<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended November 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________________________to_______________________
Commission file number: 1-10261
VIVRA INCORPORATED
----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-3096645
- ----------------------------------------------- ----------------
(State or other jurisdiction of (IRS Employer
Identification No.)
incorporation or organization)
400 Primrose, #200, Burlingame, California 94010
- --------------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (415) 348-8200
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
-------------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act:
None
------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant on February 15, 1996, based on the closing price on the New York
Stock Exchange, was: $1,130,706,187.
Number of shares of Common Stock outstanding on February 15, 1996:
37,072,334
Documents Incorporated By Reference
Definitive Proxy Statement for the Company's May 2, 1996 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 ( incorporated in Part III hereof to the extent indicated
in Items 10, 11, 12 and 13 hereof).
<PAGE>
PART 1
ITEM 1. BUSINESS
OVERVIEW
Vivra is a provider of specialty health care services, principally the
delivery of dialysis services. The Company is the second largest provider of
dialysis services in the United States and treats approximately 11,500 patients
through approximately 200 centers in 26 states and the District of Columbia. In
addition, through its Vivra Specialty Partners segment, it provides network
management in the specialty care areas of asthma/allergy, cardiology, diabetes,
dialysis/nephrology, ENT and obstetrics/gynecology. Vivra's business strategy
is to compete in specialties/disease states where Vivra can demonstrably deliver
differentiated care to high -cost patient populations.
When used in this Report on Form 10-K, 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 in the Investment Considerations section below, that could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.
CONSIDERATIONS
MEDICARE AND MEDICAID DIALYSIS REIMBURSEMENT. The Company estimates that
approximately 66% of its dialysis revenues, including revenues for the
reimbursement of the administration of the drug erythropoietin ("EPO"), for
fiscal year 1994, and 70% for fiscal year 1995, were reimbursements from
Medicare and Medicaid under the End-Stage Renal Disease ("ESRD") program
administered by the Health Care Financing Administration ("HCFA"). Numerous
Congressional actions have resulted in changes in the average Medicare
reimbursement rate from a fixed fee of $138 per treatment in 1983, to a 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. Any reduction in
these reimbursement rates would have a material adverse effect on the Company's
revenues and net earnings.
ERYTHROPOIETIN REIMBURSEMENT AND SUPPLY. Since June 1, 1989, Medicare and
Medicaid have provided reimbursement for the administration of EPO to dialysis
patients for the treatment of anemia. During fiscal 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 $42.0 million and $54.4 million, respectively, or 17% and 19% 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 an adverse effect on the Company's revenues and
net earnings. In addition, EPO is produced by a single manufacturer and any
interruption of supply could adversely affect the Company's revenues and net
earnings.
INTRADIALYTIC PARENTERAL NUTRITION THERAPY REIMBURSEMENT. Intradialytic
Parenteral Nutrition ("IDPN") therapy is a nutritional supplement administered
during dialysis to patients suffering from nutritional deficiencies. 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
designation of the DMERCs 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 to patients who
have been "grandfathered" or have private insurance.
Page 2 of 53
<PAGE>
OTHER SOURCES OF DIALYSIS REIMBURSEMENT. The Company estimates that
approximately 34% and 30% of its dialysis revenues for the fiscal years ended
1994 and 1995, respectively, were derived from sources other than Medicare and
Medicaid. Of these revenues, the largest portion came from private insurance
for chronic dialysis treatments. Reimbursement from hospitals for acute
dialysis treatments was also significant. In general, private insurance
reimbursement and reimbursement for treatments performed at hospitals are at
rates significantly in excess of Medicare and Medicaid rates. The Company
believes that private payers will be required in the future to assume a greater
percentage of the costs of dialysis care as the existing ESRD program is
reviewed by the United States Congress, and as a result, private payers will
focus on reducing dialysis payments as their overall dialysis costs increase.
In addition, as health maintenance organizations ("HMOs") and other managed care
providers expand, they will have a strong incentive to further reduce the costs
of specialty care and will aggressively seek to reduce amounts paid for
dialysis.
CAPITATED AGREEMENTS. The Company has entered into specialty care
capitated agreements with payers that provide for the receipt of monthly prepaid
fees per individual enrollee for specifically enumerated services. The Company
has only entered into such capitated agreements in those states where the
Company is expressly permitted to assume this type of risk. Under these
agreements, the Company is generally responsible for the provision of all
covered professional services with respect to the specialty care area. To the
extent that enrollees require more care than is anticipated, aggregate
capitation rates may be insufficient to cover the costs associated with the
treatment of enrollees. The Company intends to enter into additional capitated
agreements during fiscal 1996.
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. In
addition, private payers will likely seek to reduce the amount which they pay
for dialysis treatments. The Company is seeking to improve operating margins
through increased productivity and various cost containment programs; however,
there can be no assurance that its operating margins will not decline in the
future.
GROWTH OF DIALYSIS BUSINESS. The Company is attempting to increase its
rate of acquisition and development of new dialysis centers. Accordingly, the
Company has increased its development staff and budget. The dialysis industry
is highly competitive with respect to acquisitions of existing dialysis
facilities and recruiting Medical Directors for new centers. Certain of the
Company's competitors have substantially greater financial resources than the
Company and compete with the Company for the acquisition of facilities.
Competition for acquisitions has increased significantly in recent years and, as
a result, the cost of acquiring existing dialysis facilities has also increased.
To the extent that the Company is unable to acquire existing dialysis facilities
economically, to develop facilities profitably or to recruit Medical Directors
to operate its facilities, its ability to expand its dialysis business would be
reduced significantly.
GROWTH OF NEW BUSINESS. The Company has acquired and expects to acquire
additional healthcare service businesses outside of the dialysis area. The
development or acquisition of new businesses could require a significant capital
commitment. Such new businesses or new facilities of existing businesses may
incur significant losses and experience delays in attaining profitability or may
never become financially viable. Further, they may not provide the Company with
revenue as predictable as historically provided by the Company's dialysis
business. In addition, certain companies, some of which have longer operating
histories and greater financial resources than those of the Company, are
providing specialty healthcare and physician practice management services
similar to those that the Company provides or may provide. The Company may be
forced to compete with these entities for the acquisition of the assets of
specialty medical practices, contracts to manage such practices and, in some
cases, the employment of practice physicians. There can be no assurance that
the Company will be able to compete effectively with such competitors, that
additional competitors will not enter the Company's markets, or that competition
will not make it more difficult to expand in such markets on terms profitable to
the Company. In addition, the Company intends to expand its existing businesses
by contracting with managed care payers on a capitated or at-risk basis. Under
capitated or at-risk contracts, the health care
Page 3 of 53
<PAGE>
provider agrees to provide care for a fixed rate based on the number of health
care plan members, regardless of the amount of care required. As a result, the
service provider bears the risk of excess utilization. To the extent that a
health care plan member requires more care than anticipated, the capitation rate
paid to the health care provider may be insufficient to cover the costs
associated with provided services. If the aggregate costs associated with
providing medical services exceed the aggregate of the capitation rates, the
Company could, directly or indirectly, be forced to absorb some of these costs
which could have a negative effect on the Company's revenues and net earnings.
GOVERNMENT REGULATION. The Company is subject to extensive federal and
state regulation regarding, among other things, fraud and abuse, health and
safety, environmental compliance and toxic waste disposal. In particular, the
illegal remuneration provisions of the Social Security Act and similar state
laws impose civil and criminal sanctions. These sanctions include
disqualification from participation in the Medicare and Medicaid 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 in those instances where possible. Due to the
breadth of the statutory provisions and the absence in certain instances of
regulations or court decisions addressing many of the specific arrangements by
which the Company conducts its business, it is possible that the Company's
practices might be challenged under these laws. The Office of Inspector General
(the "OIG") of the Department of Health and Human Services ("HHS") has
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
Company conducts its business, it is possible that certain of the Company's
practices might be challenged under these laws which could result in civil
penalties, including exclusion or suspension of the Company from future
participation in Medicare and Medicaid programs, and substantial fines.
Although there can be no assurance, the Company believes that if Stark II is
interpreted to apply to the Company's operations, the Company will be able to
bring its financial relationships with referring physicians into material
compliance under the provisions of Stark II, including relevant exceptions. If
Stark II is broadly interpreted by HCFA to apply to the Company and the Company
cannot achieve material compliance, it could have a material adverse effect on
the Company's revenues and net earnings. See "Business--Government Regulation."
NATIONAL HEALTH CARE REFORM. There is significant national concern today
about the availability and rising cost of health care in the United States. It
is anticipated that new federal and/or state legislation will be passed and
regulations adopted to attempt to provide broader and better health care and to
manage and contain its cost. The Company is unable to predict the content of
any legislation or what, if any, changes may occur in the method and rates of
its Medicare and Medicaid reimbursement or in other government regulations that
may
Page 4 of 53
<PAGE>
affect its businesses, or, whether such changes, if made, will have a material
adverse effect on its revenues and net earnings.
DEPENDENCE ON PHYSICIAN REFERRALS. The Company's facilities depend upon
their Medical Directors and to a lesser extent other local nephrologists for
referrals of ESRD patients for treatment. As is generally true in the dialysis
industry, at each facility one or a few physicians account for all or a
significant portion of the patient 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.
VIVRA RENAL CARE
DIALYSIS SERVICES
The Company is the second largest provider of dialysis services in the
United States. The Company intends to develop and acquire facilities primarily
in existing and contiguous geographic markets and to increase the number of
physicians and other sources of patient referrals.
END-STAGE RENAL DISEASE. ESRD is the state of advanced renal impairment
that is irreversible and fatal without treatment. According to HCFA, the number
of patients who require chronic dialysis services grew from approximately 66,000
in 1982 to approximately 187,000 in 1994, representing a compound annual growth
rate of 9%. The Company attributes the continuing growth in the number of ESRD
patients principally to the aging of the general population, demographic trends
and medical advances resulting in increased life expectancy of patients with
hypertension, diabetes and other illnesses that lead to ESRD. 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 life-prolonging treatment. Qualified patients with ESRD have been
entitled since 1973 to Medicare benefits regardless of age or financial
circumstances.
TREATMENT OPTIONS FOR END-STAGE RENAL DISEASE. Treatment options for ESRD
include hemodialysis, peritoneal dialysis and kidney transplant surgery. HCFA
estimates that, as of December 31, 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 uses the patient's peritoneal
(abdominal) cavity to eliminate fluid and toxins from the patient. CCPD uses a
mechanical device to cycle dialysis solution while a patient is sleeping.
An alternative treatment not provided by the Company is kidney
transplantation. While this option, when successful, is the most desirable form
of therapeutic intervention, the shortage of suitable donors limits the
availability of this surgical procedure as a treatment option. In addition,
attempts are being made to develop new drugs, medical treatments or artificial
kidneys that prevent or reduce the necessity for dialysis.
LOCATION, CAPACITY AND OPERATION OF FACILITIES. As of November 30, 1995,
the Company owned and operated 199 facilities of which 175 are located in leased
premises and 24 are located in buildings owned by the Company. The facilities
range in size from 6 to 41 stations; the average size is 15 stations. The
facilities are located as follows: California (34); Florida (30); Texas (19);
Georgia (18); Alabama and Pennsylvania (14 each);
Page 5 of 53
<PAGE>
South Carolina and Virginia (11 each); Louisiana (6); Maryland, North
Carolina, and the District of Columbia (4 each), Connecticut, Michigan,
Missouri, New Jersey, Oklahoma and Oregon (3 each); Arizona, Kansas, New Mexico
and Tennessee (2 each); Colorado, Illinois, Iowa and West Virginia (1 each).
As an investment, the Company owns 40% of a clinical laboratory which provides
many of the Company's dialysis testing services.
The number of the Company's facilities has increased during the past five
years; during that period, the Company acquired 51 existing facilities,
developed 56 new facilities and closed 12 facilities. Treatments provided by
the Company have increased by 102.4% during this period through an increase in
the number of patients at existing centers as well as an increase in the number
of centers. During fiscal 1995, Vivra's "same store" patient growth was 6%.
There can be no assurance that the Company will continue to experience similar
growth.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF TREATMENTS
FISCAL YEAR END FACILITIES PROVIDED
--------------- ---------- --------
<S> <C> <C>
1990 104 642,567
1991 112 745,987
1992 128 886,979
1993 138 1,087,385
1994 150 1,256,397
1995 199 1,510,172
</TABLE>
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.
As required by Medicare regulations, each of the Company's facilities is
supervised by a Medical Director. The Company's Medical Directors are licensed
physicians in private practice who are directly responsible for assuring the
quality of patient care. A Unit Administrator, who is generally a registered
nurse, supervises the day-to-day operation of each facility and the staff. The
staff consists of registered nurses, medical technicians, nurses aides, a unit
clerk, and certain part-time employees, including a social worker, a registered
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. The Company engages in organized and
systematic efforts to measure, maintain and improve the quality of services it
delivers. Each of the Company's facilities collects and analyzes quality
assurance data which is reviewed regularly by regional and corporate management
to continually monitor and improve the standard of care being provided.
SOURCES OF DIALYSIS REVENUES. The Company estimates that approximately 70%
of its dialysis revenues, including revenues for the reimbursement of the
administration of EPO, for each of the fiscal years 1991, 1992 and 1993, 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. The Company is not able to
predict whether and to what extent changes to Medicare and Medicaid
reimbursement rates will be made in the future. Any reduction in these
reimbursement rates would have material adverse effects on the Company's
revenues and net earnings.
Page 6 of 53
<PAGE>
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 may not be reimbursed for the initial waiting period or the
20% copayment of the ESRD rate which is not paid by Medicare. The Company seeks
to assist patients who may not initially have adequate sources of reimbursement
or insurance to obtain coverage, if possible.
Since June 1, 1989, Medicare and Medicaid have provided reimbursement for
the administration of EPO to dialysis patients for the treatment of anemia.
During fiscal 1994 and 1995, approximately 84% and 85%, respectively, of the
Company's dialysis patients received EPO. Revenues from the administration of
EPO were approximately $42.0 million and $54.4 million, respectively, or 17% and
19%, respectively, of dialysis revenues, for those periods. Effective January
1, 1994, Medicare and Medicaid reimbursement for the administration of EPO was
reduced from $11 to $10 per 1,000 units. Any further reduction in the
reimbursement rate for the administration of EPO would have a negative impact on
the Company's revenues and net earnings. In addition, EPO is produced by a
single manufacturer, and any interruption of supply could adversely affect the
Company's revenues and net earnings.
The Company estimates that approximately 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.
The Company 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.
The Company is unable to predict to what extent decreases in these reimbursement
rates will be made in the future. Any reduction in the ability of the Company
to charge rates that are in excess of those paid by Medicare and Medicaid would
have a significant negative effect on the Company's revenues and net earnings.
The business segment information set forth in footnote 10 to the Company's
Consolidated Financial Statements are incorporated herein by reference.
SPECIALTY PHARMACY 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.
IDPN therapy is a nutritional supplement administered during dialysis to
patients suffering from nutritional deficiencies. The Company is reimbursed by
the Medicare program for the administration of IDPN therapy through its pharmacy
which provides IDPN prescriptions and support services to certain of its
dialysis patients and other third-party patients. In early 1993, HCFA
designated four 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 designation of the DMERCs 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 to
patients who have been "grandfathered" or have private insurance.
Page 7 of 53
<PAGE>
VIVRA SPECIALTY PARTNERS
Vivra Specialty Partners ("VSP") develops and manages specialty networks of
independent and group practices spanning a payer's market. VSP's strategy is to
allow payers to deliver specialty care to an entire market in a coordinated
effort to improve care, deliver market share to the specialists and reduce
costs. In many instances, these specialty networks are the vehicle through
which VSP provides comprehensive disease management. VSP is currently active
in:
- Asthma/Allergy - Dialysis/Nephrology
- Cardiology - ENT
- Diabetes - OB-GYN
Annualized network revenues have grown from approximately $5 million to $24
million in the last six months. VSP has capitated contracts covering
approximately 2.5 million lives. Within targeted markets, VSP expects to
move beyond network affiliations to strengthen the linkage with VSP's physician
partners through practice acquisitions. Vivra intends to devote significant
management resources and capital, to the extent such opportunities are
available, to VSP. The business segment information set forth in footnote 10 to
the Company's Consolidated Financial Statements are incorporated herein by
reference.
ASTHMA ALLERGY CARE SERVICES
On November 30, 1994, the Company acquired what it believes is currently
the only national company providing focused medical care for acute and chronic
asthmatics and other allergy sufferers. As a result, the Company currently
manages 25 asthma allergy care practices in 13 states. Asthma is a chronic
disease with periodic acute episodes that range from mildly inconvenient to
life-threatening. Over the past decade, the asthma allergy care market has
grown and the Company estimates that currently over $6.0 billion is spent
annually in the United States on the treatment of these chronic diseases. Over
half of this cost is in hospitalizations and emergency room visits. Studies
have shown that the vast majority of these hospitalizations and emergency room
visits can be avoided by proper management of the patient's care.
The Company believes that the U.S. asthma population will continue to grow
and intends to expand its asthma allergy care services. The Company's strategy
is to acquire well-regarded allergists who will be included in its existing
practice management organization and to create organized networks to contract
for and manage the delivery of high quality, cost effective care. Its practices
and networks will provide healthcare payers the ability to access geographically
dispersed allergists and standardized treatment management guidelines. The goal
is to improve health and reduce costly hospital admissions. The Company has
currently effective capitated agreements with managed care providers covering
approximately 850,000 lives.
DIABETES
In March 1992, the Company acquired Vivra Health Advantage, Inc. ("VHA"),
the second largest provider of diabetes management services to hospitals. VHA
was founded in 1987, and as of November 30, 1995, had contracts to provide
services in twenty hospitals in ten states. VHA works collaboratively with
hospital clients to develop and operate programs to achieve cost effective
clinical outcomes in the management of diabetes and the healing of chronic
wounds. The emphasis is on increasing patient education and aggressive medical
management. Services are done in cooperation with the attending physicians and
hospital staff to help patients prevent complications in an effort to reduce
hospitalizations.
Diabetes Mellitus is a chronic disease afflicting over 13 million Americans
of whom about 6.5 million remain undiagnosed. Each year about 651,000 new cases
of diabetes are identified. Proper management of diabetes lowers the cost of
direct medical care, reduces employee productivity losses, and reduces
complications such as lower extremity amputations, kidney failure and blindness.
Page 8 of 53
<PAGE>
OTHER SPECIALTY AREAS
VSP is also a manager of specialty networks to contract for and manage the
delivery of high quality, cost effective care in the areas of cardiology,
obstetrics/gynecology and ENT. In these specialties, VSP has contracts covering
an estimated 2.5 million lives. Additionally, VSP in certain circumstances
acquires well-regarded practitioners in these areas. The networks and practices
will provide healthcare payers the ability to access geographically dispersed
specialists and standardized treatment management guidelines. VSP may also
expand into other specialties.
VIVRA NETWORK SERVICES (VNS)
VNS is VSP's network information processing company. VNS provides claims
processing and management reporting to VSP's specialty networks. In addition,
VSP has contracts with ten third party specialty networks covering approximately
1.8 million lives to provide claims processing and management reporting
services.
OTHER SERVICES
During the fiscal year ended November 30, 1995, the Company sold its
ambulatory surgery, rehabilitation therapy and physician practice management
businesses. The business segment information set forth in footnote 10 to the
Company's Consolidated Financial Statements are incorporated herein by
reference.
COMPETITION
The dialysis business is highly fragmented, with a number of operators with
25 or fewer centers and a small number of larger, multi-center chains. It is
estimated that the six largest providers constitute greater than one-third of
the estimated $4 billion outpatient dialysis treatment market. The balance of
the market is still fragmented into hospital-based centers and facilities owned
by individual nephrologists. Industry consolidation is expected to accelerate
as large providers continue to make acquisitions. As a result, the Company
faces competition for the acquisition and development of new centers as well as
competition for qualified physicians to act as Medical Directors.
A primary consideration in the selection of a dialysis facility is
convenience of location for the patient. Other competitive factors include
quality of care and service. While it occurs infrequently, the Company has
experienced competition from the establishment of a facility by a former Medical
Director.
Certain companies, some of whom have longer operating histories and greater
financial resources than those of the Company, are providing specialty
healthcare services and specialty network services similar to those that the
Company is providing or pursuing. The Company may be forced to compete with
these entities for the acquisition of the assets of specialty medical practices,
contracts to manage such practices and, in some cases, the employment of
practice physicians. There can be no assurance that the Company will be able to
compete effectively with such competitors, that additional competitors will not
enter the Company's markets, or that such competition will not make it more
difficult to expand in such markets on terms beneficial to the Company. All of
the Company's businesses face significant competition, often from larger
companies with greater financial resources and more operating experience.
GOVERNMENT REGULATION
GENERAL. The Company's dialysis operations are subject to extensive
governmental regulation at the federal, state and local levels. These
regulations require the Company to meet various standards relating to, 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.
Page 9 of 53
<PAGE>
Any loss by the Company of its various federal certifications, its
authorization to participate in the Medicare or Medicaid programs or its
licenses under the laws of any state or other governmental authority from which
a substantial portion of its revenues is derived or a change resulting from
healthcare reform reducing dialysis reimbursement or reducing or eliminating
coverage for dialysis services would have a material adverse effect on the
Company's business. To date, the Company has not had any difficulty in
maintaining its licenses or its Medicare and Medicaid authorizations. The
healthcare services industry will continue to be subject to intense regulation
at the federal and state levels, the scope and effect of which cannot be
predicted. No assurance can be given that the activities of the Company will
not be reviewed and challenged or that healthcare reform will not result in a
material adverse change to the Company.
FRAUD AND ABUSE. The Company's dialysis operations are subject to the
illegal remuneration provisions of the Social Security Act (sometimes referred
to as the "anti-kickback" statute) and similar state laws that impose criminal
and civil sanctions on persons who knowingly and willfully solicit, offer,
receive or pay any remuneration, whether directly or indirectly, in return for,
or to induce, the referral of a patient for treatment, or, among other things,
the ordering, purchasing, or leasing, of items or services that are paid for in
whole or in part by Medicare, Medicaid or similar state programs. Violations of
the federal anti-kickback statute are punishable by criminal penalties,
including imprisonment, fines and exclusion of the provider from future
participation in the Medicare and Medicaid programs. Federal enforcement
officials also may attempt to impose civil false claims liability with respect
to claims resulting from an anti-kickback violation. If successful, civil
penalties could be imposed, including assessments of $2,000 per improper claim
for payment plus twice the amount of such claim and suspension from future
participation in Medicare and Medicaid programs. Civil suspension for
anti-kickback violations also can be imposed through an administrative process,
without the imposition of civil monetary penalties. Some state statutes also
include criminal penalties. While the federal anti-kickback statute expressly
prohibits transactions that have traditionally had criminal implications, such
as kickbacks, rebates or bribes for patient referrals, its language has been
construed broadly and has not been limited to such obviously wrongful
transactions. Court decisions state that, under certain circumstances, the
statute is also violated when one purpose (as opposed to the "primary" or a
"material" purpose) of a payment is to induce referrals. Congress has
frequently considered federal legislation that would expand the federal
anti-kickback statute to include the same broad prohibitions regardless of payer
source.
In July 1991 and in November 1992, the Secretary of HHS published
regulations that create exceptions or "safe harbors" for certain business
transactions. Transactions that satisfy the criteria under the applicable safe
harbors will be deemed not to violate the federal anti-kickback statute.
Transactions that do not satisfy all elements of a relevant safe harbor do not
necessarily violate the statute, although such transactions would be subject to
scrutiny by enforcement agencies. The Company seeks to structure its various
business arrangements to satisfy as many safe harbor elements as possible under
the circumstances, although 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.
MEDICAL DIRECTOR RELATIONSHIPS. The conditions for coverage under the
Medicare ESRD program mandate that treatment at a dialysis facility be under the
general supervision of a Medical Director who is a physician. Generally, the
Medical Director must be board eligible or board certified in internal medicine
or pediatrics and have had at least 12 months of experience or training in the
care of patients at ESRD facilities.
Page 10 of 53
<PAGE>
The Company has engaged Medical Directors at each of its facilities. The
compensation of the Medical Directors and other physicians under contract is
separately negotiated and generally depends upon competitive factors in the
local market, the physician's professional qualifications and responsibilities
and the size and utilization of the facility or relevant program. The aggregate
compensation of the Medical Directors and other physicians under contract is
generally fixed in advance for periods of one year or more by written agreement
and is set to reflect the fair market value of the services rendered. Because
in all cases the Company's Medical Directors and the other physicians under
contract refer patients to the Company's facilities, the federal anti-kickback
statute could apply. However, the Company believes its contractual arrangements
with these physicians are in material compliance with the anti-kickback statute.
Among the safe harbors promulgated by the Secretary of HHS is one relevant to
the Company's arrangements with its Medical Directors and the other physicians
under contract. The Company endeavors to enter into agreements with its Medical
Directors and other physicians under contracts which satisfy the requirements of
the personal services and management contract safe harbor.
OTHER RELATIONSHIPS. The OIG has published warnings to the dialysis
services industry generally that it believes that the industry-wide practices of
obtaining discounts on certain laboratory charges and the payment of
remuneration for services provided for IDPN therapy at dialysis centers violate
the anti-kickback statute in many, if not most, circumstances. The Company
believes that it has a reasonable basis for continuing practices which the OIG
may regard as within the scope of the warnings and that, if challenged by the
OIG, it could defend these practices. However, there can be no assurance that
the Company will not be challenged under the statutes or that, whether or not
challenged and subject to sanctions, the Company will not be required to change
its current practices. Any such change or challenge, including any sanctions,
would have an adverse effect on the Company's revenues and net earnings, as well
as its competitors that engage in similar practices.
Certain of the Company's other operations also receive Medicare and
Medicaid reimbursement. While the Company believes that its other operations
comply in all material respects with applicable law, there can be no assurance
that the Company's other operations will not be subject to challenge or
sanctions. Any such challenge or sanctions could have a material adverse effect
on the Company's revenues and net earnings.
STARK II. Stark II restricts physician referrals for certain designated
health services to entities with which a physician or an immediate family member
has a "financial relationship." The entity is prohibited from claiming payment
under the Medicare or Medicaid programs for services rendered pursuant to a
prohibited referral and is liable for the refund of amounts received pursuant to
prohibited claims. The entity also can receive civil penalties of up to $15,000
per improper claim and can be excluded from participation in the Medicare and
Medicaid programs. Comparable provisions applicable to clinical laboratory
services became effective in 1992. Stark II provisions which may be relevant to
the Company became effective on January 1, 1995.
A "financial relationship" under Stark II is defined as an ownership or
investment interest in, or a compensation arrangement between, the physician and
the entity. The Company has entered into compensation agreements with its
Medical Directors and other referring physicians; some Medical Directors own
stock in the Company. The Company is not aware of any family relationship
between a Medical Director and staff at its dialysis facilities.
Stark II includes certain exceptions for compensation arrangements and
ownership that satisfy certain criteria. With respect to compensation
arrangements, remuneration from an entity pursuant to a personal services
compensation arrangement is excepted from Stark II prohibitions if: (i) the
arrangement is set out in writing, signed by the parties, and specifies the
services covered by the arrangement; (ii) the arrangement covers all of the
services to be provided by the physician (or an immediate family member of such
physician) to the entity; (iii) the aggregate services contracted for do not
exceed those that are reasonable and necessary for the legitimate business
purposes of the arrangement; (iv) the term of the arrangement is for at least
one year; (v) the compensation to be paid over the term of the arrangement is
set in advance, does not exceed fair market value, and is not determined in a
manner that takes into account the volume or value of any referrals or other
business generated between the parties; (vi) the services to be performed do not
involve the counseling or promotion or a
Page 11 of 53
<PAGE>
business arrangement or other activity that violates any state or federal law;
and (vii) the arrangement meets such other requirements that may be imposed
pursuant to regulations promulgated by HHS.
Another Stark II exception for compensation arrangements applies to bona
fide employment relationships. This exception can apply to amounts paid by an
employer to a physician-employee if: (i) the employment is for identifiable
services; (ii) the amount of remuneration is consistent with the fair market
value of services and is not determined in a manner that takes into account,
directly or indirectly, the volume or value of any referrals by the referring
physician; (iii) the remuneration is provided pursuant to an agreement which
would be commercially reasonable even if no referrals were made to the employer;
and (iv) the employment meets such other standards that HHS may impose to
protect against program or patient abuse. In addition, this exception would
permit certain types of productivity bonuses based on personal services
performed by the physician or an immediate family member.
Stark II also includes an exception for a physician's ownership or
investment interest in shares in an Investment Company or securities listed on
an exchange or quoted on NASDAQ which, in either case, meets certain financial
criteria.
Because of its broad language, Stark II may be interpreted by HHS to apply
to the Company's operations. Consequently, Stark II may require the Company to
restructure certain existing compensation agreements with its Medical Directors
or, in the alternative, to refuse to accept referrals for designated health
services from such physicians. Although there can be no assurance, the Company
believes that if Stark II is interpreted to apply to the Company's operations,
the Company will be able to bring its financial relationships with referring
physicians into material compliance with the provisions of Stark II, including
relevant exceptions. If the Company cannot achieve such material compliance,
and Stark II is broadly interpreted by HHS to apply to the Company, such
application of Stark II could have a material adverse effect on the Company. A
broad interpretation of Stark II to include dialysis services and items provided
incident to dialysis services would apply to the Company's competitors as well.
For purposes of Stark II, "designated health services" include, among other
things: clinical laboratory services; parenteral and enteral nutrients, certain
equipment and supplies; prosthetics; orthotics; prosthetic devices; physical and
occupational therapy services; outpatient prescription drugs; and inpatient and
outpatient hospital services. Dialysis is not a designated health service, and
the Company believes that the language and legislative history of Stark II
indicate that Congress may not have intended to include the services and items
provided incident to dialysis services within the Stark II prohibitions.
However, the Company's provision of, or arrangement and assumption of financial
responsibility for, outpatient prescription drugs, including EPO and IDPN,
clinical laboratory services, facility dialysis services and supplies, home
dialysis supplies and equipment, and services to hospital inpatients and
outpatients, include services and items which could be construed as designated
health services within the meaning of Stark II. Although the Company does not
bill Medicare or Medicaid for hospital inpatient and outpatient services, the
Company's Medical Directors may request or establish a plan of care that
includes dialysis services for hospital inpatients and outpatients that may be
considered a referral to the Company within the meaning of Stark II.
STATE REFERRAL REGULATIONS. A California statute, which became effective
January 1, 1995, makes it unlawful for a physician who has, or a member of whose
immediate family has, a financial interest with or in an entity to refer a
person to that entity for laboratory, diagnostic nuclear medicine, radiation
oncology, physical therapy, physical rehabilitation, psychometric testing, home
infusion therapy, or diagnostic imaging goods or services. Under the statute,
"financial interest" includes, among other things, any type of ownership
interest, debt, loan, lease, compensation, remuneration, discount, rebate,
refund, dividend, distribution, subsidy or other form of direct or indirect
payment, whether in money or otherwise, between a physician and the entity to
which the physician makes a referral for the items described above. The statute
also prohibits the entity to which the referral was made from presenting a claim
for payment to any payer for a service furnished pursuant to a prohibited
referral, and prohibits a payer from paying for such a service. Violation of
the statute by a physician is a misdemeanor, and will subject the physician to
civil fines. Violation of the prohibition on submitting a claim in violation of
the statute is a public offense, subjecting the offender to a fine of up to
$15,000 for each
Page 12 of 53
<PAGE>
violation and possible action against licensure. Certain patients treated at
facilities of the Company receive laboratory services incidental to dialysis
services pursuant to the orders of referring physicians. If reimbursement for
these services is sought from the Medicare or Medicaid programs, the services
are billed directly by the laboratory performing the services. Additionally,
certain laboratory services are identified as included among the services for
which the Company is financially responsible under the composite rate under
Medicare and under other payment arrangements. Therefore, although the Company
does not believe that the statute is intended to apply to laboratory services
that are provided incident to dialysis services, it is possible that the statute
could be interpreted to apply to such laboratory services. The statute includes
certain exemptions from its prohibitions; however, the California statute
includes no explicit exemption for Medical Director services or other services
for which the Company contracts with and compensates referring physicians in
California. Thus, if the California statute is interpreted to apply to
laboratory services that are provided incident to dialysis services, the Company
could be subject to sanctions and would be required to restructure some or all
of its relationships with the referring physicians with whom it contracts for
Medical Director and similar services. The consequences of such restructuring,
if any, cannot be predicted. The Company believes that other states in which
the Company does business have or are considering similar legislation.
STATE LAWS REGARDING PROVISION OF MEDICINE AND INSURANCE. The laws of many
states prohibit physicians from splitting fees with non-physicians and prohibit
non-physician entities from practicing medicine. These laws vary from state to
state and are enforced by the courts and by regulatory authorities with broad
discretion. Although the Company believes its operations as currently conducted
are in material compliance with existing applicable laws, many aspects of the
Company's business operations, including the unique structure of the
relationship between the Company and physicians, have not been the subject of
state or federal regulatory interpretation. There can be no assurance that
review of the Company's business by courts or regulatory authorities will not
result in determinations that could adversely affect the operations of the
Company or that the health care regulatory environment will not change so as to
restrict the Company's existing operations or their expansion. In addition,
expansion of the operations of the Company to certain jurisdictions may require
structural and organizational modifications of the Company's form of
relationships with physician groups, which could have an adverse effect on the
Company.
Most states have laws regulating insurance companies and HMOs. The Company
is not qualified in any state to engage in the insurance or HMO businesses. As
the managed care business evolves, state regulators may begin to scrutinize the
practices of, and relationships between, third-party payers, medical service
providers and entities providing management and other services to medical
service providers with respect to the application of insurance and HMO laws and
regulations. The Company does not believe that its practices, which are
consistent with those of other health care companies, would subject it to such
laws and regulations. However, given the limited regulatory history with
respect to such practices, there can be no assurance that states will not
attempt to assert jurisdiction. The Company may be subject to prosecution by
state regulatory agencies, and accordingly may be required to change or
discontinue certain practices which could have a material adverse effect on the
Company.
MEDICARE AND HEALTHCARE REFORM. Because the Medicare program represents a
substantial portion of the federal budget, Congress takes action in almost every
legislative session to modify the Medicare program for the purpose of reducing
the amounts otherwise payable by the program to health care providers in order
to achieve deficit reduction targets, among other reasons. Legislation or
regulations may be enacted in the future that may significantly modify the ESRD
program or substantially reduce the amount paid for the Company's 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.
Page 13 of 53
<PAGE>
The regulatory requirements apply to all healthcare facilities, including
dialysis facilities, and require employers to make a determination as to which
employees may be exposed to blood or other potentially infectious materials and
to have in effect a written exposure control plan. In addition, employers are
required to provide hepatitis B vaccinations, personal protective equipment,
infection control training, post-exposure evaluation and follow-up, waste
disposal techniques and procedures, and engineering and work practice controls.
Employers are also required to comply with certain record-keeping requirements.
The Company believes it is in material compliance with the foregoing laws and
regulations.
Some states have established certificate of need ("CON") programs
regulating the establishment or expansion of health care facilities, including
dialysis facilities. The CON laws formerly applicable to freestanding dialysis
facilities in seven states in which the Company operates dialysis facilities
(Arizona, California, Florida, Louisiana, New Mexico, Texas and Virginia) have
been repealed or have lapsed and have not been re-enacted.
The Company believes it is in material compliance with current applicable
laws and regulations. No assurance can be made that in the future the Company's
business arrangements, past or present, will not be the subject of an
investigation or prosecution by a federal or state governmental authority. Such
investigation could result in any, or any combination, of the penalties
discussed above depending upon the agency involved in such investigation and
prosecution. None of the Company's business arrangements with physicians,
vendors, patients or others have been the subject of investigation by any
governmental authority. No assurance can be given that the Company's activities
will not be reviewed or challenged by regulatory authorities. The Company
monitors legislative developments and would seek to restructure a business
arrangement if the Company determined that one or more of its business
relationships placed it in material noncompliance with such a statute. The
health care service industry will continue to be subject to substantial
regulation at the federal and state levels, the scope and effect of which cannot
be predicted by the Company. Any loss by the Company of its various federal
certifications, its authorization to participate in the Medicare and Medicaid
programs or its licenses under the laws of any state or other governmental
authority from which a substantial portion of its revenues are derived would
have a material adverse effect on its business.
INSURANCE
The Company carries insurance for property damage, public liability and
malpractice covering all of its businesses. The public liability and
malpractice coverage limits are $40 million for each loss occurrence. The all
risk property insurance coverage limits are $10 million based on replacement
cost for each loss occurrence. The loss occurrence limit includes separate
annual aggregate sublimits for earthquake and flood damage of $5 million each
for California and $5 million each for all other states. The Company believes
that its insurance coverage is adequate.
EMPLOYEES
As of November 30, 1995, the Company had approximately 3,600 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.
ITEM 2. PROPERTIES.
DIALYSIS PROPERTIES: As of November 30, 1995, the Company owned the real
property for 24 of its 199 dialysis facilities. The majority of these owned
facilities are one to two stories, comprising 1,800 to 16,900 square feet with
the majority having 3,000 to 5,000 square feet. Sites range from one to one and
one-half acres. The remaining 175 of the Company's dialysis facilities are in
leased premises either within general hospitals or in separate buildings. These
premises range in size from 2,000 to 8,400 square feet and are occupied under
leases, ranging from month-to-month to 60 months duration with varying renewal
options. The Company expects to renew these leases from time to time or to
lease new space as necessary. The Company leases 51
Page 14 of 53
<PAGE>
facilities from Medical Directors on terms consistent with those that would have
been obtained from an unrelated third party.
The Company recently leased a two-story office building in Laguna Hills,
California, with approximately 34,000 square feet of space for administrative
offices. Concurrently therewith, the Company sold its two-story office
building, with approximately 15,000 square feet, and entered into a short-term
lease for such building pending occupancy of the newly leased office space. The
Company also recently entered into a lease for approximately 19,000 square feet
of office space for its corporate headquarters in San Mateo, California. The
Company leases an aggregate of approximately 50,000 square feet in Burlingame,
California; Louisville, Colorado; Metorie and Covington, Louisiana; Nashville,
Tennessee; Atlanta, Georgia; and Miami and Clearwater, Florida for office space
and in San Dimas, California for its specialty pharmacy.
ITEM 3. LEGAL PROCEEDINGS.
On May 20, 1992, in the Pennsylvania Court of Common Pleas in Delaware
County, a complaint was filed against the Company's subsidiary, Community
Dialysis Centers (CDC). In September 1993, the court determined that the suit
could proceed as a class action on behalf of 93 patients, subsequently reduced
to 72, who were treated at one of the CDC facilities, some of whom are alleged
to have died or been injured during the course of treatment. Unspecified
compensatory and punitive damages are being claimed. Since May 20, 1992, three
other individual actions have been filed asserting similar claims, one of which
has been settled.
The Company's insurer has assumed defense of these actions, and the merit
of the claims and the extent of the damages are still under investigation. As
the investigation is not complete, management is unable to make an informed
judgment as to the ultimate resolution of such proceedings and their impact on
the results of operations; however, it believes insurance coverage is sufficient
to cover any significant losses that are likely to result from these actions and
therefore any such losses that would not have a material adverse effect on the
Company's financial condition.
The Company is also subject to other claims and suits in the ordinary
course of business. Management believes that insurance is adequate to cover any
such claims and therefore they would not have a material adverse effect on the
Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
Page 15 of 53
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Common Stock of Vivra Incorporated is listed for trading on the New
York Stock Exchange under the symbol "V." The following table sets forth for
the fiscal periods indicated the high and low sale prices for the Company's
Common Stock as reported by the New York Stock Exchange, giving effect to a
3-for-2 stock split effective as of November 22, 1995.
Price Range
------------------------------
High Low
---- ---
1994
----
First Quarter $17 1/3 $13 1/8
Second Quarter $17 3/4 $15 1/8
Third Quarter $17 1/8 $15 1/8
Fourth Quarter $19 2/3 $17
1995
----
First Quarter $21 7/8 $17 3/4
Second Quarter $23 7/8 $18 1/3
Third Quarter $22 1/8 $17 3/4
Fourth Quarter $23 7/8 $21 1/8
HOLDERS
There were approximately 1,849 stockholders of record of the Company's
Common Stock as of February 15, 1996.
DIVIDENDS
The Company has not declared or paid any cash dividends. The Board of
Directors does not presently intend to pay regular cash dividends on the Common
Stock. The payment of future dividends will be dependent upon the earnings,
capital requirements and financial condition of the Company and such other
business and economic factors as the Board of Directors considers relevant.
Page 16 of 53
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Vivra Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Year ended November 30
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Operating revenues:
Vivra Renal Care $303,570 $254,253 $208,379 $159,004 $122,170
Vivra Specialty Partners 22,891 3,282 2,154 1,148 -
Other Services 24,029 27,114 6,227 2,103 -
--------------------------------------------------------
Total operating revenues 350,490 284,649 216,760 162,255 122,170
Costs and expenses:
Operating costs 238,730 188,529 148,046 111,722 83,507
General and administrative 43,531 37,495 20,722 14,113 10,884
Depreciation 10,767 9,552 7,196 4,864 3,878
Interest 360 523 912 872 700
-------------------------------------------------------
Total costs and expenses 293,388 236,099 176,876 131,571 98,969
Earnings from continuing operations
before income taxes 62,164 50,410 41,105 32,182 24,649
Income taxes 24,224 20,668 17,263 13,195 9,860
-------------------------------------------------------
Net earnings from continuing operations
37,940 29,742 23,842 18,987 14,789
Earnings from discontinued operations,
less applicable taxes - - 554 152 259
Gain on sale of discontinued operations,
less applicable taxes - 697 - - -
-------------------------------------------------------
Net earnings $ 37,940 $ 30,439 $ 24,396 $ 19,139 $ 15,048
=========================================================
Earning per share from continuing
operations $1.08 $.96 $.79 $.65 $.54
=========================================================
Weighted average shares outstanding
35,068 30,834 30,110 29,313 27,630
=========================================================
BALANCE SHEET DATA
Cash and investments $ 118,691 $ 79,509 $ 52,535 $ 39,890 $ 42,360
Working capital 131,027 97,244 88,334 72,104 75,756
Total assets 402,701 276,007 207,478 170,175 140,670
Long-term obligations 2,297 11,437 6,783 8,058 7,627
Stockholders' equity 343,168 211,854 172,267 140,875 118,235
</TABLE>
Page 17 of 53
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following is a comparative discussion of Vivra's financial condition
and the operating results by fiscal year, for the three years ended November 30,
1995. It should be read in conjunction with Vivra's Consolidated Financial
Statements and related Notes.
The Company has three principal business segments, Vivra Renal Care, Vivra
Specialty Partners and Other Services. Vivra Renal Care consists of dialysis
and specialty pharmacy services. Vivra Specialty Partners consists of
Asthma/Allergy, Diabetes, Cardiology, OB-GYN and ENT network services. Other
Services consists of the ambulatory surgery, rehabilitation therapy and primary
care physician practice management businesses which were sold in 1995.
Page 18 of 53
<PAGE>
1995 COMPARED WITH 1994
For fiscal 1995 as compared to fiscal 1994, revenues increased $69.1
million, or 24.1%; costs and expenses $57.3 million, or 24.3%; and earnings from
continuing operations before taxes $11.8 million, or 23.3%. In total, net
earnings for the year increased $7.5 million to $37.9, or 24.6% compared to
1994.
Of the increase in revenues, operating revenues increased $65.8 million,
23.1%, to $350.5 million. Revenues from Vivra Renal Care increased $49.3
million to $303.6 million, or 19.4%; Vivra Specialty Partners increased $19.6
million to $22.9 million; and Other Services decreased $3.1 million to $24.0
million, an 11.4% decrease. The increase in revenues from Vivra Renal Care was
attributable to the growth in the number of treatments provided and growth in
the administration of the drug Erythropoietin ("EPO"), prescribed for dialysis
patients suffering from anemia. Treatments grew 20.2% from 1,256,397 to
1,510,172 as a result of the net addition of 49 centers. For 1995, revenues
from EPO were $54.4 million, compared to $42.0 million in the prior year, a
29.5% increase. This growth was due to an increase in the number of patients
receiving EPO and in the average size of dosages. As of November 30, 1995,
approximately 85% of the Company's dialysis patients were receiving EPO,
compared to 84% in 1994. The increase in revenues from Vivra Specialty Partners
was due to the addition of the asthma/allergy product as of November 30, 1994,
the growth in diabetes services and the addition of various specialty network
products during the year. The decrease in Other Services revenues was a direct
result of the sale of the Company's ambulatory surgery center and rehabilitation
therapy businesses in May and July 1995, respectively. Other income of $5.2
million, included a $2.2 million gain from the disposition of the Company's
ambulatory surgery center business, a $2.0 million gain from the sale of the
Company's rehabilitation therapy business, $2.3 million of charges related to
the wind-down, sale and discontinuation of the Company's primary care physician
practice management business and a $1.0 million write-down as a result of the
pending sale of the Vivra Renal Care corporate office building. In addition,
other income included $4.3 million of interest earned on tax-free marketable
securities.
Of the increase in costs and expenses, operating costs increased $50.2
million, or 26.6%, to $238.7 million. Vivra Renal Care operating costs
increased $37.3 million to $205.5 million, or 22.2%; Vivra Specialty Partners
increased $16.5 million to $17.9 million; and Other Services decreased $3.6
million to $15.3 million, a 19.0% decrease. The increase in Vivra Renal Care
operating costs was due to the increased volume of dialysis business, expenses
associated with the operation of newly developed dialysis centers and the cost
of the administration of EPO. Vivra Specialty Partners operating costs
increased due to the growth in diabetes services and the additions of the ENT,
asthma/allergy and cardiology products. Operating costs of Other Services
decreased as a result of the sale of the ambulatory surgery and rehabilitation
therapy businesses in 1995. General and administrative expenses increased $6.0
million to $43.5 million, or 16.1%. These expenses include $3.1 million of
non-recurring items consisting of a $1.1 million reserve taken for intradialytic
parenteral nutrition therapy accounts receivable, $1.6 million for severance and
compensation, relocation and termination expenses and $450,000 for other
charges. Furthermore, general and administrative expenses increased as a result
of the addition of the asthma/allergy product. In total, general and
administrative expenses decreased to 12.4% of total revenues for 1995, as
compared to 13.2% in 1994. Depreciation increased $1.2 million, or 12.7%, to
$10.8 million, due to an increase in depreciable assets of the dialysis business
and the ambulatory surgery business prior to the sale of the business in May
1995.
The effective tax rate for 1995 was 39.0% of earnings before income taxes,
compared with 41.0% a year earlier. This decrease was due, in large part, to
the Company's cash assets being invested in tax-free marketable securities,
which had the effect of lowering the overall tax rate.
1994 COMPARED WITH 1993
For fiscal 1994 as compared to fiscal 1993, revenues increased $68.5
million, or 31.4%; costs and expenses $59.2 million, or 33.5%; earnings from
continuing operations before taxes $9.3 million, or 22.6%; and net earnings from
continuing operations $5.9 million, or 24.7%. In addition, during the year, the
Company recorded a gain of $697,000, after applicable taxes, on the sale of its
home healthcare nursing business. Accordingly, the results of operations for
this business are shown separately as discontinued operations for the
Page 19 of 53
<PAGE>
year ended November 30, 1993 in the Consolidated Statement of Earnings, restated
for comparative purposes. In total, net earnings for the year increased $6.0
million to $30.4 million, or 24.8% compared to 1993.
Of the increase in revenues, operating revenues increased $67.9 million,
31.3%, to $284.6 million. Revenues from Vivra Renal Care increased $45.9
million to $254.2 million, or 22.0%; Vivra Specialty Partners increased $1.1
million to $3.3 million, or 52.4%; and Other Services increased $20.9 million to
$27.1 million, a 335.4% increase. The increase in revenues from Vivra Renal
Care was attributable to a 15.5% increase in the number of treatments from
1,087,385 to 1,256,397 as a result of the net addition of 12 centers and
improved patient census. An improvement in the payer mix (See further
discussion in INFLATION AND CHANGES IN PRICES), revenues from the administration
of EPO and other ancillary services also contributed to the increase in dialysis
revenues. For 1994, revenues from EPO were $42.0 million, compared to $33.8
million in the prior year, a 24.3% increase. This growth was due to an increase
in the number of patients receiving EPO and in the average size of dosages. As
of November 30, 1994, approximately 84% of the Company's dialysis patients were
receiving EPO, compared to 82% in 1993. The increase in revenues from Vivra
Specialty Partners was due to the growth in diabetes services. The increase in
Other Services revenues primarily reflects the acquisition and growth of the
rehabilitation therapy business, and the addition of new ambulatory surgery
centers. Other income, from interest earned on short-term investments,
increased $649,000 to $1.9 million, or 53.2%, as a result of increased cash
balances.
Of the increase in costs and expenses, operating costs increased $40.5
million, or 27.3%, to $188.5 million. Vivra Renal Care operating costs
increased $23.9 million to $168.2 million, or 16.6%; Vivra Specialty Partners
increased $685,000 to $1.4 million, or 93.9%; and Other Services increased $15.9
million to $18.9 million, or 516.3%. The increase in Vivra Renal Care operating
costs was due to the increased volume of dialysis business, expenses associated
with the operation of newly developed dialysis centers, the cost of the
administration of EPO and higher labor and supply costs. Vivra Specialty
Partners operating costs increased due to the growth in diabetes services.
Operating costs of Other Services increased as a result of the acquisition and
growth of the rehabilitation therapy businesses, the addition of new ambulatory
surgery centers and the start-up of the primary care physician practice
management business. General and administrative expenses increased $16.8
million to $37.5 million, or 80.9%, as a result of an increased volume of
business, the addition of the rehabilitation therapy business, increased
goodwill incurred as a result of acquisitions made during the past year, costs
associated with the development of the ambulatory surgery and specialty pharmacy
businesses, the development of new managed care products and increased incentive
compensation expense. Depreciation increased $2.4 million, or 32.7%, to $9.5
million, due to an increase in depreciable assets of the dialysis and ambulatory
surgery businesses.
As a result of revenues increasing less rapidly than costs and expenses,
earnings from continuing operations before taxes as a percentage of revenues
decreased to 17.6% compared to 18.9% in 1993. Overall, net earnings from
continuing operations increased $5.9 million, or 24.7%, as a result of increased
revenues, despite a slight decline in before-tax earnings margins.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital for the acquisition and development of
dialysis facilities, including the purchase of property, plant and equipment,
and the acquisition and development of its new specialty products. Acquisition
expenditures for fiscal years ended November 30, 1995 and 1994 were $84.6
million, consisting of $66.7 million in cash and 848,391 shares of the Company's
Common Stock and $18.6 million, consisting of $9.2 million in cash and 596,421
shares of the Company's Common Stock. Routine capital expenditures were $28.4
million and $20.5 million for the fiscal years ended November 30, 1995 and 1994,
respectively.
Cash flow from operations was $23.4 million and $43.2 million, for the
years ended November 30, 1995 and 1994, respectively. The decrease of $19.8
million was primarily attributable to the Company funding increases in accounts
receivable of $15.9 million. The increases in accounts receivable reflect
growth in the Company's business operations and, beginning in 1994, a sharp
reduction in IDPN claims approved for payment (See further discussion in
INFLATION AND CHANGES IN PRICES). Cash flow from financing activities increased
by
Page 20 of 53
<PAGE>
$64.9 million to $71.8 million in fiscal 1995. This increase was primarily the
result of the Company's February 16, 1995 public offering in which the Company
sold 2,992,500 shares of Common Stock and received net proceeds of $59.6
million. The Company's working capital increased by $33.8 million to $131.0
million at November 30, 1995, from $97.2 million at November 30, 1994.
In fiscal 1996, the Company currently plans to continue to acquire and
develop new dialysis facilities and expand its specialty network products. The
Company expects that its capital and acquisition expenditures for fiscal 1996
will exceed expenditures for fiscal 1995. To the extent the Company is able to
identify significant attractive investment opportunities, such expenditures
could exceed $115 million. The Company believes that cash generated from
operations together with available cash, the ability to issue Common Stock for
acquisitions and issue debt or equity capital will be adequate to meet the
Company's planned capital expenditure, acquisition and development and liquidity
needs for fiscal 1996.
INFLATION AND CHANGES IN PRICES
In 1995 and 1994, approximately 70% and 66% of the Company's dialysis
revenues were funded by Medicare and Medicaid, at an average rate of $126 per
dialysis treatment, before ancillary services. Despite periods of significant
inflation, the Medicare and Medicaid reimbursement rate has remained relatively
constant since 1983. The Company is unable to predict what, if any, future
changes may occur in the reimbursement rate and, if made, whether such changes
will help alleviate or increase inflationary pressures on the Company's costs.
The balance of dialysis revenues, which are paid at rates significantly in
excess of Medicare and Medicaid, represented 30% of revenues in 1995 compared to
34% in 1994. The decline in revenues from these sources was due to the April
24, 1995 clarification of the government's original interpretation of an
amendment to the Social Security Act contained in the Omnibus Reconciliation Act
of 1993 ("OBRA 93"). OBRA 93 established rules for determining whether Medicare
or an Employer Group Health Plan ("EGHP") should be the primary payer when
beneficiaries who are eligible for or entitled to Medicare on the basis of End
Stage Renal Disease ("ESRD") are also entitled to Medicare on the basis of age
or disability. The Health Care Financing Administration ("HCFA") originally
required EGHP's to be the primary payer during the benefits coordination period
when a patient had dual entitlement. However, on April 24, 1995, HCFA revised
its interpretation of this statute to make Medicare the primary payer in cases
where a patient would otherwise be eligible for Medicare coverage prior to the
patients ESRD diagnosis or when the patient's EGHP was intended to be
supplemental. On June 6, 1995, the United States District Court for the
District of Columbia issued a preliminary injunction precluding HCFA from
implementing its revised interpretation for services furnished between August
10, 1993 and April 24, 1995. In the event this preliminary injunction is not
upheld, the Company may be required to refund amounts paid by commercial payers
and bill Medicare as the primary payer for these patients whose Medicare
eligibility preceded their eligibility due to ESRD. Furthermore, any
restriction or reduction of the Company's ability to charge rates in excess of
those paid by Medicare and Medicaid would have a significant negative effect on
the Company's revenues and earnings.
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 designation of the DMERCs 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 to patients who have been "grandfathered" or have
private insurance.
Page 21 of 53
<PAGE>
RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information in response to this item is incorporated by reference from
pages 25 through 47 hereof.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable
Page 22 of 53
<PAGE>
PART IV
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Information Concerning
Nominees and Continuing Directors" and "Information Concerning Executive
Officers" in the definitive Proxy Statement for the Company's 1996 Annual
Meeting of Stockholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Compensation of Executive
Officers" in the definitive Proxy Statement for the Company's 1996 Annual
Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the heading "Beneficial Ownership" in the
definitive Proxy Statement for the Company's 1996 Annual Meeting of Stockholders
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements. The Financial Statements listed in
response to Item 8 are filed herewith.
2. The following Financial Statement Schedules are filed herewith:
Valuation and Qualifying Accounts
3. Exhibits:
(3) Articles of Incorporation and By-Laws of Registrant
(3.1) Amended and Restated Certificate of Incorporation
(filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended
November 30, 1995 and incorporated herein by
reference.
(3.2) By-Laws (filed as Exhibit 3B to Registrant's
Registration Statement on Form 10, File No.
1-10261 incorporated herein by reference.)
(4) Instruments defining the Rights of Securities Holders
(4.1) Amended and Restated Rights Agreement dated
February 13, 1996 between Registrant
and the First National Bank of Boston
(filed as Exhibit 4D to the Company's Form 10/A
Filed on February 15, 1996 and incorporated herein
by reference).
Page 23 of 53
<PAGE>
(10) Material Contracts
(10.1) Debenture Payment Assumption Agreement between
Registrant and Community Psychiatric Centers filed
as Exhibit 10.5A.6 to Registrant's Registration
Statement on Form 10, File No. 1-10261, filed May
26, 1989, incorporated herein by reference.
(10.2) Registrant's Transition Consultants Stock Option
Plan (Filed as Exhibit 10G to the Registrant's
Registration Statement on Form 10, File No.
1-10261 and incorporated herein by reference).
(10.2.1) Transition Consultants Stock Option
Agreement (filed as Exhibit 10.4.4 to
Registrant's Report on Form 10-K for its
fiscal year ended November 30, 1989 and
incorporated herein by reference).
(10.3) Registrant's Amended Revised 1989 Stock Incentive
Plan.
(10.4) Registrant's Profit Sharing Plan (Filed as Exhibit
10.11 to Registrant's Amendment on Form 8 to
Report on Form 10-K for its fiscal year ended
November 30, 1992 and incorporated herein by
reference.)
(10.5) Form of Officer and Director Indemnification
Agreement (filed as Exhibit 10.5 to Registrant's
report on Form 10-K for its fiscal year ended
November 30, 1991, and incorporated herein by
reference).
(10.6) Employment Agreement between Registrant and
Kent J. Thiry, dated as of December 1, 1992 (filed
as Exhibit 10.6 to Registrant's Amendment on Form
8 to Report on Form 10-K for its fiscal year ended
November 30, 1992 and incorporated herein by
reference).
(10.7) Form of Employment Agreement between the
Registrant and certain executive officers of the
Registrant.
(10.8) Form of agreement between the Registrant and the
Medical Directors of its dialysis facilities
(filed as Exhibit 10.6 to Registrant's
Registration Statement on Form S-1, File No.
33-34438 and incorporated herein by this
reference).
(*10.9) Agreement effective February 1, 1996 between Amgen
Inc. and the Registrant.
(*10.10) Agreement effective February 1, 1996 between
Bellco Drug Corp., Metro Health Corp. and the
Registrant.
(11) Statements re Computation of Per Share Earnings.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Auditors.
* Confidential Treatment requested as to certain portions, which portions are
omitted and filed separately with the Commissioner.
(b) Reports on Form 8-K, filed in the fourth quarter of 1995:
None.
Page 24 of 53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIVRA INCORPORATED
By /s/ Kent J. Thiry Date: February 23, 1996
---------------------------
Kent J. Thiry
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
/s/ Kent J. Thiry Date: February 23, 1996
------------------------------
Kent J. Thiry
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ David G. Conner, M.D. Date: February 23, 1996
------------------------------
David G. Connor, MD
Director
/s/ Richard B. Fontaine Date: February 23, 1996
------------------------------
Richard B. Fontaine
Director
Date: February __, 1996
------------------------------
Alan R. Hoops
Director
/s/ David L. Lowe Date: February 23, 1996
------------------------------
David L. Lowe
Director
/s/ John M. Nehra Date: February 23, 1996
------------------------------
John M. Nehra
Director
Date: February __, 1996
------------------------------
Stephen G. Pagliuca
Director
/s/ LeAnne M. Zumwalt Date: February 23, 1996
------------------------------
LeAnne M. Zumwalt
Executive Vice President, Secretary,
Treasurer and Director
(Principal Accounting and
Financial Officer)
Page 26 of 53
<PAGE>
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2), (c) and (d)
Financial Statements and Supplementary Data
List of Financial Statements and Financial Statement Schedule
Certain Exhibits
Financial Statement Schedule
YEAR ENDED NOVEMBER 30, 1995
Vivra Incorporated and Subsidiaries
Burlingame, California
Page 27 of 53
<PAGE>
Form 10-K--Item 14(a)(1) and (2)
Vivra Incorporated and Subsidiaries
List of Financial Statements and Financial Statement Schedule
The following consolidated financial statements of Vivra Incorporated and
subsidiaries are included in Item 8:
Report of Independent Auditors
Consolidated Balance Sheet-November 30, 1995 and 1994
Consolidated Statement of Earnings-Years ended November 30, 1995, 1994 and 1993
Consolidated Statement of Stockholders' Equity-Years ended November 30, 1995,
1994 and 1993
Consolidated Statement of Cash Flow-Years ended November 30, 1995, 1994 and 1993
Notes to Consolidated Financial Statements-November 30, 1995
The following consolidated financial statement schedule of Vivra Incorporated
and subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
Page 28 of 53
<PAGE>
Report of Independent Auditors
Board of Directors
Vivra Incorporated
We have audited the accompanying consolidated balance sheets of Vivra
Incorporated and subsidiaries as of November 30, 1995 and 1994 and the related
consolidated statements of earnings, stockholders' equity, and cash flow for
each of the three years in the period ended November 30, 1995. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Vivra
Incorporated and subsidiaries at November 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed further in Note 1 to the consolidated financial statements,
effective December 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
ERNST & YOUNG LLP
January 24, 1996
Los Angeles, California
Page 29 of 53
<PAGE>
Vivra Incorporated and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
NOVEMBER 30,
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 52,565 $ 79,509
Short-term investments - held-to-maturity and available-for-sale (NOTE 4) 43,616 -
Accounts receivable, less allowance for doubtful accounts (1995 -
$12,865 and 1994 - $10,321) 61,350 51,353
Inventories 8,822 6,368
Prepaid expenses and other current assets 1,949 980
Deferred income taxes (NOTE 6) 14,514 10,674
-------------------
Total Current Assets 182,816 148,884
Marketable non-current investments - held-to-maturity (NOTE 4) 22,510 -
Property, buildings and equipment - at cost, less allowances for
depreciation (NOTES 5 AND 7) 75,107 65,972
Other assets 8,456 5,335
Goodwill and other intangibles, less accumulated amortization
(1995 - $6,185 and 1994 - $4,378) 113,812 55,816
-------------------
$402,701 $276,007
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,839 $ 9,833
Accrued payroll and related benefits 22,344 23,073
Other accrued expenses 10,232 10,466
Income taxes (NOTE 6) 3,884 1,769
Current portion of deferred income taxes 3,532 -
Current maturities of long-term debt (NOTE 7) 958 6,499
--------------------
Total Current Liabilities 51,789 51,640
Long-term debt - exclusive of current maturities (NOTE 7) 1,339 4,938
Deferred income taxes (NOTE 6) 6,643 6,184
Minority interest (238) 1,391
STOCKHOLDERS' EQUITY (NOTE 8):
Common stock, par value $.01 per share; authorized 80.0 million
shares; issued 36.6 million shares in 1995 and 31.2 million
in 1994 366 208
Additional paid-in capital 142,777 54,891
Retained earnings 194,955 156,755
Net unrealized gain on marketable securities, less applicable income taxes 5,070 -
-------------------
Total Stockholders' Equity 343,168 211,854
-------------------
$402,701 $276,007
===================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 30 of 53
<PAGE>
Vivra Incorporated and Subsidiaries
Consolidated Statement of Earnings
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1995 1994 1993
----- ----- -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES
Operating revenues $350,490 $284,649 $216,760
Other income 5,157 1,870 1,221
-----------------------------------------
Total Revenues 355,647 286,519 217,981
COSTS AND EXPENSES
Operating 238,730 188,529 148,046
General and administrative 43,531 37,495 20,722
Depreciation 10,767 9,552 7,196
Interest 360 523 912
-----------------------------------------
Total Costs and Expenses 293,388 236,099 176,876
-----------------------------------------
Earnings from continuing operations, before minority interest
and income taxes 62,259 50,420 41,105
Minority interest (95) (10) -
-----------------------------------------
Earnings from continuing operations, before income taxes
62,164 50,410 41,105
Income taxes (NOTE 6) 24,224 20,668 17,263
-----------------------------------------
Net earnings from continuing operations 37,940 29,742 23,842
Earnings from discontinued operations, less applicable taxes
(NOTE 3) - - 554
Gain on sale of discontinued operations, less applicable
taxes (NOTE 3) - 697 -
-----------------------------------------
NET EARNINGS $ 37,940 $ 30,439 $ 24,396
==========================================
EARNINGS PER SHARE (PRIMARY AND FULLY DILUTED):
Net earnings from continuing operations $ 1.08 $ .96 $ .79
Earnings from discontinued operations - - .02
Gain on sale of discontinued operations - .02 -
------------------------------------------
Net earnings $ 1.08 $ .99(1) $ .81
==========================================
AVERAGE NUMBER OF COMMON SHARES:
Primary 35,068 30,834 30,075
Fully diluted 35,068 30,834 30,110
==========================================
</TABLE>
_____________________
(1) As a result of rounding, year to date earnings per share was $.99 rather
than $.98.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 31 of 53
<PAGE>
Vivra Incorporated and Subsidiaries
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Net Unrealized
Additional Gain (Loss) on
Common Paid-In Retained Treasury Stock Marketable
---------------
Stock Capital Earnings Shares Amount Securities
------ -------- --------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 1, 1992 $127 $40,590 $101,356 42 $(1,198)
Common Stock split effected by three-
for-two distribution (NOTE 8)
64 (103) 21
Cash paid in lieu of issuance of
fractional shares (12)
Exercise of employees' stock options,
net of treasury stock
transactions (NOTE 8) 5 2,522 (63) 1,198
Income tax benefits derived from
employee stock option 2,776
transactions
Stock issued in connection with
acquisitions (NOTE 2) 4 9 533
Net earnings for year 24,396
--------------------------------------------------------------
BALANCE AT NOVEMBER 30, 1993 200 45,782 126,285 - - -
Exercise of employees' stock options, net of treasury stock
transactions (NOTE 8)
6 4,163
Income tax benefits derived from
employee stock option 3,514
transactions
Stock issued in connection with
acquisition (NOTE 2) 2 1,432 31
Net earnings for year 30,439
--------------------------------------------------------------
BALANCE AT NOVEMBER 30, 1994 208 54,891 156,755 - - -
Common stock split affected by three-
for-two distribution (NOTE 8)
103 (103)
Cash paid in lieu to issuance of
fractional shares (59)
Sale of Common Stock (NOTE 8) 30 59,562
Exercise of employees' stock options, net of treasury stock
transactions (NOTE 8)
14 13,800
Income tax benefits derived from
employee stock option 5,162
transactions
Stock issued in connection with
acquisition (NOTE 2) 11 9,524 260
Net earnings for year 37,940
Net unrealized gain on marketable
securities, less applicable
income taxes (NOTE 6) $5,070
---------------------------------------------------------------
BALANCE AT NOVEMBER 30, 1995 $366 $142,777 $194,955 - - $5,070
===============================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 32 of 53
<PAGE>
Vivra Incorporated and Subsidiaries
Consolidated Statement of Cash Flow
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $37,940 $30,439 $24,396
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 13,648 11,473 8,400
Assets held for sale - - (3,261)
Gain on sale of discontinued operations - (1,229) -
Loss (Gain) on sale of property and investments (1,565) 1,061 1
Other (6,159) (3,626) (81)
Changes in assets and liabilities:
Accounts receivable (15,893) (1,428) (3,610)
Inventories (2,403) (1,238) (578)
Prepaid expenses and other current assets (1,645) 296 521
Deferred income taxes (3,841) (4,039) (2,094)
Accounts payable 5,324 (818) (44)
Accrued payroll and related benefits (418) 6,430 3,416
Other accrued expenses (3,422) 4,761 1,071
Income taxes 1,785 1,129 380
--------------------------
Net cash flow from operations 23,351 43,211 28,517
FINANCING ACTIVITIES
Payments on long-term debt (6,701) (3,632) (1,494)
Proceeds from Common Stock offering 59,592 - -
Proceeds from long-term borrowing - 2,838 -
Proceeds from exercise of stock options and related transactions 18,918 7,683 6,451
--------------------------
Net cash flow from financing 71,809 6,889 4,957
INVESTING ACTIVITIES
Purchase of property, buildings and equipment (28,431) (20,524) (12,055)
Purchase of held-to-maturity investments (51,037) - -
Purchase of available-for-sale investments (4,985) - -
Proceeds from sale of property, buildings and equipment 29,158 193 14
Proceeds from sale of discontinued operations - 6,238 -
Proceeds from investments in partnerships 841 1,627 1,097
Minority interest investment (1,000) (1,500) -
Payment for business acquisitions, net of cash acquired (66,650) (9,160) (9,885)
----------------------------
Net cash flow used in investing (122,104) (23,126) (20,829)
----------------------------
Net increase (decrease) in cash and cash equivalents (26,944) 26,974 12,645
Beginning cash and cash equivalents 79,509 52,535 39,890
----------------------------
Ending cash and cash equivalents $52,565 $79,509 $52,535
============================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 33 of 53
<PAGE>
Vivra Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
November 30, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. In December 1993, the Company sold its home healthcare
nursing business, Personal Care Health Services. The related gain on the sale
is shown separately in 1994 under discontinued operations. The 1993 results of
operations for the home healthcare nursing business are shown separately under
discontinued operations, with the Consolidated Statement of Earnings restated
for comparative purposes. All significant intercompany transactions have been
eliminated in the accompanying consolidated financial statements. Certain
amounts have been reclassified to conform with 1995 presentations.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
FINANCIAL INSTRUMENTS
Effective December 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES ("FAS 115"), which resulted in a change in the accounting for
debt and equity securities held for investment purposes. In accordance with FAS
115, the Company's debt and equity securities are now considered as either
held-to-maturity or available-for-sale. Held-to-maturity securities represent
those securities that the Company has both the positive intent and ability to
hold to maturity and are carried at amortized cost. Available-for-sale
securities represent those securities that do not meet the classification of
held-to-maturity or trading, and are carried at fair value. Unrealized gains
and losses on these securities are excluded from earnings and are reported as
a separate component of Stockholders' Equity. The adoption of FAS 115 had no
effect on the Company's reported earnings in fiscal 1995.
INVENTORIES
Inventories of supplies are stated at the lower of cost or market, with
cost being determined on a first-in, first-out basis.
PROPERTY, BUILDINGS AND EQUIPMENT
Depreciation is computed on the straight-line method based on the estimated
useful lives of buildings or items of equipment.
PREOPENING COSTS
Costs incurred prior to the opening of new facilities are deferred and
amortized on a straight-line basis over a one to three year period.
Page 34 of 53
<PAGE>
GOODWILL AND OTHER INTANGIBLES
Goodwill resulting from acquisitions is being amortized on a straight-line
basis over 15 to 40 years. The Company reviews the performance of its operating
units periodically to determine if an impairment has occurred. If events or
changes in circumstances indicate that an impairment exists, the Company
writes-down the corresponding goodwill to fair value. Other intangible assets
are being amortized on a straight-line basis over 15 to 30 years.
INCOME TAXES
Effective December 1, 1993, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 109, ACCOUNTING FOR INCOME TAXES ("FAS
109"), which requires an asset and liability approach to financial accounting
and reporting for income taxes. Deferred income tax assets and liabilities are
computed for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on rates applicable to the period in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets. The Company adopted FAS 109 prospectively. There
was no cumulative effect of the change in the method of accounting for income
taxes.
OPERATING REVENUES
Operating revenues include amounts for services reimbursable by Medicare,
Medicaid, certain Blue Cross and other third-party payers under reimbursement
formulas in effect. Operating revenues are recorded net of any related
contractual allowances. Medicare and Medicaid provided approximately 63% of the
Company's operating revenues in fiscal year 1995. The balance of revenues,
approximately 37%, was from insurance, private and other third-party payers.
STOCK OPTIONS
Proceeds from the exercise of stock options are credited to Common Stock to
the extent of par value, and the balance to additional paid-in capital. No
charges or credits are made to earnings with respect to options granted or
exercised. Income tax benefits derived from the exercise of non-incentive stock
options and from sales of stock obtained from incentive stock options before the
minimum holding period are credited to additional paid-in capital.
EARNINGS PER SHARE
Earnings per share have been computed based upon the weighted average
number of shares of Common Stock outstanding during each year after adjusting
for stock splits and giving effect for Common Stock equivalents arising from
stock options.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective March 1995, the Financial Accounting Standards Board issued
Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF ("FAS 121"), which requires impairment
losses to be recorded on long-lived assets used in operations, or to be disposed
of, when such impairment has been determined. The Company will adopt FAS 121 in
the first quarter of 1996 and, based on current circumstances, does not believe
the effect of adoption will be material.
2. ACQUISITIONS AND DISPOSITIONS
In 1995, the Company acquired twenty-eight dialysis centers. Total
consideration paid was $76.0 million, consisting of cash of $58.0 million and
848,391 shares of the Company's Common Stock, which exceeded the fair value of
net assets acquired by $59.7 million.
Page 35 of 53
<PAGE>
Also in 1995, the Company acquired seven physician businesses. Total cash
consideration was $9.9 million, which exceeded the fair value of net assets
acquired by $9.8 million.
The purchase price of 1995 acquisitions was allocated to $76.3 million of
assets acquired, less $1.2 million of cash, and $2.4 million of liabilities
assumed. The consideration included the Company's Common Stock and $66.7
million of cash.
During 1994, the Company acquired five dialysis centers. Total
consideration paid was $4.3 million, consisting of cash of $763,000 and 255,777
shares of the Company's Common Stock, which exceeded the fair value of net
assets acquired by approximately $1.8 million.
Also during 1994, the Company acquired eight physician practice and related
businesses. Total consideration paid was $8.8 million, consisting of cash of
$6.6 million and 130,043 shares of the Company's Common Stock, which exceeded
the fair value of net assets acquired by approximately $6.2 million.
In November 1994, the Company purchased certain assets and liabilities in
Asthma and Allergy CareAmerica, Inc., a provider of outpatient asthma/allergy
care. Total consideration paid was $4.8 million, consisting of cash of $1.3
million and 210,602 shares of the Company's Common Stock, which exceeded the
fair value of net assets acquired by approximately $2.1 million. The purchase
agreement entitles the selling shareholders to receive further consideration of
up to $14.3 million payable in cash or Common Stock of the Company, based upon
meeting predetermined earnings targets in the years 1995 through 1998. The 1995
earnings target was not met, therefore no earnout payment was made.
During 1993, the Company acquired six dialysis centers. Total
consideration paid was $17.9 million , consisting of cash of $9.9 million and
663,750 shares of the Company's Common Stock, which exceeded the fair value of
net assets acquired by approximately $9.2 million.
The acquisitions of four dialysis centers in 1995, three dialysis centers
in 1994, in addition to one physician practice, and two dialysis centers in 1993
have been accounted for as pooling of interests. Consolidated Financial
Statements for the periods prior to the exchanges have not been restated as the
effect of the poolings were not material to the Company.
The acquisitions of the remaining dialysis centers and related specialty
businesses have all been accounted for as purchases and, accordingly, have been
included in the statement of earnings since their dates of acquisition.
In June 1995, the Company completed the sale of the assets related to the
operation of its five ambulatory surgery centers. In connection with the sale,
the Company realized a pre-tax gain of $2.2 million.
In July 1995, the Company sold its 60% interest in South Coast
Rehabilitation Services ("SCRS"), a medical rehabilitation provider. In
connection with the sale, the Company realized a pre-tax gain of $2.0 million.
The following table presents the unaudited consolidated results of
operations on a pro forma basis as though the acquisitions made in 1995 had
occurred on December 1, 1993.
Page 36 of 53
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1995 1994
----- -----
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Operating Revenues $382,518 $339,825
Net Earnings 39,162 32,328
Earnings per Share $1.12 $1.02
</TABLE>
3. DISCONTINUED OPERATIONS
In December 1993, the Company sold its home healthcare nursing business,
Personal Care Health Services. The cash proceeds net of retained assets,
liabilities and taxes were approximately $5.9 million. Accordingly, the home
healthcare nursing business has been classified as a discontinued operation in
the accompanying Consolidated Statement of Earnings.
Net assets held for sale in the accompanying Consolidated Balance Sheet are
composed of $3.2 million net current assets and $502,000 of net noncurrent
assets as of November 30, 1993. These amounts consist primarily of accounts
receivable, furniture and equipment and related liabilities.
The sale of the home healthcare nursing business resulted in a gain on the
sale of discontinued operations in the accompanying Consolidated Statement of
Earnings of $697,000 net of applicable income tax of $505,000 in 1994.
Revenues applicable to discontinued operations were $17.7 million in 1993.
Earnings from discontinued operations in the accompanying Consolidated Statement
of Earnings were $554,000 net of applicable income tax of $402,000 in 1993.
4. INVESTMENTS
The amortized cost and estimated fair value of the Company's investments
are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, 1995
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR VALUE
COST GAINS LOSSES
---------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Short-term investments:
Debt securities:
Due within 1 year $28,527 $ - $ - $28,527
Marketable equity 6,486 9,049 (446) 15,089
---------------------------------------------
Subtotal 35,013 9,049 (446) 43,616
Noncurrent investments:
Debt securities:
Due after 1 year through 5 years 22,510 - - 22,510
---------------------------------------------
Total Investments $57,523 $9,049 $(446) $66,126
=============================================
</TABLE>
The Company's debt securities are classified as held-to-maturity and
marketable equity securities are classified as available-for-sale.
Page 37 of 53
<PAGE>
5. PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment are summarized as follows:
<TABLE>
<CAPTION>
NOVEMBER 30
1995 1994
----- -----
(IN THOUSANDS)
<S> <C> <C>
Land $ 4,734 $6,450
Buildings and improvements 37,214 38,290
Furniture, fixtures and equipment 68,488 63,499
Construction in progress (estimated costs to complete at November 1995 - $2,634,000)
4,067 1,006
---------------------
114,503 109,245
Less accumulated depreciation (39,396) (43,273)
---------------------
$ 75,107 $ 65,972
=====================
</TABLE>
6. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1995 1994
--------------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 5,484 $ 4,434
Accrued compensation and other benefits 3,147 2,250
Accrued workers compensation insurance 2,247 1,633
Accrued health care costs 577 1,062
Deferred income 2,882 -
Other assets 177 1,295
--------------------
Total deferred tax assets 14,514 10,674
Deferred tax liabilities:
Net unrealized gain on marketable securities, classified as current
3,532 -
Amortization of intangibles 4,428 3,241
Depreciation 2,271 2,086
Other liabilities (56) 857
--------------------
Total deferred tax liabilities 10,175 6,184
--------------------
Net deferred tax assets $ 4,339 $ 4,490
====================
</TABLE>
The above deferred tax assets and liabilities included deferred tax assets
totaling $393,000 which were acquired as part of the Company's acquisitions in
1995.
Page 38 of 53
<PAGE>
Income tax expense from continuing operations consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1995 1994 1993
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $20,731 $18,900 $14,875
State 6,481 5,212 3,867
Deferred (credit) (2,988) (3,444) (1,479)
---------------------------------
$24,224 $20,668 $17,263
=================================
</TABLE>
Page 39 of 53
<PAGE>
6. INCOME TAXES (CONTINUED)
Deferred income taxes result from timing differences in the recognition of
certain revenues and expenses for tax and financial statement purposes. The tax
effects of these differences are:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1995 1994 1993
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Amortization of intangibles $455 $1,786 $422
Provision for doubtful accounts in excess
of amounts written off (1,081) (1,537) -
Accrued compensation and other benefits (612) (1,118) -
Accrued workers compensation insurance (640) (1,098) -
Health insurance reserves in excess of
claims paid 288 (129) (912)
Deferred income (2,509) - -
Other 1,111 (1,348) (989)
$(2,988) $(3,444) $(1,479)
</TABLE>
The differences between federal income taxes computed at the statutory rate and
the total provision are:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1995 1994 1993
-------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rate $21,758 $17,643 $14,387
State taxes on income, net of federal tax
benefit 3,320 2,937 2,328
Miscellaneous items (854) 88 548
-------------------------------
$24,224 $20,668 $17,263
</TABLE>
The Company made income tax payments, net of refunds received, of $19,690,000,
$20,629,000, and $14,523,000 in 1995, 1994 and 1993, respectively.
Page 40 of 53
<PAGE>
7. LONG-TERM DEBT
Long-term debt at November 30, 1995, consists of the following:
<TABLE>
<CAPTION>
Principal Installments Due
Due Within After
One Year One Year
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Physician notes payable, collateralized by deeds
of trust on physician practice assets
with a cost of approximately
$3,414,000, interest ranging from 5-
1/2% to 7%, due through 2000 $879 $1,285
Other notes payable, collateralized by deeds of
trust on land, buildings and equipment
with a cost of approximately $279,000 79 54
--------------------
$958 $1,339
====================
</TABLE>
Interest paid was $501,000, $433,000 and $820,000 in 1995, 1994 and 1993,
respectively.
The approximate annual maturities of long-term debt at November 30, 1995, are as
follows:
Year ending November 30 (IN THOUSANDS)
1996 $958
1997 481
1998 413
1999 247
2000 142
Page 41 of 53
<PAGE>
8. CAPITAL STOCK AND STOCK OPTIONS
The Company declared three-for-two stock splits, in the form of stock
dividends, for shareholders of record on October 25, 1995 and November 10, 1993
with shares distributed on November 22, 1995 and November 29, 1993,
respectively. The number of shares and the earnings per share shown in the
Consolidated Financial Statements, as well as information in this Note, Note 2
and Note 12, have been restated to reflect the stock splits.
In February 1995, the Company completed a registered public offering. In
this offering, the Company sold 2,992,500 shares of common stock and the Company
realized net proceeds of approximately $59.3 million.
The Company has eight stock option plans under which stock options may be
granted.
The Company's 1989 Stock Incentive Plan provides for the granting of
options to purchase Common Stock to officers and other employees. Options may
be granted at not less than 100% of fair market value at the date of grant, are
exercisable at various dates and expire no more than 10 years after the date of
grant. Options may be paid for in cash or by the return of previously acquired
shares of Common Stock. Shares acquired by the Company through option exercises
were 116,067 in 1994, and 92,021 in 1993. These shares were included in
treasury stock and were valued at market at the date of exercise. Treasury
shares issued in lieu of Common Stock to effect stock option exercises were
116,067 in 1994 and 187,028 in 1993.
As of November 30, 1995, 6,083,096 options had been granted, of which
1,143,436 are exercisable. Additionally, 736,725 options remain available for
grant.
A summary of activity under the plan during 1993, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
Number Aggregate
of Shares Per Share Option Price
---------- ---------- -------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Options outstanding at December 1, 1992 2,950,208 $ 3.72-13.33 $24,852
Options granted 727,313 10.56-15.50 8,387
Options canceled and expired (33,870) 3.72-12.89 (377)
Common Stock issued on exercise (825,941) 3.72-12.44 (4,764)
---------- ----------- --------
Options outstanding at November 30, 1993 2,817,710 4.00-15.50 28,098
Options granted 680,213 13.33-18.92 11,759
Options canceled and expired (17,010) 4.00-11.72 (182)
Common Stock issued on exercise (675,530) 4.86-13.33 (4,384)
---------- ----------- --------
Options outstanding at November 30, 1994 2,805,383 4.54-18.92 35,291
Options granted 889,960 17.92-23.25 19,146
Options canceled and expired (285,141) 4.86-21.92 (4,173)
Common Stock issued on exercise (1,018,396) 4.86-18.50 (11,725)
========== =========== ========
Options outstanding at November 30, 1995 2,391,806 $ 4.54-23.25 $38,539
========== =========== ========
</TABLE>
Page 42 of 53
<PAGE>
8. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)
The market value of the Company's Common Stock at the date the options were
exercised was $17.81-$23.63 for 1995, $13.08-$19.17 for 1994, and $10.22-$15.78
for 1993.
The Company adopted the Transition Consultants Stock Option Plan in
connection with its spin-off from Community Psychiatric Centers on August 31,
1989. On that date options were granted to purchase 1,316,250 shares of the
Company's Common Stock to four employees of Community Psychiatric Centers at
$5.82, which was the fair market value at that date. As of November 30, 1995,
all outstanding options are exercisable.
A summary of activity under the plan during 1993, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
Number Aggregate
of Shares Per Share Option Price
---------- ---------- -------------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Options outstanding at December 1, 1992 839,813 $5.82 $4,888
Common Stock issued on exercise (52,313) 5.82 (305)
-----------------------------
Options outstanding at November 30, 1993 787,500 5.82 4,583
Common Stock issued on exercise (278,400) 5.82 (1,620)
-----------------------------
Options outstanding at November 30, 1994 509,100 5.82 2,963
Common Stock issued on exercise (359,100) 5.82 (2,090)
-----------------------------
Options outstanding at November 30, 1995 150,000 $5.82 $ 873
=============================
</TABLE>
The market value of the Company's Common Stock at the date the options were
exercised was $20.33-$22.30 for 1995 and $14.67-$19.33 for 1994 and
$12.22-$14.55 for 1993.
During 1995, the Company established Stock Option Plans for the following
subsidiaries: Vivra Specialty Partners, Inc. (the "VSP Plan"), Vivra Heart
Services, Inc. (the "VHS Plan"), Vivra Asthma & Allergy CareAmerica, Inc. (the
"VAC Plan"), Vivra Health Advantage, Inc. (the "VHA Plan"), Vivra Orthopedic
Services, Inc. (the "VOR Plan") and Vivra OB-GYN Services, Inc. (the "VOG
Plan"), (collectively, the "1995 Stock Option Plans"). Each of the 1995 Stock
Option Plans has similar terms. The plans provide for the granting of options
to purchase common stock of the respective company to officers, employees,
advisors and certain related entities of the company or Vivra. Options may be
granted at not less than 100% of the fair market value at the date of grant, are
exercisable at various dates and expire no more than 10 years after the date of
grant. Options may be paid for in cash or by the return of previously acquired
shares. Subject to certain conditions, stockholders in these companies are
permitted to put shares at a defined date in the future to the company at a
price equal to the then fair market value of the stock. If the employment or
consulting agreement of any equity holder shall terminate, then the companies
have the right to repurchase such stockholder's shares at the then fair market
value. Additionally, the companies retain the right of first refusal regarding
the sale or transfer of any acquired shares.
Page 43 of 53
<PAGE>
8. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)
During 1995, there was no activity related to the VAC and VOG Plans.
Information regarding activity in the other 1995 Stock Option Plans is
summarized in the tables below:
<TABLE>
<CAPTION>
VSP PLAN VHS PLAN
--------- ---------
<S> <C> <C>
Options outstanding at December 1, 1995 0 0
Options granted 845,000 782,000
----------------------
Options outstanding at November 30, 1995 845,000 782,500
======================
Number of subsidiary's fully diluted common shares 18,845,000 6,782,500
======================
Average option price per share at November 30, 1995 $1.65 $0.50
======================
</TABLE>
<TABLE>
<CAPTION>
VHA PLAN VOR PLAN
--------- ---------
<S> <C> <C>
Options outstanding at December 1, 1995 0 0
Options granted 625,000 706,500
---------------------
Options outstanding at November 30, 1995 625,000 706,500
=====================
Number of subsidiary's fully diluted common shares 7,625,000 5,206,500
=====================
Average option price per share at November 30, 1995 $0.79 $1.06
=====================
</TABLE>
As of November 30, 1995, no options are exercisable under the 1995 Stock
Option Plans.
During 1995, the Company sold the assets related to the operations of its
subsidiary, Surgical Partners of America, Inc. ("SPA"). All personnel formerly
employed by SPA were either transferred to another subsidiary or terminated.
Accordingly, there are no longer any participants in the SPA 1992 Stock Option
Plan. During the year, there were 178,823 options which were exercised and
551,503 options were forfeited and cancelled.
9. PROFIT SHARING AND 401(K) PLAN
The Company's Profit Sharing Plan ("the Plan") is a noncontributory,
trusteed profit sharing plan. All regular non-union employees in the United
States (union employees are eligible if the collective bargaining agreement so
specifies) with at least 1,000 hours of service per annum, over 21 years of age,
and employed at fiscal year-end are eligible for participation in the Plan after
one year of employment. Contributions to the Plan are discretionary and are
determined annually by the Board of Directors. Effective February 1, 1993, the
Plan was amended to add a 401(k) provision. Employees may make voluntary
contributions of up to 10% of their before tax compensation under the 401(k)
provision of the Plan and may also contribute up to an additional 10% of their
after tax compensation in accordance with the original Plan provisions.
Page 44 of 53
<PAGE>
9. PROFIT SHARING AND 401(K) PLAN (CONTINUED)
Contributions to the Plan by the Company were $940,000, $3.0 million and
$1.6 million for 1995, 1994 and 1993, respectively.
10. BUSINESS SEGMENT INFORMATION
The Company has three principal business segments, Vivra Renal Care, Vivra
Specialty Partners and Other Services. Vivra Renal Care consists of dialysis
and specialty pharmacy services. Vivra Specialty Partners consists of
Asthma/Allergy, Diabetes, Cardiology, OB-GYN and ENT network services. Other
Services consists of the ambulatory surgery, rehabilitation therapy and primary
care physician practice management businesses which were sold in 1995.
The following tables have been prepared in accordance with the requirements
of FASB Statement No. 14. This information has been derived from the Company's
accounting records and represents the Company's estimates as to proper
allocation of certain expenses.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues:
Vivra Renal Care $303,570 $254,253 $208,379
Vivra Specialty Partners 22,891 3,282 2,154
Other Services 24,029 27,114 6,227
----------------------------
Total operating revenues $350,490 $284,649 $216,760
============================
Operating profits:
Vivra Renal Care $64,287 $54,148 $44,085
Vivra Specialty Partners (1,762) 228 415
Other Services (16) (550) 199
----------------------------
Total operating profits $62,509 $53,826 $44,699
Other income 5,157 1,870 1,221
Corporate expenses (5,047) (4,753) (3,903)
Interest expense (360) (523) (912)
----------------------------
Earnings from continuing operations before
minority interest and income taxes $62,259 $50,420 $41,105
</TABLE>
Page 45 of 53
<PAGE>
10. BUSINESS SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable assets:
Vivra Renal Care $249,406 $145,650 $134,879
Vivra Specialty Partners 24,256 13,754 511
Other Services 4,402 25,423 12,278
Asset held for sale/Home Nursing Business - - 3,727
Corporate 124,637 91,180 56,083
----------------------------
$402,701 $276,007 $207,478
============================
Depreciation expense:
Vivra Renal Care $9,693 $8,678 $6,723
Vivra Specialty Partners 241 33 23
Other Services 711 716 337
Corporate 122 125 113
============================
$10,767 $9,552 $7,196
============================
Capitalized expenditures for property, buildings and
equipment: (1)
Vivra Renal Care $26,469 $14,816 $10,233
Vivra Specialty Partners 898 138 27
Other Services 1,000 5,514 1,661
Corporate 64 56 134
----------------------------
$28,431 $20,524 $12,055
============================
</TABLE>
(1) Excludes assets acquired in business acquisitions of $4.3 million, $2.1
million and $1.5 million in 1995, 1994 and 1993, respectively.
Page 46 of 53
<PAGE>
11. COMMITMENTS AND CONTINGENCIES
The Company rents office facilities under lease arrangements which are
classified for financial statement purposes as operating leases. The future
minimum rental commitments under noncancellable operating leases at November 30,
1995, are summarized below:
(IN THOUSANDS)
1996 $11,627
1997 9,757
1998 8,014
1999 6,635
2000 4,564
Total rent expense amounted to $10.8 million, $8.0 million, and $6.3
million in 1995, 1994, and 1993, respectively.
CONTINGENCIES
On May 20, 1992, in the Pennsylvania Court of Common Pleas in Delaware
County, a complaint was filed against the Company's subsidiary, Vivra Renal Care
("VRC"). In September 1993, the court determined that the suit could proceed as
a class action on behalf of 93 patients, subsequently reduced to 72, who were
treated at one of the VRC facilities, some of whom are alleged to have died or
been injured during the course of treatment. Unspecified compensatory and
punitive damages are being claimed. Since May 20, 1992, four other individual
actions have been filed asserting similar claims, one of which has been settled.
The Company's insurer has assumed defense of these actions, and the merit
of the claims and the extent of the damages are still under investigation. As
the investigation is not complete, management is unable to make an informed
judgment as to the ultimate resolution of such proceedings and their impact on
the results of operations; however, it believes insurance coverage is sufficient
to cover any losses likely to result from these actions and therefore any such
claims should not have a material adverse effect on the Company's financial
condition.
The Company is also subject to other claims and suits in the ordinary
course of business. Management believes that insurance is adequate to cover any
such claims and the outcome of such claims should not have a material adverse
effect on the Company's results of operations or financial condition.
Page 47 of 53
<PAGE>
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly data for the three
years ended November 30, 1995.
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------------
February May August November
28/29 31 31 30
---------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AND PRICE DATA)
<S> <C> <C> <C> <C>
1995
Total operating revenues $83,207 $88,530 $87,654 $91,099
Net earnings 8,468 9,920 10,409 9,143
Earnings per Share (Primary and Fully Diluted):
Net earnings .26 .28 .29 .25
Stock prices:
High 21-7/8 23-7/8 22-1/8 23-7/8
Low 17-3/4 18-1/3 17-3/4 21-1/8
1994
Total operating revenues $63,536 $69,602 $73,887 $77,624
Earnings from continuing operations 6,840 7,403 7,678 7,821
Gain on sale of discontinued operations 697 -- -- --
---------------------------------------------------
Net earnings 7,537 7,403 7,678 7,821
Earnings per Share (Primary and Fully Diluted):
Continuing operations .22 .24 .25 .25
Gain on sale of discontinued operations .02 -- -- --
---------------------------------------------------
Net earnings .25(1) .24 .25 .25
Stock prices:
High 17-1/3 17-3/4 17-1/8 19-2/3
Low 13-1/8 15-1/8 15-1/8 17
</TABLE>
(1) As a result of rounding, first quarter earnings per share was $.25 rather
than $.24.
Page 48 of 53
<PAGE>
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------
February May August November
28/29 31 31 30
-----------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AND PRICE DATA)
<S> <C> <C> <C> <C>
1993
Total operating revenues $48,693 $52,377 $56,115 $59,575
Earnings from continuing operations 5,293 5,862 6,361 6,326
Earnings from discontinued operations 84 163 151 156
Net earnings 5,377 6,025 6,512 6,482
Earnings per Share (Primary and Fully Diluted):
Continuing operations .18 .20 .21
.21(2)
Discontinued operations - - .01 .01
Net earnings .18 .20 .22 .22
Stock prices:
High 13-1/4 12-1/2 15-1/2 15-3/4
Low 10-1/8 9-7/8 12 12-5/8
</TABLE>
(2) As a result of rounding and the restatement of earnings from continuing
operations in 1993, year to date third quarter earnings per share from
continuing operations was $.58 rather than $.59.
Page 49 of 53
<PAGE>
Schedule II - Valuation and Qualifying Accounts
Vivra Incorporated and Subsidiaries
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ----------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------------
(2)
Balance at Charged to (1) Balance at
Beginning of Charged to Costs Other Accounts - Deductions - End
Description Period and Expenses Describe Describe of Period
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended November 30, 1993 $ 6,180,000 $1,610,000 $1,743,000 (2) $(2,006,000) (1) $7,527,000
Year ended November 30, 1994 7,527,000 2,129,000 1,350,000 (3) (685,000) (1) 10,321,000
Year ended November 30, 1995 10,321,000 4,288,000 604,000 (2) (2,348,000) (1) 12,865,000
</TABLE>
(1) Write-offs, net of recoveries. Included in the 1993 amount is $243,000
which pertains to assets held for sale.
(2) Contingent rate adjustments charged to operating revenues.
(3) Allowance purchased as part of 1994 acquisitions.
Page 50 of 53
<PAGE>
EXHIBIT INDEX
Exhibit No. Document Page No.
- ----------- ------------------------------------------------------- --------
3 Articles of Incorporation and By-Laws of Registrant:
3.1 Amended and Restated Certificate of Incorporation
filed as Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the fiscal year ended
November 30, 1995 and incorporated herein by
reference.
3.2 By-Laws (filed as Exhibit 3B to Registrant's
Registration Statement on Form 10, File No. 1-
10261 incorporated herein by reference.
4 Instruments defining the Rights of Securities Holders
4.1 Amended and Restated Rights Agreement dated
February 13, 1996 between Registrant and the First
National Bank of Boston (filed as Exhibit 4D to the
Company's Form 10/A filed on February 15, 1996
and incorporated herein by reference.
10 Material Contracts
10.1 Debenture Payment Assumption Agreement between
Registrant and Community Psychiatric Centers filed
as Exhibit 10.5A.6 to Registrant's Statement on
Form 10, File No. 1-10261, filed May 26, 1989,
incorporated herein by reference.
10.2 Registrant's Transition Consultants Stock Option
Plan (Filed as Exhibit 10G to the Registrant's
Registration Statement on Form 10, File No. 1-
10261 and incorporated herein by reference).
10.2.1 Transition Consultants Stock Option Plan
(Filed as Exhibit 10.4.4 to the Registrant's
Report on Form 10-K for its fiscal year
ended November 30, 1989 and
incorporated herein by reference).
10.3 Registrant's Amended 1989 Stock Incentive Plan.
10.4 Registrant's Profit Sharing Plan (Filed as Exhibit
10.11 to Registrant's Amendment on Form 8 to
Report on Form 10-K for its fiscal year ended
November 30, 1992 and incorporated herein by
reference.)
10.5 Form of Officer and Director Indemnification
Agreement (filed as Exhibit 10.5 to Registrant's
report on Form 10-K for its fiscal year ended
November 30, 1991, and incorporated herein by
reference).
10.6 Employment Agreements between Registrant and
Kent J. Thiry, dated as of December 1, 1992 (filed
as Exhibit 10.6 to Registrant's Amendment on Form
8 to Report on Form 10-K for its fiscal year ended
November 30, 1992 and incorporated herein by
reference).
10.7 Form of Employment Agreement between the
Registrant and certain executive officers of the
Registrant.
10.8 Form of agreement between the Registrant and the
Medical Directors of its dialysis facilities (filed as
Exhibit 10.6 to Registrant's Registration Statement
on Form S-1, File No. 33-34438 and incorporated
herein by this reference).
10.6 Employment Agreements between Registrant and
Kent J. Thiry, dated as of December 1, 1992 (filed
as Exhibit 10.6 to Registrant's Amendment on Form
8 to Report on Form 10-K for its fiscal year ended
November 30, 1992 and incorporated herein by
reference).
*10.9 Agreement effective February 1, 1996 between
Amgen Inc. and the Registrant.
*10.10 Agreement effective February 1, 1996 between
Bellco Drug Corp., Metro Health Corp. and the
Registrant.
11 Statements re Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
* Confidential Information requested as to certain portions, which portions
are omitted and filed separately with the Commissioner.
Page 52 of 53
<PAGE>
Exhibit 11 - Statement Re:
Computation of Per Share Earnings*
Vivra Incorporated and Subsidiaries
Three Years Ended November 30, 1995
<TABLE>
<CAPTION>
Year ended November 30
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 35,068,000 30,834,000 29,135,000
(a)Stock options granted to employees, based on the
treasury-stock method using average market price 678,000(1) 816,000(1) 940,000
------------------------------------------
Total 35,746,000 31,650,000 30,075,000
Net earnings from continuing operations $37,940,000 $29,742,000 $23,842,000
Earnings from discontinued operations, less applicable taxes - - 554,000
Gain on sale of discontinued operations, less applicable
taxes - 697,000 -
------------------------------------------
Net earnings $37,940,000 $30,439,000 $24,396,000
==========================================
Earnings per Share:
Net earnings from continuing operations $1.08 $.96 $.79
Earnings from discontinued operations - - .02
Gain on sale of discontinued operations - .02 -
------------------------------------------
Net earnings $1.08 $.99(2) $.81
===========================================
Fully diluted:
Weighted average shares outstanding 35,068,000 30,834,000 29,135,000
(a) Stock options granted to employees, based on the
treasury-stock method using the year-end market
price, if higher than average market price 696,000(1) 843,000(1) 975,000
-------------------------------------------
Total 35,764,000 31,677,000 30,110,000
===========================================
Net earnings from continuing operations $37,940,000 $29,742,000 $23,842,000
Earnings from discontinued operations, less applicable taxes - - 554,000
Gain on sale of discontinued operations less applicable taxes - 697,000 -
-------------------------------------------
Net earnings $37,940,000 $30,439,000 $24,396,000
===========================================
Earnings per Share:
Net earnings from continuing operations $1.08 $.96 $.79
Earnings from discontinued operations - - .02
Gain on sale of discontinued operations - .02 -
-------------------------------------------
Net earnings $1.08 $.99(2) $.81
===========================================
</TABLE>
* Adjusted to reflect three-for-two stock splits payable to shareholders of
record on November 22, 1995 and November 10, 1993, respectively.
(1) As the dilutive Common Stock equivalents are less than 3% of the weighted
average outstanding shares, they have not been included in the computation
of earnings per share as shown in the Condensed Consolidated Financial
Statements.
(2) As a result of rounding, year to date earnings per share was $.99 rather
than $.98.
Page 53 of 53
<PAGE>
EXHIBIT 10.3
VIVRA INCORPORATED
------------------
REVISED 1989 STOCK INCENTIVE PLAN
---------------------------------
(Amended and Restated
Effective May 9, 1995)
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 The Committee . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Committee Responsibilities . . . . . . . . . . . . . . . . . . 1
ARTICLE 3. LIMITATION ON AWARDS . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 4. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 General Rule . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Non-Employee Directors . . . . . . . . . . . . . . . . . . . . 2
4.3 Ten-Percent Stockholders . . . . . . . . . . . . . . . . . . . 3
4.4 Attribution Rules . . . . . . . . . . . . . . . . . . . . . . . 4
4.5 Outstanding Stock . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 5. OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1 Stock Option Agreement . . . . . . . . . . . . . . . . . . . . 4
5.2 Options Nontransferable . . . . . . . . . . . . . . . . . . . . 4
5.3 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 4
5.4 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . 5
5.5 Exercisability and Term . . . . . . . . . . . . . . . . . . . . 5
5.6 Effect of Change in Control . . . . . . . . . . . . . . . . . . 5
5.7 Modification, Extension and Renewal of Options . . . . . . . . 5
5.8 Restrictions on Transfer of Common Shares . . . . . . . . . . . 6
ARTICLE 6. PAYMENT FOR OPTION SHARES . . . . . . . . . . . . . . . . . . . 6
6.1 General Rule . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 Surrender of Stock . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Exercise/Sale . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.4 Exercise/Pledge . . . . . . . . . . . . . . . . . . . . . . . . 6
6.5 Other Forms of Payment . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 7. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . 7
7.1 Grant of SARs . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.2 Manner of Exercise of SARs . . . . . . . . . . . . . . . . . . 7
7.3 Special Holding Period . . . . . . . . . . . . . . . . . . . . 7
7.4 Special Exercise Window . . . . . . . . . . . . . . . . . . . . 7
7.5 Limited SARs . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS . . . . . . . . . . . . . . . 8
8.1 Time, Amount and Form of Awards . . . . . . . . . . . . . . . . 8
8.2 Payment for Awards . . . . . . . . . . . . . . . . . . . . . . 8
8.3 Vesting Conditions . . . . . . . . . . . . . . . . . . . . . . 8
8.4 Form of Settlement of Stock Units . . . . . . . . . . . . . . . 8
8.5 Time of Settlement of Stock Units . . . . . . . . . . . . . . . 9
8.6 Death of Recipient . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 9. VOTING RIGHTS AND DIVIDENDS OR DIVIDEND EQUIVALENTS . . . . . . 9
-i-
<PAGE>
Page
9.1 Restricted Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.2 Stock Units . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 10. PROTECTION AGAINST DILUTION . . . . . . . . . . . . . . . . . 10
10.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
10.2 Reorganizations . . . . . . . . . . . . . . . . . . . . . . . 10
10.3 Reservation of Rights . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 11. LIMITATION OF RIGHTS . . . . . . . . . . . . . . . . . . . . 10
11.1 Employment Rights . . . . . . . . . . . . . . . . . . . . . . 10
11.2 Stockholders' Rights . . . . . . . . . . . . . . . . . . . . 11
11.3 Creditors' Rights . . . . . . . . . . . . . . . . . . . . . . 11
11.4 Government Regulations . . . . . . . . . . . . . . . . . . . 11
ARTICLE 12. LIMITATION ON PAYMENTS . . . . . . . . . . . . . . . . . . . 11
12.1 Basic Rule . . . . . . . . . . . . . . . . . . . . . . . . . 11
12.2 Reduction of Payments . . . . . . . . . . . . . . . . . . . . 12
12.3 Overpayments and Underpayments . . . . . . . . . . . . . . . 12
12.4 Related Corporations . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 13. WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . . . 13
13.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.2 Nonstatutory Options, Restricted Shares or Stock Units . . . 13
ARTICLE 14. ASSIGNMENT OR TRANSFER OF AWARD . . . . . . . . . . . . . . . 13
ARTICLE 15. FUTURE OF THE PLAN . . . . . . . . . . . . . . . . . . . . . 14
15.1 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . 14
15.2 Amendment or Termination . . . . . . . . . . . . . . . . . . 14
15.3 Effect of Amendment or Termination . . . . . . . . . . . . . 14
ARTICLE 16. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 14
16.1 Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16.2 Award Year . . . . . . . . . . . . . . . . . . . . . . . . . 14
16.3 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16.4 Change in Control . . . . . . . . . . . . . . . . . . . . . . 14
16.5 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.6 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.7 Common Share . . . . . . . . . . . . . . . . . . . . . . . . 15
16.8 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.9 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . 15
16.10 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . 15
16.11 Fair Market Value . . . . . . . . . . . . . . . . . . . . . . 15
16.12 ISO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.13 Key Employee . . . . . . . . . . . . . . . . . . . . . . . . 16
16.14 Non-Employee Director . . . . . . . . . . . . . . . . . . . . 16
16.15 NSO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.16 Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.17 Optionee . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.18 Participant . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.19 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-ii-
<PAGE>
Page
16.20 Restricted Share . . . . . . . . . . . . . . . . . . . . . . 16
16.21 SAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.22 Stock Award Agreement . . . . . . . . . . . . . . . . . . . . 16
16.23 Stock Option Agreement . . . . . . . . . . . . . . . . . . . 17
16.24 Stock Unit . . . . . . . . . . . . . . . . . . . . . . . . . 17
16.25 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 17. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-3-
<PAGE>
VIVRA INCORPORATED
------------------
REVISED 1989 STOCK INCENTIVE PLAN
---------------------------------
(Amended and Restated Effective
May 9, 1995)
ARTICLE 1. INTRODUCTION.
- --------- ------------
The Plan was adopted by the Board and approved by the Company's sole
stockholder, Community Psychiatric Centers, on June 22, 1989. The purpose of
the Plan is to promote the long-term success of the Company and the creation of
incremental stockholder value by (a) encouraging Non-Employee Directors and Key
Employees to focus on critical long-range objectives, (b) encouraging the
attraction and retention of Non-Employee Directors and Key Employees with
exceptional qualifications and (c) linking Non-Employee Directors and Key
Employees directly to stockholder interests through increased stock ownership.
The Plan seeks to achieve this purpose by providing for Awards in the form of
Restricted Shares, Stock Units, stock appreciation rights or Options, which may
constitute incentive stock options or nonstatutory stock options. The Plan
shall be governed by, and construed in accordance with, the laws of the State of
Delaware.
This amended and restated Plan (a) increases the Common Shares subject
to Awards by 700,000 shares, (b) changes the provisions for the grant of NSOs
and SARs to Non-Employee Directors, (c) permits consultants to receive Awards,
(d) adds an individual grant limitation required by Code section 162(m) for the
option income for certain individuals to be tax deductible by the Company, and
(e) makes certain additional changes.
ARTICLE 2. ADMINISTRATION.
- --------- --------------
2.1 The Committee. The Plan shall be administered by the Committee
-------------
appointed by the Board. The Committee shall have membership composition which
enables the Plan to qualify under Rule 16b-3 with regard to the grant of Awards
to persons who are subject to section 16 of the Exchange Act. A member of the
Committee shall not be eligible to receive any Award under the Plan, other than
Options granted under Section 4.2.
2.2 Committee Responsibilities. The Committee shall select the Key
--------------------------
Employees who are to receive Awards under the Plan, determine in its sole
discretion the amount, price, vesting requirements, terms and other conditions
of such Awards, interpret the Plan, and make all other decisions relating to the
operation of the Plan. The Committee may adopt such rules or guidelines as it
deems appropriate to implement the Plan. The
-1-
<PAGE>
Committee's determinations under the Plan shall be final and binding on all
persons.
ARTICLE 3. LIMITATION ON AWARDS.
- --------- --------------------
The aggregate number of Common Shares subject to Restricted Shares,
Stock Units and Options awarded under the Plan shall not exceed 4,253,591. If
any Restricted Shares are forfeited before dividends have been paid, if any
Options or Stock Units are forfeited or if any Options or Stock Units terminate
for any other reason before being exercised, then such Restricted Shares, Stock
Units or Options shall again become available for Awards under the Plan. Also,
if Options are surrendered upon the exercise of related SARs, then such Options
shall be restored to the pool available for Awards. Any dividend equivalents
distributed in the form of shares of Common Stock under the Plan shall be
applied against the number of shares of Common Stock available for Awards. The
limitation of this Article 3 shall be subject to adjustment pursuant to Article
10. Any Common Shares issued pursuant to the Plan may be authorized but
unissued shares or treasury shares.
ARTICLE 4. ELIGIBILITY.
- --------- -----------
4.1 General Rule. Except as provided in Section 4.2, only Key
------------
Employees shall be eligible for designation as Participants by the Committee.
4.2 Non-Employee Directors. Non-Employee Directors shall be entitled
----------------------
to receive the NSOs and SARs described in this Section 4.2.
(a) Each Non-Employee Director shall receive an NSO covering 3,375
Common Shares for each Award Year with respect to which he or she
serves as a Non-Employee Director on the grant date described in subsection
(c) below;
(b) Following the Effective Date: the chairperson and other
members of the Board's Audit Committee shall respectively receive 1,000
and 500 NSOs on the date of such Committee's annual committee meeting
held during each Award Year and 500 NSOs each for each additional
committee meeting held during each Award Year; the chairperson and
other members of the Board's Compensation Committee shall respectively
receive 2,000 and 500 NSOs on the date of such Committee's annual
committee meeting held during each Award Year and 500 NSOs each for
each additional committee meeting held during each Award Year; the
chairperson and other members of the Board's Compliance Committee shall
respectively receive 2,000 and 500 NSOs on the date of such Committee's
annual committee meeting held during each Award Year, and grants of
Restricted Shares with a
-2-
<PAGE>
Fair Market Value on the date of the meeting of $1,500 and $1,000,
respectively, for each additional meeting of the Committee held during an
Award Year; the chairperson and other members of the Board's Governance
Committee shall respectively receive 2,000 and 1,000 NSOs on the date of
such Committee's annual committee meeting held during each Award Year, and
grants of Restricted Shares with a Fair Market Value on the date of the
meeting of $2,000 and $1,500, respectively, for each additional meeting of
the Committee held during an Award Year; and the chairperson and other
members of the Board's Clinical Quality Committee shall respectively
receive 2,000 and 500 NSOs on the date of such Committee's annual committee
meeting held during each Award Year, and grants of Restricted Shares with a
Fair Market Value on the date of the meeting of $1,000 and $500,
respectively, for each additional meeting of the Committee held during
an Award Year. The number of Restricted Shares shall be rounded down to the
next number of whole shares;
(c) The NSO for a particular Award Year shall be granted to each
Non-Employee Director as of December 1 each year and on the date of
each meeting for NSOs granted on each meeting date;
(d) Each NSO shall be exercisable in full at all times during its
term; Restricted Shares shall not vest until 6 months after the date of
grant;
(e) The term of each NSO shall be 10 years; provided, however,
that any unexercised NSO shall expire thirty days after the date that
the Optionee ceases to be a Non-Employee Director or a Key Employee for
any reason other than death or disability. If an Optionee ceases to be
a Non-Employee Director or a Key Employee on account of death or
disability, any unexercised NSO shall expire on the earlier of the date
10 years after the date of grant or one year after the date of death or
disability of such Director.
(f) The Exercise Price under each NSO shall be equal to the Fair
Market Value on the date of grant and shall be payable in accordance
with Section 6; and
(g) Each NSO other than those specified in subsection (b) shall
include a related limited SAR, which shall be exercisable only in the
event of a Change in Control. The SAR shall be exercisable in
accordance with the provisions of Section 7.
4.3 Ten-Percent Stockholders. A Key Employee who owns more than 10
------------------------
percent of the total combined voting power of all classes of outstanding stock
of the Company or any of its
-3-
<PAGE>
Subsidiaries shall not be eligible for the grant of an ISO unless (a) the
Exercise Price under such ISO is at least 110 percent of the Fair Market Value
of a Common Share on the date of grant and (b) such ISO by its terms is not
exercisable after the expiration of five years from the date of grant.
4.4 Attribution Rules. For purposes of Section 4.3, in determining
-----------------
stock ownership, a Key Employee shall be deemed to own the stock owned, directly
or indirectly, by or for his or her brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned propor-
tionately by or for its stockholders, partners or beneficiaries. Stock with
respect to which the Key Employee holds an option shall not be counted.
4.5 Outstanding Stock. For purposes of Section 4.3, "outstanding
-----------------
stock" shall include all stock actually issued and outstanding immediately after
the grant of the ISO to the Key Employee. "Outstanding stock" shall not include
treasury shares or shares authorized for issuance under outstanding options held
by the Key Employee or by any other person.
ARTICLE 5. OPTIONS.
- --------- -------
5.1 Stock Option Agreement. Each grant of an Option under the Plan
----------------------
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical. The
Committee may designate all or any part of an Option as an ISO, except for
Options granted to Non-Employee Directors under Section 4.2.
5.2 Options Nontransferable. Unless the Stock Option Agreement
-----------------------
provides otherwise, no Option granted under the Plan shall be transferable by
the Optionee other than by will or by the laws of descent and distribution.
Unless the Stock Option Agreement provides otherwise, an Option may be exercised
during the lifetime of the Optionee only by him or her. Unless the Stock Option
Agreement provides otherwise, no Option or interest therein may be transferred,
assigned, pledged or hypothecated by the Optionee during his or her lifetime,
whether by operation of law or otherwise, or be made subject to execution,
attachment or similar process.
5.3 Number of Shares. Each Stock Option Agreement shall specify the
----------------
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 10. The Stock Option
Agreement shall also specify whether the Option is an ISO or an NSO. No Key
Employee who is an Optionee shall be granted Options covering more than 250,000
Common Shares during any Award Year.
-4-
<PAGE>
5.4 Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price under an ISO shall not be less than 100
percent of the Fair Market Value of a Common Share on the date of grant, except
as otherwise provided in Section 4.3. The Exercise Price under an NSO shall not
be less than 50 percent of the Fair Market Value on the date of grant of the
Common Shares subject to such NSO, except as otherwise provided in Section 4.2.
Subject to the preceding two sentences, the Exercise Price under any Option
shall be determined by the Committee. The Exercise Price shall be payable in
accordance with Article 6.
5.5 Exercisability and Term. Each Stock Option Agreement shall
-----------------------
specify the date when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option. The term of an ISO shall in no event exceed 10 years from the date of
grant, and Section 4.3 may require a shorter term. Subject to Sections 7.3 and
7.4 and the preceding sentence, the Committee shall determine when all or any
part of an Option (and any SARs included therein) is to become exercisable and
when such Option is to expire. A Stock Option Agreement may provide for
accelerated exercisability in the event of the Optionee's death, disability or
retirement and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's employment or service. Except as
provided in Section 4.2, NSOs may also be awarded in combination with Restricted
Shares or Stock Units, and such an Award may provide that the NSOs will not be
exercisable unless the related Restricted Shares or Stock Units are forfeited.
5.6 Effect of Change in Control. The Committee (at its sole
---------------------------
discretion) may determine, at the time of granting an Option or thereafter, that
such Option (and any SARs included therein) shall become fully exercisable as to
all Common Shares subject to such Option in the event that a Change in Control
occurs with respect to the Company. If the Committee finds that there is a
reasonable possibility that, within the succeeding six months, a Change in
Control will occur with respect to the Company, then the Committee may determine
that all outstanding Options (and any SARs included therein) shall become fully
exercisable as to all Common Shares subject to such Options. The Committee (at
its sole discretion) may determine, at the time of granting an Option, that any
SARs included therein shall become exercisable as to the Common Shares subject
to the related Option only in the event that a Change in Control occurs with
respect to the Company.
5.7 Modification, Extension and Renewal of Options. Within the
----------------------------------------------
limitations of the Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) in return for the grant of new Options at the same or a
different price. The foregoing notwithstanding, no modifi
-5-
<PAGE>
cation of an Option shall, without the consent of the Optionee, impair his or
her rights or obligations under such Option.
5.8 Restrictions on Transfer of Common Shares. Any Common Shares
-----------------------------------------
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Committee may determine. Such restrictions shall be set
forth in the applicable Stock Option Agreement and shall apply in addition to
any general restrictions that may apply to all holders of Common Shares.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
- --------- -------------------------
6.1 General Rule. The entire Exercise Price of Common Shares issued
------------
upon exercise of Options shall be payable in cash at the time when such Common
Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock
Option Agreement. However, the Committee may specify in the Stock
Option Agreement that payment may be made pursuant to Section 6.2, 6.3,
6.4 or 6.5.
(b) In the case of an NSO, other than an NSO granted pursuant to
Section 4.2, the Committee may at any time accept payment pursuant to
Section 6.2, 6.3, 6.4 or 6.5.
6.2 Surrender of Stock. To the extent that this Section 6.2 is
------------------
applicable, payment for all or any part of the Exercise Price may be made with
Common Shares which have been owned by the Optionee for more than six months (or
such lesser time period as may be adopted by the Committee) and which are
surrendered to the Company. Such Common Shares shall be valued at their Fair
Market Value on the date when the new Common Shares are purchased under the
Plan. In the event that the Common Shares being surrendered are Restricted
Shares that have not yet become vested, the same restrictions shall be imposed
upon the new Common Shares being purchased.
6.3 Exercise/Sale. To the extent this Section 6.3 is applicable,
-------------
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Common Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.4 Exercise/Pledge. To the extent that this Section 6.4 is
---------------
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to
-6-
<PAGE>
pledge Common Shares to a securities broker or lender approved by the Company as
security for a loan and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
6.5 Other Forms of Payment. To the extent that this Section 6.5 is
----------------------
applicable, payment may be made in any other form approved by the Committee,
consistent with applicable laws, regulations and rules.
ARTICLE 7. STOCK APPRECIATION RIGHTS.
- --------- -------------------------
7.1 Grant of SARs. Each Option granted under the Plan may, at the
-------------
discretion of the Committee, include an SAR. No Key Employee shall be granted
SARs covering more than 250,000 Common Shares during any Award Year. Such SAR
shall entitle the Optionee (or any person having the right to exercise the
Option after his or her death) to surrender to the Company, unexercised, all or
any part of that portion of the Option which then is exercisable and to receive
from the Company a cash payment which is equal to the amount by which the Fair
Market Value (on the date of surrender) of the Common Shares subject to the
surrendered portion of the Option exceeds the Exercise Price. In no event shall
any SAR be exercised if such Fair Market Value does not exceed the Exercise
Price. The discretion of the Committee to include an SAR in an ISO may be
exercised only at the time of the grant of such ISO. The discretion of the
Committee to include an SAR in an NSO may be exercised at the time of the grant
of such NSO or at any subsequent time, but not later than six months before the
expiration of such NSO. If an SAR is exercised, the number of Common Shares
remaining subject to the related Option shall be reduced accordingly, and vice
versa.
7.2 Manner of Exercise of SARs. An SAR may be exercised by written
--------------------------
notice to the Company. Subject to Sections 7.3 and 7.4, it may be exercised to
the extent, and only to the extent, that the Option in which it is included is
exercisable. If, on the date when an Option expires, the Exercise Price under
such Option is less than the Fair Market Value on such date but any portion of
such Option has not been exercised or surrendered, then any SAR included in such
Option shall automatically be deemed to be exercised as of such date with
respect to such portion.
7.3 Special Holding Period. To the extent required by section 16 of
----------------------
the Exchange Act or any rule thereunder, an SAR shall not be exercised unless
both it and the related Option have been outstanding for more than six months.
If the Stock Option Agreement so provides, this Section 7.3 shall not apply in
the event of the Optionee's death or disability.
7.4 Special Exercise Window. To the extent required by section 16 of
-----------------------
the Exchange Act or any rule thereunder, an SAR
-7-
<PAGE>
may only be exercised during a period which (a) begins on the third business day
following a date when the Company's quarterly summary statement of sales and
earnings is released to the public and (b) ends on the 12th business day
following such date. This Section 7.4 shall not apply if the exercise occurs
automatically on the date when the related Option expires, and the Committee may
determine that it shall not apply to limited SARs granted under Section 7.5.
7.5 Limited SARs. An Option granted under the Plan may, at the
------------
discretion of the Committee, provide that it will be exercisable as an SAR only
in the event of a Change in Control.
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS.
- --------- ---------------------------------
8.1 Time, Amount and Form of Awards. The Committee may grant
-------------------------------
Restricted Shares or Stock Units with respect to an Award Year during such Award
Year or at any time thereafter. The amount of each Award of Restricted Shares
or Stock Units shall be determined by the Committee. Awards under the Plan may
be granted in the form of Restricted Shares, in the form of Stock Units, or in
any combination of both, as the Committee shall determine at its sole discretion
at the time of the grant. Restricted Shares or Stock Units may also be awarded
in combination with NSOs, and such an Award may provide that the Restricted
Shares or Stock Units will be forfeited in the event that the related NSOs are
exercised.
8.2 Payment for Awards. To the extent that an Award is granted in the
------------------
form of Restricted Shares, the Award recipient, as a condition to the grant of
such Award, shall be required to pay the Company in cash an amount equal to the
par value of such Restricted Shares. To the extent that an Award is granted in
the form of Stock Units, no cash consideration shall be required of Award
recipients.
8.3 Vesting Conditions. Each Award of Restricted Shares or Stock
------------------
Units shall become vested, in full or in installments, upon satisfaction of the
conditions specified in the Stock Award Agreement. The Committee shall select
the vesting conditions, which may be based upon the Participant's service, the
Participant's performance, the Company's performance or such other criteria as
the Committee may adopt. A Stock Award Agreement may also provide for accel-
erated vesting in the event of the Participant's death, disability or
retirement. The Committee (at its sole discretion) may determine, at the time
of making an Award or thereafter, that such Award shall become fully vested in
the event that a Change in Control occurs with respect to the Company.
8.4 Form of Settlement of Stock Units. Settlement of vested Stock
---------------------------------
Units may be made in the form of cash, in the form of Common Shares, or in any
combination of both, as the Committee shall determine at or before the time when
distribution
-8-
<PAGE>
commences. The Committee may designate a method of converting Stock Units into
cash, including (without limitation) a method based on the average Fair Market
Value of Common Shares over a series of trading days. Until an Award of Stock
Units is settled, the number of such Stock Units shall be subject to adjustment
pursuant to Article 10.
8.5 Time of Settlement of Stock Units. Vested Stock Units may be
---------------------------------
settled in a lump sum or in installments. The distribution may occur or
commence when all vesting conditions applicable to the Stock Units have been
satisfied or have lapsed, or it may be deferred to any later date. The Com-
mittee shall determine when all or any part of an Award of Stock Units is to be
distributed, and it may modify its original determination with respect to the
time of distribution at any time before settlement of the Stock Units is
completed. The Committee may also permit Participants to request a deferral of
any distribution under this Section 8.5. In the case of any deferred distri-
bution, the Committee may increase the amount of such distribution by an
interest factor or by dividend equivalents, as it deems appropriate.
8.6 Death of Recipient. Any Stock Units Award which becomes payable
------------------
after the recipient's death shall be delivered or distributed to the recipient's
beneficiary or beneficiaries. Each recipient of a Stock Units Award under the
Plan shall designate one or more beneficiaries for this purpose by filing the
prescribed form with the Company. A beneficiary designation may be changed by
filing the prescribed form with the Company at any time before the Award
recipient's death. If no beneficiary was designated or if no designated
beneficiary survives the Award recipient, then any Stock Units Award which
becomes payable after the recipient's death shall be delivered or distributed to
the recipient's estate. The Committee, at its sole discretion, shall determine
the form and time of any distribution(s) to a recipient's beneficiary or estate.
ARTICLE 9. VOTING RIGHTS AND DIVIDENDS OR DIVIDEND EQUIVALENTS.
- --------- ---------------------------------------------------
9.1 Restricted Shares. The holders of Restricted Shares awarded under
-----------------
the Plan shall have the same voting, dividend and other rights as the Company's
other stockholders.
9.2 Stock Units. The holders of Stock Units shall have no voting
-----------
rights. Prior to settlement or forfeiture, any Stock Unit awarded under the
Plan shall carry with it a right to dividend equivalents. Such right entitles
the holder to be credited with an amount equal to all cash dividends paid on one
Common Share while the Stock Unit is outstanding. Dividend equivalents may be
converted into additional Stock Units. The Committee shall determine at what
time(s) any dividend equivalents are to be distributed. Settlement of dividend
equivalents may be made in the form of cash, in the form of Common Shares, or in
a combination of both. Prior to
-9-
<PAGE>
distribution, any dividend equivalents which are not paid on or about the date
when dividends on Common Shares are paid shall be subject to the same conditions
and restrictions (including, without limitation, any forfeiture conditions) as
the Stock Units to which they attach. The Committee, at its sole discretion,
shall make all determinations relating to dividend equivalents.
ARTICLE 10. PROTECTION AGAINST DILUTION.
- ---------- ---------------------------
10.1 General. In the event of a subdivision of the outstanding Common
-------
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spinoff or a similar occurrence,
the Committee shall make appropriate adjustments in one or more of (a) the
number of Options, Restricted Shares and Stock Units available for future Awards
under Articles 3 and 4, (b) the number of Stock Units included in any prior
Award which has not yet been settled, (c) the number of Common Shares covered by
each outstanding Option or (d) the Exercise Price under each outstanding Option.
10.2 Reorganizations. In the event that the Company is a party to a
---------------
merger or other reorganization, outstanding Options, Restricted Shares and Stock
Units shall be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of outstanding
Awards by the surviving corporation or its parent, for their continuation by the
Company (if the Company is a surviving corporation), for accelerated vesting or
for settlement in cash.
10.3 Reservation of Rights. Except as provided in this Article 10, a
---------------------
Participant shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class. Any issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Common
Shares subject to an Option. The grant of an Award pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
ARTICLE 11. LIMITATION OF RIGHTS.
- ---------- --------------------
11.1 Employment Rights. Neither the Plan nor any Award granted under
-----------------
the Plan shall be deemed to give any
-10-
<PAGE>
individual a right to remain employed by the Company or a Subsidiary. The
Company and its Subsidiaries reserve the right to terminate the employment of
any employee at any time, and for any reason, subject only to a written
employment agreement (if any).
11.2 Stockholders' Rights. A Participant shall have no dividend
--------------------
rights, voting rights or other rights as a stockholder with respect to any
Common Shares covered by his or her Award prior to the issuance of a stock
certificate for such Common Shares. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date when
such certificate is issued, except as expressly provided in Articles 8, 9 and
10.
11.3 Creditors' Rights. A holder of Stock Units shall have no rights
-----------------
other than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Award Agreement.
11.4 Government Regulations. Any other provision of the Plan
----------------------
notwithstanding, the obligations of the Company with respect to Common Shares to
be issued pursuant to the Plan shall be subject to all applicable laws, rules
and regulations and such approvals by any governmental agencies as may be
required. The Company reserves the right to restrict, in whole or in part, the
delivery of Common Shares pursuant to any Award until such time as:
(a) Any legal requirements or regulations have been met relating
to the issuance of such Common Shares or to their registration,
qualification or exemption from registration or qualification under the
Securities Act of 1933, as amended, or any applicable state securities
laws; and
(b) Satisfactory assurances have been received that such Common
Shares, when issued, will be duly listed on the New York Stock Exchange
or any other securities exchange on which Common Shares are then
listed.
ARTICLE 12. LIMITATION ON PAYMENTS.
- ---------- ----------------------
12.1 Basic Rule. Any provision of the Plan to the contrary
----------
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer by
the Company to or for the benefit of a Participant, whether paid or payable (or
transferred or transferable) pursuant to the terms of this Plan or otherwise (a
"Payment"), would be nondeductible by the Company for federal income tax
purposes because of the provisions concerning "excess parachute payments" in
section
-11-
<PAGE>
280G of the Code, then the aggregate present value of all Payments shall be
reduced (but not below zero) to the Reduced Amount; provided, however, that the
Committee, at the time of making an Award under this Plan or at any time
thereafter, may specify in writing that such Award shall not be so reduced and
shall not be subject to this Article 12. For purposes of this Article 12, the
"Reduced Amount" shall be the amount, expressed as a present value, which
maximizes the aggregate present value of the Payments without causing any
Payment to be nondeductible by the Company because of section 280G of the Code.
12.2 Reduction of Payments. If the Auditors determine that any
---------------------
Payment would be nondeductible by the Company because of section 280G of the
Code, then the Company shall promptly give the Participant notice to that effect
and a copy of the detailed calculation thereof and of the Reduced Amount, and
the Participant may then elect, in his or her sole discretion, which and how
much of the Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced Amount)
and shall advise the Company in writing of his or her election within 10 days of
receipt of notice. If no such election is made by the Participant within such
10-day period, then the Company may elect which and how much of the Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 12, present
value shall be determined in accordance with section 280G(d)(4) of the Code.
All determinations made by the Auditors under this Article 12 shall be binding
upon the Company and the Participant and shall be made within 60 days of the
date when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
12.3 Overpayments and Underpayments. As a result of uncertainty in
------------------------------
the application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will have
been made by the Company which should not have been made (an "Overpayment") or
that additional Payments which will not have been made by the Company could have
been made (an "Underpayment"), consistent in each case with the calculation of
the Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate
-12-
<PAGE>
provided in section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Participant to the Company if and to the extent that
such payment would not reduce the amount which is subject to taxation under
section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to or for the benefit of the Participant, together
with interest at the applicable federal rate provided in section 7872(f)(2) of
the Code.
12.4 Related Corporations. For purposes of this Article 12, the term
--------------------
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 13. WITHHOLDING TAXES.
- ---------- -----------------
13.1 General. To the extent required by applicable federal, state,
-------
local or foreign law, the recipient of any payment or distribution under the
Plan shall make arrangements satisfactory to the Company for the satisfaction of
any withholding tax obligations that arise by reason of such payment or
distribution. The Company shall not be required to make such payment or distri-
bution until such obligations are satisfied.
13.2 Nonstatutory Options, Restricted Shares or Stock Units. The
------------------------------------------------------
Committee may permit an Optionee who exercises NSOs, or who receives Awards of
Restricted Shares or Stock Units, to satisfy all or part of his or her withhold-
ing tax obligations by delivering Common Shares or by having the Company
withhold a portion of the Common Shares that otherwise would be issued to him or
her under such Awards. Such Common Shares shall be valued at their Fair Market
Value on the date when taxes otherwise would be withheld in cash. The payment
of withholding taxes by delivering or surrendering Common Shares to the Company,
if permitted by the Committee, shall be subject to such restrictions as the
Committee may impose, including any restrictions required by rules of the
Securities and Exchange Commission.
ARTICLE 14. ASSIGNMENT OR TRANSFER OF AWARD.
- ---------- -------------------------------
Except to the extent the Award agreement provides otherwise, any Award
granted under the Plan shall not be anticipated, assigned, attached, garnished,
optioned, transferred or made subject to any creditor's process, whether
voluntarily, involuntarily or by operation of law. Any act in violation of this
Article 14 shall be void. However, this Article 14 shall not preclude (i) a
Participant from designating a beneficiary who will receive any undistributed
Awards in the event of the Participant's death, or (ii) a transfer by will or by
the laws of descent and distribution.
-13-
<PAGE>
ARTICLE 15. FUTURE OF THE PLAN.
- ---------- ------------------
15.1 Term of the Plan. This amended and restated Plan shall become
----------------
effective on May 9, 1995 subject to shareholder approval of the Plan at the
annual meeting of stockholders held on that date. If approved, the Plan shall
remain in effect until it is terminated under Section 15.2, except that no ISOs
shall be granted after June 21, 1999.
15.2 Amendment or Termination. The Board may, at any time and for any
------------------------
reason, amend or terminate the Plan. However, any amendment of the Plan shall
be subject to the approval of the Company's stockholders to the extent required
by applicable laws, regulations or rules. The provisions of Section 4.2
relating to Non-Employee Directors may not be amended more than once every six
months, except to comply with changes to the Code or ERISA.
15.3 Effect of Amendment or Termination. No Awards shall be made
----------------------------------
under the Plan after the termination thereof. The termination of the Plan, or
any amendment thereof, shall not affect any Option, Restricted Share or Stock
Unit previously granted under the Plan.
ARTICLE 16. DEFINITIONS.
- ---------- -----------
16.1 "Award" means any award of an Option (with or without a related
-----
SAR), a Restricted Share or a Stock Unit under the Plan.
16.2 "Award Year" means a fiscal year beginning December 1 and ending
----------
November 30 with respect to which an Award may be granted.
16.3 "Board" means the Company's Board of Directors, as constituted
-----
from time to time.
16.4 "Change in Control" means the occurrence of any of the following
-----------------
events:
(a) A change in control required to be reported pursuant to Item
6(e) of Schedule 14A of Regulation 14A under the Exchange Act;
(b) A change in the composition of the Board, as a result of which
fewer than two-thirds of the incumbent directors are directors who
either (i) had been directors of the Company 24 months prior to such
change or (ii) were elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the directors who
had been directors of the Company 24 months prior to such change and
who were still in office at the time of the election or nomination; or
-14-
<PAGE>
(c) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20 percent or more of
the combined voting power of the Company's then outstanding securities
ordinarily (and apart from rights accruing under special circumstances)
having the right to vote at elections of directors (the "Base Capital
Stock"); provided, however, that any change in the relative beneficial
ownership of securities of any person resulting solely from a reduction in
the aggregate number of outstanding shares of Base Capital Stock, and any
decrease thereafter in such person's ownership of securities, shall be
disregarded until such person increases in any manner, directly or
indirectly, such person's beneficial ownership of any securities of
the Company.
16.5 "Code" means the Internal Revenue Code of 1986, as amended.
----
16.6 "Committee" means the Committee of the Board that is authorized
---------
to administer the Plan, as constituted from time to time.
16.7 "Common Share" means one share of the common stock of the
------------
Company.
16.8 "Company" means Vivra Incorporated, a Delaware corporation.
-------
16.9 "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
16.10 "Exercise Price" means the amount for which one Common Share may
--------------
be purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
16.11 "Fair Market Value" means the market price of a Common Share,
-----------------
determined by the Committee as follows:
(a) If the Common Share was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite-transactions report for such
date;
(b) If the Common Share was traded over-the-counter on the date in
question and was classified as a national market issue, then the Fair Market
Value shall be equal to the last-transaction price quoted by the Nasdaq
National Market system for such date;
-15-
<PAGE>
(c) If the Common Share was traded over-the-counter on the date in
question but was not classified as a national market issue, then the Fair
Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the Nasdaq National
Market system for such date; and
(d) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
16.12 "ISO" means an incentive stock option described in section
---
422(b) of the Code.
16.13 "Key Employee" means a key common-law employee of or consultant
------------
to the Company or any Subsidiary, as determined by the Committee. A consultant
may also include a Non-Employee Director who is not serving on the Committee.
16.14 "Non-Employee Director" means a member of the Board who is not a
---------------------
common-law employee.
16.15 "NSO" means an employee stock option not described in sections
---
422 through 424 of the Code.
16.16 "Option" means an ISO or NSO granted under the Plan and
------
entitling the holder to purchase one Common Share. The term "Option" includes a
Substitute Option.
16.17 "Optionee" means an individual or his or her estate that holds
--------
an Option.
16.18 "Participant" means a Non-Employee Director or Key Employee who
-----------
has received an Award.
16.19 "Plan" means this Vivra Incorporated Revised 1989 Stock
----
Incentive Plan, as it may be amended from time to time.
16.20 "Restricted Share" means a Common Share awarded to a Participant
----------------
under the Plan.
16.21 "SAR" means a stock appreciation right granted under the Plan as
---
part of an Option or as a subsequent addition to an Option.
16.22 "Stock Award Agreement" means the agreement between the Company
---------------------
and the recipient of a Restricted Share or Stock Unit which contains the terms,
conditions and restrictions pertaining to such Restricted Share or Stock Unit.
-16-
<PAGE>
16.23 "Stock Option Agreement" means the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
16.24 "Stock Unit" means a bookkeeping entry representing the
----------
equivalent of one Common Share and awarded to a Participant under the Plan.
16.25 "Subsidiary" means any corporation, if the Company and/or one or
----------
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A corpo-
ration that attains the status of a Subsidiary on a date after the adoption of
the Plan shall be considered a Subsidiary commencing as of such date.
ARTICLE 17. EXECUTION.
- ---------- ---------
To record the adoption of the Plan by the Board, the Company has caused
its duly authorized officer to execute the Plan in its name and on its behalf as
of February ___, 1995.
VIVRA INCORPORATED
By
-------------------------------------------
Its
----------------------------------------
-17-
<PAGE>
EXHIBIT 10.7
EMPLOYMENT CONTRACT
-------------------
THIS EMPLOYMENT CONTRACT (the "Contract") is made on _________, 199_,
between VIVRA INCORPORATED, a Delaware Corporation ("VIVRA") and _________, an
------------------
individual ("Employee").
Recitals
--------
Employee and VIVRA agree:
1. Definitions. As used in this Contract, the following terms have the
-----------
following meanings:
1.1 Board. "Board" means the Board of Directors of VIVRA.
-----
1.2 Cause. "Cause" means:
-----
1.2.1 Breach or Neglect. Breach of any material provision of this
-----------------
Contract by Employee or breach or habitual neglect by Employee of her duties as
an officer or employee of VIVRA, other than by reason of Permanent Disability;
1.2.2 Dishonesty. Any dishonesty, defalcation or fraud of Employee in
----------
connection with the performance of her duties as an officer or employee of
VIVRA;
1.2.3 Misconduct or Negligence. Any gross or willful misconduct or gross
------------------------
negligence by Employee in the performance of her duties as an officer or
employee of VIVRA; or
1.2.4 Other Conduct. Egregious conduct by Employee which has brought
-------------
VIVRA into public disgrace or disrepute.
1.3 Change of Control. "Change of Control" means a "Change in Control" as
-----------------
defined in VIVRA's 1989 Stock Incentive Plan, as may be amended from time to
time, except that for purposes of this Agreement, a Change of Control does not
include a purchase of securities or assets by a management-led purchasing group
in which Employee is given a reasonable opportunity to participate.
1.4 Compete. "Compete" means either directly or indirectly to own,
-------
initiate, manage, operate, join, control, advise, assist, consult with or
participate in the ownership, operation, management or control (other than as an
owner of less than five percent (5%) of the equity of any entity) of any Person
in the U.S. engaged in the VIVRA Businesses or to lease or sell real or personal
property to any such business.
<PAGE>
1.5 Confidential Information. "Confidential Information" means all
------------------------
information and any idea in whatever form, tangible or intangible, pertaining in
any manner to the business of VIVRA or any affiliated company, except
information which: (i) is or becomes generally available to the public or
publicly known other than as a result of disclosure in breach of any obligation
of confidentiality; (ii) was or becomes available to Employee on a
nonconfidential basis from a source other than VIVRA or its agents or
affiliates; (iii) is disclosed pursuant to the requirement of a governmental
agency or court of competent jurisdiction or as otherwise required under
applicable law; or (iv) was otherwise known or available to Employee without any
obligation of confidentiality.
1.6 Discretionary Bonus. A bonus described in paragraph 3.1.2.
-------------------
1.7 Exchange Act. "Exchange Act" means the Securities Exchange Act of
------------
1934, as amended.
1.8 Fiscal Year. "Fiscal Year" means VIVRA's annual accounting period for
-----------
financial accounting and reporting purposes, which currently is the period from
each December 1 to and including the next following November 30.
1.9 Permanent Disability. "Permanent Disability" means any mental or
--------------------
physical illness, disease or condition which results in Employee's inability to
perform her duties during normal working hours for a period expected to exceed
six consecutive months.
1.10 Person. "Person" means any individual, corporation, partnership,
------
business trust, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof.
1.11 Salary. "Salary" means $_________ annual base compensation.
------
1.12 VIVRA Businesses. "VIVRA Businesses" means any business in which
----------------
VIVRA is engaged at the date of termination of Employee's employment pursuant to
this Contract and for which VIVRA has a business plan in place.
2. Employment and Duties.
---------------------
2.1 Position. Pursuant to this Contract, VIVRA shall employ and Employee
--------
shall serve VIVRA as ____________ of VIVRA.
2.2 Time and Effort. While Employee is employed by VIVRA pursuant to the
---------------
Contract, Employee shall devote her full productive business time, efforts,
energies and abilities to VIVRA and its subsidiaries and shall not render
services to any other Person without the written consent of VIVRA's Chief
<PAGE>
Executive Officer. Employee, however, shall not be precluded from engaging in
civic, charitable or religious activities.
2.3 Place of Business. During Employment, Employee's principal place of
-----------------
business shall be in ____________________, unless (i) VIVRA and Employee
mutually agree to relocation or (ii) VIVRA terminates the majority of its
operations in such location.
3. Compensation, Reimbursement and Benefits.
----------------------------------------
3.1 Compensation. While Employee is employed by VIVRA pursuant to this
------------
Contract:
3.1.1 Salary. VIVRA shall pay the Salary to Employee in equal
------
semi-monthly installments, in accordance with VIVRA's general practice and
subject to legally required withholdings.
3.1.2 Discretionary Bonuses. VIVRA may award Discretionary Bonuses to
---------------------
Employee as determined by the Board and VIVRA's Chief Executive Officer in their
sole discretion.
3.1.3 Performance Review. Each year, VIVRA shall review Employee's
------------------
performance of her duties pursuant to this Contract and shall consider (i)
adjusting the Salary and (ii) the amount of any Discretionary Bonus for the
year. Nothing in this paragraph 3.1.3 shall be construed to require or obligate
VIVRA to increase the Salary or to award a Discretionary Bonus.
3.2 Expense Reimbursement and Benefits. While Employee is employed by
----------------------------------
VIVRA pursuant to this Contract:
3.2.1 Expense Reimbursement. VIVRA shall promptly reimburse Employee,
---------------------
upon submission to VIVRA by Employee of adequate documentation, for all
reasonable out-of-pocket expenses respecting entertainment, travel, meals, hotel
accommodations and other like-kind expenses, in each case incurred by Employee
in the interest of VIVRA's business.
3.2.2 Insurance. VIVRA shall provide life, medical, dental and hospital
---------
insurance to Employee in the amount and on the terms such insurance is provided
from time to time to other VIVRA corporate employees (other than the chief
executive officer).
3.2.3 Vacation and Sick Leave. Employee shall be entitled to paid
-----------------------
vacation and sick leave each year of the same duration and under the same
conditions as other VIVRA corporate employees (other than the chief executive
officer).
3.2.4 Other Benefits. Employee may participate in employee benefit plans
--------------
and fringe benefit programs made available to other VIVRA corporate employees
(other than the chief executive officer) subject to the generally applicable
terms and conditions of each such plan or program.
<PAGE>
3.5 Vesting, etc. on Change of Control. Whether or not Employee'
----------------------------------
employment terminates under this Contract pursuant to a Change of Control, all
stock options and related stock appreciation rights held by Employee shall vest
and become exercisable immediately upon such a Change of Control, and any
restrictions on shares of stock of VIVRA or on stock units that were awarded to
Employee under any plan or arrangement maintained by VIVRA for the benefit of
Employee shall lapse upon the occurrence of such an event.
4. Protection of Business Information; Noncompetition; Nonsolicitation.
-------------------------------------------------------------------
4.1 Nondisclosure.
-------------
4.1.1 Confidential Information. In the operation, planning, development
------------------------
and expansion of the VIVRA Businesses, VIVRA has generated and will generate
Confidential Information which is and will be proprietary and confidential and
the disclosure of which would be extremely detrimental to VIVRA and of great
assistance to its competitors.
4.1.2 Information Held as a Fiduciary. All of the Confidential
-------------------------------
Information which is acquired by, communicated to or in any way comes into the
possession or control of Employee shall be held by Employee in a fiduciary
capacity for the exclusive benefit of VIVRA.
4.1.3 Nondisclosure Covenant. As a material part of the consideration for
----------------------
this Contract, Employee shall not disclose any Confidential Information to any
Person, without the consent of VIVRA.
4.1.4 Following Employment. Upon termination of this Contract, Employee
--------------------
shall promptly relinquish and return to VIVRA all Confidential Information and
all files, correspondence, memoranda, diaries and other records, minutes, notes,
manuals, papers and other documents and data, however prepared or memorialized,
and all copies thereof, belonging to or relating to the business of VIVRA, that
are in Employee's custody or control whether or not they contain Confidential
Information, and shall promptly provide VIVRA with a written statement attesting
to compliance with this paragraph.
4.2 Noncompetition Covenant. As a material part of the consideration for
-----------------------
this Contract, while Employee is employed by VIVRA pursuant to this Contract and
for a period of one (1) year thereafter, Employee shall not Compete or plan or
prepare to Compete with VIVRA; provided, however, that during the __________
following employment, Employee may seek employment to commence after expiration
of such one-year period, so long as such activity would not effectively
constitute Competing.
4.3 Nonsolicitation Covenant. As a material part of the consideration for
------------------------
this Contract, while Employee is employed by
<PAGE>
VIVRA pursuant to this Contract and for a period of ____________ thereafter,
Employee shall not solicit employees or independent contractors of VIVRA for
employment other than for the VIVRA Businesses.
4.4 Scope and Duration; Severability. VIVRA and Employee understand and
--------------------------------
agree that the scope and duration of the covenants contained in this Section 4
are reasonable both in time and area and are fairly necessary to protect the
business of VIVRA. Nevertheless, it is further agreed that such covenants shall
be regarded as divisible and shall be operative as to time and area to the
extent that they may be made so operative and, if any part of them is declared
invalid or unenforceable, the validity and enforceability of the remainder shall
not be affected.
4.5 Injunction. Employee understands and agrees that, due to the highly
----------
competitive nature of the health care industry, the breach of any of the
covenants set out in Subsections 4.1, 4.2 and 4.3 will cause irreparable injury
to VIVRA for which it will have no adequate monetary or other remedy at law.
Therefore, VIVRA shall be entitled, in addition to such other remedies as it may
have hereunder, to a temporary restraining order and to preliminary and
permanent injunctive relief for any breach or threatened breach of the covenants
without proof of actual damages that have been or may be caused hereby. In
addition, VIVRA shall have available all remedies provided under state and
federal statutes, rules and regulations as well as any and all other remedies as
may otherwise be contractually or equitably available.
4.6 Assignment. Employee agrees that subject to paragraph 5.2.2, the
----------
covenants contained in paragraph 4 shall inure to the benefit of any successor
or assign of VIVRA with the same force and effect as if such covenants had been
made by Employee on behalf of such successor or assign.
5. Termination. Employee's employment under this Contract may be
-----------
terminated as provided in Subsection 5.1 with the consequences set out in
Subsection 5.2.
5.1 Termination of Employment. Employee's employment may be terminated by
-------------------------
VIVRA or Employee at any time upon ___________ written notice or by VIVRA
immediately for Cause.
<PAGE>
5.2 Effect of Termination. Upon Employee's termination of employment, the
---------------------
parties shall have the following rights and obligations:
5.2.1 General Rule. Except as provided in Subsections 5.2.2 through
------------
5.2.4, if Employee's employment is terminated by VIVRA or Employee for any
reason, she shall be paid sixty (60) days' Salary but she shall not have any
other right to receive the Salary or any other bonuses or benefits described in
Section 3 after the date of termination, but Employee shall be obligated to
VIVRA as provided in Section 4. Employee's employment shall be deemed to
terminate if Employee, without her written consent, (i) is required to relocate
from the ___________________ area or assigned any duties or responsibilities
that are inconsistent in any significant respect with the scope of the duties
and responsibilities associated with his position, or (ii) following the
appointment of a new chief executive officer of VIVRA, suffers a reduction or
change in the authority, duties or responsibilities associated with his
position, including a change in his reporting relationship with the Chief
Executive Officer of VIVRA, following which he reasonably determines that he can
no longer carry out the duties and responsibilities of his position.
5.2.2 Change of Control. If Employee's employment is terminated by VIVRA
-----------------
or any successor entity within ____________ after a Change of Control for any
reason except for Cause, she shall be entitled to a cash payment to be made by
VIVRA or the successor entity within thirty (30) days after the date of such
termination equal to _______________, and she shall be obligated to VIVRA as
provided in Section 4.
5.2.3 By VIVRA Other Than For Cause, Permanent Disability or Death. If
------------------------------------------------------------
Employee's employment is terminated by VIVRA other than for Cause, Permanent
Disability or death, she shall be obligated to VIVRA as provided in Section 4,
but she shall have the right to receive a cash payment to be made by VIVRA
within thirty (30) days after such termination equal to ___________________.
5.2.4 Due to Permanent Disability or Death. If Employee's employment
------------------------------------
terminates due to her Permanent Disability or death, she (or her Beneficiary)
shall be entitled to be paid an amount equal to ______________ and Employee
shall be obligated to VIVRA as provided in Section 4.
5.3 Withholding. Anything in this Contract to the contrary
-----------
notwithstanding, all payments required to be made to Employee under this
Contract shall be subject to the withholding of such amounts, if any, for income
and other payroll taxes and deductions as VIVRA may reasonably determine should
be withheld pursuant to any applicable law or regulation.
<PAGE>
6. Miscellaneous.
-------------
6.1 Assignment by VIVRA. This Contract may be assigned to any successors
-------------------
or assigns of VIVRA.
6.2 Nonassignability by Employee. Employee shall not assign, transfer,
----------------------------
pledge or hypothecate any rights, interests or benefits created hereunder or
hereby. Any attempt to do so contrary to the provisions of this Contract, and
any levy of any attachment, execution or similar process created thereby, shall
be null and void and without effect.
6.3 Spendthrift Provision. Prior to actual receipt by Employee, no right
---------------------
or benefit under this Contract and, without limitation, no interest in any
payment hereunder shall be: (i) anticipated, assigned or encumbered or subject
to any creditor's claim or subject to execution, attachment or similar legal
process, or (ii) applied on behalf of or subject to the debts, contracts,
liabilities or torts of the Person entitled or who might become entitled to such
benefits, or subject to the claims of any creditor of any such person.
6.4 Mediation. If any controversy, question or dispute arises out of or
---------
relating to the construction, application or enforcement of this Contract, it
shall be settled by mediation as follows:
6.4.1 Appointment of Mediator. Within five (5) days after the delivery of
-----------------------
written notice of any dispute from one party to the other, the party delivering
the notice shall contact the American Arbitration Association and request the
appointment of a mediator.
6.4.2 Finality. The determination of the mediator shall be final and
--------
conclusive on Employee and VIVRA.
6.4.3 Rules. The mediation shall be conducted in accordance with the
-----
rules of the American Arbitration Association, and judgment on any award
rendered by the mediator may be entered in any court having jurisdiction.
6.4.4 Fees and Costs. All fees and costs of mediation shall be borne by
--------------
VIVRA and Employee as determined by the mediator.
6.5 Notices. Any notice provided for by this Contract and any other
-------
notice, demand or communication which either party may wish to send to the other
(the "Notices") shall be in writing and shall be deemed to have been properly
given if served by (i) personal delivery, or (ii) registered or certified mail,
return receipt requested, in a sealed envelope, postage prepaid, addressed to
the party for which such notice is intended as follows:
<PAGE>
If to VIVRA:
VIVRA Incorporated
Board of Directors
400 Primrose, Suite 200
Burlingame, CA 94010
If to Employee:
________________
________________
________________
6.5.1 Change of Address. Any address or name specified in this paragraph
-----------------
6.5.1 may be changed by a Notice given by the addressee to the other party in
accordance with paragraph 6.5.1.
6.5.2 Effective Date of Notice. All notices shall be given and effective
------------------------
as of the date of personal delivery thereof or the date of receipt set forth on
the return receipt. The inability to deliver because of a changed address of
which no Notice was given, or rejection or other refusal to accept any Notice
shall be deemed to be the receipt of the Notice as of the date of such inability
to deliver or rejection or refusal to accept.
6.6 Limitation on Payments. In the event that it is determined by counsel
----------------------
(or any other tax advisor) approved by both Employee and VIVRA that any
compensation payable hereunder, alone or when aggregated with other compensation
payable to Employee, would constitute an "excess parachute payment" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and
the net, after-tax amount that Employee would realize from the compensation
hereunder and from all other sources, considering Employee's federal and state
income tax brackets and the effect of any nondeductible excise tax, would be
greater if the compensation payable hereunder were reduced, then the
compensation payable hereunder shall be reduced until Employee's after-tax
compensation (taking into account state and federal income taxes, excise taxes
and all other applicable taxes) is maximized.
6.7 Counterparts. This Contract may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.8 Entire Agreement. This Contract constitutes the entire agreement
----------------
between the parties with respect to the subject hereof and supersedes all prior
agreements, understandings, negotiations and discussions of the parties, whether
oral or written, and there are no warranties, representations or other
agreements between the parties in connection with the subject matter hereof,
except as specifically set forth in this Contract. No amendment, alteration or
modification of this
<PAGE>
Contract shall be valid unless in each instance such amendment, alteration or
modification is expressed in a written instrument duly executed by the parties.
6.9 Governing Law; Jurisdiction. This Contract shall be construed in
---------------------------
accordance with and governed by the laws of the State of California as that
State is presently constituted. VIVRA hereby consents and submits to the
jurisdiction of the state and federal courts in California in any suit for the
enforcement or construction of or otherwise arising out of this Contract.
IN WITNESS WHEREOF, this Contract has been executed and delivered by the
parties, and this Contract shall be a binding obligation of each of the parties,
on and as of the date set forth opposite their names.
Dated: __________, 199_
--------------------------------------------------
VIVRA INCORPORATED
Dated: __________, 199_ By
-----------------------------------------------
Its
----------------------------------------------
<PAGE>
EXHIBIT 10.9
AMGEN EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT
---------------------------------------------------------------------------
THIS FREESTANDING DIALYSIS CENTER AGREEMENT, between AMGEN INC. ("Amgen")
----------
and VIVRA, INCORPORATED, including the freestanding dialysis center affiliate(s)
-------------------
listed on Appendix A, (collectively, "Dialysis Center"), sets forth the terms
and conditions for the purchase of EPOGEN-R- (Epoetin alfa) by Dialysis Center.
1. Term of Agreement. This Agreement shall commence on February 1, 1996
-----------------
and shall terminate on ********** ("Term").
2. Qualifying Purchases. All terms contained herein apply only to
--------------------
purchases made hereunder, by the dialysis center affiliate(s) listed on Appendix
A attached hereto ("Affiliates"), through wholesalers authorized by Amgen to
participate in this program ("Authorized Wholesalers") or directly from Amgen.
Amgen requires all Authorized Wholesalers to submit product sales information to
a third-party sales reporting organization approved by Amgen.
3. Contract Pricing. Amgen guarantees Dialysis Center the prices listed
----------------
below for EPOGEN-R- purchased during the Term, whether purchased directly from
Amgen or through Authorized Wholesalers. Notwithstanding the foregoing,
EPOGEN-R- purchased directly from Amgen must be in full case quantities or may
be subject to additional service charges.
Price per
Item Number (NDC) Description Box
----------------- ----------- ---
55513-126-10 2,000 Units/mL, 1mL vial, 10 vials/box, 10 $ *****
boxes/case
55513-267-10 3,000 Units/mL, 1mL vial, 10 vials/box, 10 $ *****
boxes/case
55513-148-10 4,000 Units/mL, 1mL vial, 10 vials/box, 10 $ *****
boxes/case
55513-144-10 10,000 Units/mL, 1mL vial, 10 vials/box, $ *****
10 boxes/case
55513-283-10 20,000 Unit (Multidose) vial, 10,000 $ *****
Units/mL, 2mL vial, 10 vials/box, 4
boxes/case
4. Payment Terms. During the Term, Amgen grants Dialysis Center payment
-------------
terms of ********** for EPOGEN-R- purchased through Authorized Wholesalers, or
********** for EPOGEN-R- purchased directly from Amgen, subject to the right of
Amgen to reasonably modify these terms in the event of a material adverse change
in the financial condition of Dialysis Center, as determined by Amgen in its
sole discretion. Option to purchase on a direct basis from Amgen is subject to
receipt and approval of an "Application for Direct Ship Account."
5. Discount. Dialysis Center is eligible to receive a discount in
--------
accordance with the schedule and terms set forth in Appendix B attached hereto.
Agreement No. 953429 -1- Ver. 1/22/96
AMGEN
<PAGE>
EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT
6. Payment of Discount. Any discount hereunder shall be calculated in
-------------------
accordance with Amgen's discount calculation policies, based on purchases at the
calculation price of $********** per ********** units, except as otherwise
provided. Any discount shall be paid, at Amgen's discretion, either in the form
of a check payable to Dialysis Center's corporate headquarters or a purchase
credit against future purchases of EPOGEN-R- by Dialysis Center, except as
otherwise provided. Amgen will attempt to reasonably accommodate Dialysis
Center's preference for method of payment. Purchase credits are available only
for accounts purchasing directly from Amgen, are not transferable, and may not
be used for the purchase of any product other than EPOGEN-R-. Upon vesting,
Amgen will use its best efforts to make such discount available within sixty
(60) days following receipt by Amgen of data, in a form acceptable to Amgen,
detailing Dialysis Center's EPOGEN-R- purchases for the relevant period along
with any other data required by the terms of Appendix B. Final determination of
purchases eligible hereunder will be made by Amgen. Payment amounts, as
calculated by Amgen, must equal or exceed $********** for the relevant period to
qualify. Subject to the section entitled "Breach of Agreement," in the event
that Amgen is notified in writing that Vivra, Incorporated and/or any Affiliates
(the "Acquiree") is acquired by another entity or a change of control otherwise
occurs with respect to the Acquiree, any discount which may have been earned
hereunder shall be paid in the form of a check payable to the Acquiree's
corporate headquarters subject to the conditions described herein.
7. Treatment of Discount. Dialysis Center agrees that it will account
---------------------
for any discount earned hereunder in a way that complies with all applicable
federal, state, and local laws and regulations, including without limitation,
Section 1128B(b) of the Social Security Act and its implementing regulations,
and (a) claim the benefit of such discount received, in whatever form, in the
fiscal year in which such discount was earned or the year after, (b) fully and
accurately report the value of such discount in any cost reports filed under
Title XVIII or Title XIX of the Social Security Act, or a state health care
program, and (c) provide, upon request by the U.S. Department of Health and
Human Services or a state agency or any other federally funded state health care
program, the information furnished by Amgen concerning the amount or value of
such discount. Dialysis Center's corporate headquarters agrees that it will
advise all Affiliates, in writing, of any discount received by Dialysis Center's
corporate headquarters hereunder with respect to purchases made by such
Affiliates and that said Affiliates will account for any such discount in
accordance with the above stated requirements.
8. Discount limitation. Notwithstanding anything contained herein to the
-------------------
contrary, the amount of any discount available to Dialysis Center from Amgen,
under this Agreement or otherwise, shall be limited only to the extent that the
resulting net price paid by Dialysis Center for each dosage form and strength of
EPOGEN-R- is less than the price used to determine the relevant quarter's
Medicaid Rebate for each dosage form and strength of EPOGEN-R- under the
Medicaid Best Price Rebate Legislation, taking into account the aggregate value
of all discounts ultimately available to Dialysis Center for the relevant
quarter.
9. Commitment to Purchase. Dialysis Center agrees to purchase EPOGEN-R-
----------------------
for all of its dialysis use requirements for recombinant human erythropoietin.
Dialysis Center may purchase another brand of recombinant human erythropoietin
for its dialysis use requirements only for the time, and only to the extent,
that Amgen has notified Dialysis Center's corporate headquarters in writing that
Amgen cannot supply EPOGEN-R- within and for the time period reasonably required
by Dialysis Center.
Agreement No. 953429 -2- Ver. 1/22/96
AMGEN
<PAGE>
EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT
10. Own Use. Dialysis Center hereby certifies that EPOGEN-R- purchased
-------
hereunder shall be for Dialysis Center's "own use."
11. Designated Wholesalers List. Dialysis Center agrees to provide Amgen
---------------------------
with a complete list of its current designated wholesalers, through whom
Dialysis Center may purchase EPOGEN-R- hereunder, on or before the date this
Agreement is signed by Dialysis Center. Such list must include the name and
complete address of each designated wholesaler. Dialysis Center agrees to
promptly provide Amgen with any additions, deletions, or changes to the initial
wholesaler list. Amgen requires no less than thirty (30) days notice before the
effective date of change for any addition or deletion of designated wholesalers
hereunder. The initial list of designated wholesalers, and any changes thereto,
must be in writing and are subject to approval by Amgen.
12. Dialysis Center Affiliates. Modifications to Appendix A hereto may be
--------------------------
made pursuant to the request of Dialysis Center's corporate headquarters and are
subject to approval and acknowledgement by Amgen in writing. Amgen requires no
less than thirty (30) days notice before the effective date of change for any
addition or deletion of Affiliates hereunder. Amgen reserves the right in its
sole discretion to accept or reject any Affiliates with regard to participation
in this Agreement.
13. Breach of Agreement. Either party may terminate this Agreement for
-------------------
breach upon thirty (30) days advance written notice. In addition, in the event
that Dialysis Center breaches any provision of this Agreement, Amgen shall have
no obligation to continue to offer the terms described herein or pay any further
discounts to Dialysis Center.
14. Confidentiality. Both Amgen and Dialysis Center agree that this
---------------
Agreement represents and contains confidential information which shall not be
disclosed to any third party, or otherwise made public, without prior written
authorization of the other party, except where such disclosure is contemplated
hereunder or required by law.
15. Warranties. Each party represents and warrants to the other that this
----------
Agreement (a) has been duly authorized, executed, and delivered by it, (b)
constitutes a valid, legal, and binding agreement enforceable against it in
accordance with the terms contained herein, and (c) does not conflict with or
violate any of its other contractual obligations, expressed or implied, to which
is a party or by which it may be bound. The party executing this Agreement on
behalf of Dialysis Center specifically warrants and represents to Amgen that it
is authorized to execute this Agreement on behalf of and has the power to bind
the Affiliates to the terms contained herein, including without limitation, the
sections entitled "Payment of Discount," "Treatment of Discount," and "Discount
Limitation."
16. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of California and the parties submit to the jurisdiction of the California
courts, both state and federal.
17. Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing and shall be deemed given or made when delivered
in person or when sent to the other party by first class mail or other means of
written communication at the respective party's address set forth below or at
such other address as the party shall have furnished to the other in accordance
with this provision.
Agreement No. 953429 -3- Ver. 1/22/96
AMGEN
<PAGE>
EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT
18. Health Care Pricing Legislation. Notwithstanding anything contained
-------------------------------
herein to the contrary, at any time following the enactment of any federal,
state, or local law or regulation that in any manner reforms, modifies, alters,
restricts, or otherwise affects the pricing of or reimbursement available for
EPOGEN-R-, Amgen may, in its sole discretion, upon thirty (30) days written
notice (a) terminate this Agreement, or (b) exclude any Affiliates from
participating in this Agreement.
19. Miscellaneous. No modification of this Agreement shall be effective
-------------
unless made in writing and signed by a duly authorized representative of each
party, except as otherwise provided hereunder. This Agreement constitutes the
entire agreement of the parties pertaining to the subject matter hereof and
supersedes all prior written and oral agreements and understandings pertaining
hereto. Neither party shall have the right to assign this Agreement to a third
party without the prior written consent of the other party. Neither party shall
be liable for delays in performance and nonperformance of this Agreement or any
covenant contained herein caused by fire, flood, storm, earthquake or other act
of God, war, rebellion, riot, failure of carriers to furnish transportation,
strike, lockout or other labor disturbances, act of government authority,
inability to obtain material or equipment, or any other cause of like or
different nature beyond the control of such party. The parties shall execute
and deliver all documents, provide all information, and take or refrain from
taking action as may be necessary or appropriate to achieve the purposes of this
Agreement. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement. Amgen reserves the right to rescind this
offer if the parties fail to execute this Agreement within thirty (30) days from
the date of its offering.
The parties executed this Agreement as of the dates set forth below.
AMGEN, INC. VIVRA, INCORPORATED
a Delaware corporation a California corporation
1840 DeHavilland Drive 2 Mareblu
Thousand Oaks, CA 91320-1789 Laguna Hills, CA 92654
Signature: Signature:
-------------------- ----------------------
Print Name: Print Name:
------------------- ---------------------
Print Title: Print Title:
------------------ --------------------
Date: Date:
------------------------- ---------------------------
Agreement No. 953429 -4- Ver. 1/22/96
AMGEN
<PAGE>
EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT
- --------------------------------------------------------------------------------
APPENDIX A: LIST OF DIALYSIS CENTER AFFILIATE(S)
See Contract List for EPOGEN-R- dated 12/4/95 (Enclosed)
Agreement No. 953429 -5- Ver. 1/22/96
AMGEN
<PAGE>
EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT
- --------------------------------------------------------------------------------
APPENDIX B: DISCOUNT SCHEDULE AND TERMS
1. Commitment Incentive.
--------------------
(a) Calculation: Dialysis Center's Commitment Incentive ("CI") shall be
calculated in accordance with the following formula:
CI = A x B
where
A = Dialysis Center's aggregate EPOGEN-R- purchases
for the Term.
B = **********%
(b) Vesting: Dialysis Center's CI shall vest **********.
2. 1996 Freestanding Dialysis Center Volume Performance Incentive.
--------------------------------------------------------------
(a) Calculation: Dialysis Center's 1996 Freestanding Dialysis Center
Volume Performance Incentive ("VPI") shall be
calculated in accordance with the following formula:
VPI = A x B
where
A = Dialysis Center's aggregate EPOGEN-R- purchases
for the Term.
B = A percent in accordance with the table listed
below.
C = Aggregate EPOGEN-R- purchases for the Term, by
all Affiliates as listed at the beginning of the
Term.
D = Aggregate EPOGEN-R- purchases by those same
Affiliates for the same time period during the
previous year.
Percent Growth B
(C - D)/D
****% - **** ****%
****% - ****% ****%
****% - ****% ****%
****% - ****% ****%
****% - ****% ****%
and where, for the relevant period,
Agreement No. 953429 -6- Ver. 1/22/96
AMGEN
<PAGE>
EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT
- --------------------------------------------------------------------------------
APPENDIX B: DISCOUNT SCHEDULE AND TERMS (CONTINUED)
(i) Notwithstanding the definition of "C" above, if
any Affiliates are added to or deleted from this
Agreement during either of the periods used for
comparison, Amgen reserves the right in its sole
discretion to appropriately adjust Dialysis
Center's purchases for the relevant periods, for
purposes of comparison, by including or
excluding any purchases made by those Affiliates
during either of those periods, and
(ii) Quarterly payments shall be estimated by
Amgen using Amgen's discount calculation
policies, and the VPI will be reconciled
at the end of the Term.
(b) Vesting: Dialysis Center's VPI shall vest **********.
3. Volume Achievement Incentive.
----------------------------
(a) Calculation: Dialysis Center's Volume Achievement Incentive ("VAI")
shall be calculated in accordance with the following
formula:
VAI = A x B
where
A = Dialysis Center's aggregate EPOGEN-R- purchases
for the Term by all Affiliates as listed at the
beginning of the Term.
B = A percent in accordance with the table listed
below.
<TABLE>
<CAPTION>
VOLUME
AGGREGATE EPOGEN-R- PURCHASES FOR THE ACHIEVEMENT
TERM BY ALL AFFILIATES AS LISTED AT THE INCENTIVE
BEGINNING OF THE TERM PERCENTAGE
<S> <C> <C> <C>
$********* - ********* ***%
$********* - ********* ***%
$********* - ********* ***%
$********* - ********* ***%
$********* - ********* ***%
$********* - ********* ***%
$********* - ********* ***%
$********* - ********* ***%
</TABLE>
and where, for the relevant period,
Agreement No. 953429 -7- Ver. 1/22/96
AMGEN
<PAGE>
EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT
- --------------------------------------------------------------------------------
APPENDIX B: DISCOUNT SCHEDULE AND TERMS (CONTINUED)
(i) The maximum payment available under this
incentive will be $********** and
(ii) Dialysis Center will not receive any
payment under the VAI until the
Affiliates listed at the beginning of
the Term have met the minimum purchase
requirement of $********** outlined
above. At such time as this minimum
purchase requirement is met, Amgen will
reconcile the VAI for any previous
unpaid quarters and will continue to
reconcile the VAI until the end of the
Term, and
(iii) Aggregate EPOGEN-R- purchases for the
Term, by all Affiliates as listed at the
beginning of the Term, must equal or
exceed the aggregate purchases by those
same Affiliates for the same time period
during the previous year to qualify for
any VAI, and
(iv) if any Affiliates are added to or
deleted from this Agreement during
either of the periods used for
comparison, Amgen reserves the right in
its sole discretion to appropriately
adjust Dialysis Center's purchases for
the relevant periods, for purposes of
comparison, by including or excluding
any purchases made by those Affiliates
during either of those periods.
(b) Vesting: Dialysis Center's VAI shall vest **********.
4. Optional Hematocrit Incentive.
-----------------------------
(a) Description: Dialysis Center can qualify for the Optional
Hematocrit Incentive ("OHN"), as described herein,
provided Dialysis Center can obtain the information
and data ("Data") listed in the Sample Report on
Attachment #1 to this Agreement from their clinical
laboratory, for each Affiliate, and provide the Data
and Certification Letter attached hereto as Attachment
#2 to Amgen as described herein, at the address listed
on Attachment #1. Certification Letters will be
mailed to Dialysis Center's corporate headquarters for
signature prior to each period for which the Data is
required. Amgen shall have the right to utilize the
Data for any purpose, and reserves the right to audit
the Data. The identity of the account submitting the
Data and any association with the Data will remain
confidential. A Sample Letter to the clinical
laboratory which describes the Data requirements is
also included on Attachment #3 to assist Dialysis
Center in obtaining the Data.
Agreement No. 953429 -8- Ver. 1/22/96
AMGEN
<PAGE>
EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT
- --------------------------------------------------------------------------------
APPENDIX B: DISCOUNT SCHEDULE AND TERMS (CONTINUED)
(b) Reports: Hematocrit results reported must be from samples taken
immediately prior to the dialysis treatment
(pre-dialysis) using Coulter-Counter or Technicon
Measurement System testing methods, and shall be
reported to the nearest tenth of a percent. Data for
the month of February 1996 shall be provided to Amgen
in a report no later than March 31, 1996. Data for
the month of May 1996 shall be provided to Amgen in a
report no later than June 30, 1996. Data for the
month of August 1996 shall be provided to
Amgen in a report no later than September 30, 1996.
Data for the month of November 1996 shall be provided
to Amgen in a report no later than December 31, 1996.
Dialysis Center shall cause each report to be
submitted in a format acceptable to Amgen with a
signed copy of the Certification Letter.
(c) Calculation: Dialysis Center's OHI shall be calculated and paid on
two separate occasions, following receipt by Amgen of
the Data and Certification Letter described herein, in
accordance with the schedule listed below. The first
payment shall be based on Data for the month of May
1996, and shall equal a percentage of Dialysis
Center's aggregate EPOGEN-R- purchases during the
period consisting of February 1, 1996 through July 31,
1996 ("First Component"). The second payment shall be
based on Data for the month of November 1996, and
shall equal a percentage of Dialysis Center's
aggregate EPOGEN-R- purchases during the period
consisting of August 1, 1996 through January 31, 1997
(second Component").
Percentage of all Dialysis
Patients with Hematocrit
Levels greater than or equal Optional
to ***% (Please direct your Hematocrit
attention to the EPOGEN-R- Incentive
package insert) Percentage
85.0% - Over ***%
90.0% - 84.9% ***%
75.0% - 79.9% ***%
70.0% - 74.9% ***%
65.0% - 69.9% ***%
where,
(i) Amgen will calculate the OHI based on corporate
performance in accordance with Amgen's discount
calculation policies, and
Agreement No. 953429 -9- Ver. 1/22/96
AMGEN
<PAGE>
EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT
- --------------------------------------------------------------------------------
APPENDIX B: DISCOUNT SCHEDULE AND TERMS (CONTINUED)
(ii) if Dialysis Center is unable to provide the Data
and Certification Letter for the required reports
within the specified time period, Dialysis Center
will not qualify for the OHI during the
corresponding period, and
(iii) Dialysis Center agrees to provide Amgen
with information detailing purchases for
each Affiliate during the Term, if so
requested by Amgen.
(d) Vesting: The First Component of the OHI shall vest on
**********.
The Second Component of the OHI shall vest on
**********.
Agreement No. 953429 -10- Ver. 1/22/96
AMGEN
<PAGE>
Attachment #1 to Agreement No. 953429
Sample Report
-------------
XYZ Dialysis Unit
Street Address
City, ST Zip
(800) 966-XXXX
HEMATOCRIT INCENTIVE REPORT
All Patient/Test Hematocrit Lab Results for the Relevant Period
Patient ID Date Hematocrit
-------------------------------
1022 2/21/96 29.8
1134 2/23/96 35.0
4ACC3 2/23/96 28.6
1-456 2/21/96 33.2
HAB 2/21/96 21.9
(Black out any patient names or confidential identifiers.)
- --------------------------------------------------------------------------------
SELECT PATIENT HEMATOCRIT LAB RESULTS FOR THE RELEVANT PERIOD
SORTED FOR ALL PATIENT/TEST LAB RESULTS WITH
HEMATOCRIT LEVELS GREATER THAN OR EQUAL TO ***%
Patient ID Date Hematocrit
-------------------------------
1024 2/21/96 30.8
1134 2/23/96 35.0
3BCC2 2/23/96 31.6
1-456 2J21/96 33.2
FWB 2/21/96 32.9
(Black out any patient names or confidential identifiers.)
- --------------------------------------------------------------------------------
HEMATOCRIT LAB RESULTS FOR THE RELEVANT PERIOD
Total Hematocrit Tests: 198
Percentage of Patients/Tests with Hematocrit Levels greater than or equal to
***%: 85%
- --------------------------------------------------------------------------------
Hematocrit results reported must be from samples taken immediately
prior to the dialysis treatment (pre-dialysis) using
Coulter-Counter or Technicon Measurement System testing
methods, and shall be reported to the nearest tenth of a percent.
Reports are to be provided to Amgen at the address listed below:
EPOGEN-R- Marketing Department - FSDC
Amgen Inc.
1840 DeHavilland Drive
Thousand Oaks, CA 91320-1789
Mail Stop: 26-1-B
Agreement No. 953429 Ver. 1/22/96
AMGEN
<PAGE>
Attachment #2 to Agreement No. 953429
Sample Certification Letter
---------------------------
Month X, 199X
FSDC Legal Name
Street Address
City, ST Zip
Attn: _________
RE: EPOGEN-R- Freestanding Dialysis Center Agreement No. 9XXXXX
Dear _________:
Thank you for your participation in the Optional Hematocrit Incentive Program.
In order for us to enroll you, we require that a duly authorized representative
of your organization sign the certification below.
Upon receipt of this signed document, we will calculate the value of your
incentive. If we do not receive the signed certification, we cannot provide you
with this incentive.
If you have any questions regarding this letter please contact me at (805)
447-3339. Thank you for your assistance in returning this certification.
Sincerely,
David Boyd
FSDC Marketing Segment Manager
CERTIFICATION:
- -------------
On behalf of FSDC Legal Name and all eligible affiliates participating in the
Optional Hematocrit Incentive Program under Agreement No. 9XXXXX, the
undersigned hereby certifies that the hematocrit data submitted for each
eligible affiliate includes the required hematocrit results from all dialysis
patients of such affiliate, and does not include hematocrit results from
non-patients. The party executing this document also represents and warrants
that it (i) has no reason to believe that the submitted hematocrit data is
incorrect and (ii) is authorized to make this certification on behalf of all
eligible affiliates submitting hematocrit data.
FSDC LEGAL NAME
Signature:
-----------------------
Print Name:
----------------------
Print Title:
---------------------
Date:
----------------------------
Agreement No. 953429 Ver. 1/22/96
AMGEN
<PAGE>
Attachment #3 to Agreement No. 953429
Sample Letter to Laboratory
---------------------------
Month X, 199X
ABC Laboratory
Street Address
City, ST Zip
Attn: _________
Dear _________:
As a means to monitor quality care, this facility will have future requirements
to report certain patient lab results relating to hematocrit levels for all
patients in the facility at each testing period. Your laboratory has excelled
in meeting our testing needs in the past. I am writing this letter to determine
if your laboratory will be able to meet these future needs.
Enclosure 1 details the format and requirements. The four reports should be
mailed to me four times per year as follows:
Testing Period Covered: Report Submitted on or Before:
- ---------------------- -----------------------------
February 1 to February 29, 1996 March 15, 1996
May 1 to May 31, 1996 June 15, 1996
August 1 to August 31, 1996 September 15, 1996
November 1 to November 30, 1996 December 15, 1996
I will follow this letter up with a telephone call to you to confirm these
arrangements.
Sincerely,
Renal Administrator
Agreement No. 953429 Ver. 1/22/96
AMGEN
<PAGE>
EXHIBIT 10.10
AGREEMENT
---------
AGREEMENT made this ____ day of January, 1996 between VIVRA RENAL CARE,
-----------------
INC. ("VIVRA"), a Nevada corporation with offices at 2 Mareblu, Aliso Viejo, CA
- ----
92656 and BELLCO DRUG CORP. ("BELLCO "), a New York corporation with offices at
-----------------
101 East Hoffman Ave., Lindenhurst, NY 11757 and METRO HEALTH CORP. ("METRO
------------------
HEALTH"), a New York Corporation with offices at 180 Route 109, West Babylon, NY
11703 (BELLCO and METRO HEALTH sometimes collectively referred to herein as
"SUPPLIER").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, SUPPLIER is in the business of providing pharmaceutical and
related supplies and products to kidney dialysis centers and end users; and
WHEREAS, VIVRA owns and operates kidney dialysis units throughout the
United States, and
WHEREAS, SUPPLIER desires to be the primary supplier of pharmaceuticals and
related supplies to VIVRA, and VIVRA desires to utilize SUPPLIER as its primary
supplier of pharmaceuticals and related supplies,
NOW, THEREFORE, in consideration of the premises above recited and the
mutual covenants and obligations hereinafter contained, the parties agree as
follow:
1. TERM OF AGREEMENT.
-----------------
The term of this Agreement shall be for ********** years commencing
February 1, 1996 (the "Commencement Date"), provided, however, that either party
may at any time terminate the Agreement upon ********** advance written notice
to the other party. Provided the Agreement is not sooner terminated, upon
expiration of the ********** year term this Agreement shall automatically renew
for successive ********** year periods thereafter.
2. PRICING.
-------
All products sold to VIVRA will be invoiced at the prices determined in
accordance with the terms of this Agreement. SUPPLIER agrees that the pricing
shall be ********** to any other ********** which is not part of a group of
********** or to any other company that owns and operates a ********** wherein
that number ********** or less than the **********. When VIVRA is eligible for
contract pricing either under a group contract or individual contract for the
same product, SUPPLIER will automatically ********** and which SUPPLIER can
access. All contract pricing is contingent upon VIVRA becoming a member of any
groups suggested by SUPPLIER and maintaining its membership in good standing
with such groups during the term of this Agreement.
(a) Dialysis Purchasing Alliance (DPA) contract pricing. VIVRA
---------------------------------------------------
agrees to promptly submit all necessary enrollment forms in order to
become eligible to participate in DPA. Membership in DPA will be at
********** to VIVRA for the term of this Agreement. DPA contract
products will be billed at a contract price that will be attached to
this Agreement as Schedule A and which will be updated from time to
time. The term of the individual contracts that comprise the DPA
buying group and continued eligibility is subject to each
participating manufacturer's policy.
(b) Direct pharmaceutical contract pricing. Any pharmaceutical
--------------------------------------
or prescription drug product contract that VIVRA negotiates directly
with a manufacturer and which SUPPLIER is permitted by manufacturer to
utilize on VIVRA's behalf will be billed at the
-1-
<PAGE>
contract price **********. Unless otherwise negotiated on a product by
product basis, SUPPLIER **********.
(c) Non-contract pharmaceutical products. Pharmaceutical
------------------------------------
products that are not available to VIVRA under any pricing contracts
will be billed at SUPPLIER's **********. SUPPLIER **********.
(d) Non-contract medical/surgical products. Medical/surgical
--------------------------------------
products will be quoted on a product by product basis.
(e) Epogen pricing. Epogen shall be sold to VIVRA at SUPPLIER's
--------------
********** specified below. For purposes of this Agreement, Net cost
is defined as SUPPLIER's **********. The price to be paid by VIVRA
for shipments of Epogen will vary depending upon the discounts and
service fees available to SUPPLIER from the manufacturer, which
discounts and fees are determined in the manufacturer's sole and
absolute discretion, and are specifically related to VIVRA's purchases
of Epogen from SUPPLIER. Such discounts and fees may also be related
to matters which are beyond the control of SUPPLIER including, without
limitation, agreements between VIVRA and the manufacturer of Epogen to
which SUPPLIER is not a party. Pricing is also dependent upon the
********** chosen by VIVRA. As of the date hereof SUPPLIER
anticipates that the manufacturer will offer to SUPPLIER **********
and **********, for a total discount of ********** from SUPPLIER's
wholesale acquisition cost of Epogen for sale to VIVRA. VIVRA
acknowledges and agrees that such discounts and service fees can be
revised by the manufacturer from time to time and that SUPPLIER's
wholesale acquisition cost and the Net cost to VIVRA shall vary
accordingly.
(i) For the initial ********** of this Agreement Epogen
will be billed at SUPPLIER's ********** as defined above plus a
mark up of $********** per ********** units of Epogen based upon
compliance with the payment and terms contained in paragraph 5,
sub-paragraph (a) below entitled Phase One Payment Terms.
(ii) At any time after the initial ********** of this
Agreement, upon 30 days advance written notice, VIVRA may elect
for Epogen to be billed at SUPPLIER's ********** as defined above
plus a mark up of $********** per ********** units of Epogen
based upon compliance with the payment and terms contained in
paragraph 5, sub-paragraph (b) below entitled Phase Two Payment
Terms.
(iii) At any time after the initial ********** of this
Agreement, upon 30 days advance written notice, VIVRA may elect
for Epogen to be billed at SUPPLIER's ********** as defined above
plus a mark up of $********** per ********** units of Epogen
based upon compliance with the payment and terms contained in
paragraph 5, subparagraph (c) below entitled Phase Three Payment
Terms - Pre Pay Option.
The discount offered to SUPPLIER by manufacturer for the sale of
Epogen to VIVRA is subject to change, from time to time, at the sole
discretion of manufacturer. Immediately upon SUPPLIER's receipt of
notice of any discounting change from the manufacturer, SUPPLIER will
forward a copy of same to VIVRA and immediately recompute its
********** in determining the price to be billed to VIVRA for all
orders of Epogen. In the event the discount and service fees
available to SUPPLIER are more favorable than those referenced above
(**********) the mark up to be charged by SUPPLIER shall be subject to
upward revision solely by mutual agreement of the parties.
-2-
<PAGE>
3. INVOICING.
---------
(a) SUPPLIER will provide a corresponding invoice and packing slip packed
inside all product shipments SUPPLIER delivers to the kidney dialysis units.
Invoices or copies of same will be in a format ready for standard fax
transmission. Additionally, SUPPLIER will provide via overnight delivery a
statement of invoices to VIVRA each Tuesday representing invoices from shipments
made by SUPPLIER for the preceding Monday through Friday less any applicable
credits issued by SUPPLIER and accepted by VIVRA during the applicable period.
(b) VIVRA and any kidney dialysis unit receiving product from SUPPLIER
will forward written correspondence and copies of any shipping claims or
disputed invoice(s) to SUPPLIER within 5 business days of receipt of a
corresponding invoice related to a disputed order. Once SUPPLIER receives
written correspondence regarding any disputed invoice(s), said disputed
invoice(s) will not be subject to finance charges specified in paragraph 6
below, but will be required to be resolved and reconciled by both parties within
20 business days.
(c) Returns of any products shipped to VIVRA by SUPPLIER shall be made in
accordance with SUPPLIER's return policy, as amended from time to time. A copy
of SUPPLIER's return policy in effect on the date hereof has been provided to
VIVRA by SUPPLIER, and VIVRA acknowledges receipt of same.
4. PAYMENT.
-------
Payments will be made to SUPPLIER via federal funds wire transfer from
VIVRA's account to a designated BELLCO bank account. Where the payment due date
falls on a holiday or weekend the payment is due on the next business day.
5. TERMS.
-----
(a) Phase One Payment Terms:
Invoices dated Monday through Friday for any given week will be
payable via federal funds wire transfer to a designated BELLCO account
within ********** from the Wednesday of such week. Therefore, starting the
********** of this Agreement and assuming VIVRA places at least **********,
VIVRA will make a payment every **********.
(b) Phase Two Payment Terms:
Invoices dated Monday through Friday for any given week will be
payable via federal funds wire transfer to a designated BELLCO account
within ********** from the Wednesday of such week. Therefore, assuming
VIVRA places at least **********, VIVRA will make a payment every
**********.
(c) Phase Three Payment Terms - **********:
Every ********** VIVRA will ********** via federal funds wire transfer
to a designated BELLCO account for ********** Monday through Friday. The
********** will be an amount equal to ********** from the previous month.
Any ********** balance will be reconciled by the ********** of the
following month wherein SUPPLIER will ********** VIVRA and VIVRA will make
********** to SUPPLIER for ********** from the previous month, or SUPPLIER
will issue ********** VIVRA for ********** from the previous month.
(i) In the event VIVRA chooses Phase Three Payment Terms,
SUPPLIER will provide copies of the quarterly financial reports which
BELLCO is required to supply to the financial institution which
provides BELLCO with its operating line of credit. Such reports
-3-
<PAGE>
will be provided to VIVRA concurrently with their submission to said
financial institution. All such financial reports provided to VIVRA will
be deemed confidential information and VIVRA agrees to execute a separate
confidentiality agreement acceptable to BELLCO in its sole and absolute
discretion relating to such confidential information.
6. LATE PAYMENT CHARGE.
-------------------
VIVRA will be subject to charges for late payments at a rate of 12% per
annum (but in no event more than the maximum rate permitted by law). When
calculating the monthly charge for late payment, all non disputed invoices are
deemed due for payment ********** days from invoice date for Phase One Payment
Terms, and ********** days from invoice date for Phase Two Payment Terms. The
calculation to determine the charge for late payment is as follows:
When the total amount of invoices paid late, weighted by the days
paid late, exceeds the total amount of invoices paid early, weighted
by the days paid early, the difference will be subject to charges at a
rate of 12% per annum (but in no event more than the maximum rate
permitted by law.)
SUPPLIER will create a summary of late charges and a corresponding invoice
for late charges for a given month and deliver same via overnight delivery to
VIVRA by the 10th of the following month. The invoice for late charges will be
payable by the 24th of such month that summary and invoice late charges is
received by VIVRA.
7. DELIVERY.
--------
All Epogen orders only will be shipped via overnight delivery. Next day
delivery for Epogen is available only for orders transmitted to and received by
SUPPLIER no later than 4:00 p.m. Eastern Standard Time, Monday through Thursday.
Orders for other products will be shipped F.O.B. destination via overland
delivery with all packing, shipping, and delivery charges borne by SUPPLIER.
The pricing of Epogen is contingent upon the understanding that SUPPLIER will
bear full cost of shipment of Epogen to VIVRA or any kidney dialysis unit
operated by it an average of ********** per month per kidney dialysis unit. For
example, based on VIVRA operating 200 kidney dialysis units, SUPPLIER shall bear
the overnight delivery charges for ********** overnight deliveries of Epogen per
month. In the event shipments of Epogen are required to be made by SUPPLIER to
VIVRA or the kidney dialysis units more than an average of $********** per
month, VIVRA will be obligated to pay a delivery surcharge at a rate of
**********, per shipment for each delivery in excess of ********** shipments per
month per kidney dialysis unit. Monthly, SUPPLIER shall prepare a statement
detailing any excess overnight delivery charges incurred by it for the shipment
of Epogen in excess of 1.5 shipments per unit per month for the preceding month.
VIVRA shall pay such amounts within thirty days of receipt of such statement
from SUPPLIER. Not withstanding the foregoing, SUPPLIER shall bear all
overnight delivery costs for all Epogen orders transmitted to and received by
SUPPLIER prior to **********, 1996.
8. VOLUME REQUIREMENTS.
-------------------
In order for VIVRA to continue to receive the pricing terms contained in
paragraph 2 above, effective no later than three months from the Commencement
Date VIVRA shall order and purchase from SUPPLIER an amount of products equal to
not less than $********** of product per month based on the pricing terms set
forth in this Agreement. If VIVRA does not reach this monthly minimum for
**********, SUPPLIER reserves the right to adjust upward the pricing contained
in paragraph 2 above. If, solely due to SUPPLIER's fault, SUPPLIER is unable to
provide Epogen to VIVRA for five or more consecutive business days, the monthly
minimum stated above will be reduced by the dollar amount of Epogen orders
transmitted to, received and unfilled by SUPPLIER during the period of time
SUPPLIER is unable to provide Epogen.
-4-
<PAGE>
9. AUTOMATED ORDERING SYSTEM.
-------------------------
(a) It is agreed that as soon as practicable after the Commencement Date
and finalization of Schedule B (referred to below) SUPPLIER will provide at no
cost to VIVRA an electronic ordering System (the "System"). The System will
facilitate the electronic transmission of purchasing, inventory, and receiving
data over standard phone lines from VIVRA's individual kidney dialysis units to
a personal computer-based System (the "Base") at a VIVRA designated centralized
location. The Base will receive this data and then have the capability to
review, edit, print, and transmit this data in batch to SUPPLIER for order
processing. Additionally, the System will be capable of transmitting inventory
counts from the kidney dialysis units to the Base. Finally, the Base will be
capable of exporting data received and accumulated in its database to a
predefined DOS-based file.
(b) The System will include the following:
- Hand-held scanning and order entry device for all current and future
VIVRA kidney dialysis units to which SUPPLIER ships
pharmaceuticals and related supplies.
- Personal computer hardware at the centralized location chosen by VIVRA
to accept transmissions and manage data from the kidney
dialysis units
- Application software to allow VIVRA to perform above specified
functionality
(c) The System will be developed based upon a written specification that
VIVRA & SUPPLIER will mutually develop and attach to and make part of this
Agreement as Schedule B.
(d) During the term of this Agreement SUPPLIER shall maintain the System
in working order in accordance with the specifications contained in Schedule B
at the centralized location chosen by VIVRA and at the kidney dialysis units,
provided however, that SUPPLIER shall not be responsible for maintenance or
repair caused by the substantial negligence of VIVRA, its agents or employees.
If the centralized location is changed by VIVRA during the term of this
Agreement or if VIVRA desires any upgrades, modifications, or peripherals, the
cost for same shall be at VIVRA's expense, except for modifications necessary
for the System to operate in compliance with Schedule B. All upgrades,
enhancements, and modifications shall be the property of SUPPLIER, provided,
however, that VIVRA shall be granted a non-exclusive, perpetual and royalty-free
license to use any such upgrades, enhancements, or modifications.
(e) Upon expiration of the term of this Agreement, VIVRA shall own the
hardware comprising the System. Upon expiration of the term of this Agreement
VIVRA shall have the right and is hereby granted a license to continue to use
the software comprising the System as set forth in Schedule B, provided VIVRA is
not in default of this Agreement. Upon payment of the annual license fee,
SUPPLIER will license said software to VIVRA for an amount not to exceed
$**********, per year. Upon VIVRA's written notice of intent to continue to use
the software comprising the System as set forth in Schedule B sent to SUPPLIER
by VIVRA, an invoice for the annual license fee will be mailed to VIVRA with
said invoice payable within thirty days of invoice date. Annual renewals of the
license to use the software specified in Schedule B shall be at a cost not to
exceed $**********.
(f) It is understood and agreed that SUPPLIER is making a significant
financial investment to develop, provide, and support the System. If this
Agreement is terminated by VIVRA for any reason other than as specified below
after 120 days from the Commencement Date but prior to the expiration of the
three year term, VIVRA will be responsible to purchase all hardware and
peripherals, and to reimburse SUPPLIER for the System's software development
costs. If this Agreement is terminated by VIVRA for any reason other than as
specified below after 120 days from the Commencement Date but prior to the
expiration of the three year term, VIVRA will either return all software and
documentation constituting the System and all copies thereof within 30 days of
such termination, or continue to use the software comprising the System as set
forth in Schedule B at a licensing fee schedule to be determined. The price
VIVRA will pay for the hardware
-5-
<PAGE>
constituting the System and the System's software development costs will be
calculated at SUPPLIER's invoiced acquisition cost less straight line
depreciation pro-rated on a three year basis. Software development costs shall
only include costs incurred by SUPPLIER after February 1, 1996 for developing
the System for VIVRA. It is further agreed that such invoiced acquisition cost
will not exceed $**********, and shall be paid within 30 days of SUPPLIER's
invoice date. In the event VIVRA terminates this Agreement solely because the
System fails to perform in accordance with Schedule B, VIVRA shall have no
obligation to reimburse SUPPLIER for any acquisition or development costs, shall
return the hardware, software and documentation (and all copies thereof) within
30 days of such termination, and all licenses granted hereunder shall terminate.
(g) The System will be managed by a designated employee of SUPPLIER (such
employee hereinafter referred to as the "Project Manager"). The Project Manager
will be the contact person for designated VIVRA staff relating to all
operational aspects of the System, including finalization of Schedule B,
implementation and training, and post-installation technical and application
support.
(h) Exclusively relating to the implementation, training, and
post-installation technical and application support of the System, SUPPLIER will
provide reasonable consultation via telephone at no charge to the designated
VIVRA personnel. Additionally SUPPLIER will provide up to three (3) consecutive
days of on-site training at the VIVRA designated location which is the site of
the Base, with such training and travel related to same at no cost to VIVRA. If
VIVRA elects to request more than three (3) consecutive days on-site training at
the site of the Base, or if VIVRA requests SUPPLIER to perform any form of
on-site training for VIVRA's individual kidney dialysis units, SUPPLIER agrees
to provide, for a fee, the services of the Project Manager and/or other
qualified training staff. SUPPLIER will invoice VIVRA for such services at a
rate of $30 per man hour, with such $30 per hour applicable to travel time. If
VIVRA elects to utilize such services, VIVRA agrees to reimburse SUPPLIER for
all related round trip travel, ground transportation, hotel, and meal expenses,
and to pay such invoices within 30 days.
10. CONSULTATION SERVICES.
---------------------
At VIVRA's request and for a fee, SUPPLIER agrees to provide VIVRA
technical or application consultation services to integrate the System
referenced in paragraph 9 to VIVRA's current or future hardware or software
platforms. Any enhancements, modifications, or customization of the software
constituting the System shall be performed by SUPPLIER at an agreed upon fee
plus reimbursement of all out of pocket expenses incurred by SUPPLIER.
Consultation services will also be provided by SUPPLIER to assist VIVRA in the
analysis and/or implementation of future business software applications and/or
hardware platforms on the same fee basis as enhancements, modifications, or
customization. SUPPLIER will invoice VIVRA for such consultation services at a
rate to be negotiated on a project by project basis. If VIVRA elects to utilize
such consultation services, VIVRA agrees to reimburse SUPPLIER for all related
round trip travel, ground transportation, hotel, and meal expense, and to pay
such invoices within 30 days.
11. NOTICES.
-------
Any notices which is desired or required to be given hereunder shall be
deemed to be sufficiently given if personally delivered or sent by certified
mail and addressed as follows :
If to VIVRA:
VIVRA RENAL CARE, INC.
2 Mareblu
Aliso Viejo, CA 92656
-6-
<PAGE>
If to BELLCO:
BELLCO DRUG CORP.
101 East Hoffman Avenue
Lindenhurst, NY 11757
If to METRO HEALTH:
METRO HEALTH CORP.
180 Route 109
West Babylon, NY 11703
12. SEVERABILITY.
------------
If any one or more of the provisions contained herein shall be held for any
reason to be invalid, illegal or unenforceable in any respect, such provision
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provisions had never
been contained herein.
13. BINDING EFFECT.
--------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, provided, however,
that this Agreement may not be assigned by either party without the prior
written consent of the other.
14. ENTIRE AGREEMENT.
----------------
This Agreement contains the entire understanding and agreement between the
parties concerning the subject matter hereof, and all other prior written and
oral agreements, understandings or arrangements are merged herein. No amendment
or modification hereof shall be binding upon either party unless in writing
signed by the party to be charged therewith.
15. MISCELLANEOUS.
-------------
SUPPLIER shall submit to VIVRA information concerning any material
litigation instituted against SUPPLIER. All such information provided to VIVRA
will be deemed confidential information and VIVRA agrees to execute a separate
confidentiality agreement acceptable to BELLCO in its sole and absolute
discretion relating to such confidential information.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first written above.
VIVRA INC.
By:
----------------------------------------------
BELLCO DRUG CORP.
By:
----------------------------------------------
-7-
<PAGE>
METRO HEALTH CORP.
By:
----------------------------------------------
-8-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The Company's subsidiaries, fictitious business names (if any) under which
they do business, percentage of ownership, and the state or other jurisdiction
of incorporation or organization of each are set forth below.
<TABLE>
<CAPTION>
PERCENTAGE STATE OR COUNTRY FICTITIOUS BUSINESS
SUBSIDIARY OF OWNERSHIP OF INCORPORATION NAME (IF ANY)
<S> <C> <C> <C>
Associated Health Services, Inc. 100% Delaware
Associated Medication Services, Inc. 100% Delaware
Asthma & Allergy CareAmerica, Inc. 100% Nevada
Vivra Renal Care, Inc.** 100% Nevada
Community Dialysis Supply Corp. 100% Florida
Vivra Health Advantage, Inc. 100% Nevada
VNS 75% Florida
PCHS Co., Inc. 100% California
Specialty Care America, Inc.*** 100% Delaware Nephrology Services Group/
Vivra Nephrology Partners
Surgical Partners of America, Inc. 100% California
Vivra Heart Services, Inc. Nevada
Vivra OB-GYN, Inc. Nevada
Vivra Orthopedics, Inc. Delaware
Vivra Specialty Partners, Inc. Nevada
Vivra Physician Services, Inc. 100% Delaware
VPSL CORPORATION 100%* Delaware
Celsus of Louisville
Vivra Physician Services of
Colorado Springs, Inc. 83%* Delaware
Vivra Laboratories, Inc. 100% Nevada
* Vivra Physician Services, Inc., is 100% owner of VPSL CORPORATION and Vivra
Physician Services of Colorado Springs, Inc.
** Occasionally owns as subsidiaries clinics acquired in pooling transactions.
*** Owns approximately ten subsidiaries which operate nephrology practices.
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statement (and
applicable Prospectus) No. 33-49208 on Form S-3 dated October 28, 1992, No.
33-65530 on Form S-3 dated July 23, 1993, No. 33-67630 on Form S-8
dated August 19, 1993, No. 33-73930 on Form S-3 dated January 25, 1994, No.
33-80030 on Form S-3 dated June 20, 1994, No. 33-98246 on Form S-8 dated August
17, 1994, No. 33-86074 on Form S-3 dated December 15, 1994, post effective
Amendment No.1 to No. 33-85736 on Form S-4 and dated March 14, 1995, and No.
33-60513 on Form S-8 dated June 23, 1995 of Vivra Incorporated, of our report
dated January 24, 1996, with respect to the consolidated financial statements
and schedule of Vivra Incorporated included in the Annual Report on Form 10-K
for the year ended November 30, 1995.
ERNST & YOUNG LLP
Los Angeles, California
February 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<CASH> 52,565
<SECURITIES> 43,616
<RECEIVABLES> 74,215
<ALLOWANCES> 12,865
<INVENTORY> 8,822
<CURRENT-ASSETS> 182,816
<PP&E> 114,503
<DEPRECIATION> 39,396
<TOTAL-ASSETS> 402,701
<CURRENT-LIABILITIES> 51,789
<BONDS> 1,339
<COMMON> 366
0
0
<OTHER-SE> 342,802
<TOTAL-LIABILITY-AND-EQUITY> 402,701
<SALES> 350,490
<TOTAL-REVENUES> 355,647
<CGS> 238,730
<TOTAL-COSTS> 238,730
<OTHER-EXPENSES> 54,298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 360
<INCOME-PRETAX> 62,259
<INCOME-TAX> 24,224
<INCOME-CONTINUING> 37,940
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,940
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
