonably request. The
Company will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as many copies
of the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto including all exhibits filed
therewith, and will deliver to the Representatives such number of copies of the
Registration Statement, including documents incorporated by reference therein,
but without exhibits, and of all amendments thereto, as the Representatives may
reasonably request. The Company will deliver to the Representatives a copy of
all documents incorporated by reference in the Prospectus after the date of
effectiveness of the Registration Statement on the date that such documents are
filed with the Commission.
7
<PAGE> 8
(v) If during the period in which a
prospectus is required by law to be delivered by an Underwriter or dealer any
event shall occur as a result of which, in the judgment of the Company or in
the opinion of counsel for the Underwriters, it becomes necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
either (A) prepare and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus or (B) prepare and file
with the Commission an appropriate filing under the Securities Exchange Act of
1934 which shall be incorporated by reference in the Prospectus so that the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with the law.
(vi) The Company will make generally
available to its security holders, as soon as it is practicable to do so, but
in any event not later than 15 months after the effective date of the
Registration Statement, an earning statement which complies with Rule 158 of
the Rules and Regulations covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement, which earning
statement shall satisfy the requirements of Section 11(a) of the Act and will
advise you in writing when such statement has been so made available.
(vii) The Company will, for a period of
five years from the Closing Date, deliver to the Representatives copies of
annual reports and copies of all other documents, reports and information
furnished by the Company to its stockholders or filed with any securities
exchange pursuant to the requirements of such exchange or with the Commission
pursuant to the Act or the Securities Exchange Act of 1934, as amended. The
Company will deliver to the Representatives similar reports, documents and
information furnished to stockholders if filed with any securities exchange
with respect to significant subsidiaries, as that term is defined in the Rules
and Regulations, which are not consolidated in the Company's financial
statements.
(viii) No offering, sale or other
disposition of any Common Stock of the Company will be made for a period of 90
days after the date of this Agreement, directly or indirectly, by the Company
otherwise than hereunder or with the prior written consent of the
Representatives except that the Company may, without such consent, issue shares
upon the exercise of options outstanding on the date of this Agreement issued
pursuant to the 1989 Revised Stock Incentive Plan and grant options pursuant to
such Plan.
(ix) The Company will use its best
efforts to list, subject to notice of issuance, the Shares on the New York
Stock Exchange.
(b) The Selling Stockholder covenants and agrees with the
several Underwriters and the Company that:
(i) No offering, sale or other disposition of any
Common Stock of the Company will be made for a period of 90 days after the date
of this Agreement, directly or indirectly, by such Selling Stockholder
otherwise than hereunder or with the prior written consent of Alex. Brown &
Sons Incorporated.
(ii) In order to document the Underwriters'
compliance with the reporting and withholding provisions of the Tax Equity and
Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax Compliance
Act of 1983 with respect to the transactions herein contemplated, the Selling
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Stockholder agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by the Treasury Department regulations
in lieu thereof).
5. COSTS AND EXPENSES. The Company will pay all costs,
expenses and fees incident to the performance of the obligations of the Sellers
under this Agreement, including, without limiting the generality of the
foregoing, the following: accounting fees of the Company; the fees and
disbursements of counsel for the Company; the cost of printing and delivering
to, or as requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the Agreement Among
Underwriters, the Underwriters' Selling Memorandum, the Underwriters'
Questionnaire, the Invitation Letter, the Power of Attorney, the Listing
Application, the Blue Sky Survey and any supplements or amendments thereto; the
filing fees of the Commission; the filing fees and expenses incident to
securing any required review by the National Association of Securities Dealers,
Inc. (the "NASD") of the terms of the sale of the Shares; the Listing Fee of
the New York Stock Exchange; and the expenses, including the fees and
disbursements of counsel for the Underwriters, incurred in connection with the
qualification of the Shares under State securities of Blue Sky laws. To the
extent, if at all, that the Selling Stockholder engages special legal counsel
to represent him in connection with this offering, the fees and expenses of
such counsel shall be borne by such Selling Stockholder. Any transfer taxes
imposed on the sale of the Shares to the several Underwriters will be paid by
the Sellers pro rata. The Company shall not, however, be required to pay for
any of the Underwriters expenses (other than those related to qualification
under State securities or Blue Sky laws) except that, if this Agreement shall
not be consummated because the conditions in Section 6 hereof (other than by
reason of Section 6(d)) are not satisfied, or because this Agreement is
terminated by the Representatives pursuant to Section 7 hereof, or by reason of
any failure, refusal or inability on the part of the Company to perform any
undertaking or satisfy any condition of this Agreement or to comply with any of
the terms hereof on its part to be performed, unless such failure to satisfy
said condition or to comply with said terms be due to the default or omission
of any Underwriter, then the Company shall reimburse the several Underwriters
for reasonable out-of-pocket expenses, including fees and disbursements of
counsel, reasonably incurred in connection with investigating, marketing and
proposing to market the Shares or in contemplation of performing their
obligations hereunder; but the Company shall not in any event be liable to any
of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The
several obligations of the Underwriters to purchase the Firm Shares on the
Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company and the
Selling Stockholder contained herein, and to the performance by the Company and
the Selling Stockholder of their covenants and obligations hereunder and to the
following additional conditions:
(a) No stop order suspending the effectiveness of the
Registration Statement, as amended from time to time, shall have been issued
and no proceedings for that purpose shall have been taken or, to the knowledge
of the Company or the Selling Stockholder, shall be contemplated by the
Commission.
(b) The Representatives shall have received on the Closing
Date or the Option Closing date, as the case may be, the opinion of Pillsbury,
Madison & Sutro, counsel for the Company and the Selling Stockholder, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters to the effect that:
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(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, with corporate power and
authority to own its properties and conduct its business as
described in the Prospectus.
(ii) Each of the Subsidiaries has been duly
organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus.
(iii) The Company and each of the Subsidiaries are
duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such
qualification, or in which the failure to qualify would have a
materially adverse effect upon the business of the Company and
the Subsidiaries taken as a whole.
(iv) The outstanding shares of capital stock of
each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable and are owned by the
Company or a Subsidiary except as set forth in the Exhibit 21
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and in the Notes to the consolidated
financial statements contained therein; and, to the best of
such counsel's knowledge, the outstanding shares of capital
stock of each of the Subsidiaries is owned free and clear of
all liens, encumbrances and security interests, and no
options, warrants or other rights to purchase, agreements, or
other obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership
interests in the Subsidiaries are outstanding except as set
forth in such opinion.
(v) The authorized shares of Common Stock of the
Company, including the Shares to be sold by the Selling
Stockholder, have been duly authorized and validly issued and
are fully paid and non-assessable.
(vi) All of the Shares conform to the description
thereof contained in the Prospectus; the certificates for the
Shares are in due and proper form; the shares of Common Stock,
including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will
be validly issued, fully paid and non-assessable when issued
and paid for as contemplated by this Agreement; and no
preemptive rights of stockholders exist with respect to any of
the Shares or the issue and sale thereof.
(vii) The Registration Statement has become
effective under the Act and, to the best of the knowledge of
such counsel, no stop order proceedings with respect thereto
have been instituted or are pending or threatened under the
Act.
(viii) The Registration Statement, all Preliminary
Prospectuses, the Prospectus and each amendment or supplement
thereto and document incorporated by reference into the
Prospectus comply as to form in all material respects with the
requirements of the Act and the Securities Exchange Act of
1934, as applicable and the applicable rules and regulations
thereunder (except that such counsel need express no opinion
as to the financial statements, schedules and other financial
information included or incorporated by reference therein).
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(ix) The statements under the captions "Investment
Considerations -- Government Regulation, "Business -- Chronic
Services--Sources of Dialysis Revenues," and "Business --
Government Regulation" in the Prospectus, insofar as such
statements constitute a summary of federal or state laws and
regulations, are accurate summaries thereof.
(x) Such counsel does not know of any contracts
or documents required to be filed as exhibits to or
incorporated by reference in the Registration Statement or
described in the Registration Statement or the Prospectus
which are not so filed, incorporated by reference or described
as required, and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are
fairly summarized in all material respects.
(xi) Such counsel knows of no material legal
proceedings pending or threatened against the Company or any
of the Subsidiaries except as set forth in the Prospectus.
(xii) The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
do not and will not conflict with or result in a breach of any
of the terms or provisions of, or constitute a default under,
the charter or by-laws of the Company, or any material
agreement or instrument known to such counsel to which the
Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries may be bound.
(xiii) This Agreement has been duly authorized,
executed and delivered by the Company.
(xiv) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in
connection with the execution and delivery of this Agreement
and the consummation of the transactions herein contemplated
(other than as may be required by the National Association of
Securities Dealers, Inc. or as required by State securities
and Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made, specifying
the same.
(xv) The Firm Shares and Option Shares, if any,
have been approved for listing, upon notice of issuance, on
the New York Stock Exchange.
(xvi) This Agreement has been duly authorized,
executed and delivered by the Selling Stockholder.
(xvii) The Selling Stockholder has full legal right,
power and authority, and any approval required by law (other
than as required by State securities and Blue Sky laws as to
which such counsel need express no opinion), to sell, assign,
transfer and deliver the portion of the Shares to be sold by
the Selling Stockholder.
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<PAGE> 12
(xviii) The Instruction of Exercise executed and
delivered by the Selling Stockholder is a valid, irrevocable
instrument and is legally sufficient for the purposes
intended.
(xix) The Underwriters (assuming that they are bona
fide purchasers within the meaning of the Uniform Commercial
Code) have acquired good and marketable title to the Shares
being sold by the Selling Stockholder on the Closing Date,
free and clear of all claims, liens, encumbrances and security
interests whatsoever.
In rendering such opinion Pillsbury, Madison and Sutro may
rely as to matters governed by laws of states other than
California or federal laws on local counsel in such
jurisdictions provided that, in each case, Pillsbury, Madison
and Sutro shall state that they believe that they and the
Underwriters are justified in relying on such other counsel.
In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has
come to the attention of such counsel which leads them to
believe that the Registration Statement, as of the time it
became effective under the Act, the Prospectus, or any
amendment or supplement thereto, on the date it was filed
pursuant to Rule 424(b), or any of the documents incorporated
by reference therein, as of the date of effectiveness of the
Registration Statement or, in the case of documents
incorporated by reference in the Prospectus after the date of
effectiveness of the Registration Statement, as of the
respective dates when such documents were filed with the
Commission and the Registration Statement and the Prospectus,
or any amendment or supplement thereto, as of the Closing Date
or the Option Closing Date, as the case may be, contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading (except that such
counsel need express no view as to financial statements,
schedules and other financial information included or
incorporated by reference therein). With respect to such
statement, Pillsbury, Madison and Sutro may state that their
belief is based upon the procedures set forth therein, but is
without independent check and verification.
(c) The Representatives shall have received from Latham &
Watkins, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (vi), (vii) and (xiii) of Paragraph (b) of this Section 6, and
that the Company is a validly organized and existing corporation under the laws
of the State of Delaware. In rendering such opinion Latham & Watkins may rely
as to all matters governed other than by laws of the State of California or
federal laws on the opinion of counsel referred to in Paragraph (b) of this
Section 6.
In addition to the matters set forth above, such opinion shall
also include a statement to the effect that nothing has come to the attention
of such counsel which leads them to believe that the Registration Statement, as
of the time it became effective under the Act, and the Prospectus or any
amendment or supplement thereto, on the date it was filed pursuant to Rule
424(b), or any of the documents incorporated by reference therein, as of the
date of effectiveness of the Registration Statement or, in the case of
documents incorporated by reference in the Prospectus after the date of
effectiveness of the Registration Statement, as of the respective dates when
such documents were filed with the Commission and the Registration Statement
and the Prospectus, or any amendment or supplement thereto, as of the Closing
Date or the Option Closing Date, as the case may be, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the
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<PAGE> 13
statements therein not misleading (except that such counsel need express no
view as to financial statements, schedules and other financial information
included or incorporated by reference therein). With respect to such
statement, counsel may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
(d) The Representatives shall have received at or prior
to the Closing Date from Latham & Watkins a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under the
State securities or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(e) The Representatives shall have received on the
Closing Date or the Option Closing Date, as the case may be, a signed letter
from Ernst & Young LLP, dated the Closing Date or the Option Closing Date, as
the case may be, which shall confirm, on the basis of a review in accordance
with the procedures set forth in the letter signed by such firm and dated and
delivered to the Representatives on the date hereof that nothing has come to
their attention during the period from the date five days prior to the date
hereof, to a date not more than five days prior to the Closing Date or the
Option Closing Date, as the case may be, which would require any change in
their letter dated the date hereof if it were required to be dated and
delivered on the Closing Date or the Option Closing Date, as the case may be.
All such letters shall be in form and substance satisfactory to the
Representatives.
(f) The Representatives shall have received on the
Closing Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has become
effective under the Act and no stop order suspending the
effectiveness of the Registration Statement has been issued,
and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission.
(ii) Neither of them know of any litigation
instituted or threatened against the Company of a character
required to be disclosed in the Registration Statement which
is not so disclosed; neither of them know of any material
contract required to be filed as an exhibit to the
Registration Statement which is not so filed; and the
representations and warranties of the Company contained in
Section 1 hereof are true and correct as of the Closing Date
or the Option Closing Date, as the case may be.
(iii) Each of them has carefully examined the
Registration Statement and the Prospectus and, in each of
their opinions, as of the effective date of the Registration
Statement, the statements contained in the Registration
Statement, including any document incorporated by reference
therein, were true and correct, and such Registration
Statement and Prospectus and each document incorporated by
reference therein did not omit to state a material fact
required to be stated therein or necessary in order to make
the statements therein not misleading and, in each of their
opinions, since the effective date of the Registration
Statement, no event has occurred which should have been set
forth in a supplement to or an amendment of the Prospectus
which has not been so set forth in such supplement or
amendment.
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(g) The Company and the Selling Stockholder shall have
furnished to the Representatives such further certificates and documents
confirming the representations and warranties contained herein and related
matters as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been
approved for listing, upon notice of issuance, on the New York Stock Exchange.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representatives and to Latham &
Watkins, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be
terminated by the Representatives by notifying the Company and the Selling
Stockholder of such termination in writing or by telegram at or prior to the
Closing Date or the Option Closing Date, as the case may be. In such event,
the Company, the Selling Stockholder and the Underwriters shall not be under
any obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS. The
obligations of the Sellers to sell and deliver the portion of the Shares
required to be delivered as and when specified in this Agreement are subject to
the conditions that at the Closing Date or the Option Closing Date, as the case
may be, no stop order suspending the effectiveness of the Registration
Statement shall have been issued and in effect or proceedings therefor
initiated or threatened.
8. INDEMNIFICATION.
(a) The Company and the Selling Stockholder, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act
against any losses, claims, damages or liabilities to which such Underwriter or
such controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained or incorporated by
reference in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that the Selling
Stockholder will be liable under this section only to the extent that any such
losses, liabilities or damages arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished by the Selling Stockholder specifically for use in the
preparation thereof; provided further, however, that the Company and the Selling
Stockholder will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made or
incorporated by reference in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Company by or
through the Representatives specifically for use in the preparation thereof. In
no event, however, shall the liability of the Selling Stockholder for
indemnification under this Section 8(a) exceed the lesser of (i) that
proportion of the total of such losses, claims, damages or liabilities
indemnified against equal to the proportion of the total Shares sold hereunder
which is being sold by such Selling Shareholder, or (ii) the proceeds received
by such Selling
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Shareholder from the offering. This indemnity agreement will be in addition to
any liability which the Company or the Selling Stockholder may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement, the Selling Stockholder and each person, if any, who
controls the Company within the meaning of the Act, against any losses, claims,
damages or liabilities to which the Selling Stockholder, the Company or any
such director, officer, or controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained or
incorporated by reference in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made; and will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, Selling Stockholder or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; provided, however, that each
Underwriter will be liable in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission has been made or incorporated by reference in the Registration
Statement, any Preliminary Prospectus, the Prospectus or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically for use
in the preparation thereof. This indemnity agreement will be in addition to
any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give such
notice, but the failure to give such notice shall not relieve the indemnifying
party or parties from any liability which it or they may have to the
indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a) or (b). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party and shall pay, as incurred,
the fees and disbursements of such counsel related to such proceeding. In any
such proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred the fees and expenses of the counsel retained by
the indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention if such counsel
or (ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them. It is understood that
the indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 8(a) and by the Company and the Selling Stockholder in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall not
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be liable for any settlement of any proceeding effected without its written
consent but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment.
(d) If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Selling Stockholder on the one hand and the Underwriters on the other from
the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under Section 8(c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and the
Selling Stockholder on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholder on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by
the Company and the Selling Stockholder bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Selling Stockholder on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company, the Selling Stockholder, and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8(d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (d): (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, (ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation, and (iii)
the Selling Stockholder shall not be required to contribute any amount in
excess of the lesser of (A) that proportion of the total of such losses,
claims, damages or liabilities indemnified or contributed against equal to the
proportion of the total Shares sold hereunder which is being sold by such
Selling Stockholder, or (B) the proceeds received by such Selling Shareholder
from the Underwriters in the offering. The Underwriters' obligations in this
Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) In any proceeding relating to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom
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contributions may be sought under this Section 8 hereby consents to the
jurisdiction of any court having jurisdiction over any other contributing
party, agrees that process issuing from such court may be served upon him or it
by any other contributing party and consents to the service of such process and
agrees that any other contributing party may join him or it as an additional
defendant in any such proceeding in which such other contributing party is a
party.
9. DEFAULT BY UNDERWRITERS. If on the Closing Date or
the Option Closing Date, as the case may be, any Underwriter shall fail to
purchase and pay for the portion of the Shares which such Underwriter has
agreed to purchase and pay for on such date (otherwise than by reason of any
default on the part of the Company or the Selling Stockholder), you, as
Representatives of the Underwriters, shall use your best efforts to procure
within 24 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company and the Selling Stockholder such amounts
as may be agreed upon and upon the terms set forth herein, the Firm Shares or
Option Shares, as the case may be, which the defaulting Underwriter or
Underwriters failed to purchase. If during such 24 hours you, as such
Representatives, shall not have procured such other Underwriters, or any
others, to purchase the Firm Shares or Option Shares, as the case may be,
agreed to be purchased by the defaulting Underwriter or Underwriters, then (a)
if the aggregate number of shares with respect to which such default shall
occur does not exceed 10% of the Firm Shares or Option Shares, as the case may
be, covered hereby, the other Underwriters shall be obligated, severally, in
proportion to the respective numbers of Firm Shares or Option Shares, as the
case may be, which they are obligated to purchase hereunder, to purchase the
Firm Shares or Option Shares, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the aggregate number
of shares of Firm Shares or Option Shares, as the case may be, with respect to
which such default shall occur exceeds 10% of the Firm Shares or Option Shares,
as the case may be, covered hereby, the Company and the Selling Stockholder or
you as the Representatives of the Underwriters will have the right by written
notice given within the next 24-hour period to the parties to this Agreement,
to terminate this Agreement without liability on the party of the
non-defaulting Underwriter or of the Company or of the Selling Stockholder
except to the extent provided in Section 8 hereof. In the event of a default
by any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes and person substituted for a defaulting Underwriter.
Any action taken under this Section 9 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
10. NOTICES. All communications hereunder shall be in
writing and, except as otherwise provided herein, will be mailed, delivered or
telegraphed and confirmed as follows: if to the Underwriters, to Alex. Brown &
Sons Incorporated, 101 California Street, 46th Floor, San Francisco, CA 94111,
Attention: James Scopa; if to the Company or the Selling Stockholder, to Vivra
Incorporated, 400 Primrose, Suite 200, Burlingame, CA 94010, Attention: Kent
J. Thiry.
11. TERMINATION. This Agreement may be terminated by you
by notice to the Sellers as follows:
(a) at any time prior to the earlier of (i) the time the
Shares are released by you for sale, or (ii) 11:30 a.m. New York City time on
the first business day following the date of this Agreement;
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(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any material adverse
change or any development involving a prospective material adverse change in or
affecting the condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole or the earnings, business affairs, management or
business prospects of the Company and its Subsidiaries taken as a whole,
whether or not arising in the ordinary course of business, (ii) any outbreak
of hostilities or other national or international calamity or crises or change
in economic or political conditions if the effect of such outbreak, calamity,
crisis or change on the financial markets of the United States would, in your
reasonable judgment, make the offering or delivery of the Shares impracticable,
(iii) suspension of trading in securities on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on
hours or numbers of days of trading) for securities on either such Exchange,
(iv) the enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of any court or other governmental
authority which in your reasonable opinion materially and adversely affects or
will materially or adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by either federal or New York State
authorities, or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
This Agreement may also be terminated by you, by notice to the
Sellers, as to any obligation of the Underwriters to purchase the Option
Shares, upon the occurrence at any time prior to the Option Closing Date of any
of the events described in subparagraph (b) above or as provided in Sections 6
and 9 of this Agreement.
12. SUCCESSORS. This Agreement has been and is made
solely for the benefit of the Underwriters, the Company and the Selling
Stockholder and their respective successors, executors, administrators, heirs
and assigns, and the officers, directors and controlling persons referred to
herein, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares merely because
of such purchase.
13. MISCELLANEOUS. The reimbursement, indemnification
and contribution agreements contained in this Agreement and the
representations, warranties and covenants in this Agreement shall remain in
full force and effect regardless of (a) any termination of this Agreement, (b)
any investigation made by or on behalf of any Underwriter or controlling person
thereof, or by or on behalf of the Company or its directors or officers and (c)
delivery of and payment for the Shares under this Agreement .
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
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If the foregoing letter is in accordance with your
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement among the
Company, the Selling Stockholder and the several Underwriters in accordance
with its terms.
Very truly yours,
VIVRA INCORPORATED
By _____________________________________
Kent J. Thiry
President and Chief Executive Officer
SELLING STOCKHOLDER
By _____________________________________
Kent J. Thiry
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
ALEX. BROWN & SONS INCORPORATED
DEAN WITTER REYNOLDS INC.
MONTGOMERY SECURITIES
As Representatives of the several
Underwriters listed on Schedule I
By ALEX. BROWN & SONS INCORPORATED
By _______________________________________________
Authorized Officer
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SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------------
<S> <C> <C>
Alex. Brown & Sons, Incorporated
Dean Witter Reynolds Inc.
Montgomery Securities
--------------------------
Total 2,000,000
======================
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Vivra, Incorporated
dated February 9, 1995 for the registration of 2,300,000 shares of its common
stock and to the inclusion therein of our report dated January 23, 1995, with
respect to the consolidated financial statements of Vivra, Incorporated for the
year ended November 30, 1994, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Los Angeles, California
February 8, 1995
