As filed with the Securities and Exchange Commission on November 20, 1996.
Registration No. 333-13625
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VIVRA INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 94-3096645
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
--------------------
1850 Gateway Drive, Suite 500
San Mateo, California 94404
(415) 577-5700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
KENT S. THIRY
President and Chief Executive Officer
VIVRA INCORPORATED
1850 Gateway Drive, Suite 500
San Mateo, California 94404
(415) 577-5700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
SCOTT T. SMITH, ESQ.
KENT E. SOULE, ESQ.
PILLSBURY MADISON & SUTRO LLP
2700 Sand Hill Road
Menlo Park, California 94025
(415) 233-4500
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Approximate date of commencement of proposed sale
to the public: On a delayed or continuous
basis pursuant to Rule 415.
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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, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. /_/
------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_/
------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /_/
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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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or +
+ amendment. A registration statement relating to these securities +
+ has been filed with the Securities and Exchange Commission. These +
+ securities may not be sold nor may offers to buy be accepted +
+ prior to the time the registration statement becomes effective. +
+ This prospectus shall not constitute an offer to sell or the +
+ solicitation of an offer to buy nor shall there be any sale of +
+ these securities in any State in which such offer, solicitation +
+ or sale would be unlawful prior to registration or qualification +
+ under the securities laws of any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1996
PROSPECTUS
$158,545,000
VIVRA INCORPORATED
5% CONVERTIBLE SUBORDINATED NOTES DUE 2001
and
SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF
This Prospectus relates to the resale from time to time by the holders (the
"Selling Securityholders") of up to $158,545,000 aggregate principal amount of
5% Convertible Subordinated Notes Due 2001 (the "Notes") of Vivra Incorporated
("Vivra" or the "Company"), and the shares of Common Stock, par value of $.01
per share (the "Common Stock"), of the Company issuable upon the conversion
thereof (the "Conversion Shares").
The Notes are convertible at the option of the holder into shares of Common
Stock of the Company, at any time at or prior to maturity, unless previously
redeemed or repurchased, at a conversion price of $37.20 per share (equivalent
to a conversion rate of 26.88 shares per $1,000 principal amount of Notes and
representing in the aggregate 4,261,962 shares), subject to adjustment in
certain events. Interest on the Notes is payable semi-annually on January 1 and
July 1 of each year, commencing on January 1, 1997.
The Notes are redeemable, in whole or in part, at the option of the
Company, at any time on or after July 10, 1999, at the redemption prices set
forth herein, plus accrued and unpaid interest to the date of redemption. Upon a
Change of Control (as defined), each holder of the Notes will have the right to
require the Company to repurchase all or any part of such holder's Notes at 100%
of the principal amount thereof, plus accrued and unpaid interest. The Notes are
unsecured general obligations of the Company and are subordinated to all
existing and future Senior Indebtedness (as defined) of the Company. See
"Description of the Notes."
The Notes have been designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market. The Common
Stock is traded on the New York Stock Exchange (the "NYSE") under the trading
symbol "V." On November 19, 1996, the last reported sale price of the Common
Stock as reported on the NYSE was $30.50 per share. The Conversion Shares have
been listed on the NYSE. For a description of certain federal income tax
considerations for the holders of the Notes, see "Certain Federal Income Tax
Considerations."
The Notes may be offered by the Selling Securityholders from time to time
in transactions in the PORTAL Market and the Conversion Shares may be offered
from time to time in transactions (which may include block transactions) on the
NYSE, and each may be offered from time to time in negotiated transactions,
through a combination of such methods of sale, or otherwise, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at prices
related to prevailing market prices, or at negotiated prices. The Selling
Securityholders may effect such transactions by selling the Notes or Conversion
Shares to or through broker-dealers, who may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Notes or Conversion Shares for whom such broker-dealers
may act as agents or to whom they may sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). The Company will not receive any of the proceeds from the sale of
the Notes or Conversion Shares by the Selling Securityholders. The Company has
agreed to bear all expenses of registration of the Notes and the Conversion
Shares, but all selling and other expenses incurred by a Selling Securityholder
will be borne by that Selling Securityholder. See "Plan of Distribution" for a
description of the indemnification arrangements between the Company and the
Selling Securityholders.
--------------------
For a discussion of certain factors that should be considered in
connection with an investment in the securities offered hereby,
see "Risk Factors" beginning on page 6.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is November __, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (together will all amendments
and exhibits, referred to as the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act") with respect to the Notes and the
Conversion Shares offered by this Prospectus. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the Rules and Regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement and
the exhibits and schedules thereto, all of which may be obtained from the
Commission in Washington, D.C., as described below.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street N.W., Room 1034, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048; and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such reports
and other information may be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Reports, proxy statements and other information concerning
the Company may be inspected at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005. In addition, the Company files
electronically with the Commission certain reports, proxy statements and other
information, and the Commission maintains a Web site on the Internet
(www.sec.gov) that contains such reports, proxy statements and other information
regarding the Company.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed previously with the Commission and
are hereby incorporated herein by reference: (i) Annual Report of the Company on
Form 10-K, as amended, for the fiscal year ended November 30, 1995; (ii)
Quarterly Reports of the Company on Form 10-Q for the quarters ended February
29, 1996, May 31, 1996 and August 31, 1996; (iii) Current Reports of the Company
on Form 8-K dated December 21, 1995, January 26, 1996, February 15, 1996, March
13, 1996, March 15, 1996, March 29, 1996, April 11, 1996, May 1, 1996, May 14,
1996, June 13, 1996, June 21, 1996 and September 24, 1996; and (iv) 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 filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering of the Notes and the Conversion Shares
shall be deemed to be incorporated by reference in this Prospectus and to be a
part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus has been delivered, upon the written or oral request of such person,
a copy of any or all of the foregoing documents incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests for such
documents should be submitted to LeAnne M. Zumwalt, Chief Financial Officer,
Treasurer and Secretary, Vivra Incorporated, 1850 Gateway Drive, Suite 500, San
Mateo, California 94404 (Telephone: (415) 577-5700). In order to ensure timely
delivery of the documents, any request should be made at least five business
days prior to the date on which the final investment decision must be made.
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<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE
SECURITIES DESCRIBED HEREIN BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF
THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO THIS PROSPECTUS CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
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TABLE OF CONTENTS
Page
----
Available Information........................................................ 2
Incorporation of Certain Documents by Reference.............................. 2
Prospectus Summary........................................................... 4
Risk Factors................................................................. 6
Use of Proceeds..............................................................11
Ratio of Earnings to Fixed Charges...........................................11
Business.....................................................................12
Description of the Notes.....................................................21
Description of Capital Stock.................................................30
Certain Federal Income Tax Considerations....................................32
Selling Securityholders......................................................35
Plan of Distribution.........................................................37
Legal Matters................................................................37
Experts......................................................................38
3
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," appearing elsewhere in this Prospectus or
incorporated herein by reference.
The Company
Vivra is a specialty care company. The Company's business strategy is to
compete in specialties/disease states where Vivra can demonstrably deliver
differentiated care to high-cost patient populations. The Company provides
services through Vivra Renal Care ("VRC") and Vivra Specialty Partners ("VSP").
VRC is the second largest provider of dialysis services in the United States
and, as of August 31, 1996, had approximately 13,350 patients at 237 centers in
27 states and the District of Columbia. VSP provides physician network and
disease management services to entities responsible for coordinating health care
for a patient population, principally managed care organizations. VSP
coordinates care in multiple specialties, including asthma/allergy, cardiology,
diabetes, dialysis/nephrology, otolaryngology ("ENT"), obstetrics/gynecology and
orthopedics. In these specialties, VSP currently provides services through 38
contracts and also owns 31 specialty practices with 58 physicians and manages
one additional specialty practice with 15 physicians.
The Company's principal executive offices are located at 1850 Gateway
Drive, Suite 500, San Mateo, California 94044, and its telephone number is (415)
577-5700.
The Offering
Securities Offered..................... $158,545,000 principal amount of 5%
Convertible Subordinated Notes Due 2001
(the "Notes"), and the Common Stock
issuable upon conversion thereof (the
"Conversion Shares").
Interest Payments Dates................ January 1 and July 1, commencing
January 1, 1997.
Maturity Date.......................... July 1, 2001.
Conversion............................. The Notes are convertible into Common
Stock of the Company at any time through
maturity, unless previously redeemed or
repur- chased, at a conversion price of
$37.20 per share, subject to adjustment
in certain circumstances.
Redemption at the Option of the
Company........................... The Notes are not redeemable prior to
July 10, 1999. Thereafter, the Notes
will be redeemable at the option of the
Company, in whole or in part, at any
time at the redemption prices set forth
herein, plus accrued and unpaid interest
thereon.
Repurchase Upon Change in
Control........................... Upon a Change in Control (as defined),
each holder of the Notes will have the
right, subject to certain restrictions
and conditions, to require the Company
to purchase all or any part of such
holder's Notes at 100% of the principal
amount thereof, plus accrued and unpaid
interest thereon to the date of
repurchase.
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Subordination.......................... The Notes are subordinated to all
existing and future Senior Indebt-
edness (as defined) of the Company and
effectively subordinated to all
indebtedness and other liabilities of
the Company's subsidiaries. As of August
31, 1996, there was no Senior
Indebtedness outstanding and
approximately $3.2 million of
indebtedness of the Company's
subsidiaries. The Indenture (as defined)
under which the Notes have been issued
does not restrict the incurrence of
additional Senior Indebtedness or other
indebtedness by the Company or any of
its subsidiaries.
Use of Proceeds........................ The Company will not receive any of the
proceeds from the sale of the Notes or
the Conversion Shares.
Trading................................ The Notes have been designated for
trading in the PORTAL market. The
Company's Common Stock is traded on the
New York Stock Exchange under the symbol
"V."
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RISK FACTORS
When used in this Prospectus, the words "estimate," "project" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including those discussed below,
that could cause actual results to differ materially from those projected. These
forward-looking statements speak only as of the date hereof. In addition to the
other information in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing the Notes or the Conversion Shares offered hereby.
Medicare and Medicaid Dialysis Reimbursement. The Company estimates that
approximately 66% and 70% of its dialysis revenues, including revenues from the
reimbursement of the administration of the drug erythropoietin ("EPO"), for
fiscal 1994 and 1995, respectively, were reimbursements from Medicare and
Medicaid under the EndStage 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 current average rate of $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, including the impact of
potential legislative measures regarding welfare reform, the Medicare trust fund
deficit, the health care delivery system and the approval of a federal budget.
Any reduction in reimbursement rates would have a material adverse effect on the
Company's revenues and net earnings. See "Business--Vivra Renal Care."
In March 1996, HCFA published a request for proposals from managed care
companies to arrange for the treatment of ESRD patients on a large scale. While
the Company is unable to predict the effect of the introduction of managed care
on dialysis services, such introduction could result in a reduction in the rates
of reimbursement for the Company's services. The Company may also be required to
enter into contracts directly with managed care providers.
EPO 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 1994 and 1995, approximately 84% and
85%, respectively, of the Company's dialysis patients received EPO. The
Company's revenues from the administration of EPO were approximately $43.5
million and $56.0 million, respectively, or 17% and 18% 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 could have a material 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 have a material adverse effect on the
Company's revenues and net earnings.
Other Sources of Dialysis Reimbursement. The Company estimates that
approximately 34% and 30% of its dialysis revenues for fiscal 1994 and 1995,
respectively, were derived from sources other than Medicare and Medicaid. Of
these revenues, the largest portion came from private insurance, including
managed care organizations. Reimbursement from hospitals for acute dialysis
treatments was also significant. In general, these sources of reimbursement 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. Irrespective of legislative action, the
Company expects that these non-governmental payers will reduce payment for
dialysis services. In addition, as managed care organizations 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 treatments. If private
payer rates are reduced significantly, the Company's revenues and net earnings
will be materially and adversely affected.
Capitated Agreements. The Company believes it will be necessary to contract
with managed care payers on a capitated or at-risk basis in order to maintain or
expand the businesses of VRC and VSP. The Company currently has and intends to
enter into additional capitated agreements. 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
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amount of care required. To the extent that health care plan members
require more care than anticipated, the capitation rate received may be
insufficient to cover the costs associated with the provided services. The
Company would, directly or indirectly, be forced to absorb some of these excess
costs, which could have a material adverse 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, reimbursement rates for dialysis treatments, from both public and private
payers, depend on a number of factors and may remain flat or be reduced, as many
payers are seeking to reduce the amounts paid for dialysis services. The Company
is attempting 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.
VSP has a limited operating history and to date has not been profitable.
The specialty network and physician practice management business is rapidly
evolving, and there can be no assurance that VSP will ever achieve
profitability. In addition, even if planned operating margins are achieved, the
Company believes that they will be significantly lower than those in its
historical dialysis business.
Limitations on Growth. The dialysis industry is highly competitive with
respect to the acquisition of existing dialysis facilities and the recruitment
of Medical Directors for new centers. In the past two years, acquisition prices
and the competition for Medical Directors and new facilities have 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 and
maintain earnings per share growth and return on total capital would be
adversely impacted.
The Company intends to expand VSP significantly through the acquisition and
development of related businesses, primarily specialty physician networks and
practices. This expansion will require significant capital commitments, and the
Company expects to spend a substantial portion of the proceeds of this offering
on such expansion. The Company is incurring expenditures to develop its
infrastructure and systems for VSP in anticipation of significant growth. In
addition, there are a number of factors outside the Company's control which may
delay or hinder the expansion of VSP's operations, including acceptance of the
Company's services by physicians and payers. To the extent VSP's operations do
not expand as planned and the Company does not realize revenues sufficient to
offset such increased expenses, the Company's operating margins will be
adversely affected and VSP may experience delays in attaining profitability or
may never become financially viable. Further, VSP may not realize revenue and
operating margins as predictable as those historically provided by VRC.
Certain companies, some of which have longer operating histories and
greater financial resources than those of VSP, are providing services similar to
those that VSP is providing or pursuing. VSP may be forced to compete with these
entities for acquisitions, network and management contracts and, in some cases,
the employment of practice physicians. There can be no assurance that VSP will
be able to compete effectively with such competitors, that additional
competitors will not enter VSP's markets, or that such competition will not make
it more difficult to expand in such markets on terms beneficial to VSP. See
"Business--Competition."
Limited Operating History of VSP and Integration of Operations. Since
February 1996, VSP has grown aggressively, principally through acquisitions. VSP
will continue to pursue an aggressive growth strategy that includes both
acquisitions and the marketing of network services to payers ("Development
Activities"). VSP negotiates payer contracts to provide specialty physician
care, then acquires or develops specialty physician networks to service the
contracts and in some instances acquires physician practices. The process of
obtaining payer contracts, acquiring or establishing appropriate networks, and
developing management services, administrative organizations, facilities,
management information systems and other aspects of operations, while managing a
larger and geographically expanded entity, presents a significant challenge to
the management of Vivra and VSP, and there can be no assurance that the Company
will be successful in these efforts. The dedication of management resources to
such integration may detract attention from the day-to-day operations of Vivra
and VRC. The difficulties of
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integration may be increased by the necessity of coordinating
geographically separated organizations, integrating personnel with disparate
business backgrounds and combining different corporate cultures. There can be no
assurance that there will not be substantial unanticipated costs associated with
such activities or that there will not be other material adverse effects of
these Development Activities. See "Business--Vivra Specialty Partners."
Dependence on Key Personnel and Physicians. The Company is dependent on
certain key senior management personnel, the loss of any of whom could have an
adverse effect on the Company's business. In addition, the Company will need to
continue to attract and retain highly skilled health care executives, the
competition for whom is intense.
The Company's dialysis facilities depend upon their Medical Directors and
to a lesser extent local nephrologists and other physicians 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 substantial portion
of the patient base. The loss of one or more key 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 physicians could adversely
affect the Company's overall operations.
VSP is dependent upon its affiliations with physicians. Moreover, the
Company believes that its future success will be dependent largely on its
ability to attract and retain qualified physicians. VSP has entered into
management, provider and/or employment agreements with physicians, a significant
number of whom have the right to terminate their contracts with limited or no
notice. In the event that a significant number of such physicians terminate
their contracts or become unable or unwilling to continue in their roles, the
Company's revenues and net earnings could be materially and adversely affected.
Governmental 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.
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 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 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 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 previously 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
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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.
The health care industry and physicians' medical practices are highly
regulated at the federal and state levels. Because of the uniqueness of the
structure of the relationships between the Company and the physician groups and
its networks and the nature of the Company's business, there can be no assurance
that review of the Company's business by courts or health care, tax, labor and
other regulatory authorities will not result in determinations or actions,
including decertification or disqualification from eligibility to receive
reimbursement from Medicare or Medicaid, that could adversely affect the
operations of the Company or that the health care regulatory environment will
not change in a manner that would restrict the Company's existing operations or
limit the expansion of the Company's business or otherwise adversely affect the
Company. Many state laws restrict the unlicensed practice of medicine, the
splitting or sharing of fees with non-physician entities and the enforcement of
non-competition agreements. Increased attention has been devoted to the
application of federal and state antitrust laws to physician networks and
provider agreements. For example, federal law prohibits conduct that may result
in price-fixing or other anticompetitive conduct. Although management of the
Company believes the operations of the Company are in material compliance with
existing law, there can be no assurance that the Company's existing agreements
with its physicians, including service agreements or network agreements, will
not be successfully challenged. See "Business--Governmental Regulation."
Intradialytic Parenteral Nutrition Therapy Reimbursement. Intradialytic
parenteral nutrition ("IDPN") therapy is a nutritional supplement administered
during dialysis to patients suffering from nutritional deficiencies. In early
1993, HCFA designated four durable medical equipment regional carriers (the
"DMERCs") to process reimbursement claims for IDPN therapy. To date, these
DMERCs have denied most claims and the Company is currently appealing these
denied claims. HCFA is currently reviewing the DMERCs' position with respect to
medical policy and claims reimbursement. The final outcome of this review is
uncertain and may ultimately affect the number of patients eligible to receive
reimbursement for IDPN therapy. Patients receiving IDPN therapy prior to the
DMERCs' designation are "grandfathered" under the prior carriers' medical
policies and continue to be eligible for reimbursement. Since May 1995 and based
upon the continued uncertainty with respect to reimbursement for services
provided, the Company has limited administration of this therapy only to
patients who have been grandfathered or have private insurance.
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
coverage 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.
Subordination. The Notes are unsecured obligations of the Company
subordinated to all existing and future Senior Indebtedness of the Company and
effectively subordinated to all indebtedness and other liabilities of the
Company's subsidiaries (including trade payables and lease obligations). As of
August 31, 1996, there was no Senior Indebtedness outstanding and approximately
$3.2 million of indebtedness of the Company's subsidiaries. Upon any
distribution of assets of the Company pursuant to any insolvency, bankruptcy,
dissolution, winding up, liquidation or reorganization, the payment of the
principal of and interest on the Notes will be subordinated to the extent
provided in the Indenture to the prior payment in full of all Senior
Indebtedness. In addition, the Company may not repurchase any Notes upon a
Change in Control if at such time the subordination provisions of the Indenture
would prohibit the Company from making payments of principal in respect of the
Notes. Such provisions may limit the ability of the Company to repurchase the
Notes in the event of a Change in Control, and the failure to so repurchase the
Notes when required would result in an Event of Default (as defined) under the
Indenture. In addition, the
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Company conducts its operations through subsidiaries and depends on the
earnings and cash flows of such subsidiaries to pay its obligations, including
payments in respect of its indebtedness. Any right of the Company and its
creditors to participate in the assets of any such subsidiary upon any
liquidation or reorganization of any such subsidiary will be subject to the
prior claims of that subsidiary's creditors, including trade creditors. See
"Description of the Notes."
Limitation on Repurchase upon a Change in Control. The Company's ability to
repurchase the Notes upon a Change in Control may be limited by law, the
Indenture and by the terms of other agreements relating to borrowings that
constitute Senior Indebtedness, as such indebtedness or agreements may be
entered into, replaced, supplemented or amended from time to time. As a result
of such limitations, a holder of the Notes may not be able to compel the Company
to repurchase the Notes upon a Change in Control. The Company may be required to
refinance Senior Indebtedness in order to make any such payment. The Company may
not have the financial ability to repurchase the Notes in the event payment of
Senior Indebtedness is accelerated. The Change in Control provision may not, in
some instances, prevent a decrease in the value of the Notes in the event the
Company incurs additional leverage through certain types of recapitalizations,
leveraged buyouts or similar transactions. See "Description of Notes--Repurchase
at Option of Holder Upon Change in Control."
Possible Volatility of Stock Price. There has been volatility in the market
price of securities of health care companies. Future announcements concerning
the Company or its competitors, including government regulations, reimbursement
changes, litigation, or other developments, as well as changes in, or the
failure by the Company to meet, estimates of securities analysts, may have a
significant impact on the market price of the Company's Common Stock. In
addition, broad market fluctuations and general economic or political conditions
may adversely affect the market price of the Company's Common Stock, regardless
of the Company's actual performance. See "Business--Competition" and
"--Governmental Regulation."
Anti-Takeover Provisions. The Company's Restated Certificate of
Incorporation and the Delaware General Corporation Law (the "General Corporation
Law") contain provisions that may have the effect of making more difficult or
delaying attempts by others to obtain control of the Company, even when these
attempts may be in the best interest of stockholders. The General Corporation
Law also imposes conditions on certain business combination transactions with
"interested stockholders" (as defined therein). In addition, the Company has
issued to its holders of Common Stock, pursuant to a stockholders rights plan,
rights that will cause substantial dilution to a person or group that attempts
to acquire the Company on terms not approved by the Company's Board of
Directors. See "Description of Capital Stock."
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale by the Selling
Securityholders of the Notes or the Conversion Shares.
<TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's ratio of earnings to fixed
charges on a historical basis in each of the five years in the period ended
November 30, 1995, and for the nine-month periods ended August 31, 1996 and
1995.
<CAPTION>
Nine Months
Year Ended November 30, Ended August 31,
---------------------------------------------------------- -------------------
1995 1994 1993 1992 1991 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges......... 16.7x 16.6x 14.2x 15.1x 14.4x 19.3x 23.0x
For purposes of computing the ratio of earnings to fixed charges, earnings
include earnings from continuing operations before income taxes plus fixed
charges. Fixed charges consist of interest expense and such portion of rental
expense which is representative of interest.
</TABLE>
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BUSINESS
Vivra is a specialty care company. The Company's business strategy is to
compete in specialties/disease states where Vivra can demonstrably deliver
differentiated care to high-cost patient populations. The Company provides
services through Vivra Renal Care ("VRC") and Vivra Specialty Partners ("VSP").
VRC is the second largest provider of dialysis services in the United States
and, as of August 31, 1996, had approximately 13,350 patients at 237 centers in
27 states and the District of Columbia. VSP provides physician network and
disease management services to entities responsible for coordinating health care
for a patient population, principally managed care organizations. VSP
coordinates care in multiple specialties, including asthma/allergy, cardiology,
diabetes, dialysis/nephrology, ENT, obstetrics/gynecology and orthopedics. In
these specialties VSP currently provides services through 38 contracts and also
owns 31 specialty practices with 58 physicians and manages one additional
specialty practice with 15 physicians.
Vivra Renal Care
Industry Overview
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 services grew from approximately 66,000
in 1982 to approximately 187,000 in 1994, representing a compound annual growth
rate of 9%. VRC 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. Additionally,
management believes improved technology has enabled older patients and those who
previously could not tolerate dialysis due to other illnesses to benefit from
this lifeprolonging treatment. Qualified patients with ESRD have been entitled
since 1973 to Medicare benefits regardless of age or financial circumstances.
Treatment Options for ESRD. Treatment options for ESRD include
hemodialysis, peritoneal dialysis and kidney transplant surgery. HCFA estimates
that, as of December 31, 1994, 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"). Peritoneal dialysis offers
patients an improved lifestyle, but is limited in application by a higher
incidence of infection. Both CAPD and CCPD use 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 VRC 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, medical treatments or artificial kidneys that reduce or
eliminate the necessity for dialysis.
VRC Facilities and Operations
VRC 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. However, the dialysis industry is highly
competitive and, as a result, VRC may not be able to acquire new dialysis
facilities economically. As of August 31,
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1996, VRC owned and operated 237 facilities in 27 states and the District
of Columbia. The facilities range in size from 6 to 41 stations; the average
size is 15 stations. The number of VRC's facilities has increased significantly
during the past five years through the acquisition of 51 existing facilities and
the development of 56 new facilities, offset by the closure of 12 facilities. As
a result of a net increase in facilities, as well as an increase in the number
of treatments at existing centers, VRC has increased total treatments provided
by 101.1% over the past 5 years. During fiscal 1995, VRC's "same store" patient
growth was 6.0%. There can be no assurance that VRC will continue to experience
similar growth in the future.
<TABLE>
<CAPTION>
Number of
Number of Treatments
Fiscal Year End Facilities Provided
--------------- ---------- ----------
<S> <C> <C>
1990 104 664,955
1991 112 768,743
1992 128 911,979
1993 138 1,116,199
1994 150 1,289,200
1995 199 1,545,510
The above table includes total CAPD and CCPD treatments of 48,164, 64,463,
83,579, 114,340, 136,092 and 171,846 in fiscal 1990 through 1995, respectively.
</TABLE>
As of August 31, 1996, VRC's facilities were located as follows: California
(41); Florida (35); Texas (21); Georgia and South Carolina (20 each);
Pennsylvania and Alabama (15 each); Virginia (14); North Carolina (7); Louisiana
(6); Maryland (5); District of Columbia (4); Connecticut, Michigan, Missouri,
New Jersey, New Mexico, Oklahoma and Oregon (3 each); Arizona, Kansas,
Massachusetts and Tennessee (2 each); Colorado, Illinois, Iowa, Ohio and West
Virginia (1 each).
As required by Medicare regulations, each of VRC's facilities is supervised
by a Medical Director. VRC'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
dietitian 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. VRC engages in organized and systematic
efforts to measure, maintain and improve the quality of services it delivers.
Each of VRC'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. VRC 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, 66% for
fiscal year 1994 and 70% for fiscal 1995, 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 current average rate of $126.
The Medicaid programs are also subject to statutory and regulatory changes that
could affect the rate of Medicaid reimbursement. VRC 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 VRC'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 health 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
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<PAGE>
may not be reimbursed for the initial waiting period or the 20% copayment
of the ESRD rate which is not paid by Medicare. VRC 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 1994 and 1995, approximately 84% and 85%, respectively, of VRC's
dialysis patients received EPO. Revenues from the administration of EPO were
approximately $43.5 million and $56.0 million, respectively, or 17% and 18%,
respectively, 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 a negative impact on
Vivra's revenues and net earnings. In addition, EPO is produced by a single
manufacturer, and any interruption of supply could adversely affect Vivra's
revenues and net earnings.
VRC estimates that approximately 34% of its dialysis revenues for the
fiscal year ended 1994 and 30% for 1995, 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. VRC
believes that private payers will 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. VRC is unable to predict
to what extent decreases in these reimbursement rates will be made in the
future. Any reduction in the ability of VRC 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.
Ancillary Services. In September 1991, the Company established Associated
Health Services ("AHS") to provide IDPN pharmacy and support services to its
dialysis patients. AHS operates a pharmacy in Southern California and provides
IDPN therapy services to dialysis patients in facilities owned by third parties,
in addition to VRC's patients.
In 1996, VRC began development of a dialysis laboratory and concurrently
entered into a management agreement with an independent third party to manage
the laboratory, which is currently scheduled to begin operations in July 1996.
Tests to be performed at the laboratory will include: (i) blood tests which are
reimbursed as part of the dialysis composite rate, (ii) blood tests ordered for
co-morbidity ESRD conditions (i.e., diseases that are the result of or cause
ESRD) and (iii) general symptom testing.
Vivra Specialty Partners
VSP believes that, with the growth of managed care, substantial
opportunities may exist to provide network and practice management services
related to high-cost specialty care. VSP believes that its physician networks
have the ability to effectively manage expenses related to high cost diseases,
which account for a significant portion of total medical expenses. In addition,
VSP believes that it will have the opportunity to acquire a significant number
of specialty practices.
VSP's strategy is to contract for and manage the delivery of high quality,
cost-effective specialty care through organized physician networks. VSP's
networks are integrated groups of physicians within the same specialty who are
contractually linked to VSP for the purpose of delivering specialty care to
patient populations. The networks are typically arranged to provide
comprehensive geographic coverage in and across the service area of managed care
organizations. VSP provides operating and systems infrastructure, secures
managed care contracts and facilitates the care process while providing
physicians significant autonomy and the ability to co-govern their financial
affairs and generate utilization and practice quality enhancements. VSP has
acquired and intends to continue to acquire specialty physician practices which
are complementary to its physician networks and where VSP has sub-capitated or
case-rate contracts, or where it expects to obtain such contracts. The Company
believes that these specialty practices may allow it to develop clinical and
management insights to enhance the provision of specialty care.
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<PAGE>
VSP currently owns networks and/or practices and provides services in the
following specialties:
- - Asthma & Allergy - ENT
- - Cardiology - OB/GYN
- - Diabetes - Orthopedics
- - Dialysis/Nephrology
In these specialties, VSP provides services for approximately 4.1 million
"Specialty Lives" through 38 contracts. Each health plan member is deemed to
have one Specialty Life for each specialty contracted.
VSP owns 31 specialty practices with 58 physicians and manages one
additional specialty practice with 15 physicians. To date, VSP's acquired
practices are primarily in asthma/allergy and cardiology. However, the Company
intends to acquire practices in the other specialties it serves.
VSP's network information processing company, Vivra Network Services
("VNS"), provides claims processing and management reporting to VSP's specialty
networks. In addition, VNS has contracts with ten third-party specialty networks
covering approximately 1.8 million Specialty Lives to provide claims processing
and management reporting services.
VSP intends to continue to aggressively expand through the acquisition and
development of related businesses, primarily physician network and practice
entities. Expansion of the VSP business will require significant capital
commitments by the Company and will require that physicians and payers accept
the Company's services and, accordingly, there can be no guarantee that these
new businesses will ever become profitable or obtain financial viability.
Further, there can be no assurance that VSP will be able to successfully compete
with companies which provide services similar to VSP, some of which have greater
financial resources and longer operating histories.
Competition
VRC. It is estimated that the six largest dialysis providers constitute
approximately 40% 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
has accelerated as large providers have increased the pace at which they are
making acquisitions. As a result, VRC 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 of a patient or a physician when selecting a
dialysis facility is convenience of location for the patient. Other competitive
factors include quality of care and service. On occasion, VRC has experienced
competition from the establishment of a facility by a former Medical Director.
VSP. Certain companies, some of which have longer operating histories and
greater financial resources than those of VSP, are providing network and
management services similar to those that VSP is providing or pursuing. VSP may
be forced to compete with these entities for acquisitions, network and
management contracts and, in some cases, the employment of practice physicians.
There can be no assurance that VSP will be able to compete effectively with such
competitors, that additional competitors will not enter VSP's markets, or that
such competition will not make it more difficult to expand in such markets on
terms beneficial to VSP.
Governmental Regulation
General. The Company's operations are subject to extensive governmental
regulation at the federal, state and local levels.
Fraud and Abuse. The Company's 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
15
<PAGE>
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 antikickback
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 many 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.
Stark II. Federal law, commonly referred to as 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 and 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 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
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<PAGE>
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 of 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 the Nasdaq National Market which, in either case, meets
certain financial criteria.
State Referral Regulations. Various states have in place or are considering
anti-referral statutes which impose requirements on or prohibit certain
referrals. The Company could be subject to sanctions and could be required to
restructure some or all of its relationships with the referring physicians with
whom it contracts for Medical Director and similar services. The consequences of
such restructuring, if any, cannot be predicted.
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 structure of the relationships
between the Company and its medical providers, 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.
Dialysis Segment. With respect to the Company's dialysis operations, the
Company must meet various standards relating to, 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
health care reform reducing dialysis reimbursement or reducing or eliminating
coverage for dialysis services, would have a material adverse effect on the
Company's business. The health care 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 health
care reform will not result in a material adverse change to the Company.
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
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<PAGE>
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.
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.
Stark II may require the Company to restructure certain existing
compensation arrangements 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.
Specialty Care Segment. Most states have laws regulating insurance
companies, HMOs and third-party administrators. The Company is not licensed in
any state to engage in the insurance, HMO or third-party administrator
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, HMO
and third-party administrator laws and regulations. The Company does not believe
that its practices in either VRC or VSP, 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.
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<PAGE>
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.
In recent years, increased attention has been focused on the application of
federal and state antitrust laws to physician networks and provider
arrangements. Federal law prohibits conduct that may result in price-fixing or
other anticompetitive conduct. Although management of the Company believes the
operations of the Company are in material compliance with existing law, there
can be no assurance that the Company's existing agreements with its physicians,
including service agreements or network agreements, will not be successfully
challenged.
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 dialysis or
other 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 health care 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 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.
19
<PAGE>
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 $40.0 million for each loss occurrence. The all risk
property insurance coverage limits are $10.0 million based on replacement cost
for each loss occurrence. The loss occurrence limit includes separate annual
aggregate sublimits for earthquake and flood damage of $5.0 million for each
state. The Company believes that its insurance coverage is adequate.
Employees
As of August 31, 1996, the Company had approximately 4,700 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.
20
<PAGE>
DESCRIPTION OF THE NOTES
The Notes have been issued under an Indenture between the Company and State
Street Bank and Trust Company, as Trustee (the "Indenture"). The Notes are
subject to all the terms stated in the Indenture and such terms as are made a
part thereof by reference to the Trust Indenture Act of 1939. The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the Notes and the Indenture, including the definitions therein
of certain terms which are not otherwise defined in this Prospectus. The defined
terms of the Indenture (or the form of Note attached thereto) are incorporated
herein by reference.
General
The Notes are limited to $158,545,000 aggregate principal amount. The Notes
are unsecured subordinated obligations of the Company and will mature on July 1,
2001, unless earlier redeemed at the option of the Company or repurchased by the
Company at the option of the holder upon a Change in Control of the Company. The
Notes bear interest from the most recent date to which interest has been paid,
or if no interest has been paid, from date of initial issuance, at 5% per annum
computed on the basis of a 360-day year of twelve 30-day months. Interest is
payable semiannually on January 1 and July 1 of each year, commencing on January
1, 1997, to the person in whose name the Notes are registered at the close of
business on the preceding December 15 or June 15, respectively.
The Indenture does not contain any restriction on (i) the payment of
dividends, (ii) the issuance of Senior Indebtedness or other indebtedness or
(iii) the repurchase of securities of the Company, and does not contain any
financial covenants. The Indenture contains no covenants or other provisions to
afford protection to holders of Notes in the event of a highly leveraged
transaction or a Change in Control of the Company except to the extent described
under "Repurchase at Option of Holder Upon Change in Control."
The Indenture and the Notes are governed by and are to be construed under
the laws of the State of New York.
Form and Denomination; Book Entry
The Notes have been issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and multiples thereof. Except as
otherwise provided in the Indenture, Notes will be evidenced by a global Note
(the "Global Note") which has been deposited with, or on behalf of, The
Depository Trust Company, New York, New York ("DTC") and registered in the name
of Cede & Co. ("Cede") as DTC's nominee. Except as set forth in the Indenture,
the record ownership of the Global Note may be transferred, in whole or in part,
only to another nominee of DTC or to a successor of DTC or its nominee.
A person may hold its interest in the Global Note directly through DTC if
such person is a participant in DTC, indirectly through organizations that are
participants in DTC (the "Participants"), directly through Cedel or Euroclear,
or indirectly through organizations that are participants in Cedel or Euroclear.
Cedel and Euroclear will hold interests in the Global Note on behalf of their
participants through DTC. Persons who are not Participants may beneficially own
interests in the Global Note held by DTC only through Participants, including
Cedel and Euroclear, or certain banks, brokers, dealers, trust companies and
other parties that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
So long as Cede, as the nominee of DTC, is the registered owner of the
Global Note, Cede for all purposes will be considered the sole holder of the
Global Note. Except as provided in the Indenture, owners of beneficial interests
in the Global Note will not be entitled to have certificates registered in their
names, will not receive or be entitled to receive physical delivery of
certificates in definitive form, and will not be considered holders thereof.
Payment of interest on and the redemption price of the Global Note is to be
made to Cede, the nominee for DTC, as the registered owner of the Global Note,
by wire transfer of immediately available funds on each Interest Payment Date or
redemption date, as the case may be. Neither the Company, the Trustee nor any
paying agent has any responsibility or liability for any aspect of the records
relating to or payments made on account of a beneficial
21
<PAGE>
ownership interest in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Company has been informed by DTC that, with respect to any payment of
interest on or the redemption price of the Global Note, DTC's practice is to
credit Participants' accounts on the payment date therefor with payments in
amounts proportionate to their respective beneficial interests in the principal
amount represented by the Global Note, as shown on the records of DTC, unless
DTC has reason to believe that it will not receive payment on such payment date.
Payments by Participants to owners of beneficial interests in the principal
amount represented by the Global Note held through such Participants are the
responsibility of such Participants, as is now the case with securities held for
the accounts of customers registered in "street name."
Holders who desire to convert their Notes into Common Stock pursuant to the
terms of the Notes should contact their brokers or other Participants or
Indirect Participants to obtain information on procedures, including proper
forms and cut-off times, for submitting such requests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in the principal amount represented by the Global
Note to pledge such interest to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) has any responsibility for the performance
by DTC or its Participants or Indirect Participants of their respective
obligations under the rules and procedures governing their operations. DTC has
advised the Company that it will take any action permitted to be taken by a
holder of Notes (including, without limitation, the presentation of Notes for
exchange as described below) only at the direction of one or more Participants
to whose account with DTC interests in the Global Note are credited and only in
respect of the principal amount of the Notes represented by the Global Note as
to which such Participant or Participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Certain of such Participants (or their representatives), together
with other entities, own DTC. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear through,
or maintain a custodial relationship with a Participant, either directly or
indirectly.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Global Note among
Participants of DTC, Cedel and Euroclear, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. If DTC is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by the Company within
90 days, the Company will cause the Notes to be issued in definitive form in
exchange for the Global Note.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note holder or DTC in identifying the beneficial owners of Notes and the
Company and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Note holder or DTC for all purposes.
Conversion
The holder of any Note has the right to convert such Note, or any portion
thereof which is an integral multiple of $1,000, into shares of Common Stock of
the Company at any time prior to maturity (unless earlier redeemed or
22
<PAGE>
repurchased), initially at the conversion price of $37.20 per share (which
is equivalent to a conversion rate of 26.88 shares per $1,000 principal amount
of Notes), subject to adjustment as described below. The right to convert Notes
called for redemption will terminate at the close of business on the fifth
business day immediately preceding the Redemption Date (unless the Company
defaults in making the payments due upon redemption, in which case the
conversion right shall not terminate until the close of business on the date
such default is cured and such Notes are redeemed). A Note for which a holder
has delivered a notice exercising the option of such holder to require the
Company to repurchase such Note may be converted only if such notice is
withdrawn by a written notice of withdrawal delivered by such holder to the
Company (or an agent designated by the Company for such purpose) prior to the
close of business on the Repurchase Date (as defined herein) in accordance with
the terms of the Indenture. The Notes will be convertible at the offices or
agencies of the Company maintained for such purposes in The City of New York.
The conversion price is subject to adjustment in certain events, including
(i) dividends (and other distributions) payable in Common Stock on any class of
capital stock of the Company, (ii) subdivisions, combinations and
reclassifications of Common Stock, (iii) the issuance of rights or warrants
entitling the holder thereof to subscribe for or purchase Common Stock at less
than the then current market price (as defined in the Indenture), (iv)
distributions to all holders of Common Stock of evidences of indebtedness of the
Company or assets (including shares of its capital stock (other than Common
Stock) and other securities, but excluding those rights, warrants, dividends and
distributions referred to in clauses (i) and (iii) above, subdivisions of shares
referred to in clause (ii) above and dividends and distributions paid in cash in
an aggregate amount that, combined together with (x) all other such all-cash
distributions made within the preceding 12 months in respect of which no
adjustment has been made and (y) the excess of any cash and the fair market
value of other consideration payable in respect of repurchases by the Company or
any of its subsidiaries of Common Stock concluded within the preceding 12 months
in respect of which no adjustment has been made over the current market price of
the Common Stock, does not exceed 20% of the Company's market capitalization
(being the product of the then current market price of the Common Stock times
the number of shares of Common Stock then outstanding) on the record date for
such distribution), and (v) certain repurchases by the Company and its
subsidiaries of Common Stock, to the extent the consideration paid therefor
exceeds the current market price (excluding shares which, together with certain
cash distributions referred to in clause (iv) do not exceed 20% of the Company's
market capitalization). In addition to the foregoing adjustments, the Company is
permitted to make such reductions in the conversion price as it considers to be
advisable in order that any event treated for federal income tax purposes as a
dividend of stock or stock rights will not be taxable to the holders of Common
Stock. In the event of a pro rata distribution to holders of Common Stock of
rights to subscribe for additional shares of Common Stock (other than those
referred to in (iii) above) or of evidences of indebtedness or assets as
provided in (iv) above, the Company may, instead of making any adjustment in the
conversion price, make proper provision so that each holder of a Note who
converts such Note (or a portion thereof) after the record date for such
distribution and prior to the expiration or redemption of such rights shall be
entitled to receive upon conversion, in addition to the shares of Common Stock
issuable upon conversion, an appropriate number of such rights, evidences of
indebtedness or assets, as the case may be, as if such holders had converted the
Notes immediately before the record date for any such distribution. No
adjustment in the conversion price is required unless such adjustment would
require a change of at least 1% of the price then in effect, provided, however,
that any adjustment that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment.
Notes surrendered for conversion during the period from the close of
business on any record date to the opening of business on the next succeeding
interest payment date (except Notes to be redeemed during the period from the
close of business on such record date to the opening of business on the date
five business days after such interest payment date) must be accompanied by
payment of an amount equal to the interest thereon which the registered holder
thereof on such record date is to receive on such interest payment date. A Note
surrendered for conversion on an interest payment date need not be accompanied
by any payment, and the interest on the principal amount of such Note being
converted will be paid on such interest payment date to the registered holder at
the record date immediately preceding such interest payment date. Subject to the
aforesaid right of the holder of record at any record date to receive an
installment of interest, no payment or adjustment will be made on conversion for
interest accrued on the converted Note or for dividends on the Common Stock
issued on conversion. Fractional shares of
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<PAGE>
Common Stock are not to be issued upon conversion, but, in lieu thereof,
the Company will pay a cash adjustment based upon the market price of the Common
Stock on the date of conversion, as provided in the Indenture.
The Indenture provides that the Company will provide that upon conversion
of the Notes the holders will receive, in addition to the Common Stock issuable
upon such conversion, the rights issued under the Company's stockholders rights
plan (the "Rights") whether or not the Rights have become separated from the
Common Stock at or prior to the time of the conversion. The Board of Directors
of the Company has authorized such provision. The Indenture also provides that,
in the event of the occurrence of certain events affecting the Rights,
appropriate adjustments to the conversion price applicable to the Notes will be
made. In addition, the Indenture provides that if the Company implements a new
stockholder rights plan, such rights plan must provide that upon conversion of
the Notes the holders will receive, in addition to the Common Stock issuable
upon such conversion, the rights issued under such plan (whether or not such
rights have separated from the Common Stock at the time of such conversion).
In case of any consolidation or merger of the Company with or into any
other corporation, or in the case of any consolidation or merger of another
corporation into the Company in which the Company is the surviving corporation
involving a reclassification, conversion, exchange or cancellation of shares of
Common Stock, or any sale or transfer of all or substantially all of the assets
of the Company, the holder of each Note shall, after such consolidation, merger,
sale or transfer, have the right to convert such Note into the kind and amount
of securities or other property, which may include cash, which such holder would
have been entitled to receive upon such consolidation, merger, sale or transfer
if such holder had held the Common Stock issuable upon the conversion of such
Note immediately prior to such consolidation, merger, sale or transfer.
Subordination of Notes
The payment of the principal of and premium, if any, and interest on the
Notes (including, without limitation, the payment of the redemption price or
repurchase price with respect to the Notes), is subordinated in right of payment
to the extent set forth in the Indenture to the prior payment in full of all
existing and future Senior Indebtedness. The Indenture does not limit the amount
of Senior Indebtedness that may be incurred by the Company or any other
indebtedness or obligations that may be incurred by the Company or its
subsidiaries. In addition, the Notes are effectively subordinated to all
indebtedness and other liabilities and commitments (including trade payables and
lease obligations) of the Company's subsidiaries. The Company expects from time
to time to incur additional Senior Indebtedness and other indebtedness and
obligations.
Upon any payment or distribution of assets of the Company to creditors
resulting from any liquidation, dissolution, winding-up, reorganization or any
insolvency proceedings of the Company, the holders of all Senior Indebtedness
are first entitled to receive payment in full before the holders of the Notes
are entitled to receive any payment upon the principal of or premium, if any, or
interest on the Notes (including, without limitation, the payment of the
redemption price or repurchase price with respect to the Notes).
Upon the happening and during the continuance of an event of default in any
payment with respect to any Senior Indebtedness, no payment may be made by the
Company on or in respect of the Notes. Upon the happening and during the
continuance of a default on any Senior Indebtedness (other than a payment event
of default) that occurs and is continuing that permits the holders of such
Senior Indebtedness to accelerate its maturity, and following receipt by the
Company and the Trustee of the notice provided for by the Indenture, no payment
may be made on the Notes for a period of up to 179 days during the consecutive
365-day period, unless such default is cured or waived. No such subordination
will prevent the occurrence of any Event of Default in respect of the Notes. As
a result of these subordination provisions, in the event of insolvency, holders
of the Notes may recover less ratably than general creditors of the Company.
"Senior Indebtedness" means the following, whether outstanding upon
issuance of the Notes or thereafter incurred or created: (a) the principal of
and premium, if any, and interest on, and fees, costs, enforcement expenses,
collateral protection expenses and other reimbursement or indemnity obligations
in respect of all indebtedness or obligations of the Company to any Person,
including but not limited to banks and other lending institutions, for money
borrowed that is evidenced by a note, bond, debenture, loan agreement, or
similar instrument or agreement
24
<PAGE>
(including purchase money obligations with original maturities in excess of
one year and noncontingent reimbursement obligations in respect of amounts paid
under letters of credit); (b) commitment or standby fees due and payable to
lending institutions with respect to credit facilities available to the Company;
(c) all noncontingent obligations of the Company (i) for the reimbursement of
any obligor on any letter of credit, banker's acceptance, or similar credit
transaction, (ii) under interest rate swaps, caps, collars, options, and similar
arrangements, and (iii) under any foreign exchange contract, currency swap
agreement, futures contract, currency option contract, or other foreign currency
hedge; (d) all obligations of the Company for the payment of money relating to
capitalized lease obligations; (e) any liabilities of others described in the
preceding clauses that the Company has guaranteed or which are otherwise its
legal liability; and (f) renewals, extensions, refundings, refinancings,
restructurings, amendments, and modifications of any such indebtedness or
guarantee; other than any indebtedness or other obligation of the Company that
by its terms or the terms of the instrument creating or evidencing it is stated
to be not superior in right of payment to the Notes.
As of August 31, 1996, there was no Senior Indebtedness outstanding and
approximately $3.2 million of indebtedness of the Company's subsidiaries. The
Company primarily conducts its operations through subsidiaries and presently
expects that its future operating activities will be similarly structured to
involve operating subsidiaries. The rights of the Company and its creditors,
including holders of the Notes, to participate in the assets of any subsidiary,
partnership or other joint venture in which the Company has interests upon any
liquidation or reorganization of any such entity or otherwise will be
effectively subordinated to and subject to the prior claims of creditors of such
entity, except to the extent that the Company may itself be a creditor with
recognized claims against such entity, in which case the claims of the Company
would still be subordinated to any security in the assets of such entity and any
indebtedness of such entity senior to that held by the Company. The ability of
the Company to pay principal of and premium, if any, and interest on the Notes
(including, without limitation, the payment of the redemption price or
repurchase price with respect to the Notes) will be dependent upon the receipt
of funds from its subsidiaries and the partnerships and ventures in which it
participates by way of dividends, distributions, fees, interest, loans or
otherwise.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the terms of the Indenture, whether in cash,
property or securities, including, without limitation, by way of set-off or
otherwise, in respect of the Notes before all Senior Indebtedness is paid in
full, then such payment or distribution will be held by the recipient in trust
for the benefit of holders of Senior Indebtedness of the Company, and will be
immediately paid over or delivered to the holders of Senior Indebtedness of the
Company or their representative or representatives to the extent necessary to
make payment in full of all Senior Indebtedness of the Company remaining unpaid,
after giving effect to any concurrent payment or distribution, or provision
therefor, to or for the holders of Senior Indebtedness of the Company.
Redemption at Option of Company
The Notes may not be redeemed by the Company prior to July 10, 1999.
Thereafter, the Notes may be redeemed at the option of the Company, in whole or
in part, upon not less than 20 nor more than 60 days' notice by mail.
<TABLE>
The redemption prices (expressed as a percentage of principal amount) in
each case plus accrued and unpaid interest to the date of redemption are as
follows for the 12-month period (unless otherwise noted) beginning July 10 of
the following years:
<CAPTION>
Redemption
Year Price
- ---- ----------
<S> <C>
1999............................................. 102%
2000 (through June 30, 2001)..................... 101%
</TABLE>
25
<PAGE>
If less than all of the Notes are to be redeemed, the Trustee will select
the particular Notes (or the portions thereof) to be redeemed either by lot, pro
rata or by such other method as the Trustee shall deem fair or appropriate.
No sinking fund is provided for the Notes.
Repurchase at Option of Holder Upon Change in Control
Upon any Change in Control (as defined below), each holder of Notes shall
have the right (the "Repurchase Right"), at the holder's option, subject to the
terms and conditions of the Indenture, to require the Company to repurchase all
of such holder's Notes, or a portion thereof which is $1,000 or any integral
multiple thereof, on the date (the "Repurchase Date") fixed by the Company that
is not less than 45 days nor more than 60 days after the date of the Company
Notice (as defined below) at a price equal to 100% of the principal amount of
the Notes, plus accrued and unpaid interest, if any, to the Repurchase Date.
Within 30 days after the occurrence of a Change in Control, the Company is
obligated to give to the Trustee and to each holder of the Notes a notice (the
"Company Notice") of the occurrence of such Change in Control, and the
Repurchase Right arising as result thereof setting forth, among other things,
the terms and conditions of, and the procedures required for the exercise of,
such Repurchase Right. To exercise the Repurchase Right, a holder of Notes must
deliver on or before the close of business on the Repurchase Date written notice
to the Company (or an agent designated by the Company for such purpose) and the
Trustee of the holder's exercise of such Repurchase Right specifying the Notes
with respect to which the right is being exercised. Such notice of exercise may
be withdrawn by the holder by a written notice of withdrawal delivered to the
Company or such agent at any time on or before the close of business on the
Repurchase Date.
The term "Change in Control" shall mean any of the following:
(i) (A) a "person" or "group" (within the meaning of Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, except that a person shall be
deemed to be the "beneficial owner" of all securities that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
total voting power of all outstanding Voting Shares; and (B) immediately
following the date upon which such person or group becomes a beneficial
owner of such securities the aggregate market value of the Common Stock
held by stockholders, excluding shares beneficially owned by such person or
group and other affiliates of the Company, is less than $700,000,000;
(ii) any consolidation of the Company with, or merger of the Company
into, any other person, any merger of another person into the Company, or
any sale or transfer of all or substantially all of the assets of the
Company to another person (other than (a) a consolidation or merger which
does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Capital Stock other than shares of
Capital Stock owned by either of the parties to be consolidated or merged
in which the net worth of the surviving corporation immediately after
consummation equals or exceeds the net worth of the Company immediately
prior to such transaction, (b) the sale, transfer or other disposition of
VRC, provided the acquirer or VRC expressly becomes a co-obligor of the
payment of principal of and premium, if any, and interest on the Notes, (c)
a merger which is effected solely to change the jurisdiction of
incorporation of the Company or (d) any consolidation with or merger of the
Company into a wholly owned subsidiary of the Company, or any sale or
transfer by the Company of all or substantially all of its assets to one or
more of its wholly owned subsidiaries, in any one transaction or a series
of transactions, provided, in any such case, that the resulting corporation
or each such subsidiary assumes or guarantees the Company's obligations
under the Notes and the net worth of the surviving or acquiring corporation
in any such consolidation, merger or sale of assets immediately after the
consummation of such transaction equals or exceeds the net worth of the
Company immediately prior to such transaction); or
(iii) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at the
beginning of the two-year period immediately preceding such
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change (together with any other director whose election by the Board
of Directors of the Company or whose nomination for election by the
stockholders of the Company was approved by a vote of at least a majority
of the directors then in office either who were directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the directors
then in office;
provided, however, that a Change in Control shall not be deemed to have occurred
if either (a) the closing price per share of the Common Stock for any five
trading days within the period of 10 consecutive trading days ending immediately
after the later of the Change in Control or the public announcement of the
Change in Control (in the case of a Change in Control under clause (i) above) or
ending immediately before the Change in Control (in the case of a Change in
Control under clauses (ii) and (iii) above) shall equal or exceed 105% of the
conversion price in effect on each such trading day, or (b) (i) at least 90% of
the consideration (excluding cash payments for fractional shares) in the
transaction or transactions constituting the Change in Control consists of
shares of common stock traded on a national securities exchange or quoted on the
Nasdaq National Market (or which will be so traded or quoted when issued or
exchanged in connection with such Change in Control) (such securities being
referred to as "Publicly Traded Securities") and as a result of such transaction
or transactions such Notes become convertible solely into such Publicly Traded
Securities and (ii) the consideration in the transaction or transactions
constituting the Change in Control consists of cash, Publicly Traded Securities
or a combination of cash and Publicly Traded Securities with an aggregate fair
market value (which, in the case of Publicly Traded Securities, shall be equal
to the average closing price of such Publicly Traded Securities during the 10
consecutive trading days commencing with the sixth trading day following
consummation of the transaction or transactions constituting the Change in
Control) is at least 105% of the conversion price in effect on the date
immediately preceding the date of consummation of such Change in Control.
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the Repurchase Right becomes available to holders of the
Notes. The Company will comply with this rule to the extent applicable at that
time and with Rule 14e-1 and all other applicable federal and state securities
laws in connection with any such repurchase option.
The Company may not repurchase any Notes upon a Change in Control if at
such time the subordination provisions of the Indenture would prohibit the
Company from making payments of principal in respect of the Notes. Agreements
relating to the Company's Senior Indebtedness contain, and agreements relating
to Senior Indebtedness incurred by the Company in the future are likely to
contain, restrictions relating to the repurchase by the Company of the Notes
pursuant to the Repurchase Right. Such provisions, together with the
subordination of the Notes to all existing and future Senior Indebtedness of the
Company, and the funds then available to the Company, may limit the ability of
the Company to repurchase the Notes in the event of a Change in Control. Failure
by the Company to repurchase the Notes when required upon a Change in Control
will result in an Event of Default under the Indenture whether or not such
repurchase is permitted by the subordination provisions. See "Subordination of
Notes."
The Indenture does not permit the Company's Board of Directors to waive the
Company's obligation to repurchase the Notes at the option of the holder
pursuant to the repurchase right in the event of a Change in Control. The
repurchase right, however, would not necessarily afford holders of the Notes
protection in the event of highly leveraged or other transactions involving the
Company that may adversely affect holders of the Notes. Notwithstanding the
foregoing, the right to require the Company to repurchase the Notes pursuant to
the Repurchase Right could delay or deter a potential acquisition of the Company
regardless of whether such acquisition is supported or approved by the Board of
Directors of the Company.
If a Change in Control were to occur, there can be no assurance that the
Company would be able to obtain sufficient funds with which to repurchase all
the Notes tendered by the holders thereof.
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Mergers and Sales of Assets by the Company
The Indenture provides that the Company may not consolidate with or merge
into any other Person, or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and may not permit any Person to
consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i)
either the Company is the resulting or surviving corporation or the Person
formed by such consolidation or into which the Company is merged or the person
to which the properties and assets of the Company are transferred or leased
substantially as an entirety shall be a corporation organized and existing under
the laws of the United States, any State thereof or the District of Columbia and
shall expressly assume the payment of the principal of and premium, if any, and
interest on the Notes and the performance of every covenant of the Company under
the Indenture, and (ii) immediately before and immediately after giving effect
to such transaction, no Event of Default shall have occurred and be continuing.
Upon such consolidation, merger, transfer or lease, the successor corporation
shall succeed to and be substituted for and may exercise all rights of the
Company under the Indenture, and thereafter the Company will be relieved of all
obligations and covenants under the Indenture and Notes. The Company may not
sell, transfer or otherwise dispose of VRC without having the acquirer or VRC
become a co-obligor of payment of principal of and premium, if any, and interest
on the Notes as provided in the Indenture.
Modification of the Indenture
With the consent of the holders of not less than a majority in aggregate
principal amount of the Outstanding Notes, the Company and the Trustee may make
modifications and amendments to the Indenture to add any provision to, or change
in any manner, or eliminate any of the provisions of the Indenture and the
Notes, provided that no such modification or amendment may, without the consent
of the holder of each Outstanding Note affected thereby, (i) change the stated
maturity date of the principal of, or any installment of interest on, any Note,
(ii) reduce the principal amount of, or the rate of interest on, or any premium
payable on, any Note, whether upon acceleration, redemption or otherwise, (iii)
change the currency for payment of principal of, or premium or interest on, any
Note, (iv) impair the right to institute suit for the enforcement of any such
payment when due, (v) adversely affect the right provided in the Indenture to
convert any Note, (vi) modify the provisions of the Indenture with respect to
the subordination of the Notes in a manner adverse to the holders, (vii) modify
the obligation of the Company under the Indenture to purchase Notes upon a
Change in Control in a manner adverse to the holders, (viii) reduce the
percentage of principal amount of Outstanding Notes necessary to modify or amend
the Indenture or to consent to any waiver provided for in the Indenture, (ix)
waive a default in the payment of the principal of or premium or interest on any
Note, or (x) change the provisions of the Indenture relating to waivers upon the
occurrence of other events of default or the provisions of the Indenture
relating to the unconditional right to receive payments thereunder. The holders
of not less than a majority in principal amount of the Outstanding Notes may
waive compliance with certain restrictive covenants and provisions of the
Indenture without notice to any holder of the Notes. See "--Events of Default,
Notice and Waiver." Without the consent of or notice to any holder of the Notes,
the Company and the Trustee may amend or supplement the Indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by a
successor corporation of the obligations of the Company under the Indenture if
in compliance with the Indenture, to make any change that does not adversely
affect the rights of any holder of the Notes or to comply with any requirement
of the Commission in connection with the qualification of the Indenture under
the Trust Indenture Act.
Events of Default, Notice and Waiver
The following are Events of Default under the Indenture: (i) default in the
payment of any interest, continued for 30 days, (ii) default in the payment of
principal or premium, if any, when due or in the payment of any redemption
obligation, (iii) default by the Company or any Significant Subsidiary with
respect to its obligation to pay principal of or interest on indebtedness for
borrowed money aggregating more than $10,000,000, or the acceleration of such
indebtedness under the terms of the instruments evidencing such indebtedness
which has not been withdrawn within 10 days from the date of such default, (iv)
failure to perform any other covenant or warranty of the Company, continued for
60 days after written notice as provided in the Indenture, (v) final judgments
or orders are rendered against the Company or any of its Subsidiaries which
require the payment by the Company or any of its Subsidiaries
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of an amount (to the extent not covered by insurance) in excess of
$10,000,000 and such judgments or orders remain unsatisfied, undischarged,
unvacated, unbonded and unstayed for more than 60 days and are not being
contested in good faith by appropriate proceedings, and (vi) certain events of
bankruptcy, insolvency or reorganization with respect to the Company or any of
its Subsidiaries.
If an Event of Default shall occur and be continuing, the Trustee or the
holders of not less than 25% in principal amount of the Outstanding Notes may
declare such portion of the principal amount of the Notes and interest accrued
thereon to be due and payable. Under certain circumstances, however, such
declarations may be annulled and past defaults (other than certain payment
defaults) may be waived by the holders of a majority in principal amount of the
Outstanding Notes. If an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization were to occur, all unpaid principal of
and accrued interest on the Outstanding Notes will become due and payable
immediately without any declaration or other act on the part of the Trustee or
any holders of Notes.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default, give to the registered holders of Notes notice of all
uncured defaults known to it, but the Trustee shall be protected in withholding
such notice if it in good faith determines that the withholding of such notice
is in the best interest of such registered holders, except in the case of a
default in the payment of the principal of, or premium, if any, or interest on,
any of the Notes when due or in the payment of any redemption obligation.
The Indenture provides that the holders of a majority in principal amount
of the Outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. Before proceeding to exercise any right or power
under the Indenture at the direction of such holders, the Trustee shall be
entitled to receive from such holders reasonable security or indemnity against
the costs, expenses and liabilities which might be incurred by it in complying
with any such direction. The right of a holder to institute a proceeding with
respect to the Indenture is subject to certain conditions precedent, including
notice and indemnity to the Trustee and the written request by the holders of
not less than 25% in principal amount of the Outstanding Notes that such a
proceeding be instituted, but the holder has an absolute right to institute suit
for the enforcement of payment of the principal of, and premium, if any, and
interest on, such holder's Notes when due and to convert such Notes.
The holders of not less than a majority in principal amount of the
Outstanding Notes may on behalf of the holders of all Notes waive any past
defaults, except a default in payment of the principal of, or premium, if any,
or interest on, any Note when due or in respect of certain provisions of the
Indenture which cannot be modified or amended without the consent of the holder
of each Outstanding Note affected thereby.
The Company is required to furnish to the Trustee annually a statement of
certain officers of the Company stating whether or not to the best of their
knowledge the Company is in default in the performance and observance of certain
terms of the Indenture and, if they have knowledge that the Company is in
default, specifying such default.
The Trustee
State Street Bank and Trust Company, the Trustee under the Indenture, has
been appointed by the Company as the paying agent, conversion agent, registrar
and custodian with regard to the Notes. The First National Bank of Boston is the
Company's Transfer Agent and Registrar with regard to the Company's Common
Stock. The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as specifically set forth in
the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent Person would exercise
under the circumstances in the conduct of such Person's own affairs.
The Indenture contains limitations of the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other transactions,
provided, however, that if it acquires any conflicting interest (as defined in
the Indenture) it must eliminate such conflict or resign.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 80,000,000 shares
of Common Stock, $.01 par value and 10,000,000 shares of Preferred Stock, $.01
par value.
Common Stock
As of October 31, 1996, there were 40,359,010 shares of Common Stock
outstanding. Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to the holders of outstanding shares of Preferred Stock, if any, the
holders of Common Stock are entitled to receive such lawful dividends as may be
declared by the Board of Directors. In the event of liquidation, dissolution or
winding up of the Company, and subject to the rights of the holders of
outstanding shares of Preferred Stock, if any, the holders of shares of Common
Stock shall be entitled to receive pro rata all of the remaining assets of the
Company available for distribution to the stockholders. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are fully paid and non-assessable.
Preferred Stock
The Company currently has 600,000 shares of Series A Junior Participating
Preferred Stock authorized, of which no shares are outstanding. See
"--Stockholder Rights Plan." The Board of Directors has the authority, without
further action by the stockholders, to issue from time to time the Preferred
Stock in one or more series and to fix the number of shares, designations,
preferences, powers, and relative, participating, optional or other special
rights and the qualifications or restrictions thereof. The preferences, powers,
rights and restrictions of different series of Preferred Stock may differ with
respect to dividend rates, amounts payable on liquidation, voting rights,
conversion rights, redemption provisions, sinking fund provisions, and purchase
funds and other matters. The issuance of Preferred Stock could decrease the
amount of earnings and assets available for distribution to holders of Common
Stock or affect adversely the rights and powers, including voting rights, of the
holders of Common Stock, and may have the effect of delaying, deferring or
preventing a change in control of the Company. The ability of the Board of
Directors to issue Preferred Stock without further stockholder approval could
also have the effect of entrenching management by discouraging potential
acquisition proposals even if such a transaction is favored by a majority of the
independent stockholders.
Stockholder Rights Plan
On February 13, 1996, the Company's Board of Directors adopted an amended
and restated stockholder rights plan pursuant to which the Rights attach to each
share of Common Stock on the basis of one Right for each share held.
In general, the Rights become exercisable or transferable only upon the
occurrence of certain events related to changes in ownership of the Common
Stock. Once exercisable, each Right entitles its holder to purchase from the
Company one one-hundredth of a share ("unit") of Series A Junior Participating
Preferred Stock at a purchase price of $100 per unit, subject to adjustment. The
Rights will separate from the Common Stock and become exercisable or
transferable on a distribution date (the "Distribution Date"), which will occur
on the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired
beneficial ownership of securities representing 15% or more of the outstanding
Common Stock or (ii) 10 business days following the commencement of (or a public
announcement of an intention to make) a tender or exchange offer that would
result in a person or group of related persons becoming an Acquiring Person.
Upon the occurrence of certain other events related to changes in the ownership
of the Common Stock, each holder of a Right would be entitled to purchase shares
of the Common Stock, or an acquiring corporation's common stock, having a market
value equal to two times the exercise value of the Right.
The Rights expire on the earliest of (i) August 31, 1999, (ii) redemption
of the Rights or (iii) exchange of the Rights. Subject to certain conditions,
the Rights may be redeemed by the Company's Board of Directors at any time
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at a price of $.001 per Right or may be exchanged in whole or in part for
Preferred Stock or Common Stock. The Rights are not currently exercisable and
trade together with the shares of Common Stock associated therewith.
The Rights, if exercised, will cause a substantial dilution to the equity
interest in Vivra to a person or group's ownership interest in the Company's
Common Stock that attempts to acquire the Company on terms not approved by the
Company's Board of Directors. See "Risk Factors--Anti-Takeover Provisions."
Anti-Takeover Provisions
The Company's Certificate of Incorporation provides that certain provisions
thereof and the Company's Bylaws may be repealed or amended only by a vote of
80% of the stockholders. Further, the Certificate of Incorporation requires that
all stockholder action be taken at a stockholders' meeting. In addition, those
provisions of the Certificate of Incorporation may only be amended or repealed
by the holders of at least 80% of the voting power of all the then-outstanding
shares of stock entitled to vote generally for the election of directors voting
together as a single class.
The Company's Certificate of Incorporation contains, in addition to other
provisions which have an anti-takeover effect, a "fair price" provision and a
provision for a classified Board of Directors. The "fair price" provision
requires the affirmative vote of the holders of at least 80% of the outstanding
shares of voting stock of the Company in the case of certain mergers, sales or
other dispositions involving a beneficial holder of 5% or more of the Company's
outstanding voting stock or a liquidation or dissolution of the Company proposed
by such a substantial stockholder, or in the case of certain other specified
transactions involving such a substantial stockholder, whether or not they
otherwise require a stockholder vote. The provisions described above, together
with the Rights, may have the effect of deterring a hostile takeover or delaying
a change in control or management of the Company. See "--Stockholder Rights
Plan."
Delaware Law
The Company is subject to the provisions of Section 203 of the General
Corporation Law ("Section 203"). Section 203 provides, with certain exceptions,
that a Delaware corporation may not engage in any of a broad range of business
combinations with a person or an affiliate, or associate of such person, who is
an "interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting in
a person becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder, (ii) the interested stockholder acquired 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes such person an interested stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans) or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is (i) the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action of
its stockholders to exempt itself from coverage, provided that such amendment
shall not become effective until 12 months after the date it is adopted. The
Company has not adopted such an amendment to its Certificate of Incorporation or
Bylaws.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Company's Common Stock is The
First National Bank of Boston.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Notes and the Conversion
Shares. This discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, Internal Revenue Service ("IRS")
rulings and judicial decisions now in effect, all of which are subject to change
(possibly with retroactive effect) or different interpretations. This discussion
does not purport to deal with all aspects of federal income taxation that may be
relevant to a particular investor's decision to purchase the Notes, and it is
not intended to be wholly applicable to all categories of investors, some of
which, such as dealers in securities, banks, insurance companies, tax-exempt
organizations and non-United States persons, may be subject to special rules. In
addition, this discussion is limited to persons that purchase the Notes in the
offering and hold the Notes as a "capital asset" within the meaning of Section
1221 of the Code.
ALL PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE COMMON STOCK.
Conversion of Notes into Common Stock
In general, no gain or loss will be recognized for federal income tax
purposes on a conversion of the Notes into shares of Common Stock. However, cash
paid in lieu of a fractional share of Common Stock will likely result in taxable
gain (or loss), which will be capital gain (or loss), to the extent that the
amount of such cash exceeds (or is exceeded by) the portion of the adjusted
basis of the Note allocable to such fractional share. The aggregate adjusted
basis of shares of Common Stock received on conversion will equal the adjusted
basis of the Note converted, reduced by the portion of adjusted basis allocated
to any fractional share of Common Stock exchanged for cash. The holding period
of an investor in Common Stock received on conversion will include the period
during which the converted Notes were held.
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of the Notes--Conversion." Section 305 of the
Code and the Treasury Regulations issued thereunder may treat the holders of the
Notes as having received a constructive distribution, resulting in ordinary
income (subject to a possible dividends received deduction in the case of
corporate holders) to the extent of the Company's accumulated earnings and
profits at the time of or current earnings and profits for the taxable year of
the adjustment, if and to the extent that certain adjustments in the conversion
price that may occur in limited circumstances (particularly an adjustment to
reflect a taxable dividend to holders of Common Stock) increase the
proportionate interest of a holder of Notes in the fully diluted Common Stock,
whether or not such holder ever exercises its conversion privilege. Moreover, if
there is not a full adjustment to the conversion price of the Notes to reflect a
stock dividend or other event increasing the proportionate interest of the
holders of outstanding Common Stock in the assets or earnings and profits of the
Company, then such increase in the proportionate interest of the holders of the
Common Stock generally will be treated as a distribution to such holders,
taxable as ordinary income (subject to a possible dividends received deduction
in the case of corporate holders) to the extent of the Company's accumulated
earnings and profits at the time of or current earnings and profits for the
taxable year of such deemed distribution.
Market Discount
Investors acquiring Notes pursuant to this Prospectus should note that the
resale of those Notes may be adversely affected by the market discount
provisions of Sections 1276 through 1278 of the Code. Under the market discount
rules, if a holder of a Note purchases it at market discount (i.e., at the price
below its stated redemption price at maturity) in excess of a statutorily
defined de minimis amount and thereafter recognizes a gain upon a disposition or
retirement of the Note, then the lesser of the gain recognized or the portion of
the market discount that accrued on a ratable basis (or, if elected, on a
constant interest rate basis) while the holder held the Note generally will be
treated as ordinary income at the time of the disposition. Moreover, any market
discount on a Note may be taxable to an investor to the extent of appreciation
at the time of certain otherwise non-taxable transactions (e.g., gifts). Any
accrued market discount not previously taken into income prior to a conversion
of a Note, however, should (under Treasury Regulations not yet issued) carry
over to the Common Stock received on conversion and be treated as
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ordinary income upon a subsequent disposition of such Common Stock to the
extent of any gain recognized on such disposition. In addition, absent an
election to include market discount in income as it accrues, a holder of a
market discount debt instrument may be required to defer a portion of any
interest expense that otherwise may be deductible on any indebtedness incurred
or maintained to purchase or carry such debt instrument until the holder
disposes of the debt instrument in a taxable transaction.
Sale, Exchange or Retirement of Notes
Each holder of Notes generally will recognize gain or loss upon the sale,
exchange, redemption, repurchase, retirement or other disposition of Notes
measured by the difference (if any) between (i) the amount of cash and the fair
market value of any property received (except to the extent that such cash or
other property is attributable to the payment of accrued interest not previously
included in income, which amount will be taxable as ordinary income), and (ii)
the holder's adjusted tax basis in the Notes disposed of (including any market
discount previously included in income by the holder). Each holder of Common
Stock into which the Notes are converted, in general, will recognize gain or
loss upon the sale, exchange, redemption, repurchase or other disposition of the
Common Stock measured under rules similar to those described in the preceding
sentence for the Notes. Special rules may apply to redemptions of Common Stock
which may result in different treatment. Any such gain or loss recognized on the
sale, exchange, redemption, repurchase, retirement or other disposition of a
Note or share of Common Stock should be capital gain or loss (except as
discussed under "Market Discount" above), and would be long-term capital gain or
loss if the Note or the Common Stock had been held for more than one year at the
time of the disposition. An investor's initial basis in a Note will be the cash
price paid therefor.
Backup Withholding
A holder of Notes or Common Stock may be subject to "backup withholding" at
a rate of 31% with respect to certain "reportable payments," including interest
payments, dividend payments and, under certain circumstances, principal payments
on the Notes. These backup withholding rules apply if the holder, among other
things, (i) fails to furnish a social security number or other taxpayer
identification number ("TIN") certified under penalties of perjury within a
reasonable time after the request therefor, (ii) furnishes an incorrect TIN,
(iii) fails to report properly interest or dividends or (iv) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that such holder is
not subject to backup withholding. A holder who does not provide the Company
with its correct TIN also may be subject to penalties imposed by the IRS. Any
amount withheld from a payment to a holder under the backup withholding rules is
creditable against the holder's federal income tax liability, provided the
required information is furnished to the IRS. Backup withholding will not apply,
however, with respect to payments made to certain holders, including
corporations, tax-exempt organizations and certain foreign persons, provided
their exemption from backup withholding is properly established.
The Company will report to the holders of Notes and Common Stock and to the
IRS the amount of any "reportable payments," including reportable interest and
dividend payments, for each calendar year and the amount of tax withheld, if
any, with respect to such payments.
Foreign Holders
The following discussion is a summary of certain United States federal
income tax consequences to a Foreign Person that holds a Note. The term "Foreign
Person" means a nonresident alien individual or foreign corporation, but only if
the income or gain on the Note is not "effectively connected with the conduct of
a trade or business within the United States." If the income or gain on the Note
is "effectively connected with the conduct of a trade or business within the
United States," then the nonresident alien individual or foreign corporation
will be subject to tax on such income or gain in essentially the same manner as
a U.S. citizen or resident or a domestic corporation, as discussed above, and in
the case of a foreign corporation, may also be subject to the branch profits
tax.
Under the portfolio interest exception to the general rules for the
withholding of tax on interest paid to a Foreign Person, a Foreign Person will
not be subject to United States federal income tax (or to withholding) on
interest payments on a Note, provided that (i) the Foreign Person does not
actually or constructively own 10% or more of
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the total combined voting power of all classes of stock of the Company
entitled to vote and is not a controlled foreign corporation with respect to the
United States that is related to the Company through stock ownership, and (ii)
the Company, its paying agent or the person who would otherwise be required to
withhold tax receives either (A) a statement (an "Owner's Statement") signed
under penalties of perjury by the beneficial owner of the Note in which the
owner certifies that the owner is not a U.S. person and which provides the
owner's name and address, or (B) a statement signed under penalties of perjury
by the Financial Institution holding the Note on behalf of the beneficial owner,
together with a copy of the Owner's Statement. The term "Financial Institution"
means a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
and that holds a Note on behalf of the owner of the Note. A Foreign Person who
does not qualify for the "portfolio interest" exception, would, under current
law, generally be subject to United States federal withholding tax at a flat
rate of 30% (or lower applicable treaty rate) on interest payments.
If a Foreign Person is treated as receiving a distribution taxable as a
dividend as a result of an adjustment in the conversion price of the Notes, as
described above under "--Conversion of Notes into Common Stock," such deemed
dividend will be subject to United States federal withholding tax at a 30% (or
lower applicable treaty) rate.
In general, gain recognized by a Foreign Person upon the sale, exchange,
redemption, repurchase, retirement or other disposition of a Note (including any
gain representing accrued market discount) will not be subject to United States
federal income tax. However, a Foreign Person may be subject to United States
federal income tax at a flat rate of 30% (unless exempt by an applicable treaty)
on any such gain if the Foreign Person is an individual present in the United
States for 183 days or more during the taxable year in which the Note is
disposed of and certain other requirements are met.
34
<PAGE>
SELLING SECURITYHOLDERS
The Notes were originally issued by the Company in a private placement and
were resold by the initial purchasers thereof to qualified institutional buyers
(within the meaning of Rule 144A under the Securities Act) or other
institutional accredited investors (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) in transactions exempt from registration under the
Securities Act, and in sales outside the United States to persons other than
U.S. persons in reliance upon Regulation S under the Securities Act. The Notes
and the Conversion Shares that may be offered pursuant to this Prospectus will
be offered by the Selling Securityholders. The following table sets forth
certain information as of November 7, 1996 concerning the principal amount of
Notes owned by each Selling Securityholder. Other than as a result of the
ownership indicated below, none of the Selling Securityholders has had any
position, office or other material relationship with the Company or any of its
affiliates within the past three years.
<TABLE>
<CAPTION>
Number of
Principal Amount Percentage of Conversion Shares Percentage of
of Notes Notes That Common Stock
Name That May be Sold Outstanding May be Sold (1) Outstanding (2)
---- ---------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Alex. Brown & Sons, Inc................ $ 1,050,000 * 28,225 *
Bank of New York....................... 13,570,000 8.56 364,784 *
Bankers Trust Company.................. 51,215,000 32.30 1,376,747 3.30
Bankers Trust/BT Holdings (New
York), Inc.......................... 1,000,000 * 26,881 *
Batrus & Co............................ 55,000 * 1,478 *
Bear Stearns Securities Corp./Portal... 6,044,000 3.81 162,473 *
Booth & Co............................. 40,000 1,075 *
Bost & Co.............................. 250,000 * 6,720 *
Boston Safe Deposit & Trust Co......... 8,155,000 5.14 219,220 *
Brown Brothers Harriman & Co........... 350,000 * 9,408 *
Chase Manhattan Bank................... 15,000,000 9.46 403,225 *
Chase Manhattan Bank/Chemical.......... 2,855,000 1.80 76,747 *
Chase Manhattan Bank, Trust............ 385,000 * 10,349 *
Citicorp Services, Inc................. 7,095,000 4.48 190,725 *
Custodial Trust Company................ 2,685,000 1.69 72,177 *
Deutsche Morgan Grenfell/C.J.
Lawrence Inc........................ 100,000 * 2,688 *
Firstar Trust Company.................. 115,000 * 3,091 *
First National Bank of Boston (The).... 175,000 * 4,704 *
First National Bank of Chicago......... 2,500,000 1.58 67,204 *
Fleet Bank of Massachusetts, N.A....... 75,000 * 2,016 *
Gasa & Co.............................. 45,000 * 1,209 *
Goldman Sachs & Co..................... 2,000,000 1.26 53,763 *
Hare & Co.............................. 305,000 * 8,198 *
Harris Trust & Savings Bank............ 250,000 * 6,720 *
How & Co............................... 270,000 * 7,258 *
Julius Baer Securities Inc............. 400,000 * 10,752 *
Lazard Freres & Co. LLC................ 320,000 * 8,602 *
Lehman Brothers Inc.................... 8,596,000 5.42 231,075 *
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Number of
Principal Amount Percentage of Conversion Shares Percentage of
of Notes Notes That Common Stock
Name That May be Sold Outstanding May be Sold (1) Outstanding (2)
---- ---------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Lehman Brothers International (Europe)
- Prime Broker (LBI)................ 2,700,000 1.70 72,580 *
M & I Marshall & Ilsley Bank........... 250,000 * 6,720 *
Mercantile, Safe Deposit and Trust
Company............................. 1,325,000 * 35,618 *
Merrill Lynch, Pierce, Fenner & Smith
Safekeeping......................... 1,406,000 * 37,795 *
Merrill Lynch - Debt Securities........ 3,158,000 1.99 84,892 *
NatWest Securities Corporation #2...... 5,000,000 3.15 134,408 *
NBD Bank............................... 685,000 * 18,413 *
Neuberger & Berman..................... 10,000 * 268 *
Nomura International Trust Company
Incorporated........................ 900,000 * 24,193 *
Northern Trust Company................. 1,197,000 * 32,177 *
PaineWebber, Inc....................... 600,000 * 16,129 *
Pondwave & Co.......................... 3,600,000 2.27 96,774 *
Republic New York Securities Corp...... 1,904,000 1.20 51,182 *
Robertson, Stephens & Company, L.P..... 1,000,000 * 26,881 *
Salkeld & Co........................... 1,225,000 * 32,930 *
Sanwa Bank California.................. 975,000 * 26,209 *
Sigler & Co............................ 100,000 * 2,688 *
Smith Barney, Inc...................... 1,000,000 * 26,881 *
Societe General Securities Corporation. 1,000,000 * 26,881 *
SSB-Custodian.......................... 2,830,000 1.78 76,075 *
Sumitomo Trust & Banking Co. (U.S.A.).. 1,000,000 * 26,881 *
Wagner, Stott & Co..................... 1,780,000 1.12 47,849 *
- -------------
* Less than 1%.
(1) Assumes conversion of the full amount of Notes held by such holder at
the initial conversion price of $37.20 per share; such conversion price
is subject to adjustment as described under "Description of the
Notes--Conversion." Accordingly, the number of shares of Common Stock
issuable upon conversion of the Notes may increase or decrease from time
to time. Under the terms of the Indenture, fractional shares will not be
issued upon conversion of the Notes; cash will be paid in lieu of
fractional shares, if any.
(2) Computed in accordance with Rule 13d-3(d)(i) promulgated under the
Exchange Act and based upon 40,359,010 shares of Common Stock
outstanding as of October 31, 1996, treating as outstanding the number
of Conversion Shares shown as being issuable upon the assumed conversion
by the named holder of the full amount of such holder's Notes but not
assuming the conversion of the Notes of any other holder.
</TABLE>
The preceding table has been prepared based upon the information furnished
to the Company by State Street Bank and Trust Company, as Trustee for the Notes,
and by The Depository Trust Company.
Because the Selling Securityholders may offer all or some of the Notes that
they hold and/or Conversion Shares pursuant to the offering contemplated by this
Prospectus, no estimate can be given as to the amount of the Notes or Conversion
Shares that will be held by the Selling Securityholders upon the termination of
this offering. See "Plan of Distribution."
36
<PAGE>
PLAN OF DISTRIBUTION
Sales of the Notes may be effected by or for the account of the Selling
Securityholders from time to time in transactions in the PORTAL Market and sales
of the Conversion Shares may be so effected from time to time in transactions
(which may include block transactions) on the NYSE, and sales of each may be so
effected from time to time in negotiated transactions, through a combination of
such methods of sale, or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices, or at negotiated prices. The Selling Securityholders may effect
such transactions by selling the Notes or Conversion Shares directly to
purchasers, through broker-dealers acting as agents for the Selling
Securityholders, or to broker-dealers who may purchase Notes or Conversion
Shares as principals and thereafter sell the Notes from time to time in
transactions in the PORTAL Market and the Conversion Shares from time to time in
transactions (which may include block transactions) on the NYSE, in negotiated
transactions, through a combination of such methods of sale, or otherwise. In
effecting sales, broker-dealers engaged by Selling Securityholders may arrange
for other broker-dealers to participate. Such broker-dealers, if any, may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholders and/or the purchasers of the Notes or Conversion
Shares for whom such broker-dealers may act as agents or to whom they may sell
as principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions).
To the extent required, the amount of the Notes or Conversion Shares to be
sold, purchase prices, public offering prices, the names of any agents, dealers
or underwriters, and any applicable commissions or discounts with respect to a
particular offer will be set forth by the Company in a Prospectus Supplement
accompanying this Prospectus or, if appropriate, a post-effective amendment to
the Registration Statement. The Selling Securityholders and agents who execute
orders on their behalf may be deemed to be underwriters as that term is defined
in Section 2(11) of the Securities Act and a portion of any proceeds of sales
and discounts, commissions or other seller's compensation may be deemed to be
underwriting compensation for purposes of the Securities Act.
Offers or sales of the Notes or the Conversion Shares have not been
registered or qualified under the laws of any country, other than the United
States. To comply with certain states' securities laws, if applicable, the Notes
and the Conversion Shares will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
states the Notes and the Conversion Shares may not be offered or sold unless
they have been registered or qualified for sale in such states or an exemption
from registration or qualification is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Notes or the Conversion Shares may not
simultaneously engage in market-making activities with respect to such
securities for a period of two to nine business days prior to the commencement
of such distribution. In addition to and without limiting the foregoing, each
Selling Securityholder and any other person participating in a distribution will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation Rules 10b-2, 10b-6 and
10b-7, which provisions may limit the timing of purchases and sales of any of
the Notes or the Conversion Shares by the Selling Securityholders or any such
other person. All of the foregoing may affect the marketability of the Notes and
the Conversion Shares and the brokers' and dealers' ability to engage in
market-making activities with respect to such securities.
The Company has agreed to bear all expenses of registration of the Notes
and the Conversion Shares. Any commissions, discounts, concessions or other
fees, if any, payable to broker-dealers in connection with any sale of the Notes
or Conversion Shares will be borne by the Selling Securityholder selling such
Notes or Conversion Shares. Under agreements entered into with the Company, the
Selling Securityholders will be indemnified by the Company against certain civil
liabilities, including liabilities under the Securities Act.
37
<PAGE>
LEGAL MATTERS
Certain matters with respect to the legality of the securities offered
hereby will be passed upon for the Company by Charles W. Ott, General Counsel of
Vivra Incorporated. Certain other legal matters in connection with the offering
will be passed upon by Pillsbury Madison & Sutro LLP, Menlo Park, California.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Current Report on Form 8-K dated June 13, 1996 (which have been
restated to give retroactive effect to the merger of Vivra Incorporated; Kidney
Centers of Charleston, Inc.; Brennan, Martell, and Mirmelli, M.D.s, P.A. and
Allergy & Asthma Institute of South Florida, P.A.; and Orthonet, Inc.), have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Kidney Centers of Charleston, Inc. appearing in
the Company's Current Report on Form 8-K dated May 1, 1996, have been audited by
Pratt-Thomas, Gumb & Co., P.A., independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The combined financial statements of Brennan, Martell, and Mirmelli, M.D.s,
P.A. and Allergy & Asthma Institute of South Florida, P.A. appearing in the
Company's Current Report on Form 8-K dated May 1, 1996, have been audited by
Arthur Andersen LLP, independent certified public accountants, as indicated in
their report thereon included therein and incorporated herein by reference. Such
combined financial statements are incorporated herein by reference in reliance
upon the authority of such firm as experts in giving said reports.
The supplemental consolidated financial statements of the Company appearing
in the Company's Current Report on Form 8-K dated September 24, 1996 (which have
been restated to give retroactive effect to the merger of Vivra Incorporated;
Portsmouth Medical Specialists, Inc. and Churchland Renal Center Inc.; and
Cooper, Moody, Altschuler, Chizner, Dennis and Niederman, P.A. d/b/a/ The
Greater Ft. Lauderdale Heart Group), have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such supplemental consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The combined financial statements of Portsmouth Medical Specialists, Inc.
and Churchland Renal Center Inc. and the financial statements of Cooper, Moody,
Altschuler, Chizner, Dennis and Niederman, P.A. d/b/a The Greater Ft. Lauderdale
Heart Group, each appearing in the Company's Current Report on Form 8-K dated
September 24, 1996 have each been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
38
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth all expenses payable by the Registrant in
connection with the offering of the Notes and the Conversion Shares being
registered. The Selling Securityholders will not share in the payment of any
portion of these expenses. The table omits any applicable selling commissions or
discounts, which are payable solely by the Selling Securityholders. All the
amounts shown are estimates, except for the registration fee and the NYSE
listing fee.
<TABLE>
<S> <C>
Registration fee................................... $ 48,043.94
NYSE listing fee................................... 1,500.00
Printing expenses.................................. 10,000.00
Legal fees and expenses............................ 20,000.00
Accounting fees and expenses....................... 10,000.00
Transfer agent and registrar fees.................. 5,000.00
Miscellaneous...................................... 5,000.00
------------------
Total................................ $ 99,543.94
==================
</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 bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise.
Article 8 of the Company's 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.
Item 16. Exhibits
Exhibit
Number Description of Document
------- -----------------------
2 Plan of acquisition
*2.1 Stock Purchase Agreement dated as of March 31, 1995,
by and among Vivra Incorporated, Cape Coral Dialysis Center,
Inc. and Dialysis Services of Southwest Florida, Inc. and each
of the Stockholders listed on Exhibit A thereto (filed as an
exhibit to the Prospectus Supplement to the Prospectus dated
March 14, 1995 (File No. 33-85736) and incorporated herein by
reference).
II-1
<PAGE>
Exhibit
Number Description of Document
------- -----------------------
*2.2 Agreement for Sale and Purchase of Assets, dated
July 1, 1995, by and among CDC and Oakwood, Chilikapati Family
Limited Partnership and Thavarajah Family Limited Partnership,
Vijay Kumar Chilikapati Revocable Living Trust dated September
26, 1984 and the Krishnapilla Thavarajah Revocable Living
Trust, the sole shareholders of Oakwood and K. Thavarajah,
M.D. and C.V. Kumar, M.D. (filed as Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated August 16, 1995
and incorporated herein by reference).
*2.3 Agreement for Sale and Purchase of Assets, dated as
of July 1, 1995, by and among CDC and Wyandotte and CTA
Investment Group, Vijay Kumar Chilikapati Revocable Living
Trust dated September 26, 1984, the Krishnapilla Thavarajah
Revocable Living Trust, and Syed Akbar, M.D., an individual
and K. Thavarajah, M.D., an individual, and C.V. Kumar, M.D.,
an individual (filed as Exhibit 10.2 to the Registrant's
Current Report on Form 8-K dated August 16, 1995 and
incorporated herein by reference).
*2.4 Master Merger Agreement among Asthma & Allergy
CareAmerica, Inc.; Vivra Incorporated; Pediatric Allergy
Group, a Professional Association; Jerald M. Duncan, M.D.;
Fred T. Grogan, Jr., M.D.; Jourdan A. Roane, M.D.; Phillip L.
Lieberman, M.D., P.C.; Phillip L. Lieberman, M.D.; George H.
Treadwell, III, M.D., P.C.; and George H. Treadwell, III, M.D.
(filed as Exhibit 10.1 to the Registrant's Current Report on
Form 8-K dated January 26, 1996 and incorporated herein by
reference).
*2.5 Agreement and Plan of Merger among Asthma & Allergy
CareAmerica, Inc.; Vivra Incorporated; and Pediatric Allergy
Group, a Professional Association (filed as Exhibit 10.2 to
the Registrant's Current Report on Form 8-K dated January 26,
1996 and incorporated herein by reference).
*2.6 Agreement and Plan of Merger among Asthma & Allergy
CareAmerica, Inc., Vivra Incorporated, Phillip L. Lieberman,
M.D., P.C. and Phillip L. Lieberman, M.D. (filed as Exhibit
10.3 to the Registrant's Current Report on Form 8-K dated
January 26, 1996 and incorporated herein by reference).
*2.7 Agreement and Plan of Merger among Asthma & Allergy
CareAmerica, Inc.; Vivra Incorporated; George H. Treadwell,
III, M.D., P.C.; and George H. Treadwell, III (filed as
Exhibit 10.4 to the Registrant's Current Report on Form 8-K
dated January 26, 1996 and incorporated herein by reference).
*2.8 Stock Exchange Agreement among Vivra Incorporated;
Raj & Jay, Inc.; Vadakkipalayam Devarajan, M.D.; Chemmale
Jayakrishnan, M.D.; David J. Vial, M.D.; and Martin Ballenger,
M.D. (filed as Exhibit 10.5 to the Registrant's Current Report
on Form 8-K dated January 26, 1996 and incorporated herein by
reference).
*2.9 Stock Exchange Agreement among Vivra Renal Care,
Inc.; Vivra Incorporated; Martin Gelman, M.D. and Gerald
Bousquet, M.D. (filed as Exhibit 10.5 to the Registrant's
Current Report on Form 8-K dated March 13, 1996 and
incorporated herein by reference).
*2.10 Stock Exchange Agreement among Vivra Orthopedics,
Inc.; Vivra Incorporated; and Joseph Zagorski, M.D. (filed as
Exhibit 10.1 to the Registrant's Current Report on Form 8-K
dated March 15, 1996 and incorporated herein by reference).
II-2
<PAGE>
Exhibit
Number Description of Document
------- -----------------------
*2.11 Stock Exchange Agreement among Vivra Incorporated;
Mr. Qualls and Mr. Robins (filed as Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated March 29, 1996
and incorporated herein by reference).
*2.12 Master Merger Agreement among Asthma & Allergy
CareAmerica, Inc.; Vivra Incorporated; Pollard & Sublett, PSC;
Stephen J. Pollard, M.D.; James L. Sublett, M.D. and Allergy &
Asthma Research Institute, Inc. (filed as Exhibit 10.1 to the
Registrant's Current Report on Form 8-K dated April 11, 1996
and incorporated herein by reference).
*2.13 Agreement and Plan of Merger among Asthma & Allergy
CareAmerica, Inc.; Vivra Incorporated; Pollard & Sublett, PSC;
Stephen J. Pollard, M.D. and James L. Sublett, M.D. (filed as
Exhibit 10.2 to the Registrant's Current Report on Form 8-K
dated April 11, 1996 and incorporated herein by reference).
*2.14 Agreement and Plan of Merger among Asthma & Allergy
CareAmerica, Inc.; Vivra Incorporated; Allergy & Asthma
Research Institute, Inc.; Stephen J. Pollard, M.D. and James
L. Sublett, M.D. (filed as Exhibit 10.3 to the Registrant's
Current Report on Form 8-K dated April 11, 1996 and
incorporated herein by reference).
*2.15 Master Merger Agreement among Asthma & Allergy
CareAmerica, Inc.; Vivra Incorporated; Brennan, Martell &
Mirmelli, M.D.'s, P.A.; Asthma & Allergy CareAmerica of
Florida, Inc.; Frank R. Martell, M.D.; Philip C. Mirmelli,
M.D. and Asthma & Allergy Institute of South Florida, Inc.
(filed as Exhibit 10.1 to the Registrant's Current Report on
Form 8-K dated May 14, 1996 and incorporated herein by
reference).
*2.16 Agreement and Plan of Merger among Asthma & Allergy
CareAmerica, Inc.; Vivra Incorporated; Brennan, Martell &
Mirmelli, M.D.'s, P.A.; Asthma & Allergy CareAmerica of
Florida, Inc.; Frank R. Martell, M.D. and Philip C. Mirmelli,
M.D. (filed as Exhibit 10.2 to the Registrant's Current Report
on Form 8-K dated May 14, 1996 and incorporated herein by
reference).
*2.17 Agreement and Plan of Merger among Asthma & Allergy
CareAmerica, Inc.; Vivra Incorporated; AACA-AAI Acquisition,
Inc.; Asthma & Allergy Institute of South Florida, Inc.; Frank
R. Martell, M.D. and Philip C. Mirmelli, M.D. (filed as
Exhibit 10.3 to the Registrant's Current Report on Form 8-K
dated May 14, 1996 and incorporated herein by reference).
*2.18 Agreement and Plan of Merger among Vivra Renal
Care, Inc.; Vivra Incorporated; Charleston Kidney Center,
Inc.; Georgia Malanos, M.D.; Jerry Owens, M.D. and Arthur
Smith, M.D. (filed as Exhibit 10.4 to the Registrant's Current
Report on Form 8-K dated May 14, 1996 and incorporated herein
by reference).
*2.19 Agreement and Plan of Merger among Vivra Specialty
Partners, Inc.; Vivra Incorporated; Melter, Inc.; Melter
Rehabilitation Services, Inc. and Melvyn Drucker, M.D. (filed
as Exhibit 10.5 to the Registrant's Current Report on Form 8-K
dated May 14, 1996 and incorporated herein by reference).
4 Instruments defining the rights of security holders, including
indentures.
*4.1 Amended and Restated Rights Agreement dated as of
February 13, 1996 by and between Vivra Incorporated and The
First National Bank of Boston, as Rights Agent (filed as
Exhibit 4D to the Registrant's Form 10/A dated February 14,
1996 and incorporated herein by reference).
II-3
<PAGE>
*4.2 Indenture by and between Vivra Incorporated and
State Street Bank and Trust Company, as Trustee, dated as of
July 8, 1996, regarding the Company's 5% Convertible
Subordinated Notes Due 2001.
*4.3 Registration Rights Agreement dated as of July 8,
1996 by and among Vivra Incorporated, Alex. Brown & Sons
Incorporated, Montgomery Securities, Bear, Stearns & Co. Inc.,
Smith Barney Inc. and UBS Securities LLC, as the Initial
Purchasers of the Company's 5% Convertible Subordinated Notes
Due 2001, with respect to the registration of said Notes under
applicable securities laws.
*5.1 Opinion of Charles W. Ott.
12 Statement re computation of ratios (revised).
23 Consents
*23.1 Consent of Charles W. Ott (included in Exhibit
5.1).
*23.2 Consent of Ernst & Young LLP.
*23.3 Consent of Pratt-Thomas, Gumb & Co., P.A.
*23.4 Consent of Arthur Andersen LLP
*24 Power of Attorney.
25 Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939 of a Corporation Designated to Act
as Trustee on Form T-1.
* Previously filed, and incorporated by reference.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 above, 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 Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
II-4
<PAGE>
(a) To include any prospectus required by Section 10(a)(3) of the
Act;
(b) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement; and
(c) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
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.
(3) To remove from registration by means of a post-offering amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Act, each
filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is incorporated
by reference in this 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Mateo, State of California on November 20, 1996.
VIVRA INCORPORATED
By /s/ LeANNE M. ZUMWALT
-----------------------------------------
LeAnne M. Zumwalt
Chief Financial Officer,
Secretary and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ KENT J. THIRY* Director, President and Chief November 20, 1996
- ----------------------------------------------- Executive Officer (Principal
(Kent J. Thiry) Executive Officer)
/s/ LeANNE M. ZUMWALT Director and Chief Financial Officer, November 20, 1996
- ----------------------------------------------- Treasurer and Secretary (Principal
(LeAnne M. Zumwalt) Accounting Officer and Principal
Financial Officer)
/s/ DAVID G. CONNOR, M.D.* Director November 20, 1996
- -----------------------------------------------
(David G. Connor, M.D.)
/s/ RICHARD B. FONTAINE* Director November 20, 1996
- -----------------------------------------------
(Richard B. Fontaine)
/s/ ALAN HOOPS* Director November 20, 1996
- -----------------------------------------------
(Alan Hoops)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ DAVID LOWE* Director November 20, 1996
- -----------------------------------------------
(David Lowe)
/s/ JOHN M. NEHRA* Director November 20, 1996
- -----------------------------------------------
(John M. Nehra)
/s/ STEPHEN G. PAGLIUCA* Director November 20, 1996
- -----------------------------------------------
(Stephen G. Pagliuca)
*By /s/ LeANNE M. ZUMWALT
--------------------------------------------
LeAnne M. Zumwalt
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
12 Statement re computation of ratios (revised).
25 Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 of a Corporation Designated to Act as Trustee
on Form T-1.
<PAGE>
EXHIBIT 12 (Revised)
<TABLE>
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<CAPTION>
Nine Months
Year Ended November 30, Ended August 31,
-------------------------------------------------------------- -------------------
1995 1994 1993 1992 1991 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax earnings........................ $ 63,244 $ 51,165 $ 42,027 $ 32,182 $ 24,649 $ 59,484 $ 48,034
Interest................................ 483 606 1,016 872 700 1,383 410
Interest on rental expense(1)........... 3,540 2,670 2,160 1,410 1,140 1,875 1,770
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total earnings and fixed charges.... 67,267 54,441 45,203 34,464 26,489 62,742 50,214
Interest................................ 483 606 1,016 872 700 1,383 410
Interest on rental expense(1)........... 3,540 2,670 2,160 1,410 1,140 1,875 1,770
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total fixed charges................. 4,023 3,276 3,176 2,282 1,840 3,258 2,180
Ratio of Earnings to Fixed Charges...... 16.7 16.6 14.2 15.1 14.4 19.3 23.0
========== ========== ========== ========== ========== ========== ==========
- ----------
(1) Represents such portion of rental expense which is representative of
interest.
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Senior Vice President and Corporate Secretary
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
---------------------
(VIVRA INCORPORATED)
(Exact name of obligor as specified in its charter)
(Delaware) (94-3096645)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 Gateway Drive
San Mateo, Ca 94404-2467
(Address of principal executive offices) (Zip Code)
--------------------
5% Convertible Subordinated Notes Due 2001
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 6.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission
as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility
and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
2. A copy of the certificate of authority of the trustee to
commence business, if not contained in the articles of
association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the
documents specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22- 17940) and is incorporated herein by reference
thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the
obligor is in default.
Not applicable.
6. The consents of United States institutional trustees
required by Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as Exhibit
7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility and Qualification
which relates to matters peculiarly within the knowledge of the obligor or any
underwriter for the obligor, the trustee has relied upon information furnished
to it by the obligor and the underwriters, and the trustee disclaims
responsibility for the accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Boston
and The Commonwealth of Massachusetts, on the 12th day of September, 1996.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Henry W. Seemore
----------------------------------------
Henry W. Seemore
Assistant Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by Vivra
Incorporated. of its 5% Convertible Subordinated Notes Due 2001, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Henry W. Seemore
----------------------------------------
Henry W. Seemore
Assistant Vice President
Dated: September 12, 1996
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company of
Boston, Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this commonwealth
and a member of the Federal Reserve System, at the close of business December
31, 1995, published in accordance with a call made by the Federal Reserve Bank
of this District pursuant to the provisions of the Federal Reserve Act and in
accordance with a call made by the Commissioner of Banks under General Laws,
Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin.......... 1,331,827
Interest-bearing balances................................... 5,971,326
Securities 6,325,054
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary......................... 5,436,994
Loans and lease financing receivables:
Loans and leases, net of unearned income..... 4,308,339
Allowance for loan and lease losses.......... 63,491
Loans and leases, net of unearned income and allowances..... 4,244,848
Assets held in trading accounts...................................... 1,042,846
Premises and fixed assets............................................ 374,362
Other real estate owned.............................................. 3,223
Investments in unconsolidated subsidiaries........................... 31,624
Customers' liability to this bank on acceptances outstanding......... 57,472
Intangible assets.................................................... 68,384
Other assets......................................................... 670,058
----------
Total assets......................................................... 25,558,018
==========
LIABILITIES
Deposits:
In domestic offices......................................... 6,880,231
Noninterest-bearing................. 4,728,115
Interest-bearing.................... 2,152,116
In foreign offices and Edge subsidiary...................... 9,607,427
Noninterest-bearing................. 28,265
Interest-bearing.................... 9,579,162
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary......................... 5,913,969
Demand notes issued to the U.S. Treasury and Trading Liabilities..... 530,406
Other borrowed money................................................. 493,191
Bank's liability on acceptances executed and outstanding............. 57,387
Other liabilities.................................................... 620,287
----------
Total liabilities.................................................... 24,102,898
----------
EQUITY CAPITAL
Common stock......................................................... 29,176
Surplus.............................................................. 228,448
Undivided profits.................................................... 1,197,496
----------
Total equity capital................................................. 1,455,120
Total liabilities and equity capital................................. 25,558,018
==========
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5
