-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J+L5Lh7NZct0DqAMFQst1Fb1Poc2bQQFb2uVQqb78rdb6gkai/G6dxQgcIA7eHta 5/Ej50T6C/js1I4syyKx1Q== 0000950008-96-000042.txt : 19960228 0000950008-96-000042.hdr.sgml : 19960228 ACCESSION NUMBER: 0000950008-96-000042 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960227 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIVRA INC CENTRAL INDEX KEY: 0000850882 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 943096645 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10261 FILM NUMBER: 96526180 BUSINESS ADDRESS: STREET 1: 400 PRIMROSE ROAD STREET 2: SUITE 200 CITY: BURLINGAME STATE: CA ZIP: 94010 BUSINESS PHONE: 4153488200 10-K 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended November 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ________________________to_______________________ Commission file number: 1-10261 VIVRA INCORPORATED ---------------------------- (Exact name of registrant as specified in its charter) DELAWARE 94-3096645 - ----------------------------------------------- ---------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 400 Primrose, #200, Burlingame, California 94010 - -------------------------------------------------------------------------------- (Address of principal executive offices) (ZIP Code) Registrant's telephone number, including area code (415) 348-8200 -------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, $.01 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange -------------------------------- ----------------------- Securities registered pursuant to Section 12(g) of the Act: None ------------------------------------------ (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the registrant on February 15, 1996, based on the closing price on the New York Stock Exchange, was: $1,130,706,187. Number of shares of Common Stock outstanding on February 15, 1996: 37,072,334 Documents Incorporated By Reference Definitive Proxy Statement for the Company's May 2, 1996 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 ( incorporated in Part III hereof to the extent indicated in Items 10, 11, 12 and 13 hereof). PART 1 ITEM 1. BUSINESS OVERVIEW Vivra is a provider of specialty health care services, principally the delivery of dialysis services. The Company is the second largest provider of dialysis services in the United States and treats approximately 11,500 patients through approximately 200 centers in 26 states and the District of Columbia. In addition, through its Vivra Specialty Partners segment, it provides network management in the specialty care areas of asthma/allergy, cardiology, diabetes, dialysis/nephrology, ENT and obstetrics/gynecology. Vivra's business strategy is to compete in specialties/disease states where Vivra can demonstrably deliver differentiated care to high -cost patient populations. When used in this Report on Form 10-K, the words "estimate," "project" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including those discussed in the Investment Considerations section below, that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. CONSIDERATIONS MEDICARE AND MEDICAID DIALYSIS REIMBURSEMENT. The Company estimates that approximately 66% of its dialysis revenues, including revenues for the reimbursement of the administration of the drug erythropoietin ("EPO"), for fiscal year 1994, and 70% for fiscal year 1995, were reimbursements from Medicare and Medicaid under the End-Stage Renal Disease ("ESRD") program administered by the Health Care Financing Administration ("HCFA"). Numerous Congressional actions have resulted in changes in the average Medicare reimbursement rate from a fixed fee of $138 per treatment in 1983, to a current average rate of $126. The Medicaid programs are also subject to statutory and regulatory changes that could affect the rate of Medicaid reimbursement. The Company is not able to predict whether and to what extent changes to Medicare and Medicaid reimbursement rates will be made in the future. Any reduction in these reimbursement rates would have a material adverse effect on the Company's revenues and net earnings. ERYTHROPOIETIN REIMBURSEMENT AND SUPPLY. Since June 1, 1989, Medicare and Medicaid have provided reimbursement for the administration of EPO to dialysis patients for the treatment of anemia. During fiscal 1994 and 1995, approximately 84% and 85%, respectively, of the Company's dialysis patients received EPO. The Company's revenues from the administration of EPO were approximately $42.0 million and $54.4 million, respectively, or 17% and 19% of dialysis revenues, for those periods. Effective January 1, 1994, Medicare and Medicaid reimbursement for the administration of EPO was reduced from $11.00 to $10.00 per 1,000 units. Any further reduction in the reimbursement rate for the administration of EPO could have an adverse effect on the Company's revenues and net earnings. In addition, EPO is produced by a single manufacturer and any interruption of supply could adversely affect the Company's revenues and net earnings. INTRADIALYTIC PARENTERAL NUTRITION THERAPY REIMBURSEMENT. Intradialytic Parenteral Nutrition ("IDPN") therapy is a nutritional supplement administered during dialysis to patients suffering from nutritional deficiencies. In early 1993, HCFA designated four durable medical equipment regional carriers (the "DMERCs") to process reimbursement claims for IDPN therapy. To date, these DMERCs have denied most claims and the Company is currently appealing these denied claims. HCFA is currently reviewing the DMERCs position with respect to medical policy and claims reimbursement. The final outcome of this review is uncertain and may ultimately affect the number of patients eligible to receive reimbursement for IDPN therapy. Patients receiving IDPN therapy prior to the designation of the DMERCs are "grandfathered" under the prior carriers medical policies and continue to be eligible for reimbursement. Since May 1995 and based upon the continued uncertainty with respect to reimbursement for services provided, the Company has limited administration of this therapy to patients who have been "grandfathered" or have private insurance. Page 2 of 53 OTHER SOURCES OF DIALYSIS REIMBURSEMENT. The Company estimates that approximately 34% and 30% of its dialysis revenues for the fiscal years ended 1994 and 1995, respectively, were derived from sources other than Medicare and Medicaid. Of these revenues, the largest portion came from private insurance for chronic dialysis treatments. Reimbursement from hospitals for acute dialysis treatments was also significant. In general, private insurance reimbursement and reimbursement for treatments performed at hospitals are at rates significantly in excess of Medicare and Medicaid rates. The Company believes that private payers will be required in the future to assume a greater percentage of the costs of dialysis care as the existing ESRD program is reviewed by the United States Congress, and as a result, private payers will focus on reducing dialysis payments as their overall dialysis costs increase. In addition, as health maintenance organizations ("HMOs") and other managed care providers expand, they will have a strong incentive to further reduce the costs of specialty care and will aggressively seek to reduce amounts paid for dialysis. CAPITATED AGREEMENTS. The Company has entered into specialty care capitated agreements with payers that provide for the receipt of monthly prepaid fees per individual enrollee for specifically enumerated services. The Company has only entered into such capitated agreements in those states where the Company is expressly permitted to assume this type of risk. Under these agreements, the Company is generally responsible for the provision of all covered professional services with respect to the specialty care area. To the extent that enrollees require more care than is anticipated, aggregate capitation rates may be insufficient to cover the costs associated with the treatment of enrollees. The Company intends to enter into additional capitated agreements during fiscal 1996. OPERATING MARGINS. There can be no assurance that the Company will be able to maintain its historical operating margins in its dialysis business. The Company's costs are subject to continuing increases as a result of rising labor and supply costs, opening and start-up expenses for new dialysis centers, the development of new managed care products and general inflation. At the same time, reimbursement rates for dialysis treatments, from both public and private payers, depend on a number of factors and may remain flat or be reduced. In addition, private payers will likely seek to reduce the amount which they pay for dialysis treatments. The Company is seeking to improve operating margins through increased productivity and various cost containment programs; however, there can be no assurance that its operating margins will not decline in the future. GROWTH OF DIALYSIS BUSINESS. The Company is attempting to increase its rate of acquisition and development of new dialysis centers. Accordingly, the Company has increased its development staff and budget. The dialysis industry is highly competitive with respect to acquisitions of existing dialysis facilities and recruiting Medical Directors for new centers. Certain of the Company's competitors have substantially greater financial resources than the Company and compete with the Company for the acquisition of facilities. Competition for acquisitions has increased significantly in recent years and, as a result, the cost of acquiring existing dialysis facilities has also increased. To the extent that the Company is unable to acquire existing dialysis facilities economically, to develop facilities profitably or to recruit Medical Directors to operate its facilities, its ability to expand its dialysis business would be reduced significantly. GROWTH OF NEW BUSINESS. The Company has acquired and expects to acquire additional healthcare service businesses outside of the dialysis area. The development or acquisition of new businesses could require a significant capital commitment. Such new businesses or new facilities of existing businesses may incur significant losses and experience delays in attaining profitability or may never become financially viable. Further, they may not provide the Company with revenue as predictable as historically provided by the Company's dialysis business. In addition, certain companies, some of which have longer operating histories and greater financial resources than those of the Company, are providing specialty healthcare and physician practice management services similar to those that the Company provides or may provide. The Company may be forced to compete with these entities for the acquisition of the assets of specialty medical practices, contracts to manage such practices and, in some cases, the employment of practice physicians. There can be no assurance that the Company will be able to compete effectively with such competitors, that additional competitors will not enter the Company's markets, or that competition will not make it more difficult to expand in such markets on terms profitable to the Company. In addition, the Company intends to expand its existing businesses by contracting with managed care payers on a capitated or at-risk basis. Under capitated or at-risk contracts, the health care Page 3 of 53 provider agrees to provide care for a fixed rate based on the number of health care plan members, regardless of the amount of care required. As a result, the service provider bears the risk of excess utilization. To the extent that a health care plan member requires more care than anticipated, the capitation rate paid to the health care provider may be insufficient to cover the costs associated with provided services. If the aggregate costs associated with providing medical services exceed the aggregate of the capitation rates, the Company could, directly or indirectly, be forced to absorb some of these costs which could have a negative effect on the Company's revenues and net earnings. GOVERNMENT REGULATION. The Company is subject to extensive federal and state regulation regarding, among other things, fraud and abuse, health and safety, environmental compliance and toxic waste disposal. In particular, the illegal remuneration provisions of the Social Security Act and similar state laws impose civil and criminal sanctions. These sanctions include disqualification from participation in the Medicare and Medicaid programs for persons who solicit, offer, receive or pay any remuneration, directly or indirectly, for referring a patient for treatment which is paid for in whole or in part by Medicare and Medicaid or for otherwise generating revenues reimbursed by either of these programs. In July 1991 and in November 1992, the federal government published final regulations that provide exceptions or "safe harbors" from the illegal remuneration prohibitions for certain business transactions. Transactions that satisfy the criteria under the applicable safe harbors are deemed not to violate the illegal remuneration provisions. The Company seeks to comply with the safe harbors in those instances where possible. Due to the breadth of the statutory provisions and the absence in certain instances of regulations or court decisions addressing many of the specific arrangements by which the Company conducts its business, it is possible that the Company's practices might be challenged under these laws. The Office of Inspector General (the "OIG") of the Department of Health and Human Services ("HHS") has previously published warnings that it believes two practices common in the dialysis services industry may violate certain statutory provisions. The Company believes that it has a reasonable basis for continuing practices which the OIG may regard as within the scope of the OIG's warnings and that, if challenged by the OIG, it could defend these practices. However, there can be no assurance that the Company will not be required to change one or more of these practices or be subject to sanctions. The Company's revenues and net earnings would be adversely affected as a result of any such change or sanctions. The Company has never been challenged under these statutes, however, and believes it complies in all material respects with these and all other applicable laws and regulations. Under both the Omnibus Budget Reconciliation Act of 1993 ("Stark II") and certain state legislation, it is unlawful for a physician to refer patients for certain designated health services to an entity with which the physician has a financial relationship. The Company believes that the language and history of Stark II indicate that Congress did not intend to include dialysis services and certain services and items provided incident to dialysis services within the legislative prohibition. However, certain services, including prescription drugs, clinical laboratory services and parenteral and enteral nutrients, equipment, and supplies, even when provided in conjunction with dialysis services, could be construed as designated health services within the meaning of Stark II. Due to the breadth of the statutory provisions and the absence of regulations or court decisions addressing the specific arrangements by which the Company conducts its business, it is possible that certain of the Company's practices might be challenged under these laws which could result in civil penalties, including exclusion or suspension of the Company from future participation in Medicare and Medicaid programs, and substantial fines. Although there can be no assurance, the Company believes that if Stark II is interpreted to apply to the Company's operations, the Company will be able to bring its financial relationships with referring physicians into material compliance under the provisions of Stark II, including relevant exceptions. If Stark II is broadly interpreted by HCFA to apply to the Company and the Company cannot achieve material compliance, it could have a material adverse effect on the Company's revenues and net earnings. See "Business--Government Regulation." NATIONAL HEALTH CARE REFORM. There is significant national concern today about the availability and rising cost of health care in the United States. It is anticipated that new federal and/or state legislation will be passed and regulations adopted to attempt to provide broader and better health care and to manage and contain its cost. The Company is unable to predict the content of any legislation or what, if any, changes may occur in the method and rates of its Medicare and Medicaid reimbursement or in other government regulations that may Page 4 of 53 affect its businesses, or, whether such changes, if made, will have a material adverse effect on its revenues and net earnings. DEPENDENCE ON PHYSICIAN REFERRALS. The Company's facilities depend upon their Medical Directors and to a lesser extent other local nephrologists for referrals of ESRD patients for treatment. As is generally true in the dialysis industry, at each facility one or a few physicians account for all or a significant portion of the patient base. The loss of one or more key physicians at a particular facility could have a material adverse effect on the operations of that facility, and the loss of a significant number of physicians could adversely affect the Company's overall operations. VIVRA RENAL CARE DIALYSIS SERVICES The Company is the second largest provider of dialysis services in the United States. The Company intends to develop and acquire facilities primarily in existing and contiguous geographic markets and to increase the number of physicians and other sources of patient referrals. END-STAGE RENAL DISEASE. ESRD is the state of advanced renal impairment that is irreversible and fatal without treatment. According to HCFA, the number of patients who require chronic dialysis services grew from approximately 66,000 in 1982 to approximately 187,000 in 1994, representing a compound annual growth rate of 9%. The Company attributes the continuing growth in the number of ESRD patients principally to the aging of the general population, demographic trends and medical advances resulting in increased life expectancy of patients with hypertension, diabetes and other illnesses that lead to ESRD. Additionally, management believes, improved technology has enabled older patients and those who previously could not tolerate dialysis due to other illnesses to benefit from this life-prolonging treatment. Qualified patients with ESRD have been entitled since 1973 to Medicare benefits regardless of age or financial circumstances. TREATMENT OPTIONS FOR END-STAGE RENAL DISEASE. Treatment options for ESRD include hemodialysis, peritoneal dialysis and kidney transplant surgery. HCFA estimates that, as of December 31, 1994, 82% of the ESRD patients in the United States were receiving hemodialysis treatment in outpatient facilities. The remaining 18% were treated in the home or in the hospital as inpatients. Patients treated in the home are monitored by a designated outpatient facility or qualified physician's office. Hemodialysis uses an artificial kidney, called a dialyzer, to remove certain toxins, fluid and salt from the patient's blood, and a machine to control external blood flow and to monitor certain vital signs of the patient. Typically dialysis for the chronic patient is performed three times per week, for approximately four hours per treatment, and continues for the patient's lifetime. Peritoneal dialysis is generally performed by the patient at home. The most common methods are continuous ambulatory peritoneal dialysis ("CAPD") and continuous cycling peritoneal dialysis ("CCPD"). Peritoneal dialysis offers patients an improved lifestyle, but is limited in application by a higher incidence of infection. Both CAPD and CCPD uses the patient's peritoneal (abdominal) cavity to eliminate fluid and toxins from the patient. CCPD uses a mechanical device to cycle dialysis solution while a patient is sleeping. An alternative treatment not provided by the Company is kidney transplantation. While this option, when successful, is the most desirable form of therapeutic intervention, the shortage of suitable donors limits the availability of this surgical procedure as a treatment option. In addition, attempts are being made to develop new drugs, medical treatments or artificial kidneys that prevent or reduce the necessity for dialysis. LOCATION, CAPACITY AND OPERATION OF FACILITIES. As of November 30, 1995, the Company owned and operated 199 facilities of which 175 are located in leased premises and 24 are located in buildings owned by the Company. The facilities range in size from 6 to 41 stations; the average size is 15 stations. The facilities are located as follows: California (34); Florida (30); Texas (19); Georgia (18); Alabama and Pennsylvania (14 each); Page 5 of 53 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.
NUMBER OF NUMBER OF TREATMENTS FISCAL YEAR END FACILITIES 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 data which is reviewed regularly by regional and corporate management to continually monitor and improve the standard of care being provided. SOURCES OF DIALYSIS REVENUES. The Company estimates that approximately 70% of its dialysis revenues, including revenues for the reimbursement of the administration of EPO, for each of the fiscal years 1991, 1992 and 1993, 66% for fiscal year 1994 and 70% for fiscal 1995, were reimbursements from Medicare and Medicaid under ESRD administered by HCFA and the states. Numerous congressional actions have resulted in changes in the average Medicare reimbursement rate from a fixed fee of $138 per treatment in 1983, to a current average rate of $126. The Medicaid programs are also subject to statutory and regulatory changes that could affect the rate of Medicaid reimbursement. The Company is not able to predict whether and to what extent changes to Medicare and Medicaid reimbursement rates will be made in the future. Any reduction in these reimbursement rates would have material adverse effects on the Company's revenues and net earnings. Page 6 of 53 New dialysis patients must wait 90 days after commencement of dialysis treatments to qualify under the Medicare ESRD reimbursement program. Often patients do not have the means or insurance to pay for treatment during this 90-day waiting period. If new patients do have private insurance, or belong to an employer group health plan, regulations require such insurance to pay for up to the first 21 months of dialysis treatment before Medicare reimbursement begins. If a secondary carrier such as Medicaid or a private insurer cannot be found, the Company may not be reimbursed for the initial waiting period or the 20% copayment of the ESRD rate which is not paid by Medicare. The Company seeks to assist patients who may not initially have adequate sources of reimbursement or insurance to obtain coverage, if possible. Since June 1, 1989, Medicare and Medicaid have provided reimbursement for the administration of EPO to dialysis patients for the treatment of anemia. During fiscal 1994 and 1995, approximately 84% and 85%, respectively, of the Company's dialysis patients received EPO. Revenues from the administration of EPO were approximately $42.0 million and $54.4 million, respectively, or 17% and 19%, respectively, of dialysis revenues, for those periods. Effective January 1, 1994, Medicare and Medicaid reimbursement for the administration of EPO was reduced from $11 to $10 per 1,000 units. Any further reduction in the reimbursement rate for the administration of EPO would have a negative impact on the Company's revenues and net earnings. In addition, EPO is produced by a single manufacturer, and any interruption of supply could adversely affect the Company's revenues and net earnings. The Company estimates that approximately 34% of its dialysis revenues for the fiscal year ended 1994 and 30% for 1995, were derived from sources other than Medicare and Medicaid. Of these revenues, the largest portion came from private insurance for chronic dialysis treatments. In general, private insurance reimbursement and reimbursement for treatments performed at acute care hospitals are at rates significantly in excess of Medicare and Medicaid rates. The Company believes that private payers will be required in the future to assume a greater percentage of the costs of dialysis care as the existing federal ESRD program is reviewed by the United States Congress, and as a result, private payers will focus on reducing dialysis payments as their overall dialysis costs increase. In addition, as HMOs and other managed care providers expand, they will have a strong incentive to further reduce the costs of specialty care and will aggressively seek to reduce amounts paid for dialysis. The Company is unable to predict to what extent decreases in these reimbursement rates will be made in the future. Any reduction in the ability of the Company to charge rates that are in excess of those paid by Medicare and Medicaid would have a significant negative effect on the Company's revenues and net earnings. The business segment information set forth in footnote 10 to the Company's Consolidated Financial Statements are incorporated herein by reference. SPECIALTY PHARMACY SERVICES In September 1991, the Company established Associated Health Services ("AHS") to provide IDPN pharmacy and support services to its dialysis patients. AHS operates a pharmacy in Southern California and provides IDPN therapy services to dialysis patients in facilities owned by third parties, in addition to VRC's patients. IDPN therapy is a nutritional supplement administered during dialysis to patients suffering from nutritional deficiencies. The Company is reimbursed by the Medicare program for the administration of IDPN therapy through its pharmacy which provides IDPN prescriptions and support services to certain of its dialysis patients and other third-party patients. In early 1993, HCFA designated four DMERCs to process reimbursement claims for IDPN therapy. To date these DMERCs have denied most claims and the Company is currently appealing these denied claims. HCFA is currently reviewing the DMERCs position with respect to medical policy and claims reimbursement. The final outcome of this review is uncertain and may ultimately affect the number of patients eligible to receive reimbursement for IDPN therapy. Patients receiving IDPN therapy prior to the designation of the DMERCs are "grandfathered" under the prior carriers medical policies and continue to be eligible for reimbursement. Since May 1995 and based upon the continued uncertainty with respect to reimbursement for services provided, the Company has limited administration of this therapy to patients who have been "grandfathered" or have private insurance. Page 7 of 53 VIVRA SPECIALTY PARTNERS Vivra Specialty Partners ("VSP") develops and manages specialty networks of independent and group practices spanning a payer's market. VSP's strategy is to allow payers to deliver specialty care to an entire market in a coordinated effort to improve care, deliver market share to the specialists and reduce costs. In many instances, these specialty networks are the vehicle through which VSP provides comprehensive disease management. VSP is currently active in: - Asthma/Allergy - Dialysis/Nephrology - Cardiology - ENT - Diabetes - OB-GYN Annualized network revenues have grown from approximately $5 million to $24 million in the last six months. VSP has capitated contracts covering approximately 2.5 million lives. Within targeted markets, VSP expects to move beyond network affiliations to strengthen the linkage with VSP's physician partners through practice acquisitions. Vivra intends to devote significant management resources and capital, to the extent such opportunities are available, to VSP. The business segment information set forth in footnote 10 to the Company's Consolidated Financial Statements are incorporated herein by reference. ASTHMA ALLERGY CARE SERVICES On November 30, 1994, the Company acquired what it believes is currently the only national company providing focused medical care for acute and chronic asthmatics and other allergy sufferers. As a result, the Company currently manages 25 asthma allergy care practices in 13 states. Asthma is a chronic disease with periodic acute episodes that range from mildly inconvenient to life-threatening. Over the past decade, the asthma allergy care market has grown and the Company estimates that currently over $6.0 billion is spent annually in the United States on the treatment of these chronic diseases. Over half of this cost is in hospitalizations and emergency room visits. Studies have shown that the vast majority of these hospitalizations and emergency room visits can be avoided by proper management of the patient's care. The Company believes that the U.S. asthma population will continue to grow and intends to expand its asthma allergy care services. The Company's strategy is to acquire well-regarded allergists who will be included in its existing practice management organization and to create organized networks to contract for and manage the delivery of high quality, cost effective care. Its practices and networks will provide healthcare payers the ability to access geographically dispersed allergists and standardized treatment management guidelines. The goal is to improve health and reduce costly hospital admissions. The Company has currently effective capitated agreements with managed care providers covering approximately 850,000 lives. DIABETES In March 1992, the Company acquired Vivra Health Advantage, Inc. ("VHA"), the second largest provider of diabetes management services to hospitals. VHA was founded in 1987, and as of November 30, 1995, had contracts to provide services in twenty hospitals in ten states. VHA works collaboratively with hospital clients to develop and operate programs to achieve cost effective clinical outcomes in the management of diabetes and the healing of chronic wounds. The emphasis is on increasing patient education and aggressive medical management. Services are done in cooperation with the attending physicians and hospital staff to help patients prevent complications in an effort to reduce hospitalizations. Diabetes Mellitus is a chronic disease afflicting over 13 million Americans of whom about 6.5 million remain undiagnosed. Each year about 651,000 new cases of diabetes are identified. Proper management of diabetes lowers the cost of direct medical care, reduces employee productivity losses, and reduces complications such as lower extremity amputations, kidney failure and blindness. Page 8 of 53 OTHER SPECIALTY AREAS VSP is also a manager of specialty networks to contract for and manage the delivery of high quality, cost effective care in the areas of cardiology, obstetrics/gynecology and ENT. In these specialties, VSP has contracts covering an estimated 2.5 million lives. Additionally, VSP in certain circumstances acquires well-regarded practitioners in these areas. The networks and practices will provide healthcare payers the ability to access geographically dispersed specialists and standardized treatment management guidelines. VSP may also expand into other specialties. VIVRA NETWORK SERVICES (VNS) VNS is VSP's network information processing company. VNS provides claims processing and management reporting to VSP's specialty networks. In addition, VSP has contracts with ten third party specialty networks covering approximately 1.8 million lives to provide claims processing and management reporting services. OTHER SERVICES During the fiscal year ended November 30, 1995, the Company sold its ambulatory surgery, rehabilitation therapy and physician practice management businesses. The business segment information set forth in footnote 10 to the Company's Consolidated Financial Statements are incorporated herein by reference. COMPETITION The dialysis business is highly fragmented, with a number of operators with 25 or fewer centers and a small number of larger, multi-center chains. It is estimated that the six largest providers constitute greater than one-third of the estimated $4 billion outpatient dialysis treatment market. The balance of the market is still fragmented into hospital-based centers and facilities owned by individual nephrologists. Industry consolidation is expected to accelerate as large providers continue to make acquisitions. As a result, the Company faces competition for the acquisition and development of new centers as well as competition for qualified physicians to act as Medical Directors. A primary consideration in the selection of a dialysis facility is convenience of location for the patient. Other competitive factors include quality of care and service. While it occurs infrequently, the Company has experienced competition from the establishment of a facility by a former Medical Director. Certain companies, some of whom have longer operating histories and greater financial resources than those of the Company, are providing specialty healthcare services and specialty network services similar to those that the Company is providing or pursuing. The Company may be forced to compete with these entities for the acquisition of the assets of specialty medical practices, contracts to manage such practices and, in some cases, the employment of practice physicians. There can be no assurance that the Company will be able to compete effectively with such competitors, that additional competitors will not enter the Company's markets, or that such competition will not make it more difficult to expand in such markets on terms beneficial to the Company. All of the Company's businesses face significant competition, often from larger companies with greater financial resources and more operating experience. GOVERNMENT REGULATION GENERAL. The Company's dialysis operations are subject to extensive governmental regulation at the federal, state and local levels. These regulations require the Company to meet various standards relating to, among other things, the management of facilities, personnel, maintenance of proper records, equipment and quality assurance programs. The dialysis facilities are subject to periodic inspection by state agencies and other governmental authorities to determine if the premises, equipment, personnel and patient care meet applicable standards. To receive Medicare reimbursement, the Company's dialysis facilities must be certified by HCFA. Page 9 of 53 Any loss by the Company of its various federal certifications, its authorization to participate in the Medicare or Medicaid programs or its licenses under the laws of any state or other governmental authority from which a substantial portion of its revenues is derived or a change resulting from healthcare reform reducing dialysis reimbursement or reducing or eliminating coverage for dialysis services would have a material adverse effect on the Company's business. To date, the Company has not had any difficulty in maintaining its licenses or its Medicare and Medicaid authorizations. The healthcare services industry will continue to be subject to intense regulation at the federal and state levels, the scope and effect of which cannot be predicted. No assurance can be given that the activities of the Company will not be reviewed and challenged or that healthcare reform will not result in a material adverse change to the Company. FRAUD AND ABUSE. The Company's dialysis operations are subject to the illegal remuneration provisions of the Social Security Act (sometimes referred to as the "anti-kickback" statute) and similar state laws that impose criminal and civil sanctions on persons who knowingly and willfully solicit, offer, receive or pay any remuneration, whether directly or indirectly, in return for, or to induce, the referral of a patient for treatment, or, among other things, the ordering, purchasing, or leasing, of items or services that are paid for in whole or in part by Medicare, Medicaid or similar state programs. Violations of the federal anti-kickback statute are punishable by criminal penalties, including imprisonment, fines and exclusion of the provider from future participation in the Medicare and Medicaid programs. Federal enforcement officials also may attempt to impose civil false claims liability with respect to claims resulting from an anti-kickback violation. If successful, civil penalties could be imposed, including assessments of $2,000 per improper claim for payment plus twice the amount of such claim and suspension from future participation in Medicare and Medicaid programs. Civil suspension for anti-kickback violations also can be imposed through an administrative process, without the imposition of civil monetary penalties. Some state statutes also include criminal penalties. While the federal anti-kickback statute expressly prohibits transactions that have traditionally had criminal implications, such as kickbacks, rebates or bribes for patient referrals, its language has been construed broadly and has not been limited to such obviously wrongful transactions. Court decisions state that, under certain circumstances, the statute is also violated when one purpose (as opposed to the "primary" or a "material" purpose) of a payment is to induce referrals. Congress has frequently considered federal legislation that would expand the federal anti-kickback statute to include the same broad prohibitions regardless of payer source. In July 1991 and in November 1992, the Secretary of HHS published regulations that create exceptions or "safe harbors" for certain business transactions. Transactions that satisfy the criteria under the applicable safe harbors will be deemed not to violate the federal anti-kickback statute. Transactions that do not satisfy all elements of a relevant safe harbor do not necessarily violate the statute, although such transactions would be subject to scrutiny by enforcement agencies. The Company seeks to structure its various business arrangements to satisfy as many safe harbor elements as possible under the circumstances, although many of the Company's arrangements satisfy all of the elements of the relevant safe harbor. Although the Company has never been challenged under the anti-kickback statute and believes it complies in all material respects with this statute and all other applicable related laws and regulations, there can be no assurance that the Company will not be required to change its practices or experience a material adverse effect as a result of any such challenge or any sanction which might be imposed. On July 21, 1994, the Secretary of HHS proposed a rule that would modify the original set of safe harbor provisions to give greater clarity to the rulemaking's original intent. The proposed rule would make changes to the safe harbors on personal services and management contracts, small entity investment interests and space rentals, among others. The Company does not believe that the application of these safe harbors to its current arrangements, as set forth above, would change if the proposed rule were adopted in the form proposed. However, the Company cannot predict the outcome of the rulemaking process or whether changes in the safe harbors rule will affect the Company's position with respect to the anti-kickback statute. MEDICAL DIRECTOR RELATIONSHIPS. The conditions for coverage under the Medicare ESRD program mandate that treatment at a dialysis facility be under the general supervision of a Medical Director who is a physician. Generally, the Medical Director must be board eligible or board certified in internal medicine or pediatrics and have had at least 12 months of experience or training in the care of patients at ESRD facilities. Page 10 of 53 The Company has engaged Medical Directors at each of its facilities. The compensation of the Medical Directors and other physicians under contract is separately negotiated and generally depends upon competitive factors in the local market, the physician's professional qualifications and responsibilities and the size and utilization of the facility or relevant program. The aggregate compensation of the Medical Directors and other physicians under contract is generally fixed in advance for periods of one year or more by written agreement and is set to reflect the fair market value of the services rendered. Because in all cases the Company's Medical Directors and the other physicians under contract refer patients to the Company's facilities, the federal anti-kickback statute could apply. However, the Company believes its contractual arrangements with these physicians are in material compliance with the anti-kickback statute. Among the safe harbors promulgated by the Secretary of HHS is one relevant to the Company's arrangements with its Medical Directors and the other physicians under contract. The Company endeavors to enter into agreements with its Medical Directors and other physicians under contracts which satisfy the requirements of the personal services and management contract safe harbor. OTHER RELATIONSHIPS. The OIG has published warnings to the dialysis services industry generally that it believes that the industry-wide practices of obtaining discounts on certain laboratory charges and the payment of remuneration for services provided for IDPN therapy at dialysis centers violate the anti-kickback statute in many, if not most, circumstances. The Company believes that it has a reasonable basis for continuing practices which the OIG may regard as within the scope of the warnings and that, if challenged by the OIG, it could defend these practices. However, there can be no assurance that the Company will not be challenged under the statutes or that, whether or not challenged and subject to sanctions, the Company will not be required to change its current practices. Any such change or challenge, including any sanctions, would have an adverse effect on the Company's revenues and net earnings, as well as its competitors that engage in similar practices. Certain of the Company's other operations also receive Medicare and Medicaid reimbursement. While the Company believes that its other operations comply in all material respects with applicable law, there can be no assurance that the Company's other operations will not be subject to challenge or sanctions. Any such challenge or sanctions could have a material adverse effect on the Company's revenues and net earnings. STARK II. Stark II restricts physician referrals for certain designated health services to entities with which a physician or an immediate family member has a "financial relationship." The entity is prohibited from claiming payment under the Medicare or Medicaid programs for services rendered pursuant to a prohibited referral and is liable for the refund of amounts received pursuant to prohibited claims. The entity also can receive civil penalties of up to $15,000 per improper claim and can be excluded from participation in the Medicare and Medicaid programs. Comparable provisions applicable to clinical laboratory services became effective in 1992. Stark II provisions which may be relevant to the Company became effective on January 1, 1995. A "financial relationship" under Stark II is defined as an ownership or investment interest in, or a compensation arrangement between, the physician and the entity. The Company has entered into compensation agreements with its Medical Directors and other referring physicians; some Medical Directors own stock in the Company. The Company is not aware of any family relationship between a Medical Director and staff at its dialysis facilities. Stark II includes certain exceptions for compensation arrangements and ownership that satisfy certain criteria. With respect to compensation arrangements, remuneration from an entity pursuant to a personal services compensation arrangement is excepted from Stark II prohibitions if: (i) the arrangement is set out in writing, signed by the parties, and specifies the services covered by the arrangement; (ii) the arrangement covers all of the services to be provided by the physician (or an immediate family member of such physician) to the entity; (iii) the aggregate services contracted for do not exceed those that are reasonable and necessary for the legitimate business purposes of the arrangement; (iv) the term of the arrangement is for at least one year; (v) the compensation to be paid over the term of the arrangement is set in advance, does not exceed fair market value, and is not determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties; (vi) the services to be performed do not involve the counseling or promotion or a Page 11 of 53 business arrangement or other activity that violates any state or federal law; and (vii) the arrangement meets such other requirements that may be imposed pursuant to regulations promulgated by HHS. Another Stark II exception for compensation arrangements applies to bona fide employment relationships. This exception can apply to amounts paid by an employer to a physician-employee if: (i) the employment is for identifiable services; (ii) the amount of remuneration is consistent with the fair market value of services and is not determined in a manner that takes into account, directly or indirectly, the volume or value of any referrals by the referring physician; (iii) the remuneration is provided pursuant to an agreement which would be commercially reasonable even if no referrals were made to the employer; and (iv) the employment meets such other standards that HHS may impose to protect against program or patient abuse. In addition, this exception would permit certain types of productivity bonuses based on personal services performed by the physician or an immediate family member. Stark II also includes an exception for a physician's ownership or investment interest in shares in an Investment Company or securities listed on an exchange or quoted on NASDAQ which, in either case, meets certain financial criteria. Because of its broad language, Stark II may be interpreted by HHS to apply to the Company's operations. Consequently, Stark II may require the Company to restructure certain existing compensation agreements with its Medical Directors or, in the alternative, to refuse to accept referrals for designated health services from such physicians. Although there can be no assurance, the Company believes that if Stark II is interpreted to apply to the Company's operations, the Company will be able to bring its financial relationships with referring physicians into material compliance with the provisions of Stark II, including relevant exceptions. If the Company cannot achieve such material compliance, and Stark II is broadly interpreted by HHS to apply to the Company, such application of Stark II could have a material adverse effect on the Company. A broad interpretation of Stark II to include dialysis services and items provided incident to dialysis services would apply to the Company's competitors as well. For purposes of Stark II, "designated health services" include, among other things: clinical laboratory services; parenteral and enteral nutrients, certain equipment and supplies; prosthetics; orthotics; prosthetic devices; physical and occupational therapy services; outpatient prescription drugs; and inpatient and outpatient hospital services. Dialysis is not a designated health service, and the Company believes that the language and legislative history of Stark II indicate that Congress may not have intended to include the services and items provided incident to dialysis services within the Stark II prohibitions. However, the Company's provision of, or arrangement and assumption of financial responsibility for, outpatient prescription drugs, including EPO and IDPN, clinical laboratory services, facility dialysis services and supplies, home dialysis supplies and equipment, and services to hospital inpatients and outpatients, include services and items which could be construed as designated health services within the meaning of Stark II. Although the Company does not bill Medicare or Medicaid for hospital inpatient and outpatient services, the Company's Medical Directors may request or establish a plan of care that includes dialysis services for hospital inpatients and outpatients that may be considered a referral to the Company within the meaning of Stark II. STATE REFERRAL REGULATIONS. A California statute, which became effective January 1, 1995, makes it unlawful for a physician who has, or a member of whose immediate family has, a financial interest with or in an entity to refer a person to that entity for laboratory, diagnostic nuclear medicine, radiation oncology, physical therapy, physical rehabilitation, psychometric testing, home infusion therapy, or diagnostic imaging goods or services. Under the statute, "financial interest" includes, among other things, any type of ownership interest, debt, loan, lease, compensation, remuneration, discount, rebate, refund, dividend, distribution, subsidy or other form of direct or indirect payment, whether in money or otherwise, between a physician and the entity to which the physician makes a referral for the items described above. The statute also prohibits the entity to which the referral was made from presenting a claim for payment to any payer for a service furnished pursuant to a prohibited referral, and prohibits a payer from paying for such a service. Violation of the statute by a physician is a misdemeanor, and will subject the physician to civil fines. Violation of the prohibition on submitting a claim in violation of the statute is a public offense, subjecting the offender to a fine of up to $15,000 for each Page 12 of 53 violation and possible action against licensure. Certain patients treated at facilities of the Company receive laboratory services incidental to dialysis services pursuant to the orders of referring physicians. If reimbursement for these services is sought from the Medicare or Medicaid programs, the services are billed directly by the laboratory performing the services. Additionally, certain laboratory services are identified as included among the services for which the Company is financially responsible under the composite rate under Medicare and under other payment arrangements. Therefore, although the Company does not believe that the statute is intended to apply to laboratory services that are provided incident to dialysis services, it is possible that the statute could be interpreted to apply to such laboratory services. The statute includes certain exemptions from its prohibitions; however, the California statute includes no explicit exemption for Medical Director services or other services for which the Company contracts with and compensates referring physicians in California. Thus, if the California statute is interpreted to apply to laboratory services that are provided incident to dialysis services, the Company could be subject to sanctions and would be required to restructure some or all of its relationships with the referring physicians with whom it contracts for Medical Director and similar services. The consequences of such restructuring, if any, cannot be predicted. The Company believes that other states in which the Company does business have or are considering similar legislation. STATE LAWS REGARDING PROVISION OF MEDICINE AND INSURANCE. The laws of many states prohibit physicians from splitting fees with non-physicians and prohibit non-physician entities from practicing medicine. These laws vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. Although the Company believes its operations as currently conducted are in material compliance with existing applicable laws, many aspects of the Company's business operations, including the unique structure of the relationship between the Company and physicians, have not been the subject of state or federal regulatory interpretation. There can be no assurance that review of the Company's business by courts or regulatory authorities will not result in determinations that could adversely affect the operations of the Company or that the health care regulatory environment will not change so as to restrict the Company's existing operations or their expansion. In addition, expansion of the operations of the Company to certain jurisdictions may require structural and organizational modifications of the Company's form of relationships with physician groups, which could have an adverse effect on the Company. Most states have laws regulating insurance companies and HMOs. The Company is not qualified in any state to engage in the insurance or HMO businesses. As the managed care business evolves, state regulators may begin to scrutinize the practices of, and relationships between, third-party payers, medical service providers and entities providing management and other services to medical service providers with respect to the application of insurance and HMO laws and regulations. The Company does not believe that its practices, which are consistent with those of other health care companies, would subject it to such laws and regulations. However, given the limited regulatory history with respect to such practices, there can be no assurance that states will not attempt to assert jurisdiction. The Company may be subject to prosecution by state regulatory agencies, and accordingly may be required to change or discontinue certain practices which could have a material adverse effect on the Company. MEDICARE AND HEALTHCARE REFORM. Because the Medicare program represents a substantial portion of the federal budget, Congress takes action in almost every legislative session to modify the Medicare program for the purpose of reducing the amounts otherwise payable by the program to health care providers in order to achieve deficit reduction targets, among other reasons. Legislation or regulations may be enacted in the future that may significantly modify the ESRD program or substantially reduce the amount paid for the Company's services. Further, statutes or regulations may be adopted which impose additional requirements in order for the Company to be eligible to participate in the federal and state payment programs. Such new legislation or regulations may adversely affect the Company's business operations. OTHER REGULATIONS. The Company's operations are subject to various state hazardous waste disposal laws. Those laws as currently in effect do not classify most of the waste produced during the provision of dialysis services to be hazardous, although disposal of non-hazardous medical waste is also subject to regulation. OSHA regulations require employers of workers who are occupationally subject to blood or other potentially infectious materials to provide those workers with certain prescribed protections against bloodborne pathogens. Page 13 of 53 The regulatory requirements apply to all healthcare facilities, including dialysis facilities, and require employers to make a determination as to which employees may be exposed to blood or other potentially infectious materials and to have in effect a written exposure control plan. In addition, employers are required to provide hepatitis B vaccinations, personal protective equipment, infection control training, post-exposure evaluation and follow-up, waste disposal techniques and procedures, and engineering and work practice controls. Employers are also required to comply with certain record-keeping requirements. The Company believes it is in material compliance with the foregoing laws and regulations. Some states have established certificate of need ("CON") programs regulating the establishment or expansion of health care facilities, including dialysis facilities. The CON laws formerly applicable to freestanding dialysis facilities in seven states in which the Company operates dialysis facilities (Arizona, California, Florida, Louisiana, New Mexico, Texas and Virginia) have been repealed or have lapsed and have not been re-enacted. The Company believes it is in material compliance with current applicable laws and regulations. No assurance can be made that in the future the Company's business arrangements, past or present, will not be the subject of an investigation or prosecution by a federal or state governmental authority. Such investigation could result in any, or any combination, of the penalties discussed above depending upon the agency involved in such investigation and prosecution. None of the Company's business arrangements with physicians, vendors, patients or others have been the subject of investigation by any governmental authority. No assurance can be given that the Company's activities will not be reviewed or challenged by regulatory authorities. The Company monitors legislative developments and would seek to restructure a business arrangement if the Company determined that one or more of its business relationships placed it in material noncompliance with such a statute. The health care service industry will continue to be subject to substantial regulation at the federal and state levels, the scope and effect of which cannot be predicted by the Company. Any loss by the Company of its various federal certifications, its authorization to participate in the Medicare and Medicaid programs or its licenses under the laws of any state or other governmental authority from which a substantial portion of its revenues are derived would have a material adverse effect on its business. INSURANCE The Company carries insurance for property damage, public liability and malpractice covering all of its businesses. The public liability and malpractice coverage limits are $40 million for each loss occurrence. The all risk property insurance coverage limits are $10 million based on replacement cost for each loss occurrence. The loss occurrence limit includes separate annual aggregate sublimits for earthquake and flood damage of $5 million each for California and $5 million each for all other states. The Company believes that its insurance coverage is adequate. EMPLOYEES As of November 30, 1995, the Company had approximately 3,600 employees. Employees at one of the Company's dialysis facilities (representing less than 1% of total employees) are covered by a union agreement. The Company considers its labor relations to be satisfactory. ITEM 2. PROPERTIES. DIALYSIS PROPERTIES: As of November 30, 1995, the Company owned the real property for 24 of its 199 dialysis facilities. The majority of these owned facilities are one to two stories, comprising 1,800 to 16,900 square feet with the majority having 3,000 to 5,000 square feet. Sites range from one to one and one-half acres. The remaining 175 of the Company's dialysis facilities are in leased premises either within general hospitals or in separate buildings. These premises range in size from 2,000 to 8,400 square feet and are occupied under leases, ranging from month-to-month to 60 months duration with varying renewal options. The Company expects to renew these leases from time to time or to lease new space as necessary. The Company leases 51 Page 14 of 53 facilities from Medical Directors on terms consistent with those that would have been obtained from an unrelated third party. The Company recently leased a two-story office building in Laguna Hills, California, with approximately 34,000 square feet of space for administrative offices. Concurrently therewith, the Company sold its two-story office building, with approximately 15,000 square feet, and entered into a short-term lease for such building pending occupancy of the newly leased office space. The Company also recently entered into a lease for approximately 19,000 square feet of office space for its corporate headquarters in San Mateo, California. The Company leases an aggregate of approximately 50,000 square feet in Burlingame, California; Louisville, Colorado; Metorie and Covington, Louisiana; Nashville, Tennessee; Atlanta, Georgia; and Miami and Clearwater, Florida for office space and in San Dimas, California for its specialty pharmacy. ITEM 3. LEGAL PROCEEDINGS. On May 20, 1992, in the Pennsylvania Court of Common Pleas in Delaware County, a complaint was filed against the Company's subsidiary, Community Dialysis Centers (CDC). In September 1993, the court determined that the suit could proceed as a class action on behalf of 93 patients, subsequently reduced to 72, who were treated at one of the CDC facilities, some of whom are alleged to have died or been injured during the course of treatment. Unspecified compensatory and punitive damages are being claimed. Since May 20, 1992, three other individual actions have been filed asserting similar claims, one of which has been settled. The Company's insurer has assumed defense of these actions, and the merit of the claims and the extent of the damages are still under investigation. As the investigation is not complete, management is unable to make an informed judgment as to the ultimate resolution of such proceedings and their impact on the results of operations; however, it believes insurance coverage is sufficient to cover any significant losses that are likely to result from these actions and therefore any such losses that would not have a material adverse effect on the Company's financial condition. The Company is also subject to other claims and suits in the ordinary course of business. Management believes that insurance is adequate to cover any such claims and therefore they would not have a material adverse effect on the Company's results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. Page 15 of 53 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION The Common Stock of Vivra Incorporated is listed for trading on the New York Stock Exchange under the symbol "V." The following table sets forth for the fiscal periods indicated the high and low sale prices for the Company's Common Stock as reported by the New York Stock Exchange, giving effect to a 3-for-2 stock split effective as of November 22, 1995. Price Range ------------------------------ High Low ---- --- 1994 ---- First Quarter $17 1/3 $13 1/8 Second Quarter $17 3/4 $15 1/8 Third Quarter $17 1/8 $15 1/8 Fourth Quarter $19 2/3 $17 1995 ---- First Quarter $21 7/8 $17 3/4 Second Quarter $23 7/8 $18 1/3 Third Quarter $22 1/8 $17 3/4 Fourth Quarter $23 7/8 $21 1/8 HOLDERS There were approximately 1,849 stockholders of record of the Company's Common Stock as of February 15, 1996. DIVIDENDS The Company has not declared or paid any cash dividends. The Board of Directors does not presently intend to pay regular cash dividends on the Common Stock. The payment of future dividends will be dependent upon the earnings, capital requirements and financial condition of the Company and such other business and economic factors as the Board of Directors considers relevant. Page 16 of 53 ITEM 6. SELECTED FINANCIAL DATA. Vivra Incorporated and Subsidiaries
Year ended November 30 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF EARNINGS DATA Operating revenues: Vivra Renal Care $303,570 $254,253 $208,379 $159,004 $122,170 Vivra Specialty Partners 22,891 3,282 2,154 1,148 - Other Services 24,029 27,114 6,227 2,103 - -------------------------------------------------------- Total operating revenues 350,490 284,649 216,760 162,255 122,170 Costs and expenses: Operating costs 238,730 188,529 148,046 111,722 83,507 General and administrative 43,531 37,495 20,722 14,113 10,884 Depreciation 10,767 9,552 7,196 4,864 3,878 Interest 360 523 912 872 700 ------------------------------------------------------- Total costs and expenses 293,388 236,099 176,876 131,571 98,969 Earnings from continuing operations before income taxes 62,164 50,410 41,105 32,182 24,649 Income taxes 24,224 20,668 17,263 13,195 9,860 ------------------------------------------------------- Net earnings from continuing operations 37,940 29,742 23,842 18,987 14,789 Earnings from discontinued operations, less applicable taxes - - 554 152 259 Gain on sale of discontinued operations, less applicable taxes - 697 - - - ------------------------------------------------------- Net earnings $ 37,940 $ 30,439 $ 24,396 $ 19,139 $ 15,048 ========================================================= Earning per share from continuing operations $1.08 $.96 $.79 $.65 $.54 ========================================================= Weighted average shares outstanding 35,068 30,834 30,110 29,313 27,630 ========================================================= BALANCE SHEET DATA Cash and investments $ 118,691 $ 79,509 $ 52,535 $ 39,890 $ 42,360 Working capital 131,027 97,244 88,334 72,104 75,756 Total assets 402,701 276,007 207,478 170,175 140,670 Long-term obligations 2,297 11,437 6,783 8,058 7,627 Stockholders' equity 343,168 211,854 172,267 140,875 118,235
Page 17 of 53 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The following is a comparative discussion of Vivra's financial condition and the operating results by fiscal year, for the three years ended November 30, 1995. It should be read in conjunction with Vivra's Consolidated Financial Statements and related Notes. The Company has three principal business segments, Vivra Renal Care, Vivra Specialty Partners and Other Services. Vivra Renal Care consists of dialysis and specialty pharmacy services. Vivra Specialty Partners consists of Asthma/Allergy, Diabetes, Cardiology, OB-GYN and ENT network services. Other Services consists of the ambulatory surgery, rehabilitation therapy and primary care physician practice management businesses which were sold in 1995. Page 18 of 53 1995 COMPARED WITH 1994 For fiscal 1995 as compared to fiscal 1994, revenues increased $69.1 million, or 24.1%; costs and expenses $57.3 million, or 24.3%; and earnings from continuing operations before taxes $11.8 million, or 23.3%. In total, net earnings for the year increased $7.5 million to $37.9, or 24.6% compared to 1994. Of the increase in revenues, operating revenues increased $65.8 million, 23.1%, to $350.5 million. Revenues from Vivra Renal Care increased $49.3 million to $303.6 million, or 19.4%; Vivra Specialty Partners increased $19.6 million to $22.9 million; and Other Services decreased $3.1 million to $24.0 million, an 11.4% decrease. The increase in revenues from Vivra Renal Care was attributable to the growth in the number of treatments provided and growth in the administration of the drug Erythropoietin ("EPO"), prescribed for dialysis patients suffering from anemia. Treatments grew 20.2% from 1,256,397 to 1,510,172 as a result of the net addition of 49 centers. For 1995, revenues from EPO were $54.4 million, compared to $42.0 million in the prior year, a 29.5% increase. This growth was due to an increase in the number of patients receiving EPO and in the average size of dosages. As of November 30, 1995, approximately 85% of the Company's dialysis patients were receiving EPO, compared to 84% in 1994. The increase in revenues from Vivra Specialty Partners was due to the addition of the asthma/allergy product as of November 30, 1994, the growth in diabetes services and the addition of various specialty network products during the year. The decrease in Other Services revenues was a direct result of the sale of the Company's ambulatory surgery center and rehabilitation therapy businesses in May and July 1995, respectively. Other income of $5.2 million, included a $2.2 million gain from the disposition of the Company's ambulatory surgery center business, a $2.0 million gain from the sale of the Company's rehabilitation therapy business, $2.3 million of charges related to the wind-down, sale and discontinuation of the Company's primary care physician practice management business and a $1.0 million write-down as a result of the pending sale of the Vivra Renal Care corporate office building. In addition, other income included $4.3 million of interest earned on tax-free marketable securities. Of the increase in costs and expenses, operating costs increased $50.2 million, or 26.6%, to $238.7 million. Vivra Renal Care operating costs increased $37.3 million to $205.5 million, or 22.2%; Vivra Specialty Partners increased $16.5 million to $17.9 million; and Other Services decreased $3.6 million to $15.3 million, a 19.0% decrease. The increase in Vivra Renal Care operating costs was due to the increased volume of dialysis business, expenses associated with the operation of newly developed dialysis centers and the cost of the administration of EPO. Vivra Specialty Partners operating costs increased due to the growth in diabetes services and the additions of the ENT, asthma/allergy and cardiology products. Operating costs of Other Services decreased as a result of the sale of the ambulatory surgery and rehabilitation therapy businesses in 1995. General and administrative expenses increased $6.0 million to $43.5 million, or 16.1%. These expenses include $3.1 million of non-recurring items consisting of a $1.1 million reserve taken for intradialytic parenteral nutrition therapy accounts receivable, $1.6 million for severance and compensation, relocation and termination expenses and $450,000 for other charges. Furthermore, general and administrative expenses increased as a result of the addition of the asthma/allergy product. In total, general and administrative expenses decreased to 12.4% of total revenues for 1995, as compared to 13.2% in 1994. Depreciation increased $1.2 million, or 12.7%, to $10.8 million, due to an increase in depreciable assets of the dialysis business and the ambulatory surgery business prior to the sale of the business in May 1995. The effective tax rate for 1995 was 39.0% of earnings before income taxes, compared with 41.0% a year earlier. This decrease was due, in large part, to the Company's cash assets being invested in tax-free marketable securities, which had the effect of lowering the overall tax rate. 1994 COMPARED WITH 1993 For fiscal 1994 as compared to fiscal 1993, revenues increased $68.5 million, or 31.4%; costs and expenses $59.2 million, or 33.5%; earnings from continuing operations before taxes $9.3 million, or 22.6%; and net earnings from continuing operations $5.9 million, or 24.7%. In addition, during the year, the Company recorded a gain of $697,000, after applicable taxes, on the sale of its home healthcare nursing business. Accordingly, the results of operations for this business are shown separately as discontinued operations for the Page 19 of 53 year ended November 30, 1993 in the Consolidated Statement of Earnings, restated for comparative purposes. In total, net earnings for the year increased $6.0 million to $30.4 million, or 24.8% compared to 1993. Of the increase in revenues, operating revenues increased $67.9 million, 31.3%, to $284.6 million. Revenues from Vivra Renal Care increased $45.9 million to $254.2 million, or 22.0%; Vivra Specialty Partners increased $1.1 million to $3.3 million, or 52.4%; and Other Services increased $20.9 million to $27.1 million, a 335.4% increase. The increase in revenues from Vivra Renal Care was attributable to a 15.5% increase in the number of treatments from 1,087,385 to 1,256,397 as a result of the net addition of 12 centers and improved patient census. An improvement in the payer mix (See further discussion in INFLATION AND CHANGES IN PRICES), revenues from the administration of EPO and other ancillary services also contributed to the increase in dialysis revenues. For 1994, revenues from EPO were $42.0 million, compared to $33.8 million in the prior year, a 24.3% increase. This growth was due to an increase in the number of patients receiving EPO and in the average size of dosages. As of November 30, 1994, approximately 84% of the Company's dialysis patients were receiving EPO, compared to 82% in 1993. The increase in revenues from Vivra Specialty Partners was due to the growth in diabetes services. The increase in Other Services revenues primarily reflects the acquisition and growth of the rehabilitation therapy business, and the addition of new ambulatory surgery centers. Other income, from interest earned on short-term investments, increased $649,000 to $1.9 million, or 53.2%, as a result of increased cash balances. Of the increase in costs and expenses, operating costs increased $40.5 million, or 27.3%, to $188.5 million. Vivra Renal Care operating costs increased $23.9 million to $168.2 million, or 16.6%; Vivra Specialty Partners increased $685,000 to $1.4 million, or 93.9%; and Other Services increased $15.9 million to $18.9 million, or 516.3%. The increase in Vivra Renal Care operating costs was due to the increased volume of dialysis business, expenses associated with the operation of newly developed dialysis centers, the cost of the administration of EPO and higher labor and supply costs. Vivra Specialty Partners operating costs increased due to the growth in diabetes services. Operating costs of Other Services increased as a result of the acquisition and growth of the rehabilitation therapy businesses, the addition of new ambulatory surgery centers and the start-up of the primary care physician practice management business. General and administrative expenses increased $16.8 million to $37.5 million, or 80.9%, as a result of an increased volume of business, the addition of the rehabilitation therapy business, increased goodwill incurred as a result of acquisitions made during the past year, costs associated with the development of the ambulatory surgery and specialty pharmacy businesses, the development of new managed care products and increased incentive compensation expense. Depreciation increased $2.4 million, or 32.7%, to $9.5 million, due to an increase in depreciable assets of the dialysis and ambulatory surgery businesses. As a result of revenues increasing less rapidly than costs and expenses, earnings from continuing operations before taxes as a percentage of revenues decreased to 17.6% compared to 18.9% in 1993. Overall, net earnings from continuing operations increased $5.9 million, or 24.7%, as a result of increased revenues, despite a slight decline in before-tax earnings margins. LIQUIDITY AND CAPITAL RESOURCES The Company requires capital for the acquisition and development of dialysis facilities, including the purchase of property, plant and equipment, and the acquisition and development of its new specialty products. Acquisition expenditures for fiscal years ended November 30, 1995 and 1994 were $84.6 million, consisting of $66.7 million in cash and 848,391 shares of the Company's Common Stock and $18.6 million, consisting of $9.2 million in cash and 596,421 shares of the Company's Common Stock. Routine capital expenditures were $28.4 million and $20.5 million for the fiscal years ended November 30, 1995 and 1994, respectively. Cash flow from operations was $23.4 million and $43.2 million, for the years ended November 30, 1995 and 1994, respectively. The decrease of $19.8 million was primarily attributable to the Company funding increases in accounts receivable of $15.9 million. The increases in accounts receivable reflect growth in the Company's business operations and, beginning in 1994, a sharp reduction in IDPN claims approved for payment (See further discussion in INFLATION AND CHANGES IN PRICES). Cash flow from financing activities increased by Page 20 of 53 $64.9 million to $71.8 million in fiscal 1995. This increase was primarily the result of the Company's February 16, 1995 public offering in which the Company sold 2,992,500 shares of Common Stock and received net proceeds of $59.6 million. The Company's working capital increased by $33.8 million to $131.0 million at November 30, 1995, from $97.2 million at November 30, 1994. In fiscal 1996, the Company currently plans to continue to acquire and develop new dialysis facilities and expand its specialty network products. The Company expects that its capital and acquisition expenditures for fiscal 1996 will exceed expenditures for fiscal 1995. To the extent the Company is able to identify significant attractive investment opportunities, such expenditures could exceed $115 million. The Company believes that cash generated from operations together with available cash, the ability to issue Common Stock for acquisitions and issue debt or equity capital will be adequate to meet the Company's planned capital expenditure, acquisition and development and liquidity needs for fiscal 1996. INFLATION AND CHANGES IN PRICES In 1995 and 1994, approximately 70% and 66% of the Company's dialysis revenues were funded by Medicare and Medicaid, at an average rate of $126 per dialysis treatment, before ancillary services. Despite periods of significant inflation, the Medicare and Medicaid reimbursement rate has remained relatively constant since 1983. The Company is unable to predict what, if any, future changes may occur in the reimbursement rate and, if made, whether such changes will help alleviate or increase inflationary pressures on the Company's costs. The balance of dialysis revenues, which are paid at rates significantly in excess of Medicare and Medicaid, represented 30% of revenues in 1995 compared to 34% in 1994. The decline in revenues from these sources was due to the April 24, 1995 clarification of the government's original interpretation of an amendment to the Social Security Act contained in the Omnibus Reconciliation Act of 1993 ("OBRA 93"). OBRA 93 established rules for determining whether Medicare or an Employer Group Health Plan ("EGHP") should be the primary payer when beneficiaries who are eligible for or entitled to Medicare on the basis of End Stage Renal Disease ("ESRD") are also entitled to Medicare on the basis of age or disability. The Health Care Financing Administration ("HCFA") originally required EGHP's to be the primary payer during the benefits coordination period when a patient had dual entitlement. However, on April 24, 1995, HCFA revised its interpretation of this statute to make Medicare the primary payer in cases where a patient would otherwise be eligible for Medicare coverage prior to the patients ESRD diagnosis or when the patient's EGHP was intended to be supplemental. On June 6, 1995, the United States District Court for the District of Columbia issued a preliminary injunction precluding HCFA from implementing its revised interpretation for services furnished between August 10, 1993 and April 24, 1995. In the event this preliminary injunction is not upheld, the Company may be required to refund amounts paid by commercial payers and bill Medicare as the primary payer for these patients whose Medicare eligibility preceded their eligibility due to ESRD. Furthermore, any restriction or reduction of the Company's ability to charge rates in excess of those paid by Medicare and Medicaid would have a significant negative effect on the Company's revenues and earnings. Intradialytic Parenteral Nutrition ("IDPN") therapy is a nutritional supplement administered during dialysis to patients suffering from nutritional deficiencies. In early 1993, HCFA designated four durable medical equipment regional carriers (the "DMERCs") to process reimbursement claims for IDPN therapy. To date these DMERCs have denied most claims and the Company is currently appealing these denied claims. HCFA is currently reviewing the DMERCs position with respect to medical policy and claims reimbursement. The final outcome of this review is uncertain and may ultimately affect the number of patients eligible to receive reimbursement for IDPN therapy. Patients receiving IDPN therapy prior to the designation of the DMERCs are "grandfathered" under the prior carriers medical policies and continue to be eligible for reimbursement. Since May 1995 and based upon the continued uncertainty with respect to reimbursement for services provided, the Company has limited administration of this therapy to patients who have been "grandfathered" or have private insurance. Page 21 of 53 RESULTS OF OPERATIONS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information in response to this item is incorporated by reference from pages 25 through 47 hereof. ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable Page 22 of 53 PART IV ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information contained under the heading "Information Concerning Nominees and Continuing Directors" and "Information Concerning Executive Officers" in the definitive Proxy Statement for the Company's 1996 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained under the heading "Compensation of Executive Officers" in the definitive Proxy Statement for the Company's 1996 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information contained under the heading "Beneficial Ownership" in the definitive Proxy Statement for the Company's 1996 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. The Financial Statements listed in response to Item 8 are filed herewith. 2. The following Financial Statement Schedules are filed herewith: Valuation and Qualifying Accounts 3. Exhibits: (3) Articles of Incorporation and By-Laws of Registrant (3.1) Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995 and incorporated herein by reference. (3.2) By-Laws (filed as Exhibit 3B to Registrant's Registration Statement on Form 10, File No. 1-10261 incorporated herein by reference.) (4) Instruments defining the Rights of Securities Holders (4.1) Amended and Restated Rights Agreement dated February 13, 1996 between Registrant and the First National Bank of Boston (filed as Exhibit 4D to the Company's Form 10/A Filed on February 15, 1996 and incorporated herein by reference). Page 23 of 53 (10) Material Contracts (10.1) Debenture Payment Assumption Agreement between Registrant and Community Psychiatric Centers filed as Exhibit 10.5A.6 to Registrant's Registration Statement on Form 10, File No. 1-10261, filed May 26, 1989, incorporated herein by reference. (10.2) Registrant's Transition Consultants Stock Option Plan (Filed as Exhibit 10G to the Registrant's Registration Statement on Form 10, File No. 1-10261 and incorporated herein by reference). (10.2.1) Transition Consultants Stock Option Agreement (filed as Exhibit 10.4.4 to Registrant's Report on Form 10-K for its fiscal year ended November 30, 1989 and incorporated herein by reference). (10.3) Registrant's Amended Revised 1989 Stock Incentive Plan. (10.4) Registrant's Profit Sharing Plan (Filed as Exhibit 10.11 to Registrant's Amendment on Form 8 to Report on Form 10-K for its fiscal year ended November 30, 1992 and incorporated herein by reference.) (10.5) Form of Officer and Director Indemnification Agreement (filed as Exhibit 10.5 to Registrant's report on Form 10-K for its fiscal year ended November 30, 1991, and incorporated herein by reference). (10.6) Employment Agreement between Registrant and Kent J. Thiry, dated as of December 1, 1992 (filed as Exhibit 10.6 to Registrant's Amendment on Form 8 to Report on Form 10-K for its fiscal year ended November 30, 1992 and incorporated herein by reference). (10.7) Form of Employment Agreement between the Registrant and certain executive officers of the Registrant. (10.8) Form of agreement between the Registrant and the Medical Directors of its dialysis facilities (filed as Exhibit 10.6 to Registrant's Registration Statement on Form S-1, File No. 33-34438 and incorporated herein by this reference). (*10.9) Agreement effective February 1, 1996 between Amgen Inc. and the Registrant. (*10.10) Agreement effective February 1, 1996 between Bellco Drug Corp., Metro Health Corp. and the Registrant. (11) Statements re Computation of Per Share Earnings. (21) Subsidiaries of the Registrant. (23) Consent of Independent Auditors. * Confidential Treatment requested as to certain portions, which portions are omitted and filed separately with the Commissioner. (b) Reports on Form 8-K, filed in the fourth quarter of 1995: None. Page 24 of 53 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VIVRA INCORPORATED By /s/ Kent J. Thiry Date: February 23, 1996 --------------------------- Kent J. Thiry President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. /s/ Kent J. Thiry Date: February 23, 1996 ------------------------------ Kent J. Thiry President, Chief Executive Officer and Director (Principal Executive Officer) /s/ David G. Conner, M.D. Date: February 23, 1996 ------------------------------ David G. Connor, MD Director /s/ Richard B. Fontaine Date: February 23, 1996 ------------------------------ Richard B. Fontaine Director Date: February __, 1996 ------------------------------ Alan R. Hoops Director /s/ David L. Lowe Date: February 23, 1996 ------------------------------ David L. Lowe Director /s/ John M. Nehra Date: February 23, 1996 ------------------------------ John M. Nehra Director Date: February __, 1996 ------------------------------ Stephen G. Pagliuca Director /s/ LeAnne M. Zumwalt Date: February 23, 1996 ------------------------------ LeAnne M. Zumwalt Executive Vice President, Secretary, Treasurer and Director (Principal Accounting and Financial Officer) Page 26 of 53 Annual Report on Form 10-K Item 8, Item 14(a)(1) and (2), (c) and (d) Financial Statements and Supplementary Data List of Financial Statements and Financial Statement Schedule Certain Exhibits Financial Statement Schedule YEAR ENDED NOVEMBER 30, 1995 Vivra Incorporated and Subsidiaries Burlingame, California Page 27 of 53 Form 10-K--Item 14(a)(1) and (2) Vivra Incorporated and Subsidiaries List of Financial Statements and Financial Statement Schedule The following consolidated financial statements of Vivra Incorporated and subsidiaries are included in Item 8: Report of Independent Auditors Consolidated Balance Sheet-November 30, 1995 and 1994 Consolidated Statement of Earnings-Years ended November 30, 1995, 1994 and 1993 Consolidated Statement of Stockholders' Equity-Years ended November 30, 1995, 1994 and 1993 Consolidated Statement of Cash Flow-Years ended November 30, 1995, 1994 and 1993 Notes to Consolidated Financial Statements-November 30, 1995 The following consolidated financial statement schedule of Vivra Incorporated and subsidiaries is included in Item 14(d): Schedule II - Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. Page 28 of 53 Report of Independent Auditors Board of Directors Vivra Incorporated We have audited the accompanying consolidated balance sheets of Vivra Incorporated and subsidiaries as of November 30, 1995 and 1994 and the related consolidated statements of earnings, stockholders' equity, and cash flow for each of the three years in the period ended November 30, 1995. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vivra Incorporated and subsidiaries at November 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed further in Note 1 to the consolidated financial statements, effective December 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." ERNST & YOUNG LLP January 24, 1996 Los Angeles, California Page 29 of 53 Vivra Incorporated and Subsidiaries Consolidated Balance Sheet
NOVEMBER 30, 1995 1994 ------ ------ (IN THOUSANDS) ASSETS CURRENT ASSETS Cash and cash equivalents $ 52,565 $ 79,509 Short-term investments - held-to-maturity and available-for-sale (NOTE 4) 43,616 - Accounts receivable, less allowance for doubtful accounts (1995 - $12,865 and 1994 - $10,321) 61,350 51,353 Inventories 8,822 6,368 Prepaid expenses and other current assets 1,949 980 Deferred income taxes (NOTE 6) 14,514 10,674 ------------------- Total Current Assets 182,816 148,884 Marketable non-current investments - held-to-maturity (NOTE 4) 22,510 - Property, buildings and equipment - at cost, less allowances for depreciation (NOTES 5 AND 7) 75,107 65,972 Other assets 8,456 5,335 Goodwill and other intangibles, less accumulated amortization (1995 - $6,185 and 1994 - $4,378) 113,812 55,816 ------------------- $402,701 $276,007 =================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 10,839 $ 9,833 Accrued payroll and related benefits 22,344 23,073 Other accrued expenses 10,232 10,466 Income taxes (NOTE 6) 3,884 1,769 Current portion of deferred income taxes 3,532 - Current maturities of long-term debt (NOTE 7) 958 6,499 -------------------- Total Current Liabilities 51,789 51,640 Long-term debt - exclusive of current maturities (NOTE 7) 1,339 4,938 Deferred income taxes (NOTE 6) 6,643 6,184 Minority interest (238) 1,391 STOCKHOLDERS' EQUITY (NOTE 8): Common stock, par value $.01 per share; authorized 80.0 million shares; issued 36.6 million shares in 1995 and 31.2 million in 1994 366 208 Additional paid-in capital 142,777 54,891 Retained earnings 194,955 156,755 Net unrealized gain on marketable securities, less applicable income taxes 5,070 - ------------------- Total Stockholders' Equity 343,168 211,854 ------------------- $402,701 $276,007 ===================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 30 of 53 Vivra Incorporated and Subsidiaries Consolidated Statement of Earnings
YEAR ENDED NOVEMBER 30 1995 1994 1993 ----- ----- ----- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) REVENUES Operating revenues $350,490 $284,649 $216,760 Other income 5,157 1,870 1,221 ----------------------------------------- Total Revenues 355,647 286,519 217,981 COSTS AND EXPENSES Operating 238,730 188,529 148,046 General and administrative 43,531 37,495 20,722 Depreciation 10,767 9,552 7,196 Interest 360 523 912 ----------------------------------------- Total Costs and Expenses 293,388 236,099 176,876 ----------------------------------------- Earnings from continuing operations, before minority interest and income taxes 62,259 50,420 41,105 Minority interest (95) (10) - ----------------------------------------- Earnings from continuing operations, before income taxes 62,164 50,410 41,105 Income taxes (NOTE 6) 24,224 20,668 17,263 ----------------------------------------- Net earnings from continuing operations 37,940 29,742 23,842 Earnings from discontinued operations, less applicable taxes (NOTE 3) - - 554 Gain on sale of discontinued operations, less applicable taxes (NOTE 3) - 697 - ----------------------------------------- NET EARNINGS $ 37,940 $ 30,439 $ 24,396 ========================================== EARNINGS PER SHARE (PRIMARY AND FULLY DILUTED): Net earnings from continuing operations $ 1.08 $ .96 $ .79 Earnings from discontinued operations - - .02 Gain on sale of discontinued operations - .02 - ------------------------------------------ Net earnings $ 1.08 $ .99(1) $ .81 ========================================== AVERAGE NUMBER OF COMMON SHARES: Primary 35,068 30,834 30,075 Fully diluted 35,068 30,834 30,110 ==========================================
_____________________ (1) As a result of rounding, year to date earnings per share was $.99 rather than $.98. SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 31 of 53 Vivra Incorporated and Subsidiaries Consolidated Statement of Stockholders' Equity
Net Unrealized Additional Gain (Loss) on Common Paid-In Retained Treasury Stock Marketable --------------- Stock Capital Earnings Shares Amount Securities ------ -------- --------- ------- ------- ----------- (IN THOUSANDS) BALANCE AT DECEMBER 1, 1992 $127 $40,590 $101,356 42 $(1,198) Common Stock split effected by three- for-two distribution (NOTE 8) 64 (103) 21 Cash paid in lieu of issuance of fractional shares (12) Exercise of employees' stock options, net of treasury stock transactions (NOTE 8) 5 2,522 (63) 1,198 Income tax benefits derived from employee stock option 2,776 transactions Stock issued in connection with acquisitions (NOTE 2) 4 9 533 Net earnings for year 24,396 -------------------------------------------------------------- BALANCE AT NOVEMBER 30, 1993 200 45,782 126,285 - - - Exercise of employees' stock options, net of treasury stock transactions (NOTE 8) 6 4,163 Income tax benefits derived from employee stock option 3,514 transactions Stock issued in connection with acquisition (NOTE 2) 2 1,432 31 Net earnings for year 30,439 -------------------------------------------------------------- BALANCE AT NOVEMBER 30, 1994 208 54,891 156,755 - - - Common stock split affected by three- for-two distribution (NOTE 8) 103 (103) Cash paid in lieu to issuance of fractional shares (59) Sale of Common Stock (NOTE 8) 30 59,562 Exercise of employees' stock options, net of treasury stock transactions (NOTE 8) 14 13,800 Income tax benefits derived from employee stock option 5,162 transactions Stock issued in connection with acquisition (NOTE 2) 11 9,524 260 Net earnings for year 37,940 Net unrealized gain on marketable securities, less applicable income taxes (NOTE 6) $5,070 --------------------------------------------------------------- BALANCE AT NOVEMBER 30, 1995 $366 $142,777 $194,955 - - $5,070 ===============================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 32 of 53 Vivra Incorporated and Subsidiaries Consolidated Statement of Cash Flow
YEAR ENDED NOVEMBER 30 1995 1994 1993 ------ ------ ------ (IN THOUSANDS) OPERATING ACTIVITIES Net earnings $37,940 $30,439 $24,396 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 13,648 11,473 8,400 Assets held for sale - - (3,261) Gain on sale of discontinued operations - (1,229) - Loss (Gain) on sale of property and investments (1,565) 1,061 1 Other (6,159) (3,626) (81) Changes in assets and liabilities: Accounts receivable (15,893) (1,428) (3,610) Inventories (2,403) (1,238) (578) Prepaid expenses and other current assets (1,645) 296 521 Deferred income taxes (3,841) (4,039) (2,094) Accounts payable 5,324 (818) (44) Accrued payroll and related benefits (418) 6,430 3,416 Other accrued expenses (3,422) 4,761 1,071 Income taxes 1,785 1,129 380 -------------------------- Net cash flow from operations 23,351 43,211 28,517 FINANCING ACTIVITIES Payments on long-term debt (6,701) (3,632) (1,494) Proceeds from Common Stock offering 59,592 - - Proceeds from long-term borrowing - 2,838 - Proceeds from exercise of stock options and related transactions 18,918 7,683 6,451 -------------------------- Net cash flow from financing 71,809 6,889 4,957 INVESTING ACTIVITIES Purchase of property, buildings and equipment (28,431) (20,524) (12,055) Purchase of held-to-maturity investments (51,037) - - Purchase of available-for-sale investments (4,985) - - Proceeds from sale of property, buildings and equipment 29,158 193 14 Proceeds from sale of discontinued operations - 6,238 - Proceeds from investments in partnerships 841 1,627 1,097 Minority interest investment (1,000) (1,500) - Payment for business acquisitions, net of cash acquired (66,650) (9,160) (9,885) ---------------------------- Net cash flow used in investing (122,104) (23,126) (20,829) ---------------------------- Net increase (decrease) in cash and cash equivalents (26,944) 26,974 12,645 Beginning cash and cash equivalents 79,509 52,535 39,890 ---------------------------- Ending cash and cash equivalents $52,565 $79,509 $52,535 ============================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Page 33 of 53 Vivra Incorporated and Subsidiaries Notes to Consolidated Financial Statements November 30, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. In December 1993, the Company sold its home healthcare nursing business, Personal Care Health Services. The related gain on the sale is shown separately in 1994 under discontinued operations. The 1993 results of operations for the home healthcare nursing business are shown separately under discontinued operations, with the Consolidated Statement of Earnings restated for comparative purposes. All significant intercompany transactions have been eliminated in the accompanying consolidated financial statements. Certain amounts have been reclassified to conform with 1995 presentations. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. FINANCIAL INSTRUMENTS Effective December 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES ("FAS 115"), which resulted in a change in the accounting for debt and equity securities held for investment purposes. In accordance with FAS 115, the Company's debt and equity securities are now considered as either held-to-maturity or available-for-sale. Held-to-maturity securities represent those securities that the Company has both the positive intent and ability to hold to maturity and are carried at amortized cost. Available-for-sale securities represent those securities that do not meet the classification of held-to-maturity or trading, and are carried at fair value. Unrealized gains and losses on these securities are excluded from earnings and are reported as a separate component of Stockholders' Equity. The adoption of FAS 115 had no effect on the Company's reported earnings in fiscal 1995. INVENTORIES Inventories of supplies are stated at the lower of cost or market, with cost being determined on a first-in, first-out basis. PROPERTY, BUILDINGS AND EQUIPMENT Depreciation is computed on the straight-line method based on the estimated useful lives of buildings or items of equipment. PREOPENING COSTS Costs incurred prior to the opening of new facilities are deferred and amortized on a straight-line basis over a one to three year period. Page 34 of 53 GOODWILL AND OTHER INTANGIBLES Goodwill resulting from acquisitions is being amortized on a straight-line basis over 15 to 40 years. The Company reviews the performance of its operating units periodically to determine if an impairment has occurred. If events or changes in circumstances indicate that an impairment exists, the Company writes-down the corresponding goodwill to fair value. Other intangible assets are being amortized on a straight-line basis over 15 to 30 years. INCOME TAXES Effective December 1, 1993, the Company adopted the provisions of Financial Accounting Standards Board Statement No. 109, ACCOUNTING FOR INCOME TAXES ("FAS 109"), which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on rates applicable to the period in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets. The Company adopted FAS 109 prospectively. There was no cumulative effect of the change in the method of accounting for income taxes. OPERATING REVENUES Operating revenues include amounts for services reimbursable by Medicare, Medicaid, certain Blue Cross and other third-party payers under reimbursement formulas in effect. Operating revenues are recorded net of any related contractual allowances. Medicare and Medicaid provided approximately 63% of the Company's operating revenues in fiscal year 1995. The balance of revenues, approximately 37%, was from insurance, private and other third-party payers. STOCK OPTIONS Proceeds from the exercise of stock options are credited to Common Stock to the extent of par value, and the balance to additional paid-in capital. No charges or credits are made to earnings with respect to options granted or exercised. Income tax benefits derived from the exercise of non-incentive stock options and from sales of stock obtained from incentive stock options before the minimum holding period are credited to additional paid-in capital. EARNINGS PER SHARE Earnings per share have been computed based upon the weighted average number of shares of Common Stock outstanding during each year after adjusting for stock splits and giving effect for Common Stock equivalents arising from stock options. RECENT ACCOUNTING PRONOUNCEMENTS Effective March 1995, the Financial Accounting Standards Board issued Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("FAS 121"), which requires impairment losses to be recorded on long-lived assets used in operations, or to be disposed of, when such impairment has been determined. The Company will adopt FAS 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. 2. ACQUISITIONS AND DISPOSITIONS In 1995, the Company acquired twenty-eight dialysis centers. Total consideration paid was $76.0 million, consisting of cash of $58.0 million and 848,391 shares of the Company's Common Stock, which exceeded the fair value of net assets acquired by $59.7 million. Page 35 of 53 Also in 1995, the Company acquired seven physician businesses. Total cash consideration was $9.9 million, which exceeded the fair value of net assets acquired by $9.8 million. The purchase price of 1995 acquisitions was allocated to $76.3 million of assets acquired, less $1.2 million of cash, and $2.4 million of liabilities assumed. The consideration included the Company's Common Stock and $66.7 million of cash. During 1994, the Company acquired five dialysis centers. Total consideration paid was $4.3 million, consisting of cash of $763,000 and 255,777 shares of the Company's Common Stock, which exceeded the fair value of net assets acquired by approximately $1.8 million. Also during 1994, the Company acquired eight physician practice and related businesses. Total consideration paid was $8.8 million, consisting of cash of $6.6 million and 130,043 shares of the Company's Common Stock, which exceeded the fair value of net assets acquired by approximately $6.2 million. In November 1994, the Company purchased certain assets and liabilities in Asthma and Allergy CareAmerica, Inc., a provider of outpatient asthma/allergy care. Total consideration paid was $4.8 million, consisting of cash of $1.3 million and 210,602 shares of the Company's Common Stock, which exceeded the fair value of net assets acquired by approximately $2.1 million. The purchase agreement entitles the selling shareholders to receive further consideration of up to $14.3 million payable in cash or Common Stock of the Company, based upon meeting predetermined earnings targets in the years 1995 through 1998. The 1995 earnings target was not met, therefore no earnout payment was made. During 1993, the Company acquired six dialysis centers. Total consideration paid was $17.9 million , consisting of cash of $9.9 million and 663,750 shares of the Company's Common Stock, which exceeded the fair value of net assets acquired by approximately $9.2 million. The acquisitions of four dialysis centers in 1995, three dialysis centers in 1994, in addition to one physician practice, and two dialysis centers in 1993 have been accounted for as pooling of interests. Consolidated Financial Statements for the periods prior to the exchanges have not been restated as the effect of the poolings were not material to the Company. The acquisitions of the remaining dialysis centers and related specialty businesses have all been accounted for as purchases and, accordingly, have been included in the statement of earnings since their dates of acquisition. In June 1995, the Company completed the sale of the assets related to the operation of its five ambulatory surgery centers. In connection with the sale, the Company realized a pre-tax gain of $2.2 million. In July 1995, the Company sold its 60% interest in South Coast Rehabilitation Services ("SCRS"), a medical rehabilitation provider. In connection with the sale, the Company realized a pre-tax gain of $2.0 million. The following table presents the unaudited consolidated results of operations on a pro forma basis as though the acquisitions made in 1995 had occurred on December 1, 1993. Page 36 of 53
YEAR ENDED NOVEMBER 30 1995 1994 ----- ----- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Operating Revenues $382,518 $339,825 Net Earnings 39,162 32,328 Earnings per Share $1.12 $1.02
3. DISCONTINUED OPERATIONS In December 1993, the Company sold its home healthcare nursing business, Personal Care Health Services. The cash proceeds net of retained assets, liabilities and taxes were approximately $5.9 million. Accordingly, the home healthcare nursing business has been classified as a discontinued operation in the accompanying Consolidated Statement of Earnings. Net assets held for sale in the accompanying Consolidated Balance Sheet are composed of $3.2 million net current assets and $502,000 of net noncurrent assets as of November 30, 1993. These amounts consist primarily of accounts receivable, furniture and equipment and related liabilities. The sale of the home healthcare nursing business resulted in a gain on the sale of discontinued operations in the accompanying Consolidated Statement of Earnings of $697,000 net of applicable income tax of $505,000 in 1994. Revenues applicable to discontinued operations were $17.7 million in 1993. Earnings from discontinued operations in the accompanying Consolidated Statement of Earnings were $554,000 net of applicable income tax of $402,000 in 1993. 4. INVESTMENTS The amortized cost and estimated fair value of the Company's investments are as follows:
NOVEMBER 30, 1995 --------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR VALUE COST GAINS LOSSES --------------------------------------------- (IN THOUSANDS) Short-term investments: Debt securities: Due within 1 year $28,527 $ - $ - $28,527 Marketable equity 6,486 9,049 (446) 15,089 --------------------------------------------- Subtotal 35,013 9,049 (446) 43,616 Noncurrent investments: Debt securities: Due after 1 year through 5 years 22,510 - - 22,510 --------------------------------------------- Total Investments $57,523 $9,049 $(446) $66,126 =============================================
The Company's debt securities are classified as held-to-maturity and marketable equity securities are classified as available-for-sale. Page 37 of 53 5. PROPERTY, BUILDINGS AND EQUIPMENT Property, buildings and equipment are summarized as follows:
NOVEMBER 30 1995 1994 ----- ----- (IN THOUSANDS) Land $ 4,734 $6,450 Buildings and improvements 37,214 38,290 Furniture, fixtures and equipment 68,488 63,499 Construction in progress (estimated costs to complete at November 1995 - $2,634,000) 4,067 1,006 --------------------- 114,503 109,245 Less accumulated depreciation (39,396) (43,273) --------------------- $ 75,107 $ 65,972 =====================
6. INCOME TAXES Significant components of the Company's deferred tax assets and liabilities are as follows:
YEAR ENDED NOVEMBER 30 1995 1994 -------------------- (IN THOUSANDS) Deferred tax assets: Allowance for doubtful accounts $ 5,484 $ 4,434 Accrued compensation and other benefits 3,147 2,250 Accrued workers compensation insurance 2,247 1,633 Accrued health care costs 577 1,062 Deferred income 2,882 - Other assets 177 1,295 -------------------- Total deferred tax assets 14,514 10,674 Deferred tax liabilities: Net unrealized gain on marketable securities, classified as current 3,532 - Amortization of intangibles 4,428 3,241 Depreciation 2,271 2,086 Other liabilities (56) 857 -------------------- Total deferred tax liabilities 10,175 6,184 -------------------- Net deferred tax assets $ 4,339 $ 4,490 ====================
The above deferred tax assets and liabilities included deferred tax assets totaling $393,000 which were acquired as part of the Company's acquisitions in 1995. Page 38 of 53 Income tax expense from continuing operations consists of the following:
YEAR ENDED NOVEMBER 30 1995 1994 1993 ----- ----- ----- (IN THOUSANDS) Current: Federal $20,731 $18,900 $14,875 State 6,481 5,212 3,867 Deferred (credit) (2,988) (3,444) (1,479) --------------------------------- $24,224 $20,668 $17,263 =================================
Page 39 of 53 6. INCOME TAXES (CONTINUED) Deferred income taxes result from timing differences in the recognition of certain revenues and expenses for tax and financial statement purposes. The tax effects of these differences are:
YEAR ENDED NOVEMBER 30 1995 1994 1993 ----- ----- ----- (IN THOUSANDS) Amortization of intangibles $455 $1,786 $422 Provision for doubtful accounts in excess of amounts written off (1,081) (1,537) - Accrued compensation and other benefits (612) (1,118) - Accrued workers compensation insurance (640) (1,098) - Health insurance reserves in excess of claims paid 288 (129) (912) Deferred income (2,509) - - Other 1,111 (1,348) (989) $(2,988) $(3,444) $(1,479)
The differences between federal income taxes computed at the statutory rate and the total provision are:
YEAR ENDED NOVEMBER 30 1995 1994 1993 ------------------------------- (IN THOUSANDS) Federal income taxes at statutory rate $21,758 $17,643 $14,387 State taxes on income, net of federal tax benefit 3,320 2,937 2,328 Miscellaneous items (854) 88 548 ------------------------------- $24,224 $20,668 $17,263
The Company made income tax payments, net of refunds received, of $19,690,000, $20,629,000, and $14,523,000 in 1995, 1994 and 1993, respectively. Page 40 of 53 7. LONG-TERM DEBT Long-term debt at November 30, 1995, consists of the following:
Principal Installments Due Due Within After One Year One Year --------- --------- (IN THOUSANDS) Physician notes payable, collateralized by deeds of trust on physician practice assets with a cost of approximately $3,414,000, interest ranging from 5- 1/2% to 7%, due through 2000 $879 $1,285 Other notes payable, collateralized by deeds of trust on land, buildings and equipment with a cost of approximately $279,000 79 54 -------------------- $958 $1,339 ====================
Interest paid was $501,000, $433,000 and $820,000 in 1995, 1994 and 1993, respectively. The approximate annual maturities of long-term debt at November 30, 1995, are as follows: Year ending November 30 (IN THOUSANDS) 1996 $958 1997 481 1998 413 1999 247 2000 142 Page 41 of 53 8. CAPITAL STOCK AND STOCK OPTIONS The Company declared three-for-two stock splits, in the form of stock dividends, for shareholders of record on October 25, 1995 and November 10, 1993 with shares distributed on November 22, 1995 and November 29, 1993, respectively. The number of shares and the earnings per share shown in the Consolidated Financial Statements, as well as information in this Note, Note 2 and Note 12, have been restated to reflect the stock splits. In February 1995, the Company completed a registered public offering. In this offering, the Company sold 2,992,500 shares of common stock and the Company realized net proceeds of approximately $59.3 million. The Company has eight stock option plans under which stock options may be granted. The Company's 1989 Stock Incentive Plan provides for the granting of options to purchase Common Stock to officers and other employees. Options may be granted at not less than 100% of fair market value at the date of grant, are exercisable at various dates and expire no more than 10 years after the date of grant. Options may be paid for in cash or by the return of previously acquired shares of Common Stock. Shares acquired by the Company through option exercises were 116,067 in 1994, and 92,021 in 1993. These shares were included in treasury stock and were valued at market at the date of exercise. Treasury shares issued in lieu of Common Stock to effect stock option exercises were 116,067 in 1994 and 187,028 in 1993. As of November 30, 1995, 6,083,096 options had been granted, of which 1,143,436 are exercisable. Additionally, 736,725 options remain available for grant. A summary of activity under the plan during 1993, 1994 and 1995 is as follows:
Number Aggregate of Shares Per Share Option Price ---------- ---------- ------------- (IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS) Options outstanding at December 1, 1992 2,950,208 $ 3.72-13.33 $24,852 Options granted 727,313 10.56-15.50 8,387 Options canceled and expired (33,870) 3.72-12.89 (377) Common Stock issued on exercise (825,941) 3.72-12.44 (4,764) ---------- ----------- -------- Options outstanding at November 30, 1993 2,817,710 4.00-15.50 28,098 Options granted 680,213 13.33-18.92 11,759 Options canceled and expired (17,010) 4.00-11.72 (182) Common Stock issued on exercise (675,530) 4.86-13.33 (4,384) ---------- ----------- -------- Options outstanding at November 30, 1994 2,805,383 4.54-18.92 35,291 Options granted 889,960 17.92-23.25 19,146 Options canceled and expired (285,141) 4.86-21.92 (4,173) Common Stock issued on exercise (1,018,396) 4.86-18.50 (11,725) ========== =========== ======== Options outstanding at November 30, 1995 2,391,806 $ 4.54-23.25 $38,539 ========== =========== ========
Page 42 of 53 8. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED) The market value of the Company's Common Stock at the date the options were exercised was $17.81-$23.63 for 1995, $13.08-$19.17 for 1994, and $10.22-$15.78 for 1993. The Company adopted the Transition Consultants Stock Option Plan in connection with its spin-off from Community Psychiatric Centers on August 31, 1989. On that date options were granted to purchase 1,316,250 shares of the Company's Common Stock to four employees of Community Psychiatric Centers at $5.82, which was the fair market value at that date. As of November 30, 1995, all outstanding options are exercisable. A summary of activity under the plan during 1993, 1994 and 1995 is as follows:
Number Aggregate of Shares Per Share Option Price ---------- ---------- ------------- (IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS) Options outstanding at December 1, 1992 839,813 $5.82 $4,888 Common Stock issued on exercise (52,313) 5.82 (305) ----------------------------- Options outstanding at November 30, 1993 787,500 5.82 4,583 Common Stock issued on exercise (278,400) 5.82 (1,620) ----------------------------- Options outstanding at November 30, 1994 509,100 5.82 2,963 Common Stock issued on exercise (359,100) 5.82 (2,090) ----------------------------- Options outstanding at November 30, 1995 150,000 $5.82 $ 873 =============================
The market value of the Company's Common Stock at the date the options were exercised was $20.33-$22.30 for 1995 and $14.67-$19.33 for 1994 and $12.22-$14.55 for 1993. During 1995, the Company established Stock Option Plans for the following subsidiaries: Vivra Specialty Partners, Inc. (the "VSP Plan"), Vivra Heart Services, Inc. (the "VHS Plan"), Vivra Asthma & Allergy CareAmerica, Inc. (the "VAC Plan"), Vivra Health Advantage, Inc. (the "VHA Plan"), Vivra Orthopedic Services, Inc. (the "VOR Plan") and Vivra OB-GYN Services, Inc. (the "VOG Plan"), (collectively, the "1995 Stock Option Plans"). Each of the 1995 Stock Option Plans has similar terms. The plans provide for the granting of options to purchase common stock of the respective company to officers, employees, advisors and certain related entities of the company or Vivra. Options may be granted at not less than 100% of the fair market value at the date of grant, are exercisable at various dates and expire no more than 10 years after the date of grant. Options may be paid for in cash or by the return of previously acquired shares. Subject to certain conditions, stockholders in these companies are permitted to put shares at a defined date in the future to the company at a price equal to the then fair market value of the stock. If the employment or consulting agreement of any equity holder shall terminate, then the companies have the right to repurchase such stockholder's shares at the then fair market value. Additionally, the companies retain the right of first refusal regarding the sale or transfer of any acquired shares. Page 43 of 53 8. CAPITAL STOCK AND STOCK OPTIONS (CONTINUED) During 1995, there was no activity related to the VAC and VOG Plans. Information regarding activity in the other 1995 Stock Option Plans is summarized in the tables below:
VSP PLAN VHS PLAN --------- --------- Options outstanding at December 1, 1995 0 0 Options granted 845,000 782,000 ---------------------- Options outstanding at November 30, 1995 845,000 782,500 ====================== Number of subsidiary's fully diluted common shares 18,845,000 6,782,500 ====================== Average option price per share at November 30, 1995 $1.65 $0.50 ======================
VHA PLAN VOR PLAN --------- --------- Options outstanding at December 1, 1995 0 0 Options granted 625,000 706,500 --------------------- Options outstanding at November 30, 1995 625,000 706,500 ===================== Number of subsidiary's fully diluted common shares 7,625,000 5,206,500 ===================== Average option price per share at November 30, 1995 $0.79 $1.06 =====================
As of November 30, 1995, no options are exercisable under the 1995 Stock Option Plans. During 1995, the Company sold the assets related to the operations of its subsidiary, Surgical Partners of America, Inc. ("SPA"). All personnel formerly employed by SPA were either transferred to another subsidiary or terminated. Accordingly, there are no longer any participants in the SPA 1992 Stock Option Plan. During the year, there were 178,823 options which were exercised and 551,503 options were forfeited and cancelled. 9. PROFIT SHARING AND 401(K) PLAN The Company's Profit Sharing Plan ("the Plan") is a noncontributory, trusteed profit sharing plan. All regular non-union employees in the United States (union employees are eligible if the collective bargaining agreement so specifies) with at least 1,000 hours of service per annum, over 21 years of age, and employed at fiscal year-end are eligible for participation in the Plan after one year of employment. Contributions to the Plan are discretionary and are determined annually by the Board of Directors. Effective February 1, 1993, the Plan was amended to add a 401(k) provision. Employees may make voluntary contributions of up to 10% of their before tax compensation under the 401(k) provision of the Plan and may also contribute up to an additional 10% of their after tax compensation in accordance with the original Plan provisions. Page 44 of 53 9. PROFIT SHARING AND 401(K) PLAN (CONTINUED) Contributions to the Plan by the Company were $940,000, $3.0 million and $1.6 million for 1995, 1994 and 1993, respectively. 10. BUSINESS SEGMENT INFORMATION The Company has three principal business segments, Vivra Renal Care, Vivra Specialty Partners and Other Services. Vivra Renal Care consists of dialysis and specialty pharmacy services. Vivra Specialty Partners consists of Asthma/Allergy, Diabetes, Cardiology, OB-GYN and ENT network services. Other Services consists of the ambulatory surgery, rehabilitation therapy and primary care physician practice management businesses which were sold in 1995. The following tables have been prepared in accordance with the requirements of FASB Statement No. 14. This information has been derived from the Company's accounting records and represents the Company's estimates as to proper allocation of certain expenses.
YEAR ENDED NOVEMBER 30 1995 1994 1993 ---- ---- ---- (IN THOUSANDS) Operating revenues: Vivra Renal Care $303,570 $254,253 $208,379 Vivra Specialty Partners 22,891 3,282 2,154 Other Services 24,029 27,114 6,227 ---------------------------- Total operating revenues $350,490 $284,649 $216,760 ============================ Operating profits: Vivra Renal Care $64,287 $54,148 $44,085 Vivra Specialty Partners (1,762) 228 415 Other Services (16) (550) 199 ---------------------------- Total operating profits $62,509 $53,826 $44,699 Other income 5,157 1,870 1,221 Corporate expenses (5,047) (4,753) (3,903) Interest expense (360) (523) (912) ---------------------------- Earnings from continuing operations before minority interest and income taxes $62,259 $50,420 $41,105
Page 45 of 53 10. BUSINESS SEGMENT INFORMATION (CONTINUED)
YEAR ENDED NOVEMBER 30 1995 1994 1993 ---- ---- ---- (IN THOUSANDS) Identifiable assets: Vivra Renal Care $249,406 $145,650 $134,879 Vivra Specialty Partners 24,256 13,754 511 Other Services 4,402 25,423 12,278 Asset held for sale/Home Nursing Business - - 3,727 Corporate 124,637 91,180 56,083 ---------------------------- $402,701 $276,007 $207,478 ============================ Depreciation expense: Vivra Renal Care $9,693 $8,678 $6,723 Vivra Specialty Partners 241 33 23 Other Services 711 716 337 Corporate 122 125 113 ============================ $10,767 $9,552 $7,196 ============================ Capitalized expenditures for property, buildings and equipment: (1) Vivra Renal Care $26,469 $14,816 $10,233 Vivra Specialty Partners 898 138 27 Other Services 1,000 5,514 1,661 Corporate 64 56 134 ---------------------------- $28,431 $20,524 $12,055 ============================
(1) Excludes assets acquired in business acquisitions of $4.3 million, $2.1 million and $1.5 million in 1995, 1994 and 1993, respectively. Page 46 of 53 11. COMMITMENTS AND CONTINGENCIES The Company rents office facilities under lease arrangements which are classified for financial statement purposes as operating leases. The future minimum rental commitments under noncancellable operating leases at November 30, 1995, are summarized below: (IN THOUSANDS) 1996 $11,627 1997 9,757 1998 8,014 1999 6,635 2000 4,564 Total rent expense amounted to $10.8 million, $8.0 million, and $6.3 million in 1995, 1994, and 1993, respectively. CONTINGENCIES On May 20, 1992, in the Pennsylvania Court of Common Pleas in Delaware County, a complaint was filed against the Company's subsidiary, Vivra Renal Care ("VRC"). In September 1993, the court determined that the suit could proceed as a class action on behalf of 93 patients, subsequently reduced to 72, who were treated at one of the VRC facilities, some of whom are alleged to have died or been injured during the course of treatment. Unspecified compensatory and punitive damages are being claimed. Since May 20, 1992, four other individual actions have been filed asserting similar claims, one of which has been settled. The Company's insurer has assumed defense of these actions, and the merit of the claims and the extent of the damages are still under investigation. As the investigation is not complete, management is unable to make an informed judgment as to the ultimate resolution of such proceedings and their impact on the results of operations; however, it believes insurance coverage is sufficient to cover any losses likely to result from these actions and therefore any such claims should not have a material adverse effect on the Company's financial condition. The Company is also subject to other claims and suits in the ordinary course of business. Management believes that insurance is adequate to cover any such claims and the outcome of such claims should not have a material adverse effect on the Company's results of operations or financial condition. Page 47 of 53 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly data for the three years ended November 30, 1995.
Three months ended --------------------------------------------------- February May August November 28/29 31 31 30 --------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AND PRICE DATA) 1995 Total operating revenues $83,207 $88,530 $87,654 $91,099 Net earnings 8,468 9,920 10,409 9,143 Earnings per Share (Primary and Fully Diluted): Net earnings .26 .28 .29 .25 Stock prices: High 21-7/8 23-7/8 22-1/8 23-7/8 Low 17-3/4 18-1/3 17-3/4 21-1/8 1994 Total operating revenues $63,536 $69,602 $73,887 $77,624 Earnings from continuing operations 6,840 7,403 7,678 7,821 Gain on sale of discontinued operations 697 -- -- -- --------------------------------------------------- Net earnings 7,537 7,403 7,678 7,821 Earnings per Share (Primary and Fully Diluted): Continuing operations .22 .24 .25 .25 Gain on sale of discontinued operations .02 -- -- -- --------------------------------------------------- Net earnings .25(1) .24 .25 .25 Stock prices: High 17-1/3 17-3/4 17-1/8 19-2/3 Low 13-1/8 15-1/8 15-1/8 17
(1) As a result of rounding, first quarter earnings per share was $.25 rather than $.24. Page 48 of 53 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Three months ended ----------------------------------------------------- February May August November 28/29 31 31 30 ----------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AND PRICE DATA) 1993 Total operating revenues $48,693 $52,377 $56,115 $59,575 Earnings from continuing operations 5,293 5,862 6,361 6,326 Earnings from discontinued operations 84 163 151 156 Net earnings 5,377 6,025 6,512 6,482 Earnings per Share (Primary and Fully Diluted): Continuing operations .18 .20 .21 .21(2) Discontinued operations - - .01 .01 Net earnings .18 .20 .22 .22 Stock prices: High 13-1/4 12-1/2 15-1/2 15-3/4 Low 10-1/8 9-7/8 12 12-5/8
(2) As a result of rounding and the restatement of earnings from continuing operations in 1993, year to date third quarter earnings per share from continuing operations was $.58 rather than $.59. Page 49 of 53 Schedule II - Valuation and Qualifying Accounts Vivra Incorporated and Subsidiaries
- ---------------------------------------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E - ---------------------------------------------------------------------------------------------------------------------------- Additions -------------------------------------- (2) Balance at Charged to (1) Balance at Beginning of Charged to Costs Other Accounts - Deductions - End Description Period and Expenses Describe Describe of Period - ---------------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts: Year ended November 30, 1993 $ 6,180,000 $1,610,000 $1,743,000 (2) $(2,006,000) (1) $7,527,000 Year ended November 30, 1994 7,527,000 2,129,000 1,350,000 (3) (685,000) (1) 10,321,000 Year ended November 30, 1995 10,321,000 4,288,000 604,000 (2) (2,348,000) (1) 12,865,000
(1) Write-offs, net of recoveries. Included in the 1993 amount is $243,000 which pertains to assets held for sale. (2) Contingent rate adjustments charged to operating revenues. (3) Allowance purchased as part of 1994 acquisitions. Page 50 of 53 EXHIBIT INDEX Exhibit No. Document Page No. - ----------- ------------------------------------------------------- -------- 3 Articles of Incorporation and By-Laws of Registrant: 3.1 Amended and Restated Certificate of Incorporation filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995 and incorporated herein by reference. 3.2 By-Laws (filed as Exhibit 3B to Registrant's Registration Statement on Form 10, File No. 1- 10261 incorporated herein by reference. 4 Instruments defining the Rights of Securities Holders 4.1 Amended and Restated Rights Agreement dated February 13, 1996 between Registrant and the First National Bank of Boston (filed as Exhibit 4D to the Company's Form 10/A filed on February 15, 1996 and incorporated herein by reference. 10 Material Contracts 10.1 Debenture Payment Assumption Agreement between Registrant and Community Psychiatric Centers filed as Exhibit 10.5A.6 to Registrant's Statement on Form 10, File No. 1-10261, filed May 26, 1989, incorporated herein by reference. 10.2 Registrant's Transition Consultants Stock Option Plan (Filed as Exhibit 10G to the Registrant's Registration Statement on Form 10, File No. 1- 10261 and incorporated herein by reference). 10.2.1 Transition Consultants Stock Option Plan (Filed as Exhibit 10.4.4 to the Registrant's Report on Form 10-K for its fiscal year ended November 30, 1989 and incorporated herein by reference). 10.3 Registrant's Amended 1989 Stock Incentive Plan. 10.4 Registrant's Profit Sharing Plan (Filed as Exhibit 10.11 to Registrant's Amendment on Form 8 to Report on Form 10-K for its fiscal year ended November 30, 1992 and incorporated herein by reference.) 10.5 Form of Officer and Director Indemnification Agreement (filed as Exhibit 10.5 to Registrant's report on Form 10-K for its fiscal year ended November 30, 1991, and incorporated herein by reference). 10.6 Employment Agreements between Registrant and Kent J. Thiry, dated as of December 1, 1992 (filed as Exhibit 10.6 to Registrant's Amendment on Form 8 to Report on Form 10-K for its fiscal year ended November 30, 1992 and incorporated herein by reference). 10.7 Form of Employment Agreement between the Registrant and certain executive officers of the Registrant. 10.8 Form of agreement between the Registrant and the Medical Directors of its dialysis facilities (filed as Exhibit 10.6 to Registrant's Registration Statement on Form S-1, File No. 33-34438 and incorporated herein by this reference). 10.6 Employment Agreements between Registrant and Kent J. Thiry, dated as of December 1, 1992 (filed as Exhibit 10.6 to Registrant's Amendment on Form 8 to Report on Form 10-K for its fiscal year ended November 30, 1992 and incorporated herein by reference). *10.9 Agreement effective February 1, 1996 between Amgen Inc. and the Registrant. *10.10 Agreement effective February 1, 1996 between Bellco Drug Corp., Metro Health Corp. and the Registrant. 11 Statements re Computation of Per Share Earnings. 21 Subsidiaries of the Registrant. 23 Consent of Independent Auditors. * Confidential Information requested as to certain portions, which portions are omitted and filed separately with the Commissioner. Page 52 of 53 Exhibit 11 - Statement Re: Computation of Per Share Earnings* Vivra Incorporated and Subsidiaries Three Years Ended November 30, 1995
Year ended November 30 1995 1994 1993 ------------------------------------------- Primary: Weighted average shares outstanding 35,068,000 30,834,000 29,135,000 (a)Stock options granted to employees, based on the treasury-stock method using average market price 678,000(1) 816,000(1) 940,000 ------------------------------------------ Total 35,746,000 31,650,000 30,075,000 Net earnings from continuing operations $37,940,000 $29,742,000 $23,842,000 Earnings from discontinued operations, less applicable taxes - - 554,000 Gain on sale of discontinued operations, less applicable taxes - 697,000 - ------------------------------------------ Net earnings $37,940,000 $30,439,000 $24,396,000 ========================================== Earnings per Share: Net earnings from continuing operations $1.08 $.96 $.79 Earnings from discontinued operations - - .02 Gain on sale of discontinued operations - .02 - ------------------------------------------ Net earnings $1.08 $.99(2) $.81 =========================================== Fully diluted: Weighted average shares outstanding 35,068,000 30,834,000 29,135,000 (a) Stock options granted to employees, based on the treasury-stock method using the year-end market price, if higher than average market price 696,000(1) 843,000(1) 975,000 ------------------------------------------- Total 35,764,000 31,677,000 30,110,000 =========================================== Net earnings from continuing operations $37,940,000 $29,742,000 $23,842,000 Earnings from discontinued operations, less applicable taxes - - 554,000 Gain on sale of discontinued operations less applicable taxes - 697,000 - ------------------------------------------- Net earnings $37,940,000 $30,439,000 $24,396,000 =========================================== Earnings per Share: Net earnings from continuing operations $1.08 $.96 $.79 Earnings from discontinued operations - - .02 Gain on sale of discontinued operations - .02 - ------------------------------------------- Net earnings $1.08 $.99(2) $.81 ===========================================
* Adjusted to reflect three-for-two stock splits payable to shareholders of record on November 22, 1995 and November 10, 1993, respectively. (1) As the dilutive Common Stock equivalents are less than 3% of the weighted average outstanding shares, they have not been included in the computation of earnings per share as shown in the Condensed Consolidated Financial Statements. (2) As a result of rounding, year to date earnings per share was $.99 rather than $.98. Page 53 of 53 EX-10.3 2 EXHIBIT 10.3 FOR FORM 10-K EXHIBIT 10.3 VIVRA INCORPORATED ------------------ REVISED 1989 STOCK INCENTIVE PLAN --------------------------------- (Amended and Restated Effective May 9, 1995) TABLE OF CONTENTS ----------------- Page ---- ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1 The Committee . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Committee Responsibilities . . . . . . . . . . . . . . . . . . 1 ARTICLE 3. LIMITATION ON AWARDS . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 4. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4.1 General Rule . . . . . . . . . . . . . . . . . . . . . . . . . 2 4.2 Non-Employee Directors . . . . . . . . . . . . . . . . . . . . 2 4.3 Ten-Percent Stockholders . . . . . . . . . . . . . . . . . . . 3 4.4 Attribution Rules . . . . . . . . . . . . . . . . . . . . . . . 4 4.5 Outstanding Stock . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 5. OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5.1 Stock Option Agreement . . . . . . . . . . . . . . . . . . . . 4 5.2 Options Nontransferable . . . . . . . . . . . . . . . . . . . . 4 5.3 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . 4 5.4 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . 5 5.5 Exercisability and Term . . . . . . . . . . . . . . . . . . . . 5 5.6 Effect of Change in Control . . . . . . . . . . . . . . . . . . 5 5.7 Modification, Extension and Renewal of Options . . . . . . . . 5 5.8 Restrictions on Transfer of Common Shares . . . . . . . . . . . 6 ARTICLE 6. PAYMENT FOR OPTION SHARES . . . . . . . . . . . . . . . . . . . 6 6.1 General Rule . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.2 Surrender of Stock . . . . . . . . . . . . . . . . . . . . . . 6 6.3 Exercise/Sale . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.4 Exercise/Pledge . . . . . . . . . . . . . . . . . . . . . . . . 6 6.5 Other Forms of Payment . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 7. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . 7 7.1 Grant of SARs . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.2 Manner of Exercise of SARs . . . . . . . . . . . . . . . . . . 7 7.3 Special Holding Period . . . . . . . . . . . . . . . . . . . . 7 7.4 Special Exercise Window . . . . . . . . . . . . . . . . . . . . 7 7.5 Limited SARs . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS . . . . . . . . . . . . . . . 8 8.1 Time, Amount and Form of Awards . . . . . . . . . . . . . . . . 8 8.2 Payment for Awards . . . . . . . . . . . . . . . . . . . . . . 8 8.3 Vesting Conditions . . . . . . . . . . . . . . . . . . . . . . 8 8.4 Form of Settlement of Stock Units . . . . . . . . . . . . . . . 8 8.5 Time of Settlement of Stock Units . . . . . . . . . . . . . . . 9 8.6 Death of Recipient . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 9. VOTING RIGHTS AND DIVIDENDS OR DIVIDEND EQUIVALENTS . . . . . . 9 -i- Page 9.1 Restricted Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 9.2 Stock Units . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 10. PROTECTION AGAINST DILUTION . . . . . . . . . . . . . . . . . 10 10.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 10.2 Reorganizations . . . . . . . . . . . . . . . . . . . . . . . 10 10.3 Reservation of Rights . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 11. LIMITATION OF RIGHTS . . . . . . . . . . . . . . . . . . . . 10 11.1 Employment Rights . . . . . . . . . . . . . . . . . . . . . . 10 11.2 Stockholders' Rights . . . . . . . . . . . . . . . . . . . . 11 11.3 Creditors' Rights . . . . . . . . . . . . . . . . . . . . . . 11 11.4 Government Regulations . . . . . . . . . . . . . . . . . . . 11 ARTICLE 12. LIMITATION ON PAYMENTS . . . . . . . . . . . . . . . . . . . 11 12.1 Basic Rule . . . . . . . . . . . . . . . . . . . . . . . . . 11 12.2 Reduction of Payments . . . . . . . . . . . . . . . . . . . . 12 12.3 Overpayments and Underpayments . . . . . . . . . . . . . . . 12 12.4 Related Corporations . . . . . . . . . . . . . . . . . . . . 13 ARTICLE 13. WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . . . 13 13.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 13.2 Nonstatutory Options, Restricted Shares or Stock Units . . . 13 ARTICLE 14. ASSIGNMENT OR TRANSFER OF AWARD . . . . . . . . . . . . . . . 13 ARTICLE 15. FUTURE OF THE PLAN . . . . . . . . . . . . . . . . . . . . . 14 15.1 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . 14 15.2 Amendment or Termination . . . . . . . . . . . . . . . . . . 14 15.3 Effect of Amendment or Termination . . . . . . . . . . . . . 14 ARTICLE 16. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 14 16.1 Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 16.2 Award Year . . . . . . . . . . . . . . . . . . . . . . . . . 14 16.3 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 16.4 Change in Control . . . . . . . . . . . . . . . . . . . . . . 14 16.5 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16.6 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16.7 Common Share . . . . . . . . . . . . . . . . . . . . . . . . 15 16.8 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16.9 Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . 15 16.10 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . 15 16.11 Fair Market Value . . . . . . . . . . . . . . . . . . . . . . 15 16.12 ISO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 16.13 Key Employee . . . . . . . . . . . . . . . . . . . . . . . . 16 16.14 Non-Employee Director . . . . . . . . . . . . . . . . . . . . 16 16.15 NSO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 16.16 Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 16.17 Optionee . . . . . . . . . . . . . . . . . . . . . . . . . . 16 16.18 Participant . . . . . . . . . . . . . . . . . . . . . . . . . 16 16.19 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 -ii- Page 16.20 Restricted Share . . . . . . . . . . . . . . . . . . . . . . 16 16.21 SAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 16.22 Stock Award Agreement . . . . . . . . . . . . . . . . . . . . 16 16.23 Stock Option Agreement . . . . . . . . . . . . . . . . . . . 17 16.24 Stock Unit . . . . . . . . . . . . . . . . . . . . . . . . . 17 16.25 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE 17. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 17 -3- VIVRA INCORPORATED ------------------ REVISED 1989 STOCK INCENTIVE PLAN --------------------------------- (Amended and Restated Effective May 9, 1995) ARTICLE 1. INTRODUCTION. - --------- ------------ The Plan was adopted by the Board and approved by the Company's sole stockholder, Community Psychiatric Centers, on June 22, 1989. The purpose of the Plan is to promote the long-term success of the Company and the creation of incremental stockholder value by (a) encouraging Non-Employee Directors and Key Employees to focus on critical long-range objectives, (b) encouraging the attraction and retention of Non-Employee Directors and Key Employees with exceptional qualifications and (c) linking Non-Employee Directors and Key Employees directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Stock Units, stock appreciation rights or Options, which may constitute incentive stock options or nonstatutory stock options. The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware. This amended and restated Plan (a) increases the Common Shares subject to Awards by 700,000 shares, (b) changes the provisions for the grant of NSOs and SARs to Non-Employee Directors, (c) permits consultants to receive Awards, (d) adds an individual grant limitation required by Code section 162(m) for the option income for certain individuals to be tax deductible by the Company, and (e) makes certain additional changes. ARTICLE 2. ADMINISTRATION. - --------- -------------- 2.1 The Committee. The Plan shall be administered by the Committee ------------- appointed by the Board. The Committee shall have membership composition which enables the Plan to qualify under Rule 16b-3 with regard to the grant of Awards to persons who are subject to section 16 of the Exchange Act. A member of the Committee shall not be eligible to receive any Award under the Plan, other than Options granted under Section 4.2. 2.2 Committee Responsibilities. The Committee shall select the Key -------------------------- Employees who are to receive Awards under the Plan, determine in its sole discretion the amount, price, vesting requirements, terms and other conditions of such Awards, interpret the Plan, and make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The -1- Committee's determinations under the Plan shall be final and binding on all persons. ARTICLE 3. LIMITATION ON AWARDS. - --------- -------------------- The aggregate number of Common Shares subject to Restricted Shares, Stock Units and Options awarded under the Plan shall not exceed 4,253,591. If any Restricted Shares are forfeited before dividends have been paid, if any Options or Stock Units are forfeited or if any Options or Stock Units terminate for any other reason before being exercised, then such Restricted Shares, Stock Units or Options shall again become available for Awards under the Plan. Also, if Options are surrendered upon the exercise of related SARs, then such Options shall be restored to the pool available for Awards. Any dividend equivalents distributed in the form of shares of Common Stock under the Plan shall be applied against the number of shares of Common Stock available for Awards. The limitation of this Article 3 shall be subject to adjustment pursuant to Article 10. Any Common Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares. ARTICLE 4. ELIGIBILITY. - --------- ----------- 4.1 General Rule. Except as provided in Section 4.2, only Key ------------ Employees shall be eligible for designation as Participants by the Committee. 4.2 Non-Employee Directors. Non-Employee Directors shall be entitled ---------------------- to receive the NSOs and SARs described in this Section 4.2. (a) Each Non-Employee Director shall receive an NSO covering 3,375 Common Shares for each Award Year with respect to which he or she serves as a Non-Employee Director on the grant date described in subsection (c) below; (b) Following the Effective Date: the chairperson and other members of the Board's Audit Committee shall respectively receive 1,000 and 500 NSOs on the date of such Committee's annual committee meeting held during each Award Year and 500 NSOs each for each additional committee meeting held during each Award Year; the chairperson and other members of the Board's Compensation Committee shall respectively receive 2,000 and 500 NSOs on the date of such Committee's annual committee meeting held during each Award Year and 500 NSOs each for each additional committee meeting held during each Award Year; the chairperson and other members of the Board's Compliance Committee shall respectively receive 2,000 and 500 NSOs on the date of such Committee's annual committee meeting held during each Award Year, and grants of Restricted Shares with a -2- Fair Market Value on the date of the meeting of $1,500 and $1,000, respectively, for each additional meeting of the Committee held during an Award Year; the chairperson and other members of the Board's Governance Committee shall respectively receive 2,000 and 1,000 NSOs on the date of such Committee's annual committee meeting held during each Award Year, and grants of Restricted Shares with a Fair Market Value on the date of the meeting of $2,000 and $1,500, respectively, for each additional meeting of the Committee held during an Award Year; and the chairperson and other members of the Board's Clinical Quality Committee shall respectively receive 2,000 and 500 NSOs on the date of such Committee's annual committee meeting held during each Award Year, and grants of Restricted Shares with a Fair Market Value on the date of the meeting of $1,000 and $500, respectively, for each additional meeting of the Committee held during an Award Year. The number of Restricted Shares shall be rounded down to the next number of whole shares; (c) The NSO for a particular Award Year shall be granted to each Non-Employee Director as of December 1 each year and on the date of each meeting for NSOs granted on each meeting date; (d) Each NSO shall be exercisable in full at all times during its term; Restricted Shares shall not vest until 6 months after the date of grant; (e) The term of each NSO shall be 10 years; provided, however, that any unexercised NSO shall expire thirty days after the date that the Optionee ceases to be a Non-Employee Director or a Key Employee for any reason other than death or disability. If an Optionee ceases to be a Non-Employee Director or a Key Employee on account of death or disability, any unexercised NSO shall expire on the earlier of the date 10 years after the date of grant or one year after the date of death or disability of such Director. (f) The Exercise Price under each NSO shall be equal to the Fair Market Value on the date of grant and shall be payable in accordance with Section 6; and (g) Each NSO other than those specified in subsection (b) shall include a related limited SAR, which shall be exercisable only in the event of a Change in Control. The SAR shall be exercisable in accordance with the provisions of Section 7. 4.3 Ten-Percent Stockholders. A Key Employee who owns more than 10 ------------------------ percent of the total combined voting power of all classes of outstanding stock of the Company or any of its -3- Subsidiaries shall not be eligible for the grant of an ISO unless (a) the Exercise Price under such ISO is at least 110 percent of the Fair Market Value of a Common Share on the date of grant and (b) such ISO by its terms is not exercisable after the expiration of five years from the date of grant. 4.4 Attribution Rules. For purposes of Section 4.3, in determining ----------------- stock ownership, a Key Employee shall be deemed to own the stock owned, directly or indirectly, by or for his or her brothers, sisters, spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned propor- tionately by or for its stockholders, partners or beneficiaries. Stock with respect to which the Key Employee holds an option shall not be counted. 4.5 Outstanding Stock. For purposes of Section 4.3, "outstanding ----------------- stock" shall include all stock actually issued and outstanding immediately after the grant of the ISO to the Key Employee. "Outstanding stock" shall not include treasury shares or shares authorized for issuance under outstanding options held by the Key Employee or by any other person. ARTICLE 5. OPTIONS. - --------- ------- 5.1 Stock Option Agreement. Each grant of an Option under the Plan ---------------------- shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. The Committee may designate all or any part of an Option as an ISO, except for Options granted to Non-Employee Directors under Section 4.2. 5.2 Options Nontransferable. Unless the Stock Option Agreement ----------------------- provides otherwise, no Option granted under the Plan shall be transferable by the Optionee other than by will or by the laws of descent and distribution. Unless the Stock Option Agreement provides otherwise, an Option may be exercised during the lifetime of the Optionee only by him or her. Unless the Stock Option Agreement provides otherwise, no Option or interest therein may be transferred, assigned, pledged or hypothecated by the Optionee during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. 5.3 Number of Shares. Each Stock Option Agreement shall specify the ---------------- number of Common Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article 10. The Stock Option Agreement shall also specify whether the Option is an ISO or an NSO. No Key Employee who is an Optionee shall be granted Options covering more than 250,000 Common Shares during any Award Year. -4- 5.4 Exercise Price. Each Stock Option Agreement shall specify the -------------- Exercise Price. The Exercise Price under an ISO shall not be less than 100 percent of the Fair Market Value of a Common Share on the date of grant, except as otherwise provided in Section 4.3. The Exercise Price under an NSO shall not be less than 50 percent of the Fair Market Value on the date of grant of the Common Shares subject to such NSO, except as otherwise provided in Section 4.2. Subject to the preceding two sentences, the Exercise Price under any Option shall be determined by the Committee. The Exercise Price shall be payable in accordance with Article 6. 5.5 Exercisability and Term. Each Stock Option Agreement shall ----------------------- specify the date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option. The term of an ISO shall in no event exceed 10 years from the date of grant, and Section 4.3 may require a shorter term. Subject to Sections 7.3 and 7.4 and the preceding sentence, the Committee shall determine when all or any part of an Option (and any SARs included therein) is to become exercisable and when such Option is to expire. A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's employment or service. Except as provided in Section 4.2, NSOs may also be awarded in combination with Restricted Shares or Stock Units, and such an Award may provide that the NSOs will not be exercisable unless the related Restricted Shares or Stock Units are forfeited. 5.6 Effect of Change in Control. The Committee (at its sole --------------------------- discretion) may determine, at the time of granting an Option or thereafter, that such Option (and any SARs included therein) shall become fully exercisable as to all Common Shares subject to such Option in the event that a Change in Control occurs with respect to the Company. If the Committee finds that there is a reasonable possibility that, within the succeeding six months, a Change in Control will occur with respect to the Company, then the Committee may determine that all outstanding Options (and any SARs included therein) shall become fully exercisable as to all Common Shares subject to such Options. The Committee (at its sole discretion) may determine, at the time of granting an Option, that any SARs included therein shall become exercisable as to the Common Shares subject to the related Option only in the event that a Change in Control occurs with respect to the Company. 5.7 Modification, Extension and Renewal of Options. Within the ---------------------------------------------- limitations of the Plan, the Committee may modify, extend or renew outstanding Options or may accept the cancellation of outstanding Options (to the extent not previously exercised) in return for the grant of new Options at the same or a different price. The foregoing notwithstanding, no modifi -5- cation of an Option shall, without the consent of the Optionee, impair his or her rights or obligations under such Option. 5.8 Restrictions on Transfer of Common Shares. Any Common Shares ----------------------------------------- issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any general restrictions that may apply to all holders of Common Shares. ARTICLE 6. PAYMENT FOR OPTION SHARES. - --------- ------------------------- 6.1 General Rule. The entire Exercise Price of Common Shares issued ------------ upon exercise of Options shall be payable in cash at the time when such Common Shares are purchased, except as follows: (a) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. However, the Committee may specify in the Stock Option Agreement that payment may be made pursuant to Section 6.2, 6.3, 6.4 or 6.5. (b) In the case of an NSO, other than an NSO granted pursuant to Section 4.2, the Committee may at any time accept payment pursuant to Section 6.2, 6.3, 6.4 or 6.5. 6.2 Surrender of Stock. To the extent that this Section 6.2 is ------------------ applicable, payment for all or any part of the Exercise Price may be made with Common Shares which have been owned by the Optionee for more than six months (or such lesser time period as may be adopted by the Committee) and which are surrendered to the Company. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. In the event that the Common Shares being surrendered are Restricted Shares that have not yet become vested, the same restrictions shall be imposed upon the new Common Shares being purchased. 6.3 Exercise/Sale. To the extent this Section 6.3 is applicable, ------------- payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Common Shares and to deliver all or part of the sales proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes. 6.4 Exercise/Pledge. To the extent that this Section 6.4 is --------------- applicable, payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to -6- pledge Common Shares to a securities broker or lender approved by the Company as security for a loan and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes. 6.5 Other Forms of Payment. To the extent that this Section 6.5 is ---------------------- applicable, payment may be made in any other form approved by the Committee, consistent with applicable laws, regulations and rules. ARTICLE 7. STOCK APPRECIATION RIGHTS. - --------- ------------------------- 7.1 Grant of SARs. Each Option granted under the Plan may, at the ------------- discretion of the Committee, include an SAR. No Key Employee shall be granted SARs covering more than 250,000 Common Shares during any Award Year. Such SAR shall entitle the Optionee (or any person having the right to exercise the Option after his or her death) to surrender to the Company, unexercised, all or any part of that portion of the Option which then is exercisable and to receive from the Company a cash payment which is equal to the amount by which the Fair Market Value (on the date of surrender) of the Common Shares subject to the surrendered portion of the Option exceeds the Exercise Price. In no event shall any SAR be exercised if such Fair Market Value does not exceed the Exercise Price. The discretion of the Committee to include an SAR in an ISO may be exercised only at the time of the grant of such ISO. The discretion of the Committee to include an SAR in an NSO may be exercised at the time of the grant of such NSO or at any subsequent time, but not later than six months before the expiration of such NSO. If an SAR is exercised, the number of Common Shares remaining subject to the related Option shall be reduced accordingly, and vice versa. 7.2 Manner of Exercise of SARs. An SAR may be exercised by written -------------------------- notice to the Company. Subject to Sections 7.3 and 7.4, it may be exercised to the extent, and only to the extent, that the Option in which it is included is exercisable. If, on the date when an Option expires, the Exercise Price under such Option is less than the Fair Market Value on such date but any portion of such Option has not been exercised or surrendered, then any SAR included in such Option shall automatically be deemed to be exercised as of such date with respect to such portion. 7.3 Special Holding Period. To the extent required by section 16 of ---------------------- the Exchange Act or any rule thereunder, an SAR shall not be exercised unless both it and the related Option have been outstanding for more than six months. If the Stock Option Agreement so provides, this Section 7.3 shall not apply in the event of the Optionee's death or disability. 7.4 Special Exercise Window. To the extent required by section 16 of ----------------------- the Exchange Act or any rule thereunder, an SAR -7- may only be exercised during a period which (a) begins on the third business day following a date when the Company's quarterly summary statement of sales and earnings is released to the public and (b) ends on the 12th business day following such date. This Section 7.4 shall not apply if the exercise occurs automatically on the date when the related Option expires, and the Committee may determine that it shall not apply to limited SARs granted under Section 7.5. 7.5 Limited SARs. An Option granted under the Plan may, at the ------------ discretion of the Committee, provide that it will be exercisable as an SAR only in the event of a Change in Control. ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS. - --------- --------------------------------- 8.1 Time, Amount and Form of Awards. The Committee may grant ------------------------------- Restricted Shares or Stock Units with respect to an Award Year during such Award Year or at any time thereafter. The amount of each Award of Restricted Shares or Stock Units shall be determined by the Committee. Awards under the Plan may be granted in the form of Restricted Shares, in the form of Stock Units, or in any combination of both, as the Committee shall determine at its sole discretion at the time of the grant. Restricted Shares or Stock Units may also be awarded in combination with NSOs, and such an Award may provide that the Restricted Shares or Stock Units will be forfeited in the event that the related NSOs are exercised. 8.2 Payment for Awards. To the extent that an Award is granted in the ------------------ form of Restricted Shares, the Award recipient, as a condition to the grant of such Award, shall be required to pay the Company in cash an amount equal to the par value of such Restricted Shares. To the extent that an Award is granted in the form of Stock Units, no cash consideration shall be required of Award recipients. 8.3 Vesting Conditions. Each Award of Restricted Shares or Stock ------------------ Units shall become vested, in full or in installments, upon satisfaction of the conditions specified in the Stock Award Agreement. The Committee shall select the vesting conditions, which may be based upon the Participant's service, the Participant's performance, the Company's performance or such other criteria as the Committee may adopt. A Stock Award Agreement may also provide for accel- erated vesting in the event of the Participant's death, disability or retirement. The Committee (at its sole discretion) may determine, at the time of making an Award or thereafter, that such Award shall become fully vested in the event that a Change in Control occurs with respect to the Company. 8.4 Form of Settlement of Stock Units. Settlement of vested Stock --------------------------------- Units may be made in the form of cash, in the form of Common Shares, or in any combination of both, as the Committee shall determine at or before the time when distribution -8- commences. The Committee may designate a method of converting Stock Units into cash, including (without limitation) a method based on the average Fair Market Value of Common Shares over a series of trading days. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Article 10. 8.5 Time of Settlement of Stock Units. Vested Stock Units may be --------------------------------- settled in a lump sum or in installments. The distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date. The Com- mittee shall determine when all or any part of an Award of Stock Units is to be distributed, and it may modify its original determination with respect to the time of distribution at any time before settlement of the Stock Units is completed. The Committee may also permit Participants to request a deferral of any distribution under this Section 8.5. In the case of any deferred distri- bution, the Committee may increase the amount of such distribution by an interest factor or by dividend equivalents, as it deems appropriate. 8.6 Death of Recipient. Any Stock Units Award which becomes payable ------------------ after the recipient's death shall be delivered or distributed to the recipient's beneficiary or beneficiaries. Each recipient of a Stock Units Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient's death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Stock Units Award which becomes payable after the recipient's death shall be delivered or distributed to the recipient's estate. The Committee, at its sole discretion, shall determine the form and time of any distribution(s) to a recipient's beneficiary or estate. ARTICLE 9. VOTING RIGHTS AND DIVIDENDS OR DIVIDEND EQUIVALENTS. - --------- --------------------------------------------------- 9.1 Restricted Shares. The holders of Restricted Shares awarded under ----------------- the Plan shall have the same voting, dividend and other rights as the Company's other stockholders. 9.2 Stock Units. The holders of Stock Units shall have no voting ----------- rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan shall carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Common Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. The Committee shall determine at what time(s) any dividend equivalents are to be distributed. Settlement of dividend equivalents may be made in the form of cash, in the form of Common Shares, or in a combination of both. Prior to -9- distribution, any dividend equivalents which are not paid on or about the date when dividends on Common Shares are paid shall be subject to the same conditions and restrictions (including, without limitation, any forfeiture conditions) as the Stock Units to which they attach. The Committee, at its sole discretion, shall make all determinations relating to dividend equivalents. ARTICLE 10. PROTECTION AGAINST DILUTION. - ---------- --------------------------- 10.1 General. In the event of a subdivision of the outstanding Common ------- Shares, a declaration of a dividend payable in Common Shares, a declaration of a dividend payable in a form other than Common Shares in an amount that has a material effect on the price of Common Shares, a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, a recapitalization, a spinoff or a similar occurrence, the Committee shall make appropriate adjustments in one or more of (a) the number of Options, Restricted Shares and Stock Units available for future Awards under Articles 3 and 4, (b) the number of Stock Units included in any prior Award which has not yet been settled, (c) the number of Common Shares covered by each outstanding Option or (d) the Exercise Price under each outstanding Option. 10.2 Reorganizations. In the event that the Company is a party to a --------------- merger or other reorganization, outstanding Options, Restricted Shares and Stock Units shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting or for settlement in cash. 10.3 Reservation of Rights. Except as provided in this Article 10, a --------------------- Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Common Shares subject to an Option. The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. ARTICLE 11. LIMITATION OF RIGHTS. - ---------- -------------------- 11.1 Employment Rights. Neither the Plan nor any Award granted under ----------------- the Plan shall be deemed to give any -10- individual a right to remain employed by the Company or a Subsidiary. The Company and its Subsidiaries reserve the right to terminate the employment of any employee at any time, and for any reason, subject only to a written employment agreement (if any). 11.2 Stockholders' Rights. A Participant shall have no dividend -------------------- rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the issuance of a stock certificate for such Common Shares. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date when such certificate is issued, except as expressly provided in Articles 8, 9 and 10. 11.3 Creditors' Rights. A holder of Stock Units shall have no rights ----------------- other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Award Agreement. 11.4 Government Regulations. Any other provision of the Plan ---------------------- notwithstanding, the obligations of the Company with respect to Common Shares to be issued pursuant to the Plan shall be subject to all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award until such time as: (a) Any legal requirements or regulations have been met relating to the issuance of such Common Shares or to their registration, qualification or exemption from registration or qualification under the Securities Act of 1933, as amended, or any applicable state securities laws; and (b) Satisfactory assurances have been received that such Common Shares, when issued, will be duly listed on the New York Stock Exchange or any other securities exchange on which Common Shares are then listed. ARTICLE 12. LIMITATION ON PAYMENTS. - ---------- ---------------------- 12.1 Basic Rule. Any provision of the Plan to the contrary ---------- notwithstanding, in the event that the independent auditors most recently selected by the Board (the "Auditors") determine that any payment or transfer by the Company to or for the benefit of a Participant, whether paid or payable (or transferred or transferable) pursuant to the terms of this Plan or otherwise (a "Payment"), would be nondeductible by the Company for federal income tax purposes because of the provisions concerning "excess parachute payments" in section -11- 280G of the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount; provided, however, that the Committee, at the time of making an Award under this Plan or at any time thereafter, may specify in writing that such Award shall not be so reduced and shall not be subject to this Article 12. For purposes of this Article 12, the "Reduced Amount" shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any Payment to be nondeductible by the Company because of section 280G of the Code. 12.2 Reduction of Payments. If the Auditors determine that any --------------------- Payment would be nondeductible by the Company because of section 280G of the Code, then the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Company in writing of his or her election within 10 days of receipt of notice. If no such election is made by the Participant within such 10-day period, then the Company may elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this Article 12, present value shall be determined in accordance with section 280G(d)(4) of the Code. All determinations made by the Auditors under this Article 12 shall be binding upon the Company and the Participant and shall be made within 60 days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan. 12.3 Overpayments and Underpayments. As a result of uncertainty in ------------------------------ the application of section 280G of the Code at the time of an initial determination by the Auditors hereunder, it is possible that Payments will have been made by the Company which should not have been made (an "Overpayment") or that additional Payments which will not have been made by the Company could have been made (an "Underpayment"), consistent in each case with the calculation of the Reduced Amount hereunder. In the event that the Auditors, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant which the Auditors believe has a high probability of success, determine that an Overpayment has been made, such Overpayment shall be treated for all purposes as a loan to the Participant which he or she shall repay to the Company, together with interest at the applicable federal rate -12- provided in section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount which is subject to taxation under section 4999 of the Code. In the event that the Auditors determine that an Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code. 12.4 Related Corporations. For purposes of this Article 12, the term -------------------- "Company" shall include affiliated corporations to the extent determined by the Auditors in accordance with section 280G(d)(5) of the Code. ARTICLE 13. WITHHOLDING TAXES. - ---------- ----------------- 13.1 General. To the extent required by applicable federal, state, ------- local or foreign law, the recipient of any payment or distribution under the Plan shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of such payment or distribution. The Company shall not be required to make such payment or distri- bution until such obligations are satisfied. 13.2 Nonstatutory Options, Restricted Shares or Stock Units. The ------------------------------------------------------ Committee may permit an Optionee who exercises NSOs, or who receives Awards of Restricted Shares or Stock Units, to satisfy all or part of his or her withhold- ing tax obligations by delivering Common Shares or by having the Company withhold a portion of the Common Shares that otherwise would be issued to him or her under such Awards. Such Common Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. The payment of withholding taxes by delivering or surrendering Common Shares to the Company, if permitted by the Committee, shall be subject to such restrictions as the Committee may impose, including any restrictions required by rules of the Securities and Exchange Commission. ARTICLE 14. ASSIGNMENT OR TRANSFER OF AWARD. - ---------- ------------------------------- Except to the extent the Award agreement provides otherwise, any Award granted under the Plan shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor's process, whether voluntarily, involuntarily or by operation of law. Any act in violation of this Article 14 shall be void. However, this Article 14 shall not preclude (i) a Participant from designating a beneficiary who will receive any undistributed Awards in the event of the Participant's death, or (ii) a transfer by will or by the laws of descent and distribution. -13- ARTICLE 15. FUTURE OF THE PLAN. - ---------- ------------------ 15.1 Term of the Plan. This amended and restated Plan shall become ---------------- effective on May 9, 1995 subject to shareholder approval of the Plan at the annual meeting of stockholders held on that date. If approved, the Plan shall remain in effect until it is terminated under Section 15.2, except that no ISOs shall be granted after June 21, 1999. 15.2 Amendment or Termination. The Board may, at any time and for any ------------------------ reason, amend or terminate the Plan. However, any amendment of the Plan shall be subject to the approval of the Company's stockholders to the extent required by applicable laws, regulations or rules. The provisions of Section 4.2 relating to Non-Employee Directors may not be amended more than once every six months, except to comply with changes to the Code or ERISA. 15.3 Effect of Amendment or Termination. No Awards shall be made ---------------------------------- under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Option, Restricted Share or Stock Unit previously granted under the Plan. ARTICLE 16. DEFINITIONS. - ---------- ----------- 16.1 "Award" means any award of an Option (with or without a related ----- SAR), a Restricted Share or a Stock Unit under the Plan. 16.2 "Award Year" means a fiscal year beginning December 1 and ending ---------- November 30 with respect to which an Award may be granted. 16.3 "Board" means the Company's Board of Directors, as constituted ----- from time to time. 16.4 "Change in Control" means the occurrence of any of the following ----------------- events: (a) A change in control required to be reported pursuant to Item 6(e) of Schedule 14A of Regulation 14A under the Exchange Act; (b) A change in the composition of the Board, as a result of which fewer than two-thirds of the incumbent directors are directors who either (i) had been directors of the Company 24 months prior to such change or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the directors who had been directors of the Company 24 months prior to such change and who were still in office at the time of the election or nomination; or -14- (c) Any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20 percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the "Base Capital Stock"); provided, however, that any change in the relative beneficial ownership of securities of any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person's ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person's beneficial ownership of any securities of the Company. 16.5 "Code" means the Internal Revenue Code of 1986, as amended. ---- 16.6 "Committee" means the Committee of the Board that is authorized --------- to administer the Plan, as constituted from time to time. 16.7 "Common Share" means one share of the common stock of the ------------ Company. 16.8 "Company" means Vivra Incorporated, a Delaware corporation. ------- 16.9 "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. 16.10 "Exercise Price" means the amount for which one Common Share may -------------- be purchased upon exercise of an Option, as specified by the Committee in the applicable Stock Option Agreement. 16.11 "Fair Market Value" means the market price of a Common Share, ----------------- determined by the Committee as follows: (a) If the Common Share was traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite-transactions report for such date; (b) If the Common Share was traded over-the-counter on the date in question and was classified as a national market issue, then the Fair Market Value shall be equal to the last-transaction price quoted by the Nasdaq National Market system for such date; -15- (c) If the Common Share was traded over-the-counter on the date in question but was not classified as a national market issue, then the Fair Market Value shall be equal to the mean between the last reported representative bid and asked prices quoted by the Nasdaq National Market system for such date; and (d) If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate. 16.12 "ISO" means an incentive stock option described in section --- 422(b) of the Code. 16.13 "Key Employee" means a key common-law employee of or consultant ------------ to the Company or any Subsidiary, as determined by the Committee. A consultant may also include a Non-Employee Director who is not serving on the Committee. 16.14 "Non-Employee Director" means a member of the Board who is not a --------------------- common-law employee. 16.15 "NSO" means an employee stock option not described in sections --- 422 through 424 of the Code. 16.16 "Option" means an ISO or NSO granted under the Plan and ------ entitling the holder to purchase one Common Share. The term "Option" includes a Substitute Option. 16.17 "Optionee" means an individual or his or her estate that holds -------- an Option. 16.18 "Participant" means a Non-Employee Director or Key Employee who ----------- has received an Award. 16.19 "Plan" means this Vivra Incorporated Revised 1989 Stock ---- Incentive Plan, as it may be amended from time to time. 16.20 "Restricted Share" means a Common Share awarded to a Participant ---------------- under the Plan. 16.21 "SAR" means a stock appreciation right granted under the Plan as --- part of an Option or as a subsequent addition to an Option. 16.22 "Stock Award Agreement" means the agreement between the Company --------------------- and the recipient of a Restricted Share or Stock Unit which contains the terms, conditions and restrictions pertaining to such Restricted Share or Stock Unit. -16- 16.23 "Stock Option Agreement" means the agreement between the Company ---------------------- and an Optionee which contains the terms, conditions and restrictions pertaining to his or her Option. 16.24 "Stock Unit" means a bookkeeping entry representing the ---------- equivalent of one Common Share and awarded to a Participant under the Plan. 16.25 "Subsidiary" means any corporation, if the Company and/or one or ---------- more other Subsidiaries own not less than 50 percent of the total combined voting power of all classes of outstanding stock of such corporation. A corpo- ration that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. ARTICLE 17. EXECUTION. - ---------- --------- To record the adoption of the Plan by the Board, the Company has caused its duly authorized officer to execute the Plan in its name and on its behalf as of February ___, 1995. VIVRA INCORPORATED By ------------------------------------------- Its ---------------------------------------- -17- EX-10.7 3 EXHIBIT 10.7 TO FORM 10-K EXHIBIT 10.7 EMPLOYMENT CONTRACT ------------------- THIS EMPLOYMENT CONTRACT (the "Contract") is made on _________, 199_, between VIVRA INCORPORATED, a Delaware Corporation ("VIVRA") and _________, an ------------------ individual ("Employee"). Recitals -------- Employee and VIVRA agree: 1. Definitions. As used in this Contract, the following terms have the ----------- following meanings: 1.1 Board. "Board" means the Board of Directors of VIVRA. ----- 1.2 Cause. "Cause" means: ----- 1.2.1 Breach or Neglect. Breach of any material provision of this ----------------- Contract by Employee or breach or habitual neglect by Employee of her duties as an officer or employee of VIVRA, other than by reason of Permanent Disability; 1.2.2 Dishonesty. Any dishonesty, defalcation or fraud of Employee in ---------- connection with the performance of her duties as an officer or employee of VIVRA; 1.2.3 Misconduct or Negligence. Any gross or willful misconduct or gross ------------------------ negligence by Employee in the performance of her duties as an officer or employee of VIVRA; or 1.2.4 Other Conduct. Egregious conduct by Employee which has brought ------------- VIVRA into public disgrace or disrepute. 1.3 Change of Control. "Change of Control" means a "Change in Control" as ----------------- defined in VIVRA's 1989 Stock Incentive Plan, as may be amended from time to time, except that for purposes of this Agreement, a Change of Control does not include a purchase of securities or assets by a management-led purchasing group in which Employee is given a reasonable opportunity to participate. 1.4 Compete. "Compete" means either directly or indirectly to own, ------- initiate, manage, operate, join, control, advise, assist, consult with or participate in the ownership, operation, management or control (other than as an owner of less than five percent (5%) of the equity of any entity) of any Person in the U.S. engaged in the VIVRA Businesses or to lease or sell real or personal property to any such business. 1.5 Confidential Information. "Confidential Information" means all ------------------------ information and any idea in whatever form, tangible or intangible, pertaining in any manner to the business of VIVRA or any affiliated company, except information which: (i) is or becomes generally available to the public or publicly known other than as a result of disclosure in breach of any obligation of confidentiality; (ii) was or becomes available to Employee on a nonconfidential basis from a source other than VIVRA or its agents or affiliates; (iii) is disclosed pursuant to the requirement of a governmental agency or court of competent jurisdiction or as otherwise required under applicable law; or (iv) was otherwise known or available to Employee without any obligation of confidentiality. 1.6 Discretionary Bonus. A bonus described in paragraph 3.1.2. ------------------- 1.7 Exchange Act. "Exchange Act" means the Securities Exchange Act of ------------ 1934, as amended. 1.8 Fiscal Year. "Fiscal Year" means VIVRA's annual accounting period for ----------- financial accounting and reporting purposes, which currently is the period from each December 1 to and including the next following November 30. 1.9 Permanent Disability. "Permanent Disability" means any mental or -------------------- physical illness, disease or condition which results in Employee's inability to perform her duties during normal working hours for a period expected to exceed six consecutive months. 1.10 Person. "Person" means any individual, corporation, partnership, ------ business trust, joint venture, association, joint stock company, trust, unincorporated organization, government or agency or political subdivision thereof. 1.11 Salary. "Salary" means $_________ annual base compensation. ------ 1.12 VIVRA Businesses. "VIVRA Businesses" means any business in which ---------------- VIVRA is engaged at the date of termination of Employee's employment pursuant to this Contract and for which VIVRA has a business plan in place. 2. Employment and Duties. --------------------- 2.1 Position. Pursuant to this Contract, VIVRA shall employ and Employee -------- shall serve VIVRA as ____________ of VIVRA. 2.2 Time and Effort. While Employee is employed by VIVRA pursuant to the --------------- Contract, Employee shall devote her full productive business time, efforts, energies and abilities to VIVRA and its subsidiaries and shall not render services to any other Person without the written consent of VIVRA's Chief Executive Officer. Employee, however, shall not be precluded from engaging in civic, charitable or religious activities. 2.3 Place of Business. During Employment, Employee's principal place of ----------------- business shall be in ____________________, unless (i) VIVRA and Employee mutually agree to relocation or (ii) VIVRA terminates the majority of its operations in such location. 3. Compensation, Reimbursement and Benefits. ---------------------------------------- 3.1 Compensation. While Employee is employed by VIVRA pursuant to this ------------ Contract: 3.1.1 Salary. VIVRA shall pay the Salary to Employee in equal ------ semi-monthly installments, in accordance with VIVRA's general practice and subject to legally required withholdings. 3.1.2 Discretionary Bonuses. VIVRA may award Discretionary Bonuses to --------------------- Employee as determined by the Board and VIVRA's Chief Executive Officer in their sole discretion. 3.1.3 Performance Review. Each year, VIVRA shall review Employee's ------------------ performance of her duties pursuant to this Contract and shall consider (i) adjusting the Salary and (ii) the amount of any Discretionary Bonus for the year. Nothing in this paragraph 3.1.3 shall be construed to require or obligate VIVRA to increase the Salary or to award a Discretionary Bonus. 3.2 Expense Reimbursement and Benefits. While Employee is employed by ---------------------------------- VIVRA pursuant to this Contract: 3.2.1 Expense Reimbursement. VIVRA shall promptly reimburse Employee, --------------------- upon submission to VIVRA by Employee of adequate documentation, for all reasonable out-of-pocket expenses respecting entertainment, travel, meals, hotel accommodations and other like-kind expenses, in each case incurred by Employee in the interest of VIVRA's business. 3.2.2 Insurance. VIVRA shall provide life, medical, dental and hospital --------- insurance to Employee in the amount and on the terms such insurance is provided from time to time to other VIVRA corporate employees (other than the chief executive officer). 3.2.3 Vacation and Sick Leave. Employee shall be entitled to paid ----------------------- vacation and sick leave each year of the same duration and under the same conditions as other VIVRA corporate employees (other than the chief executive officer). 3.2.4 Other Benefits. Employee may participate in employee benefit plans -------------- and fringe benefit programs made available to other VIVRA corporate employees (other than the chief executive officer) subject to the generally applicable terms and conditions of each such plan or program. 3.5 Vesting, etc. on Change of Control. Whether or not Employee' ---------------------------------- employment terminates under this Contract pursuant to a Change of Control, all stock options and related stock appreciation rights held by Employee shall vest and become exercisable immediately upon such a Change of Control, and any restrictions on shares of stock of VIVRA or on stock units that were awarded to Employee under any plan or arrangement maintained by VIVRA for the benefit of Employee shall lapse upon the occurrence of such an event. 4. Protection of Business Information; Noncompetition; Nonsolicitation. ------------------------------------------------------------------- 4.1 Nondisclosure. ------------- 4.1.1 Confidential Information. In the operation, planning, development ------------------------ and expansion of the VIVRA Businesses, VIVRA has generated and will generate Confidential Information which is and will be proprietary and confidential and the disclosure of which would be extremely detrimental to VIVRA and of great assistance to its competitors. 4.1.2 Information Held as a Fiduciary. All of the Confidential ------------------------------- Information which is acquired by, communicated to or in any way comes into the possession or control of Employee shall be held by Employee in a fiduciary capacity for the exclusive benefit of VIVRA. 4.1.3 Nondisclosure Covenant. As a material part of the consideration for ---------------------- this Contract, Employee shall not disclose any Confidential Information to any Person, without the consent of VIVRA. 4.1.4 Following Employment. Upon termination of this Contract, Employee -------------------- shall promptly relinquish and return to VIVRA all Confidential Information and all files, correspondence, memoranda, diaries and other records, minutes, notes, manuals, papers and other documents and data, however prepared or memorialized, and all copies thereof, belonging to or relating to the business of VIVRA, that are in Employee's custody or control whether or not they contain Confidential Information, and shall promptly provide VIVRA with a written statement attesting to compliance with this paragraph. 4.2 Noncompetition Covenant. As a material part of the consideration for ----------------------- this Contract, while Employee is employed by VIVRA pursuant to this Contract and for a period of one (1) year thereafter, Employee shall not Compete or plan or prepare to Compete with VIVRA; provided, however, that during the __________ following employment, Employee may seek employment to commence after expiration of such one-year period, so long as such activity would not effectively constitute Competing. 4.3 Nonsolicitation Covenant. As a material part of the consideration for ------------------------ this Contract, while Employee is employed by VIVRA pursuant to this Contract and for a period of ____________ thereafter, Employee shall not solicit employees or independent contractors of VIVRA for employment other than for the VIVRA Businesses. 4.4 Scope and Duration; Severability. VIVRA and Employee understand and -------------------------------- agree that the scope and duration of the covenants contained in this Section 4 are reasonable both in time and area and are fairly necessary to protect the business of VIVRA. Nevertheless, it is further agreed that such covenants shall be regarded as divisible and shall be operative as to time and area to the extent that they may be made so operative and, if any part of them is declared invalid or unenforceable, the validity and enforceability of the remainder shall not be affected. 4.5 Injunction. Employee understands and agrees that, due to the highly ---------- competitive nature of the health care industry, the breach of any of the covenants set out in Subsections 4.1, 4.2 and 4.3 will cause irreparable injury to VIVRA for which it will have no adequate monetary or other remedy at law. Therefore, VIVRA shall be entitled, in addition to such other remedies as it may have hereunder, to a temporary restraining order and to preliminary and permanent injunctive relief for any breach or threatened breach of the covenants without proof of actual damages that have been or may be caused hereby. In addition, VIVRA shall have available all remedies provided under state and federal statutes, rules and regulations as well as any and all other remedies as may otherwise be contractually or equitably available. 4.6 Assignment. Employee agrees that subject to paragraph 5.2.2, the ---------- covenants contained in paragraph 4 shall inure to the benefit of any successor or assign of VIVRA with the same force and effect as if such covenants had been made by Employee on behalf of such successor or assign. 5. Termination. Employee's employment under this Contract may be ----------- terminated as provided in Subsection 5.1 with the consequences set out in Subsection 5.2. 5.1 Termination of Employment. Employee's employment may be terminated by ------------------------- VIVRA or Employee at any time upon ___________ written notice or by VIVRA immediately for Cause. 5.2 Effect of Termination. Upon Employee's termination of employment, the --------------------- parties shall have the following rights and obligations: 5.2.1 General Rule. Except as provided in Subsections 5.2.2 through ------------ 5.2.4, if Employee's employment is terminated by VIVRA or Employee for any reason, she shall be paid sixty (60) days' Salary but she shall not have any other right to receive the Salary or any other bonuses or benefits described in Section 3 after the date of termination, but Employee shall be obligated to VIVRA as provided in Section 4. Employee's employment shall be deemed to terminate if Employee, without her written consent, (i) is required to relocate from the ___________________ area or assigned any duties or responsibilities that are inconsistent in any significant respect with the scope of the duties and responsibilities associated with his position, or (ii) following the appointment of a new chief executive officer of VIVRA, suffers a reduction or change in the authority, duties or responsibilities associated with his position, including a change in his reporting relationship with the Chief Executive Officer of VIVRA, following which he reasonably determines that he can no longer carry out the duties and responsibilities of his position. 5.2.2 Change of Control. If Employee's employment is terminated by VIVRA ----------------- or any successor entity within ____________ after a Change of Control for any reason except for Cause, she shall be entitled to a cash payment to be made by VIVRA or the successor entity within thirty (30) days after the date of such termination equal to _______________, and she shall be obligated to VIVRA as provided in Section 4. 5.2.3 By VIVRA Other Than For Cause, Permanent Disability or Death. If ------------------------------------------------------------ Employee's employment is terminated by VIVRA other than for Cause, Permanent Disability or death, she shall be obligated to VIVRA as provided in Section 4, but she shall have the right to receive a cash payment to be made by VIVRA within thirty (30) days after such termination equal to ___________________. 5.2.4 Due to Permanent Disability or Death. If Employee's employment ------------------------------------ terminates due to her Permanent Disability or death, she (or her Beneficiary) shall be entitled to be paid an amount equal to ______________ and Employee shall be obligated to VIVRA as provided in Section 4. 5.3 Withholding. Anything in this Contract to the contrary ----------- notwithstanding, all payments required to be made to Employee under this Contract shall be subject to the withholding of such amounts, if any, for income and other payroll taxes and deductions as VIVRA may reasonably determine should be withheld pursuant to any applicable law or regulation. 6. Miscellaneous. ------------- 6.1 Assignment by VIVRA. This Contract may be assigned to any successors ------------------- or assigns of VIVRA. 6.2 Nonassignability by Employee. Employee shall not assign, transfer, ---------------------------- pledge or hypothecate any rights, interests or benefits created hereunder or hereby. Any attempt to do so contrary to the provisions of this Contract, and any levy of any attachment, execution or similar process created thereby, shall be null and void and without effect. 6.3 Spendthrift Provision. Prior to actual receipt by Employee, no right --------------------- or benefit under this Contract and, without limitation, no interest in any payment hereunder shall be: (i) anticipated, assigned or encumbered or subject to any creditor's claim or subject to execution, attachment or similar legal process, or (ii) applied on behalf of or subject to the debts, contracts, liabilities or torts of the Person entitled or who might become entitled to such benefits, or subject to the claims of any creditor of any such person. 6.4 Mediation. If any controversy, question or dispute arises out of or --------- relating to the construction, application or enforcement of this Contract, it shall be settled by mediation as follows: 6.4.1 Appointment of Mediator. Within five (5) days after the delivery of ----------------------- written notice of any dispute from one party to the other, the party delivering the notice shall contact the American Arbitration Association and request the appointment of a mediator. 6.4.2 Finality. The determination of the mediator shall be final and -------- conclusive on Employee and VIVRA. 6.4.3 Rules. The mediation shall be conducted in accordance with the ----- rules of the American Arbitration Association, and judgment on any award rendered by the mediator may be entered in any court having jurisdiction. 6.4.4 Fees and Costs. All fees and costs of mediation shall be borne by -------------- VIVRA and Employee as determined by the mediator. 6.5 Notices. Any notice provided for by this Contract and any other ------- notice, demand or communication which either party may wish to send to the other (the "Notices") shall be in writing and shall be deemed to have been properly given if served by (i) personal delivery, or (ii) registered or certified mail, return receipt requested, in a sealed envelope, postage prepaid, addressed to the party for which such notice is intended as follows: If to VIVRA: VIVRA Incorporated Board of Directors 400 Primrose, Suite 200 Burlingame, CA 94010 If to Employee: ________________ ________________ ________________ 6.5.1 Change of Address. Any address or name specified in this paragraph ----------------- 6.5.1 may be changed by a Notice given by the addressee to the other party in accordance with paragraph 6.5.1. 6.5.2 Effective Date of Notice. All notices shall be given and effective ------------------------ as of the date of personal delivery thereof or the date of receipt set forth on the return receipt. The inability to deliver because of a changed address of which no Notice was given, or rejection or other refusal to accept any Notice shall be deemed to be the receipt of the Notice as of the date of such inability to deliver or rejection or refusal to accept. 6.6 Limitation on Payments. In the event that it is determined by counsel ---------------------- (or any other tax advisor) approved by both Employee and VIVRA that any compensation payable hereunder, alone or when aggregated with other compensation payable to Employee, would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the net, after-tax amount that Employee would realize from the compensation hereunder and from all other sources, considering Employee's federal and state income tax brackets and the effect of any nondeductible excise tax, would be greater if the compensation payable hereunder were reduced, then the compensation payable hereunder shall be reduced until Employee's after-tax compensation (taking into account state and federal income taxes, excise taxes and all other applicable taxes) is maximized. 6.7 Counterparts. This Contract may be executed in any number of ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.8 Entire Agreement. This Contract constitutes the entire agreement ---------------- between the parties with respect to the subject hereof and supersedes all prior agreements, understandings, negotiations and discussions of the parties, whether oral or written, and there are no warranties, representations or other agreements between the parties in connection with the subject matter hereof, except as specifically set forth in this Contract. No amendment, alteration or modification of this Contract shall be valid unless in each instance such amendment, alteration or modification is expressed in a written instrument duly executed by the parties. 6.9 Governing Law; Jurisdiction. This Contract shall be construed in --------------------------- accordance with and governed by the laws of the State of California as that State is presently constituted. VIVRA hereby consents and submits to the jurisdiction of the state and federal courts in California in any suit for the enforcement or construction of or otherwise arising out of this Contract. IN WITNESS WHEREOF, this Contract has been executed and delivered by the parties, and this Contract shall be a binding obligation of each of the parties, on and as of the date set forth opposite their names. Dated: __________, 199_ -------------------------------------------------- VIVRA INCORPORATED Dated: __________, 199_ By ----------------------------------------------- Its ---------------------------------------------- EX-10.9 4 EXHIBIT 10.9 TO FORM 10-K EXHIBIT 10.9 AMGEN EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT --------------------------------------------------------------------------- THIS FREESTANDING DIALYSIS CENTER AGREEMENT, between AMGEN INC. ("Amgen") ---------- and VIVRA, INCORPORATED, including the freestanding dialysis center affiliate(s) ------------------- listed on Appendix A, (collectively, "Dialysis Center"), sets forth the terms and conditions for the purchase of EPOGEN-R- (Epoetin alfa) by Dialysis Center. 1. Term of Agreement. This Agreement shall commence on February 1, 1996 ----------------- and shall terminate on ********** ("Term"). 2. Qualifying Purchases. All terms contained herein apply only to -------------------- purchases made hereunder, by the dialysis center affiliate(s) listed on Appendix A attached hereto ("Affiliates"), through wholesalers authorized by Amgen to participate in this program ("Authorized Wholesalers") or directly from Amgen. Amgen requires all Authorized Wholesalers to submit product sales information to a third-party sales reporting organization approved by Amgen. 3. Contract Pricing. Amgen guarantees Dialysis Center the prices listed ---------------- below for EPOGEN-R- purchased during the Term, whether purchased directly from Amgen or through Authorized Wholesalers. Notwithstanding the foregoing, EPOGEN-R- purchased directly from Amgen must be in full case quantities or may be subject to additional service charges. Price per Item Number (NDC) Description Box ----------------- ----------- --- 55513-126-10 2,000 Units/mL, 1mL vial, 10 vials/box, 10 $ ***** boxes/case 55513-267-10 3,000 Units/mL, 1mL vial, 10 vials/box, 10 $ ***** boxes/case 55513-148-10 4,000 Units/mL, 1mL vial, 10 vials/box, 10 $ ***** boxes/case 55513-144-10 10,000 Units/mL, 1mL vial, 10 vials/box, $ ***** 10 boxes/case 55513-283-10 20,000 Unit (Multidose) vial, 10,000 $ ***** Units/mL, 2mL vial, 10 vials/box, 4 boxes/case 4. Payment Terms. During the Term, Amgen grants Dialysis Center payment ------------- terms of ********** for EPOGEN-R- purchased through Authorized Wholesalers, or ********** for EPOGEN-R- purchased directly from Amgen, subject to the right of Amgen to reasonably modify these terms in the event of a material adverse change in the financial condition of Dialysis Center, as determined by Amgen in its sole discretion. Option to purchase on a direct basis from Amgen is subject to receipt and approval of an "Application for Direct Ship Account." 5. Discount. Dialysis Center is eligible to receive a discount in -------- accordance with the schedule and terms set forth in Appendix B attached hereto. Agreement No. 953429 -1- Ver. 1/22/96 AMGEN EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT 6. Payment of Discount. Any discount hereunder shall be calculated in ------------------- accordance with Amgen's discount calculation policies, based on purchases at the calculation price of $********** per ********** units, except as otherwise provided. Any discount shall be paid, at Amgen's discretion, either in the form of a check payable to Dialysis Center's corporate headquarters or a purchase credit against future purchases of EPOGEN-R- by Dialysis Center, except as otherwise provided. Amgen will attempt to reasonably accommodate Dialysis Center's preference for method of payment. Purchase credits are available only for accounts purchasing directly from Amgen, are not transferable, and may not be used for the purchase of any product other than EPOGEN-R-. Upon vesting, Amgen will use its best efforts to make such discount available within sixty (60) days following receipt by Amgen of data, in a form acceptable to Amgen, detailing Dialysis Center's EPOGEN-R- purchases for the relevant period along with any other data required by the terms of Appendix B. Final determination of purchases eligible hereunder will be made by Amgen. Payment amounts, as calculated by Amgen, must equal or exceed $********** for the relevant period to qualify. Subject to the section entitled "Breach of Agreement," in the event that Amgen is notified in writing that Vivra, Incorporated and/or any Affiliates (the "Acquiree") is acquired by another entity or a change of control otherwise occurs with respect to the Acquiree, any discount which may have been earned hereunder shall be paid in the form of a check payable to the Acquiree's corporate headquarters subject to the conditions described herein. 7. Treatment of Discount. Dialysis Center agrees that it will account --------------------- for any discount earned hereunder in a way that complies with all applicable federal, state, and local laws and regulations, including without limitation, Section 1128B(b) of the Social Security Act and its implementing regulations, and (a) claim the benefit of such discount received, in whatever form, in the fiscal year in which such discount was earned or the year after, (b) fully and accurately report the value of such discount in any cost reports filed under Title XVIII or Title XIX of the Social Security Act, or a state health care program, and (c) provide, upon request by the U.S. Department of Health and Human Services or a state agency or any other federally funded state health care program, the information furnished by Amgen concerning the amount or value of such discount. Dialysis Center's corporate headquarters agrees that it will advise all Affiliates, in writing, of any discount received by Dialysis Center's corporate headquarters hereunder with respect to purchases made by such Affiliates and that said Affiliates will account for any such discount in accordance with the above stated requirements. 8. Discount limitation. Notwithstanding anything contained herein to the ------------------- contrary, the amount of any discount available to Dialysis Center from Amgen, under this Agreement or otherwise, shall be limited only to the extent that the resulting net price paid by Dialysis Center for each dosage form and strength of EPOGEN-R- is less than the price used to determine the relevant quarter's Medicaid Rebate for each dosage form and strength of EPOGEN-R- under the Medicaid Best Price Rebate Legislation, taking into account the aggregate value of all discounts ultimately available to Dialysis Center for the relevant quarter. 9. Commitment to Purchase. Dialysis Center agrees to purchase EPOGEN-R- ---------------------- for all of its dialysis use requirements for recombinant human erythropoietin. Dialysis Center may purchase another brand of recombinant human erythropoietin for its dialysis use requirements only for the time, and only to the extent, that Amgen has notified Dialysis Center's corporate headquarters in writing that Amgen cannot supply EPOGEN-R- within and for the time period reasonably required by Dialysis Center. Agreement No. 953429 -2- Ver. 1/22/96 AMGEN EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT 10. Own Use. Dialysis Center hereby certifies that EPOGEN-R- purchased ------- hereunder shall be for Dialysis Center's "own use." 11. Designated Wholesalers List. Dialysis Center agrees to provide Amgen --------------------------- with a complete list of its current designated wholesalers, through whom Dialysis Center may purchase EPOGEN-R- hereunder, on or before the date this Agreement is signed by Dialysis Center. Such list must include the name and complete address of each designated wholesaler. Dialysis Center agrees to promptly provide Amgen with any additions, deletions, or changes to the initial wholesaler list. Amgen requires no less than thirty (30) days notice before the effective date of change for any addition or deletion of designated wholesalers hereunder. The initial list of designated wholesalers, and any changes thereto, must be in writing and are subject to approval by Amgen. 12. Dialysis Center Affiliates. Modifications to Appendix A hereto may be -------------------------- made pursuant to the request of Dialysis Center's corporate headquarters and are subject to approval and acknowledgement by Amgen in writing. Amgen requires no less than thirty (30) days notice before the effective date of change for any addition or deletion of Affiliates hereunder. Amgen reserves the right in its sole discretion to accept or reject any Affiliates with regard to participation in this Agreement. 13. Breach of Agreement. Either party may terminate this Agreement for ------------------- breach upon thirty (30) days advance written notice. In addition, in the event that Dialysis Center breaches any provision of this Agreement, Amgen shall have no obligation to continue to offer the terms described herein or pay any further discounts to Dialysis Center. 14. Confidentiality. Both Amgen and Dialysis Center agree that this --------------- Agreement represents and contains confidential information which shall not be disclosed to any third party, or otherwise made public, without prior written authorization of the other party, except where such disclosure is contemplated hereunder or required by law. 15. Warranties. Each party represents and warrants to the other that this ---------- Agreement (a) has been duly authorized, executed, and delivered by it, (b) constitutes a valid, legal, and binding agreement enforceable against it in accordance with the terms contained herein, and (c) does not conflict with or violate any of its other contractual obligations, expressed or implied, to which is a party or by which it may be bound. The party executing this Agreement on behalf of Dialysis Center specifically warrants and represents to Amgen that it is authorized to execute this Agreement on behalf of and has the power to bind the Affiliates to the terms contained herein, including without limitation, the sections entitled "Payment of Discount," "Treatment of Discount," and "Discount Limitation." 16. Governing Law. This Agreement shall be governed by the laws of the ------------- State of California and the parties submit to the jurisdiction of the California courts, both state and federal. 17. Notices. Any notice or other communication required or permitted ------- hereunder shall be in writing and shall be deemed given or made when delivered in person or when sent to the other party by first class mail or other means of written communication at the respective party's address set forth below or at such other address as the party shall have furnished to the other in accordance with this provision. Agreement No. 953429 -3- Ver. 1/22/96 AMGEN EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT 18. Health Care Pricing Legislation. Notwithstanding anything contained ------------------------------- herein to the contrary, at any time following the enactment of any federal, state, or local law or regulation that in any manner reforms, modifies, alters, restricts, or otherwise affects the pricing of or reimbursement available for EPOGEN-R-, Amgen may, in its sole discretion, upon thirty (30) days written notice (a) terminate this Agreement, or (b) exclude any Affiliates from participating in this Agreement. 19. Miscellaneous. No modification of this Agreement shall be effective ------------- unless made in writing and signed by a duly authorized representative of each party, except as otherwise provided hereunder. This Agreement constitutes the entire agreement of the parties pertaining to the subject matter hereof and supersedes all prior written and oral agreements and understandings pertaining hereto. Neither party shall have the right to assign this Agreement to a third party without the prior written consent of the other party. Neither party shall be liable for delays in performance and nonperformance of this Agreement or any covenant contained herein caused by fire, flood, storm, earthquake or other act of God, war, rebellion, riot, failure of carriers to furnish transportation, strike, lockout or other labor disturbances, act of government authority, inability to obtain material or equipment, or any other cause of like or different nature beyond the control of such party. The parties shall execute and deliver all documents, provide all information, and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Amgen reserves the right to rescind this offer if the parties fail to execute this Agreement within thirty (30) days from the date of its offering. The parties executed this Agreement as of the dates set forth below. AMGEN, INC. VIVRA, INCORPORATED a Delaware corporation a California corporation 1840 DeHavilland Drive 2 Mareblu Thousand Oaks, CA 91320-1789 Laguna Hills, CA 92654 Signature: Signature: -------------------- ---------------------- Print Name: Print Name: ------------------- --------------------- Print Title: Print Title: ------------------ -------------------- Date: Date: ------------------------- --------------------------- Agreement No. 953429 -4- Ver. 1/22/96 AMGEN EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX A: LIST OF DIALYSIS CENTER AFFILIATE(S) See Contract List for EPOGEN-R- dated 12/4/95 (Enclosed) Agreement No. 953429 -5- Ver. 1/22/96 AMGEN EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX B: DISCOUNT SCHEDULE AND TERMS 1. Commitment Incentive. -------------------- (a) Calculation: Dialysis Center's Commitment Incentive ("CI") shall be calculated in accordance with the following formula: CI = A x B where A = Dialysis Center's aggregate EPOGEN-R- purchases for the Term. B = **********% (b) Vesting: Dialysis Center's CI shall vest **********. 2. 1996 Freestanding Dialysis Center Volume Performance Incentive. -------------------------------------------------------------- (a) Calculation: Dialysis Center's 1996 Freestanding Dialysis Center Volume Performance Incentive ("VPI") shall be calculated in accordance with the following formula: VPI = A x B where A = Dialysis Center's aggregate EPOGEN-R- purchases for the Term. B = A percent in accordance with the table listed below. C = Aggregate EPOGEN-R- purchases for the Term, by all Affiliates as listed at the beginning of the Term. D = Aggregate EPOGEN-R- purchases by those same Affiliates for the same time period during the previous year. Percent Growth B (C - D)/D ****% - **** ****% ****% - ****% ****% ****% - ****% ****% ****% - ****% ****% ****% - ****% ****% and where, for the relevant period, Agreement No. 953429 -6- Ver. 1/22/96 AMGEN EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX B: DISCOUNT SCHEDULE AND TERMS (CONTINUED) (i) Notwithstanding the definition of "C" above, if any Affiliates are added to or deleted from this Agreement during either of the periods used for comparison, Amgen reserves the right in its sole discretion to appropriately adjust Dialysis Center's purchases for the relevant periods, for purposes of comparison, by including or excluding any purchases made by those Affiliates during either of those periods, and (ii) Quarterly payments shall be estimated by Amgen using Amgen's discount calculation policies, and the VPI will be reconciled at the end of the Term. (b) Vesting: Dialysis Center's VPI shall vest **********. 3. Volume Achievement Incentive. ---------------------------- (a) Calculation: Dialysis Center's Volume Achievement Incentive ("VAI") shall be calculated in accordance with the following formula: VAI = A x B where A = Dialysis Center's aggregate EPOGEN-R- purchases for the Term by all Affiliates as listed at the beginning of the Term. B = A percent in accordance with the table listed below.
VOLUME AGGREGATE EPOGEN-R- PURCHASES FOR THE ACHIEVEMENT TERM BY ALL AFFILIATES AS LISTED AT THE INCENTIVE BEGINNING OF THE TERM PERCENTAGE $********* - ********* ***% $********* - ********* ***% $********* - ********* ***% $********* - ********* ***% $********* - ********* ***% $********* - ********* ***% $********* - ********* ***% $********* - ********* ***%
and where, for the relevant period, Agreement No. 953429 -7- Ver. 1/22/96 AMGEN EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX B: DISCOUNT SCHEDULE AND TERMS (CONTINUED) (i) The maximum payment available under this incentive will be $********** and (ii) Dialysis Center will not receive any payment under the VAI until the Affiliates listed at the beginning of the Term have met the minimum purchase requirement of $********** outlined above. At such time as this minimum purchase requirement is met, Amgen will reconcile the VAI for any previous unpaid quarters and will continue to reconcile the VAI until the end of the Term, and (iii) Aggregate EPOGEN-R- purchases for the Term, by all Affiliates as listed at the beginning of the Term, must equal or exceed the aggregate purchases by those same Affiliates for the same time period during the previous year to qualify for any VAI, and (iv) if any Affiliates are added to or deleted from this Agreement during either of the periods used for comparison, Amgen reserves the right in its sole discretion to appropriately adjust Dialysis Center's purchases for the relevant periods, for purposes of comparison, by including or excluding any purchases made by those Affiliates during either of those periods. (b) Vesting: Dialysis Center's VAI shall vest **********. 4. Optional Hematocrit Incentive. ----------------------------- (a) Description: Dialysis Center can qualify for the Optional Hematocrit Incentive ("OHN"), as described herein, provided Dialysis Center can obtain the information and data ("Data") listed in the Sample Report on Attachment #1 to this Agreement from their clinical laboratory, for each Affiliate, and provide the Data and Certification Letter attached hereto as Attachment #2 to Amgen as described herein, at the address listed on Attachment #1. Certification Letters will be mailed to Dialysis Center's corporate headquarters for signature prior to each period for which the Data is required. Amgen shall have the right to utilize the Data for any purpose, and reserves the right to audit the Data. The identity of the account submitting the Data and any association with the Data will remain confidential. A Sample Letter to the clinical laboratory which describes the Data requirements is also included on Attachment #3 to assist Dialysis Center in obtaining the Data. Agreement No. 953429 -8- Ver. 1/22/96 AMGEN EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX B: DISCOUNT SCHEDULE AND TERMS (CONTINUED) (b) Reports: Hematocrit results reported must be from samples taken immediately prior to the dialysis treatment (pre-dialysis) using Coulter-Counter or Technicon Measurement System testing methods, and shall be reported to the nearest tenth of a percent. Data for the month of February 1996 shall be provided to Amgen in a report no later than March 31, 1996. Data for the month of May 1996 shall be provided to Amgen in a report no later than June 30, 1996. Data for the month of August 1996 shall be provided to Amgen in a report no later than September 30, 1996. Data for the month of November 1996 shall be provided to Amgen in a report no later than December 31, 1996. Dialysis Center shall cause each report to be submitted in a format acceptable to Amgen with a signed copy of the Certification Letter. (c) Calculation: Dialysis Center's OHI shall be calculated and paid on two separate occasions, following receipt by Amgen of the Data and Certification Letter described herein, in accordance with the schedule listed below. The first payment shall be based on Data for the month of May 1996, and shall equal a percentage of Dialysis Center's aggregate EPOGEN-R- purchases during the period consisting of February 1, 1996 through July 31, 1996 ("First Component"). The second payment shall be based on Data for the month of November 1996, and shall equal a percentage of Dialysis Center's aggregate EPOGEN-R- purchases during the period consisting of August 1, 1996 through January 31, 1997 (second Component"). Percentage of all Dialysis Patients with Hematocrit Levels greater than or equal Optional to ***% (Please direct your Hematocrit attention to the EPOGEN-R- Incentive package insert) Percentage 85.0% - Over ***% 90.0% - 84.9% ***% 75.0% - 79.9% ***% 70.0% - 74.9% ***% 65.0% - 69.9% ***% where, (i) Amgen will calculate the OHI based on corporate performance in accordance with Amgen's discount calculation policies, and Agreement No. 953429 -9- Ver. 1/22/96 AMGEN EPOGEN-R- FREESTANDING DIALYSIS CENTER AGREEMENT - -------------------------------------------------------------------------------- APPENDIX B: DISCOUNT SCHEDULE AND TERMS (CONTINUED) (ii) if Dialysis Center is unable to provide the Data and Certification Letter for the required reports within the specified time period, Dialysis Center will not qualify for the OHI during the corresponding period, and (iii) Dialysis Center agrees to provide Amgen with information detailing purchases for each Affiliate during the Term, if so requested by Amgen. (d) Vesting: The First Component of the OHI shall vest on **********. The Second Component of the OHI shall vest on **********. Agreement No. 953429 -10- Ver. 1/22/96 AMGEN Attachment #1 to Agreement No. 953429 Sample Report ------------- XYZ Dialysis Unit Street Address City, ST Zip (800) 966-XXXX HEMATOCRIT INCENTIVE REPORT All Patient/Test Hematocrit Lab Results for the Relevant Period Patient ID Date Hematocrit ------------------------------- 1022 2/21/96 29.8 1134 2/23/96 35.0 4ACC3 2/23/96 28.6 1-456 2/21/96 33.2 HAB 2/21/96 21.9 (Black out any patient names or confidential identifiers.) - -------------------------------------------------------------------------------- SELECT PATIENT HEMATOCRIT LAB RESULTS FOR THE RELEVANT PERIOD SORTED FOR ALL PATIENT/TEST LAB RESULTS WITH HEMATOCRIT LEVELS GREATER THAN OR EQUAL TO ***% Patient ID Date Hematocrit ------------------------------- 1024 2/21/96 30.8 1134 2/23/96 35.0 3BCC2 2/23/96 31.6 1-456 2J21/96 33.2 FWB 2/21/96 32.9 (Black out any patient names or confidential identifiers.) - -------------------------------------------------------------------------------- HEMATOCRIT LAB RESULTS FOR THE RELEVANT PERIOD Total Hematocrit Tests: 198 Percentage of Patients/Tests with Hematocrit Levels greater than or equal to ***%: 85% - -------------------------------------------------------------------------------- Hematocrit results reported must be from samples taken immediately prior to the dialysis treatment (pre-dialysis) using Coulter-Counter or Technicon Measurement System testing methods, and shall be reported to the nearest tenth of a percent. Reports are to be provided to Amgen at the address listed below: EPOGEN-R- Marketing Department - FSDC Amgen Inc. 1840 DeHavilland Drive Thousand Oaks, CA 91320-1789 Mail Stop: 26-1-B Agreement No. 953429 Ver. 1/22/96 AMGEN Attachment #2 to Agreement No. 953429 Sample Certification Letter --------------------------- Month X, 199X FSDC Legal Name Street Address City, ST Zip Attn: _________ RE: EPOGEN-R- Freestanding Dialysis Center Agreement No. 9XXXXX Dear _________: Thank you for your participation in the Optional Hematocrit Incentive Program. In order for us to enroll you, we require that a duly authorized representative of your organization sign the certification below. Upon receipt of this signed document, we will calculate the value of your incentive. If we do not receive the signed certification, we cannot provide you with this incentive. If you have any questions regarding this letter please contact me at (805) 447-3339. Thank you for your assistance in returning this certification. Sincerely, David Boyd FSDC Marketing Segment Manager CERTIFICATION: - ------------- On behalf of FSDC Legal Name and all eligible affiliates participating in the Optional Hematocrit Incentive Program under Agreement No. 9XXXXX, the undersigned hereby certifies that the hematocrit data submitted for each eligible affiliate includes the required hematocrit results from all dialysis patients of such affiliate, and does not include hematocrit results from non-patients. The party executing this document also represents and warrants that it (i) has no reason to believe that the submitted hematocrit data is incorrect and (ii) is authorized to make this certification on behalf of all eligible affiliates submitting hematocrit data. FSDC LEGAL NAME Signature: ----------------------- Print Name: ---------------------- Print Title: --------------------- Date: ---------------------------- Agreement No. 953429 Ver. 1/22/96 AMGEN Attachment #3 to Agreement No. 953429 Sample Letter to Laboratory --------------------------- Month X, 199X ABC Laboratory Street Address City, ST Zip Attn: _________ Dear _________: As a means to monitor quality care, this facility will have future requirements to report certain patient lab results relating to hematocrit levels for all patients in the facility at each testing period. Your laboratory has excelled in meeting our testing needs in the past. I am writing this letter to determine if your laboratory will be able to meet these future needs. Enclosure 1 details the format and requirements. The four reports should be mailed to me four times per year as follows: Testing Period Covered: Report Submitted on or Before: - ---------------------- ----------------------------- February 1 to February 29, 1996 March 15, 1996 May 1 to May 31, 1996 June 15, 1996 August 1 to August 31, 1996 September 15, 1996 November 1 to November 30, 1996 December 15, 1996 I will follow this letter up with a telephone call to you to confirm these arrangements. Sincerely, Renal Administrator Agreement No. 953429 Ver. 1/22/96 AMGEN EX-10.10 5 EXHIBIT 10.10 TO FORM 10-K EXHIBIT 10.10 AGREEMENT --------- AGREEMENT made this ____ day of January, 1996 between VIVRA RENAL CARE, ----------------- INC. ("VIVRA"), a Nevada corporation with offices at 2 Mareblu, Aliso Viejo, CA - ---- 92656 and BELLCO DRUG CORP. ("BELLCO "), a New York corporation with offices at ----------------- 101 East Hoffman Ave., Lindenhurst, NY 11757 and METRO HEALTH CORP. ("METRO ------------------ HEALTH"), a New York Corporation with offices at 180 Route 109, West Babylon, NY 11703 (BELLCO and METRO HEALTH sometimes collectively referred to herein as "SUPPLIER"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, SUPPLIER is in the business of providing pharmaceutical and related supplies and products to kidney dialysis centers and end users; and WHEREAS, VIVRA owns and operates kidney dialysis units throughout the United States, and WHEREAS, SUPPLIER desires to be the primary supplier of pharmaceuticals and related supplies to VIVRA, and VIVRA desires to utilize SUPPLIER as its primary supplier of pharmaceuticals and related supplies, NOW, THEREFORE, in consideration of the premises above recited and the mutual covenants and obligations hereinafter contained, the parties agree as follow: 1. TERM OF AGREEMENT. ----------------- The term of this Agreement shall be for ********** years commencing February 1, 1996 (the "Commencement Date"), provided, however, that either party may at any time terminate the Agreement upon ********** advance written notice to the other party. Provided the Agreement is not sooner terminated, upon expiration of the ********** year term this Agreement shall automatically renew for successive ********** year periods thereafter. 2. PRICING. ------- All products sold to VIVRA will be invoiced at the prices determined in accordance with the terms of this Agreement. SUPPLIER agrees that the pricing shall be ********** to any other ********** which is not part of a group of ********** or to any other company that owns and operates a ********** wherein that number ********** or less than the **********. When VIVRA is eligible for contract pricing either under a group contract or individual contract for the same product, SUPPLIER will automatically ********** and which SUPPLIER can access. All contract pricing is contingent upon VIVRA becoming a member of any groups suggested by SUPPLIER and maintaining its membership in good standing with such groups during the term of this Agreement. (a) Dialysis Purchasing Alliance (DPA) contract pricing. VIVRA --------------------------------------------------- agrees to promptly submit all necessary enrollment forms in order to become eligible to participate in DPA. Membership in DPA will be at ********** to VIVRA for the term of this Agreement. DPA contract products will be billed at a contract price that will be attached to this Agreement as Schedule A and which will be updated from time to time. The term of the individual contracts that comprise the DPA buying group and continued eligibility is subject to each participating manufacturer's policy. (b) Direct pharmaceutical contract pricing. Any pharmaceutical -------------------------------------- or prescription drug product contract that VIVRA negotiates directly with a manufacturer and which SUPPLIER is permitted by manufacturer to utilize on VIVRA's behalf will be billed at the -1- contract price **********. Unless otherwise negotiated on a product by product basis, SUPPLIER **********. (c) Non-contract pharmaceutical products. Pharmaceutical ------------------------------------ products that are not available to VIVRA under any pricing contracts will be billed at SUPPLIER's **********. SUPPLIER **********. (d) Non-contract medical/surgical products. Medical/surgical -------------------------------------- products will be quoted on a product by product basis. (e) Epogen pricing. Epogen shall be sold to VIVRA at SUPPLIER's -------------- ********** specified below. For purposes of this Agreement, Net cost is defined as SUPPLIER's **********. The price to be paid by VIVRA for shipments of Epogen will vary depending upon the discounts and service fees available to SUPPLIER from the manufacturer, which discounts and fees are determined in the manufacturer's sole and absolute discretion, and are specifically related to VIVRA's purchases of Epogen from SUPPLIER. Such discounts and fees may also be related to matters which are beyond the control of SUPPLIER including, without limitation, agreements between VIVRA and the manufacturer of Epogen to which SUPPLIER is not a party. Pricing is also dependent upon the ********** chosen by VIVRA. As of the date hereof SUPPLIER anticipates that the manufacturer will offer to SUPPLIER ********** and **********, for a total discount of ********** from SUPPLIER's wholesale acquisition cost of Epogen for sale to VIVRA. VIVRA acknowledges and agrees that such discounts and service fees can be revised by the manufacturer from time to time and that SUPPLIER's wholesale acquisition cost and the Net cost to VIVRA shall vary accordingly. (i) For the initial ********** of this Agreement Epogen will be billed at SUPPLIER's ********** as defined above plus a mark up of $********** per ********** units of Epogen based upon compliance with the payment and terms contained in paragraph 5, sub-paragraph (a) below entitled Phase One Payment Terms. (ii) At any time after the initial ********** of this Agreement, upon 30 days advance written notice, VIVRA may elect for Epogen to be billed at SUPPLIER's ********** as defined above plus a mark up of $********** per ********** units of Epogen based upon compliance with the payment and terms contained in paragraph 5, sub-paragraph (b) below entitled Phase Two Payment Terms. (iii) At any time after the initial ********** of this Agreement, upon 30 days advance written notice, VIVRA may elect for Epogen to be billed at SUPPLIER's ********** as defined above plus a mark up of $********** per ********** units of Epogen based upon compliance with the payment and terms contained in paragraph 5, subparagraph (c) below entitled Phase Three Payment Terms - Pre Pay Option. The discount offered to SUPPLIER by manufacturer for the sale of Epogen to VIVRA is subject to change, from time to time, at the sole discretion of manufacturer. Immediately upon SUPPLIER's receipt of notice of any discounting change from the manufacturer, SUPPLIER will forward a copy of same to VIVRA and immediately recompute its ********** in determining the price to be billed to VIVRA for all orders of Epogen. In the event the discount and service fees available to SUPPLIER are more favorable than those referenced above (**********) the mark up to be charged by SUPPLIER shall be subject to upward revision solely by mutual agreement of the parties. -2- 3. INVOICING. --------- (a) SUPPLIER will provide a corresponding invoice and packing slip packed inside all product shipments SUPPLIER delivers to the kidney dialysis units. Invoices or copies of same will be in a format ready for standard fax transmission. Additionally, SUPPLIER will provide via overnight delivery a statement of invoices to VIVRA each Tuesday representing invoices from shipments made by SUPPLIER for the preceding Monday through Friday less any applicable credits issued by SUPPLIER and accepted by VIVRA during the applicable period. (b) VIVRA and any kidney dialysis unit receiving product from SUPPLIER will forward written correspondence and copies of any shipping claims or disputed invoice(s) to SUPPLIER within 5 business days of receipt of a corresponding invoice related to a disputed order. Once SUPPLIER receives written correspondence regarding any disputed invoice(s), said disputed invoice(s) will not be subject to finance charges specified in paragraph 6 below, but will be required to be resolved and reconciled by both parties within 20 business days. (c) Returns of any products shipped to VIVRA by SUPPLIER shall be made in accordance with SUPPLIER's return policy, as amended from time to time. A copy of SUPPLIER's return policy in effect on the date hereof has been provided to VIVRA by SUPPLIER, and VIVRA acknowledges receipt of same. 4. PAYMENT. ------- Payments will be made to SUPPLIER via federal funds wire transfer from VIVRA's account to a designated BELLCO bank account. Where the payment due date falls on a holiday or weekend the payment is due on the next business day. 5. TERMS. ----- (a) Phase One Payment Terms: Invoices dated Monday through Friday for any given week will be payable via federal funds wire transfer to a designated BELLCO account within ********** from the Wednesday of such week. Therefore, starting the ********** of this Agreement and assuming VIVRA places at least **********, VIVRA will make a payment every **********. (b) Phase Two Payment Terms: Invoices dated Monday through Friday for any given week will be payable via federal funds wire transfer to a designated BELLCO account within ********** from the Wednesday of such week. Therefore, assuming VIVRA places at least **********, VIVRA will make a payment every **********. (c) Phase Three Payment Terms - **********: Every ********** VIVRA will ********** via federal funds wire transfer to a designated BELLCO account for ********** Monday through Friday. The ********** will be an amount equal to ********** from the previous month. Any ********** balance will be reconciled by the ********** of the following month wherein SUPPLIER will ********** VIVRA and VIVRA will make ********** to SUPPLIER for ********** from the previous month, or SUPPLIER will issue ********** VIVRA for ********** from the previous month. (i) In the event VIVRA chooses Phase Three Payment Terms, SUPPLIER will provide copies of the quarterly financial reports which BELLCO is required to supply to the financial institution which provides BELLCO with its operating line of credit. Such reports -3- will be provided to VIVRA concurrently with their submission to said financial institution. All such financial reports provided to VIVRA will be deemed confidential information and VIVRA agrees to execute a separate confidentiality agreement acceptable to BELLCO in its sole and absolute discretion relating to such confidential information. 6. LATE PAYMENT CHARGE. ------------------- VIVRA will be subject to charges for late payments at a rate of 12% per annum (but in no event more than the maximum rate permitted by law). When calculating the monthly charge for late payment, all non disputed invoices are deemed due for payment ********** days from invoice date for Phase One Payment Terms, and ********** days from invoice date for Phase Two Payment Terms. The calculation to determine the charge for late payment is as follows: When the total amount of invoices paid late, weighted by the days paid late, exceeds the total amount of invoices paid early, weighted by the days paid early, the difference will be subject to charges at a rate of 12% per annum (but in no event more than the maximum rate permitted by law.) SUPPLIER will create a summary of late charges and a corresponding invoice for late charges for a given month and deliver same via overnight delivery to VIVRA by the 10th of the following month. The invoice for late charges will be payable by the 24th of such month that summary and invoice late charges is received by VIVRA. 7. DELIVERY. -------- All Epogen orders only will be shipped via overnight delivery. Next day delivery for Epogen is available only for orders transmitted to and received by SUPPLIER no later than 4:00 p.m. Eastern Standard Time, Monday through Thursday. Orders for other products will be shipped F.O.B. destination via overland delivery with all packing, shipping, and delivery charges borne by SUPPLIER. The pricing of Epogen is contingent upon the understanding that SUPPLIER will bear full cost of shipment of Epogen to VIVRA or any kidney dialysis unit operated by it an average of ********** per month per kidney dialysis unit. For example, based on VIVRA operating 200 kidney dialysis units, SUPPLIER shall bear the overnight delivery charges for ********** overnight deliveries of Epogen per month. In the event shipments of Epogen are required to be made by SUPPLIER to VIVRA or the kidney dialysis units more than an average of $********** per month, VIVRA will be obligated to pay a delivery surcharge at a rate of **********, per shipment for each delivery in excess of ********** shipments per month per kidney dialysis unit. Monthly, SUPPLIER shall prepare a statement detailing any excess overnight delivery charges incurred by it for the shipment of Epogen in excess of 1.5 shipments per unit per month for the preceding month. VIVRA shall pay such amounts within thirty days of receipt of such statement from SUPPLIER. Not withstanding the foregoing, SUPPLIER shall bear all overnight delivery costs for all Epogen orders transmitted to and received by SUPPLIER prior to **********, 1996. 8. VOLUME REQUIREMENTS. ------------------- In order for VIVRA to continue to receive the pricing terms contained in paragraph 2 above, effective no later than three months from the Commencement Date VIVRA shall order and purchase from SUPPLIER an amount of products equal to not less than $********** of product per month based on the pricing terms set forth in this Agreement. If VIVRA does not reach this monthly minimum for **********, SUPPLIER reserves the right to adjust upward the pricing contained in paragraph 2 above. If, solely due to SUPPLIER's fault, SUPPLIER is unable to provide Epogen to VIVRA for five or more consecutive business days, the monthly minimum stated above will be reduced by the dollar amount of Epogen orders transmitted to, received and unfilled by SUPPLIER during the period of time SUPPLIER is unable to provide Epogen. -4- 9. AUTOMATED ORDERING SYSTEM. ------------------------- (a) It is agreed that as soon as practicable after the Commencement Date and finalization of Schedule B (referred to below) SUPPLIER will provide at no cost to VIVRA an electronic ordering System (the "System"). The System will facilitate the electronic transmission of purchasing, inventory, and receiving data over standard phone lines from VIVRA's individual kidney dialysis units to a personal computer-based System (the "Base") at a VIVRA designated centralized location. The Base will receive this data and then have the capability to review, edit, print, and transmit this data in batch to SUPPLIER for order processing. Additionally, the System will be capable of transmitting inventory counts from the kidney dialysis units to the Base. Finally, the Base will be capable of exporting data received and accumulated in its database to a predefined DOS-based file. (b) The System will include the following: - Hand-held scanning and order entry device for all current and future VIVRA kidney dialysis units to which SUPPLIER ships pharmaceuticals and related supplies. - Personal computer hardware at the centralized location chosen by VIVRA to accept transmissions and manage data from the kidney dialysis units - Application software to allow VIVRA to perform above specified functionality (c) The System will be developed based upon a written specification that VIVRA & SUPPLIER will mutually develop and attach to and make part of this Agreement as Schedule B. (d) During the term of this Agreement SUPPLIER shall maintain the System in working order in accordance with the specifications contained in Schedule B at the centralized location chosen by VIVRA and at the kidney dialysis units, provided however, that SUPPLIER shall not be responsible for maintenance or repair caused by the substantial negligence of VIVRA, its agents or employees. If the centralized location is changed by VIVRA during the term of this Agreement or if VIVRA desires any upgrades, modifications, or peripherals, the cost for same shall be at VIVRA's expense, except for modifications necessary for the System to operate in compliance with Schedule B. All upgrades, enhancements, and modifications shall be the property of SUPPLIER, provided, however, that VIVRA shall be granted a non-exclusive, perpetual and royalty-free license to use any such upgrades, enhancements, or modifications. (e) Upon expiration of the term of this Agreement, VIVRA shall own the hardware comprising the System. Upon expiration of the term of this Agreement VIVRA shall have the right and is hereby granted a license to continue to use the software comprising the System as set forth in Schedule B, provided VIVRA is not in default of this Agreement. Upon payment of the annual license fee, SUPPLIER will license said software to VIVRA for an amount not to exceed $**********, per year. Upon VIVRA's written notice of intent to continue to use the software comprising the System as set forth in Schedule B sent to SUPPLIER by VIVRA, an invoice for the annual license fee will be mailed to VIVRA with said invoice payable within thirty days of invoice date. Annual renewals of the license to use the software specified in Schedule B shall be at a cost not to exceed $**********. (f) It is understood and agreed that SUPPLIER is making a significant financial investment to develop, provide, and support the System. If this Agreement is terminated by VIVRA for any reason other than as specified below after 120 days from the Commencement Date but prior to the expiration of the three year term, VIVRA will be responsible to purchase all hardware and peripherals, and to reimburse SUPPLIER for the System's software development costs. If this Agreement is terminated by VIVRA for any reason other than as specified below after 120 days from the Commencement Date but prior to the expiration of the three year term, VIVRA will either return all software and documentation constituting the System and all copies thereof within 30 days of such termination, or continue to use the software comprising the System as set forth in Schedule B at a licensing fee schedule to be determined. The price VIVRA will pay for the hardware -5- constituting the System and the System's software development costs will be calculated at SUPPLIER's invoiced acquisition cost less straight line depreciation pro-rated on a three year basis. Software development costs shall only include costs incurred by SUPPLIER after February 1, 1996 for developing the System for VIVRA. It is further agreed that such invoiced acquisition cost will not exceed $**********, and shall be paid within 30 days of SUPPLIER's invoice date. In the event VIVRA terminates this Agreement solely because the System fails to perform in accordance with Schedule B, VIVRA shall have no obligation to reimburse SUPPLIER for any acquisition or development costs, shall return the hardware, software and documentation (and all copies thereof) within 30 days of such termination, and all licenses granted hereunder shall terminate. (g) The System will be managed by a designated employee of SUPPLIER (such employee hereinafter referred to as the "Project Manager"). The Project Manager will be the contact person for designated VIVRA staff relating to all operational aspects of the System, including finalization of Schedule B, implementation and training, and post-installation technical and application support. (h) Exclusively relating to the implementation, training, and post-installation technical and application support of the System, SUPPLIER will provide reasonable consultation via telephone at no charge to the designated VIVRA personnel. Additionally SUPPLIER will provide up to three (3) consecutive days of on-site training at the VIVRA designated location which is the site of the Base, with such training and travel related to same at no cost to VIVRA. If VIVRA elects to request more than three (3) consecutive days on-site training at the site of the Base, or if VIVRA requests SUPPLIER to perform any form of on-site training for VIVRA's individual kidney dialysis units, SUPPLIER agrees to provide, for a fee, the services of the Project Manager and/or other qualified training staff. SUPPLIER will invoice VIVRA for such services at a rate of $30 per man hour, with such $30 per hour applicable to travel time. If VIVRA elects to utilize such services, VIVRA agrees to reimburse SUPPLIER for all related round trip travel, ground transportation, hotel, and meal expenses, and to pay such invoices within 30 days. 10. CONSULTATION SERVICES. --------------------- At VIVRA's request and for a fee, SUPPLIER agrees to provide VIVRA technical or application consultation services to integrate the System referenced in paragraph 9 to VIVRA's current or future hardware or software platforms. Any enhancements, modifications, or customization of the software constituting the System shall be performed by SUPPLIER at an agreed upon fee plus reimbursement of all out of pocket expenses incurred by SUPPLIER. Consultation services will also be provided by SUPPLIER to assist VIVRA in the analysis and/or implementation of future business software applications and/or hardware platforms on the same fee basis as enhancements, modifications, or customization. SUPPLIER will invoice VIVRA for such consultation services at a rate to be negotiated on a project by project basis. If VIVRA elects to utilize such consultation services, VIVRA agrees to reimburse SUPPLIER for all related round trip travel, ground transportation, hotel, and meal expense, and to pay such invoices within 30 days. 11. NOTICES. ------- Any notices which is desired or required to be given hereunder shall be deemed to be sufficiently given if personally delivered or sent by certified mail and addressed as follows : If to VIVRA: VIVRA RENAL CARE, INC. 2 Mareblu Aliso Viejo, CA 92656 -6- If to BELLCO: BELLCO DRUG CORP. 101 East Hoffman Avenue Lindenhurst, NY 11757 If to METRO HEALTH: METRO HEALTH CORP. 180 Route 109 West Babylon, NY 11703 12. SEVERABILITY. ------------ If any one or more of the provisions contained herein shall be held for any reason to be invalid, illegal or unenforceable in any respect, such provision shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provisions had never been contained herein. 13. BINDING EFFECT. -------------- This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided, however, that this Agreement may not be assigned by either party without the prior written consent of the other. 14. ENTIRE AGREEMENT. ---------------- This Agreement contains the entire understanding and agreement between the parties concerning the subject matter hereof, and all other prior written and oral agreements, understandings or arrangements are merged herein. No amendment or modification hereof shall be binding upon either party unless in writing signed by the party to be charged therewith. 15. MISCELLANEOUS. ------------- SUPPLIER shall submit to VIVRA information concerning any material litigation instituted against SUPPLIER. All such information provided to VIVRA will be deemed confidential information and VIVRA agrees to execute a separate confidentiality agreement acceptable to BELLCO in its sole and absolute discretion relating to such confidential information. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first written above. VIVRA INC. By: ---------------------------------------------- BELLCO DRUG CORP. By: ---------------------------------------------- -7- METRO HEALTH CORP. By: ---------------------------------------------- -8- EX-21 6 EXHIBIT 21 TO FORM 10-K EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The Company's subsidiaries, fictitious business names (if any) under which they do business, percentage of ownership, and the state or other jurisdiction of incorporation or organization of each are set forth below.
PERCENTAGE STATE OR COUNTRY FICTITIOUS BUSINESS SUBSIDIARY OF OWNERSHIP OF INCORPORATION NAME (IF ANY) Associated Health Services, Inc. 100% Delaware Associated Medication Services, Inc. 100% Delaware Asthma & Allergy CareAmerica, Inc. 100% Nevada Vivra Renal Care, Inc.** 100% Nevada Community Dialysis Supply Corp. 100% Florida Vivra Health Advantage, Inc. 100% Nevada VNS 75% Florida PCHS Co., Inc. 100% California Specialty Care America, Inc.*** 100% Delaware Nephrology Services Group/ Vivra Nephrology Partners Surgical Partners of America, Inc. 100% California Vivra Heart Services, Inc. Nevada Vivra OB-GYN, Inc. Nevada Vivra Orthopedics, Inc. Delaware Vivra Specialty Partners, Inc. Nevada Vivra Physician Services, Inc. 100% Delaware VPSL CORPORATION 100%* Delaware Celsus of Louisville Vivra Physician Services of Colorado Springs, Inc. 83%* Delaware Vivra Laboratories, Inc. 100% Nevada * Vivra Physician Services, Inc., is 100% owner of VPSL CORPORATION and Vivra Physician Services of Colorado Springs, Inc. ** Occasionally owns as subsidiaries clinics acquired in pooling transactions. *** Owns approximately ten subsidiaries which operate nephrology practices.
EX-23.1 7 EXHIBIT 23.1 TO FORM 10-K EXHIBIT 23.1 Consent of Independent Auditors We consent to the incorporation by reference in Registration Statement (and applicable Prospectus) No. 33-49208 on Form S-3 dated October 28, 1992, No. 33-65530 on Form S-3 dated July 23, 1993, No. 33-67630 on Form S-8 dated August 19, 1993, No. 33-73930 on Form S-3 dated January 25, 1994, No. 33-80030 on Form S-3 dated June 20, 1994, No. 33-98246 on Form S-8 dated August 17, 1994, No. 33-86074 on Form S-3 dated December 15, 1994, post effective Amendment No.1 to No. 33-85736 on Form S-4 and dated March 14, 1995, and No. 33-60513 on Form S-8 dated June 23, 1995 of Vivra Incorporated, of our report dated January 24, 1996, with respect to the consolidated financial statements and schedule of Vivra Incorporated included in the Annual Report on Form 10-K for the year ended November 30, 1995. ERNST & YOUNG LLP Los Angeles, California February 23, 1996 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS NOV-30-1995 NOV-30-1995 52,565 43,616 74,215 12,865 8,822 182,816 114,503 39,396 402,701 51,789 1,339 366 0 0 342,802 402,701 350,490 355,647 238,730 238,730 54,298 0 360 62,259 24,224 37,940 0 0 0 37,940 1.08 1.08
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