<PAGE>
As filed with the Securities and Exchange Commission on April 25, 1996
Registration No. 33-85736
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
VIVRA INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 8092/8082
-------------------- ---------------------
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Number)
400 Primrose, Suite 200
Burlingame, California 94010
94-3096645 (415) 348-8200
---------------------- ---------------------------------
(I.R.S. Employer Identification Number) (Address, including zip code, and
telephone number, including area
code of registrant's principal
executive offices)
KENT J. THIRY
DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
VIVRA INCORPORATED
400 Primrose, Suite 200, Burlingame, California 94010, (415) 348-8200
- --------------------------------------------------------------------------------
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
_________
COPY TO:
SCOTT T. SMITH, ESQ.
PILLSBURY MADISON & SUTRO LLP
2700 Sand Hill Road
Menlo Park, CA 94025
(415) 233-4500
_________
Approximate date of commencement of proposed sale to the public:
On a continuous or delayed basis pursuant to Rule 415.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
_________
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<PAGE>
VIVRA INCORPORATED
<TABLE>
CROSS REFERENCE SHEET
Between Items in Part I of the Registration Statement
(Form S-4) and Prospectus Pursuant to Item 501(b)
<CAPTION>
Item of Form S-4 Location in Prospectus
---------------- ----------------------
<C> <S> <S>
1. Forepart of Registration Statement and Outside Front Cover Page
Cover Page of Prospectus . . . . . . . . . . . . . . .
2. Inside Front and Outside Back Cover Page of Inside Front and Outside Back Cover Pages;
Prospectus . . . . . . . . . . . . . . . . . . . . . . Available Information; Incorporation by
Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges and Cover Page; The Company; Selected
Other Information . . . . . . . . . . . . . . . . . . . Financial Data; Incorporation by Reference;
Investment Considerations*
4. Terms of the Transaction . . . . . . . . . . . . . . . *
5. Pro Forma Financial Information . . . . . . . . . . . . *
6. Material Contracts with the Company Being Acquired. . . *
7. Additional Information Required for Reoffering by Outstanding Securities Covered by this
Persons and Parties Deemed to be Underwriters . . . . . Prospectus*
8. Interests of Named Experts and Counsel. . . . . . . . . Experts; Legal Matters
9. Disclosure of Commission Position on Indemnification for **
Securities Act Liabilities . . . . . . . . . . . . . .
10. Information with Respect to S-3 Registrants . . . . . . The Company; Incorporation by Reference;
Investment Considerations
11. Incorporation of Certain Information by Reference . . . Incorporation by Reference
12. Incorporation with Respect to S-2 or S-3 Registrants . **
13. Incorporation of Certain Information by Reference . . . **
14. Information with Respect to Registrants Other than S-3 or **
S-2 Registrants . . . . . . . . . . . . . . . . . . . .
____________________
* Inapplicable (or partially inapplicable as indicated) upon filing of this
Registration Statement - may be included in subsequent amendments under
certain circumstances.
** Not applicable or answer is negative.
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<PAGE>
15. Information with Respect to S-3 Companies . . . . . . . **
16. Information with Respect to S-2 or S-3 Companies. . . . **
17. Information with Respect to Companies Other than S-2 or *
S-3 Companies . . . . . . . . . . . . . . . . . . . . .
18. Information if Proxies, Consents or Authorizations are to *
be Solicited or in an Exchange Offer . . . . . . . . .
19. Information if Proxies, Consents or Authorizations are not *
to be Solicited or in an Exchange Offer . . . . . . . .
____________________
* Inapplicable (or partially inapplicable as indicated) upon filing of this
Registration Statement - may be included in subsequent amendments under
certain circumstances.
** Not applicable or answer is negative.
</TABLE>
-ii-
<PAGE>
3,000,000 SHARES
VIVRA
INCORPORATED
COMMON STOCK
_________
The Prospectus relates to 3,000,000 shares (the "Shares") of common stock,
$.01 par value per share, accompanied by Preferred Stock Purchase Rights (the
"Common Stock"), of Vivra Incorporated (the "Company") which may be offered and
issued by the Company from time to time in the acquisition of other businesses
or properties.
It is anticipated that such acquisitions will consist principally of
additional healthcare service providers and related operations, but on occasion,
an acquired business may be dissimilar to the business of the Company. The
consideration for acquisitions will consist of Shares, cash, notes or other
evidences of debt, assumption of liabilities or a combination thereof, as
determined from time to time by negotiations between the Company and the owners
or controlling persons of the businesses or properties to be acquired. In
addition, the Company may lease property from and enter into management
agreements, noncompetition agreements and employment agreements (which may
include the grant of Company or subsidiary stock options) with the former owners
and key executive personnel of the businesses to be acquired.
The terms of an acquisition will be determined by negotiations between the
Company's representatives and the owners or controlling persons of the business
or properties to be acquired. Factors taken into account in acquisitions may
include the established quality and reputation of the business and its
management, earning power, cash flow, growth potential, real estate, equipment,
locations of the business to be acquired and the market value of the Common
Stock of the Company when pertinent. It is anticipated that Shares issued in
any such acquisition will be valued at a price reasonably related to the current
market value of the Shares, either at the time the terms of the acquisition are
tentatively agreed upon, or at or about the time of closing, or during the
period or periods prior to delivery of the Shares.
See "Outstanding Securities Covered by this Prospectus" for information
relating to resales pursuant to this Prospectus of Shares issued under this
Registration Statement.
The Common Stock of the Company is listed on the New York Stock Exchange
under the symbol "V". The last reported sale price of the Common Stock on the
New York Stock Exchange on April 23, 1996 was $32.875 per share.
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES CERTAIN RISKS. SEE
"INVESTMENT CONSIDERATIONS."
_________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is April 25, 1996
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement (of which this Prospectus is
a part) with respect to the Shares under the Securities Act of 1933, as amended,
with the Securities and Exchange Commission (the "Commission"). This Prospectus
does not contain all of the information in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For information about the Shares and the Company, reference is made
to the Registration Statement, including the financial statement schedules and
exhibits incorporated by reference therein and filed as part thereof.
Information omitted from this Prospectus but contained in the Registration
Statement may be obtained from the Commission in the manner described below.
Statements made in this Prospectus as to the contents of any contract,
instrument or other document referred to are not necessarily complete, and
reference is made to the copy of such contract, instrument or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at the
Commission's regional offices located at 75 Park Place, 14th Floor, New York,
New York 10007 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60621,
and at the offices of the New York Stock Exchange, 20 Broad Street, New York,
New York 10005, on which exchange the Company's Common Stock is listed. Copies
of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company furnishes to holders of its Common Stock annual reports
containing audited financial statements.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the "Commission") are incorporated by reference in this Prospectus as of their
respective dates:
(1) Annual Report of the Company on Form 10-K (File No. 1-10261) for the
fiscal year ended November 30, 1995.
(2) Current Report of the Company on Form 8-K (File No. 1-10261) filed
on August 16, 1995.
(3) Current Report of the Company on Form 8-K (File No. 1-10261) filed on
January 26, 1996.
(4) Current Report of the Company on Form 8-K (File No. 1-10261) filed on
February 15, 1996.
(5) Quarterly Report of the Company on Form 10-K (File No. 1-10261) filed
on April 15, 1996.
(6) Current Report of the Company on Form 8-K (File No. 1-10261) filed on
April 9, 1996.
(7) The description of the Company's Common Stock contained in the
Registration Statement on Form S-1 filed on April 19, 1990,
Registration No. 33-34438, including any amendments and reports filed
for the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 and prior to the
termination of the offering of the shares of Common Stock covered by this
Registration Statement shall be deemed to be incorporated by reference in this
Registration Statement and to be part hereof from the date of filing of such
documents.
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<PAGE>
Any person to whom a copy of this Prospectus is delivered may obtain
without charge, upon written or oral request, a copy of any of the documents or
information incorporated by reference herein, except for certain exhibits to
such documents. Requests should be directed to LeAnne Zumwalt, Executive Vice
President, Treasurer and Secretary, VIVRA Incorporated, 400 Primrose, Suite 200,
Burlingame, CA 94010 (Telephone: (415) 348-8200). In order to ensure timely
delivery of the documents, any request should be made at least five business
days prior to the date on which the final investment decision must be made.
The Company's principal executive offices are located at 400 Primrose,
Suite 200, Burlingame, California 94010, and its telephone number is (415)
348-8200.
Any statement contained herein, or in a document incorporated by reference
herein, shall be deemed to be modified or superseded for purposes of this
Prospectus and the Registration Statement of which it is a part to the extent
that a statement contained herein or in any other subsequently filed document
which also is incorporated herein modifies or replaces such statement. Any
statement so modified or superseded shall not be deemed, in its unmodified form,
to constitute a part of this Prospectus or such Registration Statement.
THE COMPANY
Vivra is a provider of specialty health care services, principally the
delivery of dialysis services. The Company is the second largest provider of
dialysis services in the United States and, as of April 16, 1996, treats
approximately 12,500 patients through approximately 213 centers in 29 states and
the District of Columbia. In addition, through its Vivra Specialty Partners
segment, it provides network and physician practice management in the specialty
care areas of asthma/allergy, cardiology, diabetes, dialysis/nephrology, ENT,
obstetrics/gynecology and orthopedics. 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 Prospectus, the words "estimate," "project" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties, including those
discussed 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.
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<PAGE>
INVESTMENT CONSIDERATIONS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED BY THIS PROSPECTUS.
MEDICARE AND MEDICAID DIALYSIS REIMBURSEMENT. The Company estimates that
approximately 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
DMERCs designation are "grandfathered" under the prior carriers medical
policies and continue to be eligible for reimbursement. Since May 1995 and
based upon the continued uncertainty with respect to reimbursement for services
provided, the Company has limited administration of this therapy only to
patients who have been "grandfathered" or have private insurance.
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
treatments.
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<PAGE>
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 continue
to acquire additional healthcare service businesses outside of the dialysis
area. The development or acquisition of new businesses could require
significant capital commitments and management attention. 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 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
-5-
<PAGE>
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
coverage and to manage and contain its cost. The Company is unable to predict
the content of any legislation or what, if any, changes may occur in the method
and rates of its Medicare and Medicaid reimbursement or in other government
regulations that may affect its businesses, or, whether such changes, if made,
will have a material adverse effect on its revenues and net earnings.
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.
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<PAGE>
PRICE RANGE OF COMMON STOCK
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
1996
----
First Quarter $30 7/8 $22 5/8
HOLDERS
There were approximately 1,808 stockholders of record of the Company's Common
Stock as of April 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.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information set forth below as of and
for the years ended November 30, 1991, 1992, 1993, 1994 and 1995 has been
derived from the Consolidated Financial Statements which have been audited by
Ernst & Young LLP, independent auditors. This selected consolidated financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with the
Company's audited Consolidated Financial Statements and footnotes which are
incorporated herein by reference.
<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 350,490 284,964 216,760 162,255 122,170
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>
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<PAGE>
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.
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
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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 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
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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 $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
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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.
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BUSINESS
Vivra is a provider of specialty health care services, principally the
delivery of dialysis services. The Company is the second largest provider of
dialysis services in the United States and treats approximately 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.
BUSINESS STRATEGY
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
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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); 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.
FISCAL YEAR END NUMBER OF NUMBER OF
--------------- FACILITIES TREATMENTS
---------- PROVIDED
--------
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
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
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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.
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.
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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.
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
- Orthopedics
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
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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.
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 Orthopedics. 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
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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.
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
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<PAGE>
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. 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
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<PAGE>
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
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<PAGE>
in advance, does not exceed fair market value, and is not determined in a
manner that takes into account the volume or value of any referrals or other
business generated between the parties; (vi) the services to be performed do not
involve the counseling or promotion or a business arrangement or other activity
that violates any state or federal law; and (vii) the arrangement meets such
other requirements that may be imposed pursuant to regulations promulgated by
HHS.
Another Stark II exception for compensation arrangements applies to bona
fide employment relationships. This exception can apply to amounts paid by an
employer to a physician-employee if: (i) the employment is for identifiable
services; (ii) the amount of remuneration is consistent with the fair market
value of services and is not determined in a manner that takes into account,
directly or indirectly, the volume or value of any referrals by the referring
physician; (iii) the remuneration is provided pursuant to an agreement which
would be commercially reasonable even if no referrals were made to the employer;
and (iv) the employment meets such other standards that HHS may impose to
protect against program or patient abuse. In addition, this exception would
permit certain types of productivity bonuses based on personal services
performed by the physician or an immediate family member.
Stark II also includes an exception for a physician's ownership or
investment interest in shares in an Investment Company or securities listed on
an exchange or quoted on NASDAQ which, in either case, meets certain financial
criteria.
Because of its broad language, Stark II may be interpreted by HHS to apply
to the Company's operations. Consequently, Stark II may require the Company to
restructure certain existing compensation agreements with its Medical Directors
or, in the alternative, to refuse to accept referrals for designated health
services from such physicians. Although there can be no assurance, the Company
believes that if Stark II is interpreted to apply to the Company's operations,
the Company will be able to bring its financial relationships with referring
physicians into material compliance with the provisions of Stark II, including
relevant exceptions. If the Company cannot achieve such material compliance,
and Stark II is broadly interpreted by HHS to apply to the Company, such
application of Stark II could have a material adverse effect on the Company. A
broad interpretation of Stark II to include dialysis services and items provided
incident to dialysis services would apply to the Company's competitors as well.
For purposes of Stark II, "designated health services" include, among other
things: clinical laboratory services; parenteral and enteral nutrients, certain
equipment and supplies; prosthetics; orthotics; prosthetic devices; physical and
occupational therapy services; outpatient prescription drugs; and inpatient
and outpatient hospital services. Dialysis is not a designated health service,
and the Company believes that the language and legislative history of Stark II
indicate that Congress may not have intended to include the services and items
provided incident to dialysis services within the Stark II prohibitions.
However, the Company's provision of, or arrangement and assumption of financial
responsibility for, outpatient prescription drugs, including EPO and IDPN,
clinical laboratory services, facility dialysis services and supplies, home
dialysis supplies and equipment, and services to hospital inpatients and
outpatients, include services and items which could be construed as designated
health services within the meaning of Stark II. Although the Company does not
bill Medicare or Medicaid for hospital inpatient and outpatient services, the
Company's Medical Directors may request or establish a plan of care that
includes dialysis services for hospital inpatients and outpatients that may be
considered a referral to the Company within the meaning of Stark II.
STATE REFERRAL REGULATIONS. A California statute, which became effective
January 1, 1995, makes it unlawful for a physician who has, or a member of whose
immediate family has, a financial interest with or in an entity to refer a
person to that entity for laboratory, diagnostic nuclear medicine, radiation
oncology,
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<PAGE>
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 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.
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<PAGE>
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. 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
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<PAGE>
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.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and key personnel of the Company and their
ages are as follows:
<TABLE>
<CAPTION>
Name Age Title Period of Service and
---- --- ----- Business Experience
-------------------
<S> <C> <C> <C>
Kent J. Thiry 40 President and Chief Appointed September 1992. April-August
Executive Officer 1992, President and Co-Chief Executive
Officer; September 1991-March 1992,
President and Chief Operating Officer;
1983-1991, Consultant, then Vice President,
Director of U.S. Health Care Consulting,
Bain & Company, Inc., San Francisco,
California.
David P. Barry 37 Vice President, Dialysis Appointed May 1992. August 1995,
Services President, Vivra Renal Care, Inc.,
responsible for operations; December 1993,
President, Specialty CareAmerica, Inc.,
responsible for specialty dialysis services;
May 1992-November 1993, President,
Personal Care Health Services, Inc., a
former subsidiary of the Company,
responsible for operations of the home
health care business; 1984-1992, Homedco,
an infusion therapy company, since 1990
District Manager for California.
Ernest A. Blackwelder 36 Vice President Appointed November 1994. August 1995,
appointed President, Vivra Heart Services,
Inc.; August 1994 appointed President of
Specialty Partners of America, Inc., a
subsidiary of the Company, and separately
in charge of Surgical Partners of America,
Inc.; 1991-1994, District Manager and
Assistant to the President of BMC West
Corporation, a building supply company;
1988-1991, a consultant with Bain &
Company, Inc., specializing in the health
care industry.
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<PAGE>
Steven C. Bilt 30 Vice President, Finance Appointed Vice President July 1995. 1993-
1995, Vice President South Coast
Rehabilitation Services, Inc., a provider of
rehabilitation services and a majority owned
subsidiary of the Company until July 1995.
Prior thereto, Audit Manager with Ernst &
Young.
Gregory M. Holcomb 45 Vice President, Finance Appointed Vice President, Finance
November 1993. Prior thereto, Director of
Finance for the Company.
Jacob Lazarovic, M.D. 46 Vice President Appointed October 1995 and also appointed
Vice President, Vivra Specialty Partners,
Inc., a subsidiary of the Company; 1988-
1995, Regional Medical Director, Southern
Region, Blue Cross/Blue Shield of
Florida/Health Options.
Robert A. Prosek 51 Vice President, Asthma Appointed Vice President December 1994
& Allergy Services and President of Asthma & Allergy
CareAmerica, Inc., a subsidiary of the
Company. During 1994, President of
Allergy Care of America, Inc.; 1991-1993,
President of Care Partners, a healthcare
company; and from 1989-1991, President of
PSICOR, provider of contract clinical
services for cardiac surgery.
Thomas O. Usilton 44 Vice President, Vivra Appointed September 1995 and also
Specialty Partners appointed Executive Vice President of Vivra
Specialty Partners, Inc; 1990-1994 founder
and Chief Executive Officer of Premier
Allergy, Inc.
Robert A. Vraciu 48 Vice President, Diabetes Appointed September 1995 and also
Management Services appointed President of Vivra Health
Advantage, a subsidiary of the Company
providing diabetes management services.
Prior thereto, Vice President of Strategic
Planning of Health Trust, Inc.
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<PAGE>
LeAnne M. Zumwalt 37 Executive Vice Appointed Executive Vice President August
President, Treasurer 1995 and Treasurer and Secretary March
and Secretary 1995, Vice President-Finance November
1993-August 1995; joined the Company in
1991. Prior thereto, Audit Senior Manager
with Ernst & Young.
Alan R. Hoops 47 Director Chief Executive Officer and Director of
PacifiCare Health Systems, which is not
affiliated with the Company, since 1993;
1991-1993, Chief Operating Officer of
PacifiCare Health Systems.
David L. Lowe 36 Director Chairman and Chief Executive Officer of
ADAC Laboratories, Inc., a medical imaging
and healthcare information company, which
is not affiliated with the Company, since
1994; 1992-1994, Chief Executive Officer of
ADAC Laboratories, Inc. And 1988-1994
President of ADAC Laboratories, Inc.
John M. Nehra 47 Director Managing General Partner of Catalyst
Ventures L.P., a venture capital partnership
since 1989; 1983-1989, Managing Director
of Alex. Brown & Sons, Inc., investment
bankers, responsible for its Capital Markets
Group, including health care corporate
finance, neither of which entities are
affiliated with the Company.
David G. Connor, M.D. 55 Director Physician in private practice in Daly City,
California since 1973, specializing in
nephrology and internal medicine; Medical
Director of the Company's dialysis center in
Daly City, California since 1977; 1986-
1988, President of the Medical Staff of
Seton Medical Center, a general hospital in
Daly City, California, not affiliated with the
Company.
Richard B. Fontaine 52 Director Independent health care consultant since
1992; 1988-1992, Senior Vice President of
CR&R Incorporated, a waste management
company; 1984-1988, Vice President,
Business Development of Caremark, Inc., a
health care company, neither of which
corporations are affiliated with the
Company.
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<PAGE>
Stephen G. Pagliuca 40 Director Managing General Partner of Information
Partners, a venture capital firm since 1989;
1986-1989, Vice President of Bain &
Company, a management consulting
company, neither of which entities are
affiliated with the Company.
</TABLE>
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<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the cash and certain other compensation paid by the
Company to the Chief Executive Officer for his service for fiscal 1995, 1994 and
1993, to each of the four other most highly compensated current executive
officers in all executive capacities in which they served during the fiscal
years ending November 30, 1995, 1994 and 1993 and to a former executive officer
who would have been one of the four other most highly compensated executive
officers if such person was an executive officer as of November 30, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME/PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)
---- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Kent J. Thiry 1995 250,000 275,000 150,000 24,546(2)
President and Chief 1994 225,000 200,000 150,000 17,072(2)
Executive Officer 1993 225,000 200,000(1) 225,000 --
LeAnne M. Zumwalt 1995 124,200 75,000 84,000 8,956(2)
Executive Vice 1994 107,725 60,000 18,000 5,770(2)
President,
Secretary and
Treasurer
David P. Barry 1995 127,000 225,000 141,000 8,519(2)
Vice President 1994 115,000 120,725 10,500 7,893(2)
1993 110,789 85,000 16,875 --
Ernest A. Blackwelder 1995 120,000 50,000 45,000 --
Vice President
Robert A. Prosek 1995 176,750 -- 30,000 --
Vice President
Michael W. Castaldi 1995 180,000 -- -- 24,546(2)
Former Senior Vice 1994 177,406 -- -- 24,012(2)
President 1993 175,000 150,000 225,000 17,604(2)
</TABLE>
___________
[FN]
(1) In addition, Mr. Thiry was granted a contingent bonus of $200,000 for
fiscal 1993, which will be paid after November 30, 1996, if the Company's
earnings per share as of that date are at least $1.25, which represents a 17.5%
compound annual growth rate over earnings per share reported for fiscal 1992,
and if the Board approves granting such bonus.
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<PAGE>
(2) Share of Company's contribution to Profit Sharing Plan.
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<PAGE>
FISCAL 1995 VIVRA OPTION/SAR GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS/SARS OF STOCK PRICES
UNDERLYING GRANTED TO EXERCISE OF APPRECIATION FOR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION OPTION TERM
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ----------- ----------- ---------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Kent J. Thiry 150,000(1) 16.9 23.25 11/09/00 963,532 2,129,154
LeAnne M. Zumwalt 9,000(2) 1.0 21.92 10/05/00 54,505 120,442
75,000(1) 8.4 23.25 11/09/00 481,766 1,064,577
David P. Barry 30,000(3) 3.4 21.92 03/30/00 181,683 401,472
15,000(4) 1.7 20.00 08/16/00 82,884 183,153
21,000(2) 2.4 21.92 10/05/00 127,178 281,030
75,000(1) 8.4 23.25 11/09/00 481,766 1,064,577
Ernest A. Blackwelder 45,000(3) 5.1 21.92 03/30/00 272,524 602,208
Robert A. Prosek 30,000(5) 3.4 19.08 11/30/99 158,144 349,455
Michael W. Castaldi 0 0 N/A N/A N/A N/A
</TABLE>
__________
[FN]
(1) Vests 25% each year on November 9, 1996 through 1999 and 100% in the event
of a change of control.
(2) Vests 20% on October 5, 1995, and 20% each year on October 5, 1996 through
1999 and 100% in the event of a change of control.
(3) Vests 20% on March 30, 1996, and 80% on March 30, 1998 and 100% in the
event of a change of control.
(4) Vests 20% on August 16, 1996, and 40% each year on August 16, 1998 through
1999 and 100% in the event of a change of control.
(5) Vests 20% on December 1, 1994, and 20% each year on December 1, 1995
through 1998 and 100% in the event of a change of control.
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<PAGE>
FISCAL 1995 VIVRA OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to the named
executives concerning the exercise of options and/or limited SARs during the
last fiscal year and unexercised options and limited SARs held as of the end of
the fiscal year, November 30, 1995:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END FISCAL YEAR-
(#) END ($)(1)
EXERCISABLE/ EXERCISABLE/
SHARES UNEXERCISABLE UNEXERCISABLE
ACQUIRED ON VALUE ------------- -------------
NAME EXERCISE (#) REALIZED ($)
- ---- ------------ ------------
<S> <C> <C> <C> <C>
Kent J. Thiry 187,500 2,097,848 484,500/ 5,117,895/
427,500 2,321,885
LeAnne M. Zumwalt 11,812 98,996 37,838/ 310,611/
108,600 180,601
David P. Barry 54,375 430,036 69,300/ 625,262/
157,200 242,700
Ernest A. Blackwelder -- -- 12,000/ 81,000/
63,000 159,000
Robert A. Prosek -- -- 6,000/ 22,000/
24,000 88,000
Michael W. Castaldi 228,937 2,581,091 -- --
</TABLE>
______________
[FN]
(1) The closing price of the Company's Common Stock on the New York Stock
Exchange at fiscal year end, November 30, 1995, was $22.75 per share.
-32-
<PAGE>
SUBSIDIARY OPTIONS
The Company has granted options to employees and other individuals in various
operating subsidiaries. The purpose of such option grants is to motivate
individuals directly responsible for the subsidiary's success. Under the
subsidiary option programs, options are granted pursuant to a stock option plan
adopted by the subsidiary. Each option is reflected by an option agreement which
provides for the grant of options at fair market value typically with a term of
the earlier of 5 years or a defined period after death, disability or
termination of employment. The subsidiary may also compel the exercise of
options under certain circumstances. The options generally vest over a four year
term in equal annual installments. Optionholders are also required to be bound
by the terms of a Stockholders Agreement. The Stockholders Agreement contains
rights of first refusal on transfers by stockholders, a right of repurchase (the
"Call Right") in the event the employee is no longer employed by the subsidiary,
and a right of the employee to compel the subsidiary to repurchase (a "Put
Right") the shares in 1999. The Call Right and the Put Right may be satisfied by
the Company by the payment of cash, a promissory note, or, in some cases, an
equivalent value of Vivra Common Stock. The Stockholder Agreement also contains
various other rights and restrictions, including "piggyback" registration rights
to include shares in registration statements filed by the subsidiary under the
Securities Act of 1933, as amended.
In fiscal 1995, Vivra Heart Services, Inc., a subsidiary of the Company,
granted options to Messrs. Blackwelder, Barry, Nehra and Prosek, Ms. Zumwalt and
Dr. Connor options to purchase 240,000, 10,000, 110,000, 2,500, 15,000 and 2,500
shares, respectively, at exercise prices of $0.50; except in the case of 50,000
of Mr. Nehra's options, which were granted at an exercise price of $1.00.
In fiscal 1995, Vivra Specialty Partners, Inc., a subsidiary of the Company,
granted to Mr. Barry and Ms. Zumwalt options to acquire 60,000 and 70,000
shares, respectively, at an exercise price of $1.65.
In fiscal 1996, Vivra Asthma & Allergy CareAmerica, Inc., ("VAACA") a
subsidiary of the Company, granted Mr. Prosek options to purchase 600,000 shares
of its common stock at an exercise price of $0.375 per share. Mr. Prosek will
receive an additional 300,000 shares of options to purchase VAACA common stock
at an exercise price equal to the fair market value per share on the date of
grant upon his relocation to Burlingame, California.
EMPLOYEE LOAN
In connection with Mr. Blackwelder's relocation from Boulder, Colorado to
Burlingame, California in July 1995, the Company loaned Mr. Blackwelder $250,000
to acquire a new residence. The loan bears interest at an annual interest rate
of 6.28%. Interest payments are due each year on the last day of the year and
all unpaid interest and principal are due on July 18, 2001. The loan is secured
by a second deed of trust on Mr. Blackwelder's residence. The Company has agreed
to pay Mr. Blackwelder bonuses at least equal to the amount of interest due on
the loan each year.
-33-
<PAGE>
OUTSTANDING SECURITIES COVERED BY THIS PROSPECTUS
This Prospectus has also been prepared for use by the persons who may receive
from the Company Shares covered by the Registration Statement in acquisitions
and who may be entitled to offer such Shares under circumstances requiring the
use of a Prospectus (such persons being referred to under this caption as
"Stockholders"); provided, however, that no Stockholder will be authorized to
use this Prospectus for any offer of such Shares without first obtaining the
consent of the Company. The Company may consent to the use of this Prospectus
for a limited period of time by the Stockholders and subject to limitations and
conditions which may be varied by agreement between the Company and the
Stockholders. Resales of such Shares may be made on the New York Stock Exchange
or such other exchange on which the Company's Common Stock may be listed, in the
over-the-counter market, in private transactions or pursuant to underwriting
agreements.
Agreements with Stockholders permitting use of this Prospectus may provide
that any such offering be effected in an orderly manner through securities
dealers, acting as broker or dealer, selected by the Company; that Stockholders
enter into custody agreements with one or more banks with respect to such
shares; and that sales be made only by one or more of the methods described in
this Prospectus, as appropriately supplemented or amended when required. The
Stockholders may be deemed to be underwriters within the meaning of the
Securities Act of 1933 (the "Securities Act").
When resales are to be made through a broker or dealer selected by the
Company, it is anticipated that a member firm of the New York Stock Exchange may
be engaged to act as the Stockholders' agent in the sale of shares by such
Stockholders. The commission paid to the member firm will be the normal stock
exchange commission (including negotiated commissions to the extent
permissible). Sales of shares by the member firm may be made on the New York
Stock Exchange or other exchange from time to time at prices related to prices
then prevailing. Any such sales may be by block trade. Any such member firm
may be deemed to be an underwriter within the meaning of the Securities Act and
any commissions earned by such member firm may be deemed to be underwriting
discounts and commissions under the Securities Act.
Upon the Company being notified by a Stockholder that any block trade has
taken place, a supplementary Prospectus, if required, will be filed pursuant to
Rule 424 under the Securities Act, disclosing the name of the member firm, the
number of shares involved, the price at which such shares were sold by such
Stockholder, and the commissions to be paid by such Stockholder to such member
firm.
LEGAL MATTERS
Certain matters with respect to the legality of the securities offered hereby
will be passed upon for the Company by Pillsbury Madison & Sutro, LLP, Menlo
Park, California.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report on Form 10-K for the year ended November 30, 1995, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
-34-
<PAGE>
- ----------------------------------------------- ------------------------------
No person is authorized to give any informa-
tion and representations which are contained or
incorporated by reference in this Prospectus, 3,000,000 SHARES
and any information or representation which is
not contained or incorporated by reference in
this Prospectus must not be relied on as having
been authorized by them. The information
herein is set forth as of the date on the cover
page; it is anticipated that changes will occur VIVRA
in the affairs of the Company subsequent to that INCORPORATED
date. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to
buy, the Shares in any jurisdiction where, or to
any person to whom, it is unlawful to make such
offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, COMMON STOCK
under any circumstances, create an implication
that there has not been any change in the facts
set forth in this Prospectus or in the affairs
of the Company since the date hereof.
__________
TABLE OF CONTENTS
-----------------
Page
----
AVAILABLE INFORMATION . . . . . . . . 2
INCORPORATION BY REFERENCE . . . . . . 2 -------------------
INVESTMENT CONSIDERATIONS . . . . . . 4 P R O S P E C T U S
PRICE RANGE OF COMMON STOCK . . . . . 7 -------------------
DIVIDEND POLICY . . . . . . . . . . . 7
SELECTED CONSOLIDATED FINANCIAL
DATA . . . . . . . . . . . . . . . . 8
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . 9
BUSINESS . . . . . . . . . . . . . . . 13
MANAGEMENT . . . . . . . . . . . . . . 25 April 25, 1996
OUTSTANDING SECURITIES
COVERED BY THIS PROSPECTUS . . . . . . 34
LEGAL MATTERS . . . . . . . . . . . . 34
EXPERTS . . . . . . . . . . . . . . . 34
- ----------------------------------------------- ------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits the Company's
board of directors to indemnify any person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding in which such person is made a party by
reason of his being or having been a director, officer, employee or agent of the
Company, in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act"). The
statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise.
Article 8 of the Company's Restated Certificate of Incorporation provides
for indemnification of its directors, officers, employees and other agents to
the maximum extent permitted by law. In addition, the Company has entered into
separate indemnification agreements with its directors and officers that will
require the company, among other things, to indemnify them against certain
liabilities that may arise by reason of their status or service as directors or
officers to the fullest extent not prohibited by law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit
Number Description
------- ------------------------------------------------------------------
2. Exhibits:
(2) Plan of Acquisitions
*(2.1) Stock Purchase Agreement dated as of March 31,
1995, by and among the Company, Cape Coral Dialysis Center,
Inc. and Dialysis Services of Southwest Florida, Inc. And
each of the Stockholders listed on Exhibit A thereto (filed
as an exhibit to the Prospectus Supplement to the Prospectus
dated March 14, 1995 (File No. 33-85736) and incorporated
herein by reference).
*(2.2) Agreement for Sale and Purchase of Assets, dated
July 1, 1995, by and among CDC and Oakwood, Chilikapati
Family Limited Partnership and Thavarajah Family Limited
Partnership, Vijay Kumar Chilikapati Revocable Living Trust
dated September 26, 1984 and the Krishnapilla Thavarajah
Revocable Living Trust, the sole shareholders of Oakwood and
K. Thavarajah, M.D. and C.V. Kumar, M.D. (filed as
<PAGE>
Exhibit (c)(vii) to the Company's Current Report on Form 8-K
(File No. 1-10261) dated August 16, 1995 and incorporated
herein by reference).
*(2.3) Agreement for Sale and Purchase of Assets, dated
as of July 1, 1995, by and among CDC and Wyandotte and CTA
Investment Group, Vijay Kumar Chilikapati Revocable Living
Trust dated September 26, 1984, the Krishnapilla Thavarajah
Revocable Living Trust, and Syed Akbar, M.D., an individual
and K. Thavarajah, M.D., an individual, and C.V. Kumar, M.D.,
an individual (filed as Exhibit (c)(vii) to the Company's
Current Report on Form 8-K filed on August 16, 1995 and
incorporated herein by reference).
*(2.4) Master Merger Agreement among Asthma & Allergy
CareAmerica, Inc.; Vivra Incorporated; Pediatric Allergy
Group, a Professional Association; Jerald M. Duncan, M.D.;
Fred T. Grogan, Jr., M.D.; Jourdan A. Roane, M.D.; Phillip L.
Lieberman, M.D., P.C.; Phillip L. Lieberman, M.D.; George H.
Treadwell, III, M.D., P.C.; and George H. Treadwell, III,
M.D. (filed as Exhibit (10.1) to the Company's Current Report
on Form 8-K (File No. 1-10261) dated January 30, 1996 and
incorporated herein by reference).
*(2.5) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; and Pediatric
Allergy Group, a Professional Association (filed as Exhibit
(10.1) to the Company's Current Report on Form 8-K (File No.
1-10261) dated January 30, 1996 and incorporated herein by
reference).
*(2.6) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc., Vivra Incorporated, Phillip L.
Lieberman, M.D. and Phillip L. Lieberman, M.D., P.C. (filed
as Exhibit (10.1) to the Company's Current Report on Form 8-K
(File No. 1-10261) dated January 30, 1996 and incorporated
herein by reference).
*(2.7) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; George H.
Treadwell, III, M.D., P.C.; and George H. Treadwell, III
(filed as Exhibit (10.1) to the Company's Current Report on
Form 8-K (File No. 1-10261) dated January 30, 1996 and
incorporated herein by reference).
*(2.8) Stock Exchange Agreement among Vivra
Incorporated; Raj & Jay, Inc.; Vadakkipalayam Devarajan,
M.D.; Chemmale Jayakrishnan, M.D.; David J. Vial, M.D.; and
Martin Ballenger, M.D. (filed as Exhibit (10.1) to the
Company's Current Report on Form 8-K (File No. 1-10261)
dated January 30, 1996 and incorporated herein by reference).
*(2.9) Stock Exchange Agreement among Vivra Renal Care,
Inc.; Vivra Incorporated; Martin Gelman, M.D. and Gerald
Bousquet, M.D.
II-2
<PAGE>
(filed as Exhibit (10.1) to the Company's
Current Report on Form 8-K (File No. 1-10261) dated March 14,
1996 and incorporated herein by reference).
*(2.10) Stock Exchange Agreement among Vivra
Orthopaedics, Inc.; Vivra Incorporated; and Joseph Zagorski,
M.D. (filed as Exhibit 10.1 to the Company's Current Report
on Form 8-K (File No. 1-10261) dated March 15, 1996 and
incorporated herein by reference).
*(2.11) Stock Exchange Agreement among Vivra
Incorporated; Mr. Qualls and Mr. Robins (filed as Exhibit
(10.1) to the Company's Current Report on Form 8-K (File No.
1-10261) dated March 29, 1996 and incorporated herein by
reference).
*(2.12) Master Merger Agreement among Asthma & Allergy
CareAmerica, Inc.; Vivra Incorporated; Pollard & Sublett,
PSC; Stephen J. Pollard, M.D.; James L. Sublett, M.D. and
Allergy & Asthma Research Institute, Inc.
*(2.13) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; Pollard &
Sublett, PSC; Stephen J. Pollard, M.D. and James L. Sublett,
M.D.
*(2.14) Agreement and Plan of Merger among Asthma &
Allergy CareAmerica, Inc.; Vivra Incorporated; Allergy &
Asthma Research Institute, Inc.; Stephen J. Pollard, M.D. and
James L. Sublett, M.D.
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).
II-3
<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 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
(filed as Exhibit 10.7 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1995 and
incorporated herein by reference).
*(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 (filed as Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1995 and incorporated herein by
reference).
II-4
<PAGE>
+*(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 (filed
as Exhibit 10.7 to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1995 and
incorporated herein by reference).
*(21) Subsidiaries of the Registrant (filed as Exhibit 21 to
the Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1995 and incorporated herein by
reference).
(23) Consent of Independent Auditors.
________________
* Previously filed
+ Confidential Treatment requested as to certain portions, which are omitted
and filed separately with the Commissioner.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Company hereby undertakes:
(1) To file during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Act;
(b) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement; and
(c) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement; provided, however, that paragraphs (a) and (b) do not apply
if the information required to be included in a post-effective
amendment by the paragraphs is contained in periodic reports filed by
the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") that
are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-offering amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Act, each
filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act which is incorporated by reference in
this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-6
<PAGE>
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(6) That every prospectus (I) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a
part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(8) To supply by means of a post-effective amendment all required
information concerning a transaction, and the company being acquired
involved therein, that was not included in the registration statement when
it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Burlingame and State of California on April 24, 1996.
VIVRA INCORPORATED
By /s/ LEANNE ZUMWALT
------------------------------------
(LeAnne Zumwalt, Director and
Vice President, Finance)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement on Form S-4 has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ KENT J. THIRY* Director, President and April 24, 1996
- --------------------------- Chief Executive Officer
(Kent J. Thiry) (Principal Executive Officer)
/s/ LEANNE ZUMWALT* Director and Executive Vice April 24, 1996
- --------------------------- President, Treasurer and
(LeAnne Zumwalt) Secretary (Principal
Accounting Officer and
Principal Financial Officer)
/s/ DAVID G. CONNOR, M.D.* Director April 24, 1996
- ---------------------------
(David G. Connor, M.D.)
/s/ RICHARD B. FONTAINE* Director April 24, 1996
- ---------------------------
(Richard B. Fontaine)
II-8
<PAGE>
- --------------------------- Director April 24, 1996
(Alan Hoops)
- --------------------------- Director April 24, 1996
(David Lowe)
/s/ JOHN M. NEHRA* Director April 24, 1996
- ---------------------------
(John M. Nehra))
/s/ STEPHEN G. PAGLIUCA* Director April 24, 1996
- ---------------------------
(Stephen G. Pagliuca)
*By /s/ LEANNE ZUMWALT
-----------------------
(LeAnne Zumwalt)
(Attorney-in-Fact)
II-9
<PAGE>
EXHIBIT INDEX
(10.3) Registrant's Amended 1989 Stock Incentive Plan.
(23) Consent of Independent Auditors.
<PAGE>
VIVRA INCORPORATED
------------------
REVISED 1989 STOCK INCENTIVE PLAN
---------------------------------
(Amended and Restated
Effective May 2, 1996)
<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 . . . . . . . . . . . . . . . . . . . . . . . 3
4.5 Outstanding Stock . . . . . . . . . . . . . . . . . . . . . . . 3
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 . . . . . . . . . . . . . . . . . . . . . . . . 4
5.5 Exercisability and Term . . . . . . . . . . . . . . . . . . . . 4
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 . . . . . . . . . . . 5
ARTICLE 6. PAYMENT FOR OPTION SHARES . . . . . . . . . . . . . . . . . . . 5
6.1 General Rule . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.2 Surrender of Stock . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Exercise/Sale . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.4 Exercise/Pledge . . . . . . . . . . . . . . . . . . . . . . . . 6
6.5 Other Forms of Payment . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 7. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . 6
7.1 Grant of SARs . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.2 Manner of Exercise of SARs . . . . . . . . . . . . . . . . . . 7
7.3 Special Holding Period . . . . . . . . . . . . . . . . . . . . 7
7.4 Special Exercise Window . . . . . . . . . . . . . . . . . . . . 7
7.5 Limited SARs . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS . . . . . . . . . . . . . . . 7
8.1 Time, Amount and Form of Awards . . . . . . . . . . . . . . . . 7
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 . . . . . . . . . . . . . . . 8
8.6 Death of Recipient . . . . . . . . . . . . . . . . . . . . . . 9
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Page
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ARTICLE 9. VOTING RIGHTS AND DIVIDENDS OR DIVIDEND EQUIVALENTS . . . . . . 9
9.1 Restricted Shares . . . . . . . . . . . . . . . . . . . . . . . 9
9.2 Stock Units . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 10. PROTECTION AGAINST DILUTION . . . . . . . . . . . . . . . . . . 9
10.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
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 . . . . . . . . . . . . . . . . . . . . 10
11.3 Creditors' Rights . . . . . . . . . . . . . . . . . . . . . . 10
11.4 Government Regulations . . . . . . . . . . . . . . . . . . . 11
ARTICLE 12. LIMITATION ON PAYMENTS . . . . . . . . . . . . . . . . . . . 11
12.1 Basic Rule . . . . . . . . . . . . . . . . . . . . . . . . . 11
12.2 Reduction of Payments . . . . . . . . . . . . . . . . . . . . 11
12.3 Overpayments and Underpayments . . . . . . . . . . . . . . . 12
12.4 Related Corporations . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 13. WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . . . 12
13.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13.2 Nonstatutory Options, Restricted Shares or Stock Units . . . 13
ARTICLE 14. ASSIGNMENT OR TRANSFER OF AWARD . . . . . . . . . . . . . . . 13
ARTICLE 15. FUTURE OF THE PLAN . . . . . . . . . . . . . . . . . . . . . 13
15.1 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . 13
15.2 Amendment or Termination . . . . . . . . . . . . . . . . . . 13
15.3 Effect of Amendment or Termination . . . . . . . . . . . . . 13
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.13 Key Employee . . . . . . . . . . . . . . . . . . . . . . . . 15
16.14 Non-Employee Director . . . . . . . . . . . . . . . . . . . . 16
16.15 NSO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.16 Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.17 Optionee . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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16.18 Participant . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.19 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.20 Restricted Share . . . . . . . . . . . . . . . . . . . . . . 16
16.21 SAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.22 Stock Award Agreement . . . . . . . . . . . . . . . . . . . . 16
16.23 Stock Option Agreement . . . . . . . . . . . . . . . . . . . 16
16.24 Stock Unit . . . . . . . . . . . . . . . . . . . . . . . . . 16
16.25 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 17. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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<PAGE>
VIVRA INCORPORATED
------------------
REVISED 1989 STOCK INCENTIVE PLAN
---------------------------------
(Amended and Restated Effective
May 2, 1996)
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 changes the provisions for the grant of NSOs
and Restricted Shares to Non-Employee Directors.
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 and Restricted Shares 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 Committee's determinations under
the Plan shall be final and binding on all persons.
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<PAGE>
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, SARs and Restricted Shares 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) The Non-Employee Directors set forth below shall receive a
grant of Restricted Shares at each regular annual meeting in
satisfaction of all or a portion of their annual retainer, otherwise
paid in cash. The Restricted Shares will have a Fair Market Value on
the date of the annual meeting in the amounts set forth below. The
number of Restricted Shares shall be rounded down to the next number
of whole shares:
Chair of the Compensation Committee . . $20,000
Chair of the Audit Committee . . . . . . $20,000
Chair of the Governance Committee . . . . $20,000
Chair of Clinical Quality . . . . . . . $10,000
(c) The NSO for a particular Award Year shall be granted to each
Non-Employee Director as of December 1 each year;
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<PAGE>
(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 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 proportionately 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.
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<PAGE>
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.
5.4 Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price under an ISO shall not be less than one
hundred percent (100%) 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 fifty percent (50%) 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
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<PAGE>
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 modification of an Option
shall, without the consent of the Optionee, impair his or her rights or obli-
gations 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:
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<PAGE>
(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 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
-6-
<PAGE>
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 exer-
cised, 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 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
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<PAGE>
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 (other than treasury 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 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 Committee 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 distribution, the Committee may
increase the amount of
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<PAGE>
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 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
-9-
<PAGE>
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 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.
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11.4 Government Regulations. Any other provision of the Plan notwith-
----------------------
standing 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 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
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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 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 applica-
ble 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
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<PAGE>
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.
ARTICLE 15. FUTURE OF THE PLAN.
- ---------- ------------------
15.1 Term of the Plan. This amended and restated Plan shall become
----------------
effective on May 2, 1996 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
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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
(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.
----
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<PAGE>
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;
(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.
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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.
16.23 "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.
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<PAGE>
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
March ___, 1996.
VIVRA INCORPORATED
By ______________________________________________
Its _____________________________________________
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<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption Experts in Amendment
No. 2 to the Registration Statement (Form S-4 No. 33-85736) and related
Prospectus of Vivra Incorporated for the registration of 3,000,000 shares of its
common stock and to the incorporation by reference therein of our report dated
January 24, 1996, with respect to the consolidated financial statements and
schedule of Vivra Incorporated included in its Annual Report (Form 10-K) for the
year ended November 30, 1995, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
