<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
VENCOR, INC.
VENCOR OPERATING, INC. DELAWARE
DELAWARE (STATE OR OTHER JURISDICTION OF
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
INCORPORATION OR ORGANIZATION) 8069
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
61-1323993
8069
(PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
CLASSIFICATION CODE NUMBER) 3300 AEGON CENTER
52-2085484 400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(I.R.S. EMPLOYER IDENTIFICATION NO.) (502) 596-7300
(ADDRESS, INCLUDING ZIP CODE, AND
3300 AEGON CENTER TELEPHONE NUMBER, INCLUDING AREA CODE,
400 WEST MARKET STREET OF REGISTRANT'S PRINCIPAL EXECUTIVE
LOUISVILLE, KENTUCKY 40202 OFFICES)
(502) 596-7300
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES)
---------------
JILL L. FORCE
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND ASSISTANT SECRETARY
VENCOR, INC.
3300 AEGON CENTER
400 WEST MARKET STREET
LOUISVILLE, KENTUCKY 40202
(502) 596-7300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
DONALD C. WALKOVIK
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 558-4000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------
If the securities being registered on this Form are being offered in connec-
tion with the formation of a holding company and there is compliance with Gen-
eral Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering pur-
suant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier ef-
fective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) un-
der the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 7/8% Guaranteed Senior
Subordinated Notes
due 2005............... $300,000,000 100% $300,000,000 $88,500
- -------------------------------------------------------------------------------
Vencor, Inc. Guarantee
with respect to the 9
7/8% Guaranteed Senior
Subordinated Notes(2)..
- -------------------------------------------------------------------------------
Total................... $300,000,000 100% $300,000,000 $88,500
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933.
(2) No separate consideration will be received for the Guarantee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRA-
TION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION
8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SEC-
TION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 29, 1998
VENCOR OPERATING, INC.
OFFER TO EXCHANGE ITS 9 7/8% GUARANTEED SENIOR SUBORDINATED NOTES DUE 2005,
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY VENCOR,
INC.,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, FOR ANY AND
ALL OF ITS OUTSTANDING 9 7/8% GUARANTEED SENIOR SUBORDINATED NOTES DUE 2005,
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY VENCOR,
INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998, UNLESS EXTENDED.
Vencor Operating, Inc., a Delaware corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus (as
the same may be amended or supplemented from time to time, the "Prospectus")
and the accompanying Letter of Transmittal (which together constitute the "Ex-
change Offer"), to exchange up to $300 million aggregate principal amount of
its 9 7/8% Guaranteed Senior Subordinated Notes due 2005 (the "New Notes"),
which have been unconditionally and irrevocably guaranteed (the "Guarantee") as
to payment of principal, premium, if any, and interest by Vencor, Inc., a Dela-
ware corporation (the "Guarantor"), pursuant to a registration statement (the
"Registration Statement") filed under the Securities Act of 1933, as amended
("Securities Act"), of which this Prospectus constitutes a part, for a like
principal amount of its outstanding 9 7/8% Guaranteed Senior Subordinated Notes
due 2005 (the "Old Notes"), which also have been irrevocably and uncondition-
ally guaranteed pursuant to the Guarantee as to payment of principal, premium,
if any, and interest by the Guarantor, issued on April 30, 1998, of which $300
million aggregate principal amount is outstanding.
The terms of the New Notes and the Guarantee, are identical in all material re-
spects to the terms of the Old Notes and the Guarantee, except that (i) the New
Notes and Guarantee have been registered under the Securities Act and therefore
will not be subject to certain restrictions on transfer applicable to the Old
Notes and the Guarantee, will not contain certain legends relating thereto and
will not be entitled to registration rights, and (ii) the New Notes will not
provide for any increase in the interest rate thereon. In that regard, the Old
Notes provide that if (i) the Registration Statement is not filed with the Se-
curities and Exchange Commission (the "Commission") on or prior to June 29,
1998, (ii) the Registration Statement is not declared effective by the Commis-
sion on or prior to August 28, 1998, or (iii) the Exchange Offer is not consum-
mated or a shelf registration statement with respect to resale of the Old Notes
(the "Shelf Registration Statement") is not declared effective on or prior to
September 28, 1998, then additional interest (in addition to the interest oth-
erwise due on the Old Notes) will accrue on the Old Notes. The New Notes and
the Guarantee are being offered for exchange in order to satisfy certain obli-
gations of the Company and the Guarantor under the Registration Rights Agree-
ment dated as of April 30, 1998, (the "Registration Rights Agreement") among
the Company, the Guarantor and the Initial Purchasers (as defined) of the Old
Notes. The New Notes and the Guarantee will be issued under the same Indenture
(as defined) as the Old Notes and the Guarantee, and the New Notes and the Old
Notes will constitute a single series of debt securities under the Indenture.
(Continued on Page 3)
SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE
EXCHANGE OFFER.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------
The date of this Prospectus is , 1998
<PAGE>
[VENCOR LOGO]
[UNITED STATES MAP SHOWING LOCATION OF VENCOR FACILITIES.]
2
<PAGE>
(Continued from Page 1)
If the Exchange Offer is consummated, any Old Notes which remain outstanding
after consummation of the Exchange Offer and the New Notes issued in the Ex-
change Offer will vote together as a single class for purposes of determining
whether Holders (as defined) of the requisite percentage in outstanding princi-
pal amount of Notes (as defined) have taken certain action or exercised certain
rights under the Indenture. Holder(s) of New Notes and holders(s) of Old Notes
are referred to herein as "Holder(s)." The New Notes and the Old Notes are col-
lectively referred to herein as the "Notes." See "Description of the New Notes
and the Guarantee" and "Description of the Old Notes and the Guarantee."
Interest on the New Notes is payable semi-annually on May 1 and November 1 of
each year, (each, an "Interest Payment Date"), commencing on November 1, 1998.
The New Notes will mature on May 1, 2005. The New Notes will be redeemable at
the option of the Company, in whole or in part, at any time on or after May 1,
2002, at the redemption prices set forth herein, plus accrued and unpaid inter-
est thereon to the applicable redemption date. The New Notes are not subject to
any sinking fund requirement. In addition, upon the occurrence of a Change of
Control (as defined), each Holder of the New Notes may require the Company to
repurchase such New Notes at 101% of the principal amount thereof, plus accrued
and unpaid interest to the date of repurchase. See "Description of the New
Notes and the Guarantee."
The New Notes and the Guarantee will be general unsecured obligations of the
Company and the Guarantor, respectively, subordinated in right of payment to
all Senior Debt (as defined) including all of the obligations under the Credit
Agreement (as defined). As of March 31, 1998, on a pro forma basis after giving
effect to the private offering of the Old Notes (the "Offering"), the Reorgani-
zation Transactions (as defined) and the Distribution (as defined), the Company
and the Guarantor would have had outstanding an aggregate principal amount of
approximately $800 million of Senior Debt, which would rank senior in right of
payment to the New Notes. In addition, the New Notes and the Guarantee effec-
tively will be subordinated to all outstanding indebtedness and other liabili-
ties and commitments (including trade payables and operating lease obligations)
of the Company's subsidiaries. As of March 31, 1998, on a pro forma basis as
described above, the outstanding indebtedness of the Company's subsidiaries
would have been approximately $800 million (substantially all of which consti-
tutes Guarantees of Indebtedness under the Company Credit Agreement (as de-
fined)), excluding trade payables and operating lease obligations aggregating
approximately $3.2 billion. Subject to certain limitations as described herein,
the Indenture and the Company Credit Agreement permit the Company and its sub-
sidiaries to incur additional indebtedness, subject to certain limitations. See
"Description of the New Notes and the Guarantee."
The Company and the Guarantor are making the Exchange Offer in reliance on the
position of the staff of the Division of Corporation Finance of the Commission
as set forth in certain interpretive letters addressed to third parties in
other transactions. The Company and the Guarantor, however, have not sought
their own interpretive letter and there can be no assurance that the staff of
the Division of Corporation Finance of the Commission would make a similar de-
termination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance of the Commission, and subject to the two imme-
diately following sentences, the Company and the Guarantor believe that the New
Notes and the Guarantee issued pursuant to this Exchange Offer in exchange for
Old Notes and Guarantee may be offered for resale, resold and otherwise trans-
ferred by a Holder thereof (other than a Holder who is a broker-dealer) without
further compliance with the registration and prospectus delivery requirements
of the Securities Act, provided that such New Notes and the Guarantee are ac-
quired in the ordinary course of such Holder's business and that such Holder is
not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Notes and the Guarantee. However, any Holder of Old Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing New Notes, or any broker-dealer who purchased
Old Notes from the Company to resell pursuant to Rule 144A under the Securities
Act ("Rule 144A") or any other available exemption under the Securities Act,
(i) will not be able to rely on the interpretations of the staff of the Divi-
sion of Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (ii) will not be permitted or entitled to tender such Old
Notes in the Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or other transfer of such Old Notes unless such sale is made pursuant to
an exemption from such requirements. In addition, as described below, if any
broker-dealer holds Old Notes acquired for its own account as a result of mar-
ket-making or other trading activities and exchanges such Old Notes for New
Notes, then such broker-dealer must deliver a prospectus meeting the require-
ments of the Securities Act in connection with any resales of such New Notes.
Each Holder of Old Notes who wishes to exchange Old Notes for New Notes in the
Exchange Offer will be required to represent that (i) it is not an "affiliate"
of the Company, (ii) any New Notes to be received by it are being acquired in
the
3
<PAGE>
ordinary course of its business, (iii) it has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the Se-
curities Act) of such New Notes and, (iv) if such Holder is not a broker-deal-
er, it is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such New Notes. Each broker-
dealer that receives New Notes for its own account pursuant to the Exchange Of-
fer must acknowledge that it acquired the Old Notes for its own account as the
result of market-making, or other trading activities and must agree that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning, of the
Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Company believes that broker-dealers who acquired Old Notes for
their own accounts as a result of market-making or other trading activities
("Participating Broker-Dealers") may fulfill their prospectus delivery require-
ments of the requirements with respect to the New Notes received upon exchange
of such Old Notes (other than Old Notes which represent an unsold allotment
from the original sale of the Old Notes) with a prospectus meeting the require-
ments of the Securities Act, which may be the prospectus prepared for an ex-
change offer so long as it contains a description of the plan of distribution
with respect to the resale of such New Notes. Accordingly, this Prospectus may
be used by a Participating Broker-Dealer during the period referred to below in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such Participating Broker-Dealer for its own
account as a result of market-making, or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
has agreed that this Prospectus may be used by a Participating Broker-Dealer in
connection with resales of such New Notes for a period ending 180 days after
the Expiration Date (as defined) (subject to extension under certain limited
circumstances) or, if earlier, when all such New Notes have been disposed of by
such Participating Broker-Dealer. Any Participating Broker-Dealer who is an
"affiliate" of the Company may not rely on such interpretive letters and must
comply with the registration and prospectus delivery requirements of the Secu-
rities Act in connection with any resale transaction. See "Plan of Distribu-
tion" and "The Exchange Offer--Resales of New Notes."
In that regard, each Participating Broker-Dealer who surrenders Old Notes pur-
suant to the Exchange Offer will be deemed to have agreed, by execution of the
Letter of Transmittal, that, upon receipt of notice from the Company of the oc-
currence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any mate-
rial respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by refer-
ence herein, in light of the circumstances under which they were made, not mis-
leading or of the occurrence of certain other events specified in the Registra-
tion Rights Agreement, such Participating Broker-Dealer will suspend the sale
of New Notes pursuant to this Prospectus until the Company has amended or sup-
plemented this Prospectus to correct such misstatement or omission and has fur-
nished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes
may be resumed, as the case may be. If the Company gives such notice to suspend
the sale of the New Notes, it shall extend the 180-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus
in connection with the resale of New Notes by the number of days during the pe-
riod from and including the date of the giving of such notice to and including
the date when Participating Broker-Dealers shall have received copies of the
amended or supplemented Prospectus necessary to permit resales of the New Notes
or to and including the date on which the Company has given notice that the
sale of New Notes may be resumed, as the case may be.
The New Notes will be a new issue of securities for which there currently is no
market. Although the Initial Purchasers have informed the Company that they
currently intend to make a market in the New Notes, they are not obligated to
do so, and any such market making may be discontinued at any time without no-
tice. Accordingly, there can be no assurance as to the development or liquidity
of any market for the New Notes. The Company currently does not intend to apply
for listing of the New Notes on any securities exchange or for quotation
through the National Association of Securities Dealers Automated Quotation Sys-
tem.
Any Old Notes not tendered and accepted in the Exchange Offer will remain out-
standing and will be entitled to all the same rights and will be subject to the
same limitations applicable thereto under the Indenture (except for those
rights which terminate upon consummation of the Exchange Offer). Following con-
summation of the Exchange Offer, the Holders of Old Notes will continue to be
subject to the existing restrictions upon transfer thereof, and the Company
will have no further obligation to such Holders to provide for registration un-
der the Securities Act of the Old Notes held by them. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, a Holder's ability to
sell untendered Old Notes could be adversely affected. See "Prospectus Summa-
ry--Certain Consequences of a Failure to Exchange Old Notes."
4
<PAGE>
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFOR-
MATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE RELATED
LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR OLD
NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 5:00 p.m., New York City
time, on , 1998 (such time on such date being hereinafter called the
"Expiration Date"), unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended). Tenders of Old Notes may be withdrawn at
any time on or prior to the Expiration Date. The Exchange Offer is not condi-
tioned upon any minimum principal amount of Old Notes being tendered for ex-
change. The Exchange Offer, however, is subject to certain events and condi-
tions which may be waived by the Company and to the terms and provisions of the
Registration Rights Agreement. Old Notes may be tendered in whole or in part in
a principal amount of $1,000 and integral multiples thereof. The Company has
agreed to pay all expenses of the Exchange Offer. See "The Exchange Offer--Fees
and Expenses." Each New Note will bear interest from the most recent date to
which interest has been paid, or duly provided for, on the Old Note surrendered
in exchange for such New Note or, if no such interest has been paid, or duly
provided for, on such Old Note, from April 30, 1998. Holders of Old Notes whose
Old Notes are accepted for exchange will not receive accrued interest on such
Old Notes for any period from and after the last Interest Payment Date to which
interest has been paid or duly provided for on such Old Notes prior to the
original issue date of the New Notes or, if no such interest has been paid or
duly provided for, will not receive any accrued interest on such Old Notes, and
will be deemed to have waived the right to receive any interest on such Old
Notes accrued from and after such Interest Payment Date or, if no such interest
has been paid or duly provided for, from and after April 30, 1998.
Any waiver, extension or termination of the Exchange Offer will be publicly an-
nounced by the Company through a release to the Dow Jones News Service and as
otherwise required by applicable law or regulations.
This Prospectus, together with the Letter of Transmittal, is being sent to all
registered Holders of Old Notes as of , 1998.
Neither the Company nor the Guarantor will receive any cash proceeds from the
issuance of the New Notes and the Guarantee offered hereby. No dealer-manager
is being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
5
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMA-
TION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY OR THE GUARANTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A
SOLICITATION IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAW-
FUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY OR THE GUARANTOR SINCE THE DATE
HEREOF OR THAT INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY DATE SUBSE-
QUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information.................. 6
Incorporation of Certain Documents by
Reference............................. 7
Forward Looking Statements............. 7
Prospectus Summary..................... 8
Risk Factors........................... 22
Use of Proceeds........................ 31
Guarantor Pro Forma Capitalization..... 32
Guarantor Selected Historical Financial
Data.................................. 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Guarantor........... 35
Guarantor Unaudited Pro Forma
Consolidated Financial Statements..... 44
Management's Discussion and Analysis of
Pro Forma Financial Condition and
Results of Operations of the
Guarantor............................. 50
</TABLE>
<TABLE>
<S> <C>
Business............................... 54
Relationship Between Predecessor
Company and the Guarantor............. 71
Directors and Executive Officers of the
Guarantor............................. 80
Description of the Company Credit
Agreement............................. 82
The Exchange Offer..................... 84
Description of the New Notes and the
Guarantee............................. 91
Description of the Old Notes and the
Guarantee............................. 113
Certain United States Federal Income
Tax Considerations.................... 114
Plan of Distribution................... 115
Legal Matters.......................... 115
Experts................................ 115
Index to Consolidated Financial
Statements and Financial Statement
Schedules............................. F-1
</TABLE>
In connection with the Reorganization Transactions (as defined herein), the
Guarantor changed its name from "Vencor Healthcare, Inc." to "Vencor, Inc." as
of April 30, 1998. Concurrently, the predecessor corporation (the "Predecessor
Company") to the Guarantor, which operated under the name "Vencor, Inc." prior
to April 30, 1998, changed its name to "Ventas, Inc."
AVAILABLE INFORMATION
The Guarantor is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance there-
with the Guarantor files, and will file, reports, proxy statements and other
information with the Commission. The reports, proxy statements and other infor-
mation filed by the Guarantor with the Commission may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the Commission's
Regional Offices, including the following: Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such information may be ob-
tained by mail at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and certain of
such information may be accessed electronically on the Commission's Web Site at
(http://www.sec.gov). The Guarantor's common stock is listed on the New York
Stock Exchange ("NYSE") under the symbol "VC." Reports, proxy statements and
other information filed by the Guarantor may be inspected at the offices of the
NYSE at 20 Broad Street, New York, New York 10005.
6
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Guarantor with the Commission pursuant to
the Exchange Act (File No. 001-14057) are incorporated in this Prospectus by
reference and are made a part hereof:
1. Form 10 dated April 23, 1998;
2. Amendment No. 1 to Form 10 dated April 27, 1998;
3. Current Report on Form 8-K dated April 30, 1998; and
4. Current Report on Form 8-K dated June 18, 1998.
All documents filed by the Guarantor with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offering shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained in a document in-
corporated or deemed incorporated herein by reference shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is incorporated or deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE GUARANTOR WILL PROVIDE WITHOUT A CHARGE TO
EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN REQUEST,
A COPY OF ANY OR ALL OF SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCU-
MENTS). WRITTEN OR TELEPHONE REQUESTS SHOULD BE DIRECTED TO VENCOR, INC., 3300
AEGON CENTER, 400 WEST MARKET STREET, LOUISVILLE, KENTUCKY 40202, ATTENTION:
SECRETARY TELEPHONE (502) 596-7300.
FORWARD LOOKING STATEMENTS
This Prospectus includes forward-looking statements within the meaning of Sec-
tion 27A of the Securities Act and Section 21E of the Exchange Act. All state-
ments regarding the Company's or the Guarantor's expected future financial po-
sition, results of operations, cash flows, financing plans, business strategy,
budgets, projected costs and capital expenditures, competitive positions,
growth opportunities, plans and objectives of management for future operations
and words such as "anticipate," "believe," "plan," "estimate," "expect," "in-
tend," and other similar expressions are forward-looking statements. Such for-
ward-looking statements are inherently uncertain, and Holders of Notes and the
Guarantee must recognize that actual results may differ from the Company's and
the Guarantor's expectations. Holders of Notes and the Guarantee will continue
to be subject to the same considerations and risks inherent in the business as
currently conducted.
Actual future results and trends for the Company and the Guarantor may differ
materially depending on a variety of factors discussed under the heading "Risk
Factors" and elsewhere in this Prospectus. Factors that may affect the plans or
results of the Company and/or the Guarantor include, without limitation, (i)
success in implementing their respective business strategies, (ii) the nature
and extent of future competition, (iii) the extent of future healthcare reform
and regulation, including cost containment measures and changes in reimburse-
ment policies and procedures, (iv) the Company's and the Guarantor's ability to
manage and operate the Leased Properties (and upon completion of development,
the Development Properties), (v) increases in the cost of borrowing for each of
the Company and the Guarantor, (vi) the ability of the Company and the Guaran-
tor to continue to deliver high quality care and to attract patients, and (vii)
changes in the general economic conditions and/or in the markets in which the
Company and the Guarantor may, from time to time, compete. Many of such factors
are beyond the control of the Company and the Guarantor and their respective
managements.
7
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed infor-
mation and financial statements appearing elsewhere in this Prospectus or in-
corporated herein by reference. Capitalized terms used in this summary under
the caption "The Exchange Offer" and not otherwise defined are defined under
the caption "Description of the New Notes and the Guarantee--Certain Defini-
tions." Unless the context otherwise requires, references in this Prospectus to
(i) "Predecessor Company" shall be deemed to refer to Vencor, Inc. prior to
consummation of the Reorganization Transactions (as defined) and the Distribu-
tion (as defined) and, unless the context otherwise requires, to Ventas, Inc.
after the Reorganization Transactions and the Distribution (in connection with
which Predecessor Company changed its name to Ventas, Inc.), (ii) the "Guaran-
tor" shall be deemed to refer to Vencor, Inc. and its subsidiaries and (iii)
the "Company" shall be deemed to refer to Vencor Operating, Inc., a wholly
owned subsidiary of the Guarantor, and its subsidiaries. The historical finan-
cial statements of Predecessor Company are the historical financial statements
of the Guarantor as of the Distribution Date. Prior year discussions refer to
the Company's business as it was conducted by Predecessor Company.
THE COMPANY
GENERAL
The Company is one of the largest providers of long-term healthcare services in
the United States. At March 31, 1998, the Company's operations included 62
long-term acute care hospitals containing 5,313 licensed beds, 305 nursing cen-
ters containing 39,960 licensed beds, and a contract service business
("Vencare") which provides respiratory and rehabilitation therapies and medical
and pharmacy management services to approximately 2,900 healthcare facilities.
Also at such date, the Company operated in 45 states. Healthcare services pro-
vided through this network of facilities include long-term hospital care, nurs-
ing care, acute cardiopulmonary care, subacute and post-operative care, inpa-
tient and outpatient rehabilitation therapy, specialized care for Alzheimer's
disease and pharmacy services. The Company also continues to develop
VenTouch(TM), a comprehensive paperless clinical information system designed to
increase the operating efficiencies of the Company's facilities.
BUSINESS STRATEGY
The Company believes that the demand for long-term care is increasing. Improved
medical care and advances in medical technology continue to increase the sur-
vival rates for victims of disease and trauma. Many of these patients never
fully recover and require long-term care. The incidence of chronic medical com-
plications increases with age, particularly in connection with certain degener-
ative conditions. As the average age of the United States population increases,
the Company believes that the demand for long-term healthcare at all levels of
the continuum of care will increase.
At the same time, the healthcare system of the United States is experiencing a
period of significant change. Factors affecting the healthcare system include
cost containment, the expansion of managed care, improved medical technology,
an increased focus on measurable clinical outcomes and a growing public aware-
ness of healthcare spending by governmental agencies at Federal and state lev-
els. Payors are increasingly requiring providers to move patients from high-
acuity care environments to lower-acuity care settings as quickly as is medi-
cally appropriate.
The Company will continue its strategy of developing its full-service inte-
grated network to meet the range of needs of patients requiring long-term care.
The Company continues to integrate and expand the operations of its long-term
acute care hospitals and nursing centers and to develop related healthcare
services. The Company provides a full range of clinical expertise, as well as
advanced technologies for cost-efficiencies, to accommodate patients at all
levels of long-term care. Key elements of the Company's strategy for providing
a full-service integrated network for long-term care are as set forth below:
Focus on Long-Term Care Continuum. The factors which affect the selection of
long-term care vary by community and include the Company's local competitive
position as well as its relationships with local referral sources. Accordingly,
the Company focuses its resources on developing integrated networks within each
of the local markets it serves.
The Company's history of strategic acquisitions and complementary business de-
velopment initiatives has served to enhance the Company's position as a leader
in local and regional markets. In addition, the Company benefits from economies
of scale through its strategic focus on the long-term care continuum.
8
<PAGE>
The Company intends to continue expanding its long-term care network and will
evaluate new market opportunities based on (i) the need for placement of long-
term patients or residents, (ii) existing provider referral patterns, (iii) the
presence of competitors, (iv) payor mix and (v) the political and regulatory
climate. Over the next 12 to 18 months, the Company does not anticipate acquir-
ing additional healthcare facilities. In addition, the Company intends to sell
all or a portion of its interest in certain non-strategic businesses or the op-
erations of facilities where such disposition would be in the best interest of
the Company. These actions are intended to reduce the Company's outstanding
debt. Once the Company's debt is reduced, the Company intends to once again
initiate development efforts and pursue strategic acquisitions that complement
its core operating businesses.
Increase Penetration of Specialty Care and Ancillary Services. The Company in-
tends to continue to expand the specialty care programs and ancillary services
provided in its nursing centers through its Vencare operations. These services
generally produce higher revenues than do routine nursing care services and
serve to differentiate the Company's nursing centers from others in a given
market. The Company focuses on the expansion of its subacute, medical and reha-
bilitation services, including physical, occupational and speech therapies,
wound care, oncology treatment, brain injury care, stroke therapy and orthope-
dic therapy at its facilities.
Vencare provides respiratory therapy and subacute care services pursuant to
contracts with nursing centers and other healthcare facilities owned by third
parties. The Vencare program also includes rehabilitation therapy services,
pharmacy management services and mobile radiology services. Vencare enables the
Company to provide its services to lower acuity patients in cost-efficient set-
tings.
During 1997, the Company initiated the sale of its Vencare full service ancil-
lary services contracts to provide a full range of services to nursing centers
not operated by the Company. Management believes that by bundling services
through one provider, nursing centers can provide quality patient care more ef-
ficiently with the added benefit of centralizing their medical records. Under
the new prospective payment system imposed by the Balanced Budget Act of 1997
(the "Budget Act"), ancillary services provided by nursing centers will be sub-
ject to fixed payments. In this new environment, management believes that its
full service ancillary services contracts will enhance the ability of nursing
center operators to manage effectively the cost of providing quality patient
care.
Further Implement Patient Information System. VenTouch(TM) is a software appli-
cation which allows nurses, physicians and other clinicians to access and man-
age clinical information used in the healthcare delivery process. Among the
features of VenTouch(TM) are on-line access and update of an electronic patient
chart, on-line trend analysis using electronic flowsheets and graphs, and re-
mote access for authorized users. The system is designed to decrease adminis-
trative time, reduce paper and support the delivery of quality patient care.
Prior to the acquisition of Transitional Hospitals Corporation ("Transition-
al"), the Company installed VenTouch(TM) in all of its hospitals. The Company
expects to install VenTouch(TM) in the 19 former Transitional hospitals during
1998. At March 31, 1998, 59 of the Company's nursing centers were using the
VenTouch(TM) information system. The Company expects to install VenTouch(TM) in
40 to 50 of its nursing centers during 1998. In addition, the Company intends
to offer VenTouch(TM) in connection with the services offered by Vencare to
nursing centers not operated by the Company.
THE REORGANIZATION TRANSACTIONS AND THE DISTRIBUTION
On May 1, 1998 (the "Distribution Date"), Predecessor Company separated into
two publicly-owned companies:
(i) The Guarantor, which holds, directly or indirectly through the Company
and its other subsidiaries, all the assets relating to the operation of
Predecessor Company's historical healthcare business, other than the
Properties (as defined below) retained by Predecessor Company. The Com-
pany and its subsidiaries manage and operate the Properties (and upon
completion of development, certain real properties under development or
to be developed by the Company and, at the option of Predecessor Compa-
ny, to be sold to, and leased back from, Predecessor Company) (the "De-
velopment Properties"), which will be leased from Predecessor Company
pursuant to one or more master lease agreements (collectively, the
"Master Lease Agreement").
(ii) Predecessor Company operates as a self-administered, self-managed re-
alty company (and will operate as a real estate investment trust for
Federal income tax purposes commencing on January 1, 1999). Predeces-
sor Company retained substantially all Predecessor Company-owned land,
buildings and other improvements and real estate related assets, in-
cluding 46 long-term acute care hospitals and 210 nursing centers (the
"Properties") operated
9
<PAGE>
by Predecessor Company as of December 31, 1997 (the "Real Estate Busi-
ness"). In connection with Reorganization Transactions, Predecessor Com-
pany changed its name from "Vencor, Inc." to "Ventas, Inc." and its cor-
porate existence continued.
In connection with the Reorganization Transactions, Predecessor Company dis-
tributed to the holders of its common stock all of the outstanding shares of
common stock of the Guarantor (the "Distribution").
The following summarizes the transactions effected in connection with the Dis-
tribution (the "Reorganization Transactions"):
1. Internal Mergers and Transfers. Prior to the Distribution Date, Prede-
cessor Company effectuated certain internal mergers and stock and asset
transfers which allocated the assets and liabilities relating to the
Properties to Predecessor Company and the other assets and liabilities
relating to the operation of Predecessor Company's historical healthcare
business, including the Development Properties, to the Guarantor. The
principal internal mergers and stock and asset transfers are as follows:
(a) all of Predecessor Company's subsidiaries which held any of the
Properties, other than TheraTx, Incorporated ("TheraTx") and Transi-
tional merged with and into Predecessor Company; (b) TheraTx and Transi-
tional transferred all of the real property and real property related
assets which they owned that were included in the Properties to Prede-
cessor Company; (c) Predecessor Company formed the Guarantor and the
Company; and (d) Predecessor Company transferred all of the stock of its
subsidiaries which were not merged with and into Predecessor Company
pursuant to (a) above, including the outstanding stock of TheraTx and
Transitional (which owns all of Predecessor Company's ownership interest
in Behavioral Healthcare Corporation ("BHC"), an operator of psychiatric
and behavioral clinics (the "BHC Stock")), and the common stock of Atria
Communities, Inc., a publicly held company and former division of Prede-
cessor Company ("Atria"), held by Predecessor Company (the "Atria Common
Stock"), to the Guarantor and Predecessor Company transferred any oper-
ating assets held by Predecessor Company (collectively, the "Transferred
Assets") to the Guarantor (or subsidiaries of the Guarantor) and, in ex-
change for such stock and the Transferred Assets, the Guarantor issued
its common stock distributed in the Distribution to Predecessor Company.
In connection with the Reorganization Transactions, the Guarantor con-
tributed substantially all of its assets, including the Development
Properties and the Leased Properties, to the Company and its subsidiar-
ies.
2. Master Lease Agreement. Prior to the Distribution Date, Predecessor Com-
pany and the Guarantor entered into the Master Lease Agreement pursuant
to which Predecessor Company leases all of the Properties to the Guaran-
tor (the "Leased Properties").
3. Development Agreement. Prior to the Distribution Date, Predecessor Com-
pany and the Guarantor entered into the Development Agreement pursuant
to which the Guarantor may complete development of the Development Prop-
erties and thereafter, at the option of Predecessor Company, sell to,
and lease back from, Predecessor Company, the Development Properties.
The terms of the leases for the Development Properties purchased by
Predecessor Company will be substantially similar to the Master Lease
Agreement.
4. Financing. In connection with the Reorganization Transactions, Predeces-
sor Company repurchased and refinanced with bank borrowings and securi-
ties issuances by each of Predecessor Company, the Company and the Guar-
antor substantially all of Predecessor Company's existing $2.0 billion
of indebtedness, consisting primarily of amounts drawn under Predecessor
Company's existing bank credit facility (the "Predecessor Company Bank
Facility") and substantially all of the $750 million of Predecessor
Company's 8 5/8% Senior Subordinated Notes due 2007 (the "Predecessor
Company Notes").
The Guarantor and the Company had approximately $1.09 billion in indebted-
ness as of the Distribution Date and approximately $228 million in credit
available under a revolving credit facility. Such capital is available from
the following sources: (i) a revolving credit facility (the "Company Re-
volving Credit Facility") in the amount of $300 million, (ii) a term loan
(the "Company Term A Loan") in the amount of $250 million, (iii) a term
loan (the "Company Term B Loan" and, together with the Company Term A Loan,
the "Company Term Loans") in the amount of $250 million, (iv) a bridge loan
(the "Company Bridge Loan" and, together with the Company Revolving Credit
Facility and the Company Term Loans, the "Company Credit Agreement") in the
amount of $200 million, to be repaid from the proceeds of the sale of cer-
tain non-strategic assets, including the sale of Atria Common Stock owned
by the Company as a result of the Reorganization Transactions, (v) $17.7
million of non-voting Series A Convertible Preferred Stock (the "Guarantor
Series A Preferred Stock"), and (vi) the Old Notes (collectively, the "Com-
pany Financing Transactions"). If the Company is unable to sell the Atria
Common Stock or other assets, the Company will be required to refinance the
Company Bridge Loan with the Company Revolving Credit Facility or a public
debt or equity offering, or
10
<PAGE>
a combination thereof. The Guarantor has fully and unconditionally guaran-
teed payment of the Company's obligations pursuant to the Company Financing
Transactions.
RELATIONSHIP BETWEEN PREDECESSOR COMPANY AND THE GUARANTOR SINCE THE
DISTRIBUTION
For purposes of governing certain ongoing relationships between the Guarantor
and Predecessor Company since the Distribution and providing mechanisms for an
orderly transition, the Guarantor and Predecessor Company entered into certain
agreements and adopted certain policies on or prior to the Distribution Date.
Such agreements include: (i) the Reorganization Agreement, providing for, among
other things, the Reorganization Transactions and cross-indemnification provi-
sions, (ii) the Master Lease Agreement, setting forth, among other things, the
material terms for the lease of the Leased Properties by Predecessor Company to
the Guarantor, (iii) a development agreement (the "Development Agreement"),
providing for, among other things, the completion of development by the Guaran-
tor of the Development Properties and thereafter, at the option of Predecessor
Company, the sale to, and lease back from, Predecessor Company, of the Develop-
ment Properties, (iv) a participation agreement (the "Participation Agree-
ment"), providing for, among other things, the right of first offer of each of
Predecessor Company and the Guarantor to participate in certain transactions,
(v) an employee benefits agreement (the "Employee Benefits Agreement"), (vi) an
intellectual property agreement (the "Intellectual Property Agreement"), (vii)
a tax sharing agreement (the "Tax Allocation Agreement"), and (viii) a transi-
tion services agreement (the "Transition Services Agreement"). Each of the
Guarantor and Predecessor Company has created a committee of independent direc-
tors to review and approve transactions and agreements between the companies.
See "Relationship Between Predecessor Company and the Guarantor."
THE GUARANTOR
The Guarantor is a newly formed Delaware corporation whose primary assets are
the capital stock of the Company. Through the Company and its subsidiaries, the
Guarantor is operating the healthcare business previously operated by Predeces-
sor Company.
11
<PAGE>
THE EXCHANGE OFFER
ISSUER.............................
Vencor Operating, Inc.
GUARANTOR.......................... Vencor, Inc.
THE EXCHANGE OFFER................. Up to $300 million aggregate principal
amount of New Notes, together with the
Guarantee, are being offered in exchange
for a like aggregate principal amount of
Old Notes. The Company and the Guarantor
are making the Exchange Offer in order to
satisfy their obligations under the Reg-
istration Rights Agreement relating to
the Old Notes and the Guarantee. For a
description of the procedures for
tendering Old Notes, see "The Exchange
Offer--Procedures for Tendering Old
Notes."
EXPIRATION DATE....................
5:00 p.m., New York City time, on
, 1998 (such time on such date
hereinafter called the "Expiration Date")
unless the Exchange Offer is extended by
the Company (in which case the term "Ex-
piration Date" shall mean the latest date
and time to which the Exchange Offer is
extended). Any waiver, extension or ter-
mination of the Exchange Offer will be
publicly announced by the Company through
a release to the Dow Jones News Service
and as otherwise required by applicable
law or regulations. See "The Exchange Of-
fer--Expiration Date; Extensions; Amend-
ments."
CERTAIN CONDITIONS TO THE EXCHANGE The Exchange Offer is subject to certain
OFFER............................. conditions. The Company reserves the
right in its sole and absolute discre-
tion, subject to applicable law, at any
time and from time to time, (i) to delay
the acceptance of the Old Notes for ex-
change, (ii) to terminate the Exchange
Offer if certain specified conditions
have not been satisfied, (iii) to extend
the Expiration Date of the Exchange Offer
and retain all Old Notes tendered pursu-
ant to the Exchange Offer, subject, how-
ever, to the right of Holders of Old
Notes to withdraw their tendered Old
Notes, or (iv) to waive any condition or
otherwise amend the terms of the Exchange
Offer in any respect. See "The Exchange
Offer--Expiration Date; Extensions;
Amendments" and "--Certain Conditions to
the Exchange Offer."
WITHDRAWAL RIGHTS..................
Tenders of Old Notes may be withdrawn at
any time on or prior to 5:00 p.m., New
York City time, on the Expiration Date by
delivering a written notice of such with-
drawal to the Exchange Agent (as defined)
in conformity with certain procedures set
forth below under "The Exchange Offer--
Withdrawal Rights."
PROCEDURES FOR TENDERING OLD Tendering Holders of Old Notes must com-
NOTES............................. plete and sign a Letter of Transmittal in
accordance with the instructions con-
tained therein and forward the same by
mail or hand delivery, together with any
other required documents, of the Exchange
Agent at the address set forth herein by
5:00 p.m., New York City time, on the Ex-
piration Date, either with the Old Notes
to be tendered or in compliance with the
specified procedures for guaranteed de-
livery of Old Notes.
12
<PAGE>
Certain brokers, dealers, commercial
banks, trust companies and other nominees
may also effect tenders by book-entry
transfer. Holders of Old Notes registered
in the name of a broker, dealer, commer-
cial bank, trust company or other nominee
are urged to contact such person promptly
if they wish to tender Old Notes pursuant
to the Exchange Offer. Letters of Trans-
mittal and certificates representing Old
Notes should not be sent to the Company.
Such documents should only be sent to the
Exchange Agent. Questions regarding how
to tender and requests for information
should be directed to the Exchange Agent.
See "The Exchange Offer--Procedures for
Tendering Old Notes" and "--Exchange
Agent."
GUARANTEED DELIVERY PROCEDURES..... Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are
not immediately available or who cannot
deliver their Old Notes, the Letter of
Transmittal or any other documents re-
quired by the Letter of Transmittal to
the Exchange Agent prior to the Expira-
tion Date must tender their Old Notes ac-
cording to the guaranteed delivery proce-
dures set forth in "The Exchange Offer--
Procedures for Tendering Old Notes--Guar-
anteed Delivery."
RESALES OF NEW NOTES............... The Company and the Guarantor are making
the Exchange Offer in reliance on the po-
sition of the staff of the Division of
Corporation Finance of the Commission as
set forth in certain interpretive letters
addressed to third parties in other
transactions. The Company and the Guaran-
tor, however, have not sought their own
interpretive letter and there can be no
assurance that the staff of the Division
of Corporation Finance of the Commission
would make a similar determination with
respect to the Exchange Offer as it has
in such interpretive letters to third
parties. Based on these interpretations
by the staff of the Division of Corpora-
tion Finance of the Commission, and sub-
ject to the two immediately following
sentences, the Company and the Guarantor
believe that New Notes and the Guarantee
issued pursuant to the Exchange Offer in
exchange for Old Notes and the Guarantee
may be offered for resale, resold and
otherwise transferred by a Holder thereof
(other than a Holder who is a broker-
dealer) without further compliance with
the registration and prospectus delivery
requirements of the Securities Act, pro-
vided that such New Notes are acquired in
the ordinary course of such Holder's
business and that such Holder is not par-
ticipating, and has no arrangement or un-
derstanding with any person to partici-
pate, in a distribution (within the mean-
ing of the Securities Act) of such New
Notes and the Guarantee. However, any
Holder of Old Notes who is an "affiliate"
of the Company or who intends to partici-
pate in the Exchange Offer for the pur-
pose of distributing the New Notes, or
any broker-dealer who purchased the Old
Notes from the Company to resell pursuant
to Rule 144A or any other available ex-
emption under the Securities Act, (i)
will not be able to rely on the
interpretations of the staff of the Divi-
sion of Corporation Finance of the Com-
mission set forth in the above-mentioned
interpretive letters, (ii) will not be
permitted or entitled to tender such Old
Notes in the Exchange Offer and (iii)
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any
sale or
13
<PAGE>
other transfer of such Old Notes unless
such sale is made pursuant to an exemp-
tion from such requirements. In addition,
as described below, if any broker-dealer
holds Old Notes acquired for its own ac-
count as a result of market-making or
other trading activities and exchanges
such Old Notes for New Notes, then such
broker-dealer must deliver a prospectus
meeting the requirements of the Securi-
ties Act in connection with any resales
of such New Notes.
Each Holder of Old Notes who wishes to
exchange Old Notes for New Notes in the
Exchange Offer will be required to repre-
sent that (i) it is not an "affiliate" of
the Company within the meaning of Rule
405 under the Securities Act, (ii) any
New Notes to be received by it are being
acquired in the ordinary course of its
business, (iii) it has no arrangement or
understanding with any person to partici-
pate in a distribution (within the mean-
ing of the Securities Act) of such New
Notes, and, (iv) if such Holder is not a
broker-dealer, it is not engaged in, and
does not intend to engage in, a distribu-
tion (within the meaning of the Securi-
ties Act) of such New Notes. Each broker-
dealer that receives New Notes for its
own account pursuant to the Exchange Of-
fer must acknowledge that it acquired the
Old Notes for its own account as the re-
sult of market-making or other trading
activities and must agree that it will
deliver a prospectus meeting the require-
ments of the Securities Act in connection
with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a pro-
spectus, a broker-dealer will not be
deemed to admit that it is an "underwrit-
er" within the meaning of the Securities
Act. Based on the position taken by the
staff of the Division of Corporation Fi-
nance of the Commission in the
interpretive letters referred to above,
the Company believes that broker-dealers
who acquired Old Notes for their own ac-
counts as a result of market-making or
other trading activities ("Participating
Broker-Dealers") may fulfill their pro-
spectus delivery requirements with re-
spect to the New Notes received upon ex-
change of such Old Notes with a prospec-
tus meeting the requirements of the Secu-
rities Act, which may be the prospectus
prepared for an exchange offer so long as
it contains a description of the plan of
distribution with respect to the resale
of such New Notes. Accordingly, this pro-
spectus may be used by a Participating
Broker-Dealer in connection with resales
of New Notes received in exchange for Old
Notes where such Old Notes were acquired
by such Participating Broker-Dealer for
its own account as a result of market-
making or other trading activities. Sub-
ject to certain provisions set forth in
the Registration Rights Agreement and to
the limitations described under "The Ex-
change Offer--Resales of New Notes," the
Company agreed that this Prospectus may
be used by a Participating Broker-Dealer
in connection with resales of such New
Notes for a period ending 180 days after
the Expiration Date (subject to extension
under certain limited circumstances) or,
of earlier, when all such New Notes have
been disposed of by such Participating
Broker-Dealer. Any Participating Broker-
Dealer who is an "affiliate" of the Com-
pany may not rely on such interpreta-
14
<PAGE>
tive letters and must comply with the
registration and prospectus delivery re-
quirements of the Securities Act in con-
nection with any resale transaction. See
"Plan of Distribution" and "The Exchange
Offer--Resales of New Notes."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES............. Subject to the terms and conditions of
the Exchange Offer, including the reser-
vation of certain rights by the Company,
the Company will accept for exchange any
and all Old Notes which are properly ten-
dered in the Exchange Offer, and not
withdrawn, prior to 5:00 p.m., New York
City time, on the Expiration Date. Sub-
ject to such terms and conditions, the
New Notes issued pursuant to the Exchange
Offer will be delivered promptly follow-
ing the Expiration Date. See "The Ex-
change Offer--Acceptance for Exchange and
Issuance of New Notes."
EXCHANGE AGENT.....................
The exchange agent with respect to the
Exchange Offer is First Chicago Trust
Company of New York (the "Exchange
Agent"). The addresses and telephone num-
ber of the Exchange Agent are set forth
in "The Exchange Offer--Exchange Agent"
and in the Letter of Transmittal.
USE OF PROCEEDS.................... Neither the Company nor the Guarantor
will receive any cash proceeds from the
issuance of the New Notes and the Guaran-
tee offered hereby. See "Use of Pro-
ceeds."
CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSIDERATIONS......... Holders of Old Notes should review the
information set forth under "Certain
United States Federal Income Tax Consid-
erations" prior to tendering Old Notes
and the Guarantee in the Exchange Offer.
15
<PAGE>
THE NEW NOTES
SECURITIES OFFERED................. Up to $300 million aggregate principal
amount of the Company's 9 7/8% Guaranteed
Senior Subordinated Notes due 2005, which
have been unconditionally and irrevocably
guaranteed pursuant to the Guarantee as
to payment of principal, premium, if any,
and interest by the Guarantor. The New
Notes and the Guarantee will be issued,
and the Old Notes and the Guarantee were
issued, under an Indenture dated as of
April 30, 1998 (the "Indenture") among
the Company, the Guarantor and the PNC
Bank, National Association (the "Trust-
ee"). The New Notes and any Old Notes
which remain outstanding after consumma-
tion of the Exchange Offer will consti-
tute a single series of debt securities
under the Indenture and, accordingly,
will vote together as a single class for
purposes of determining whether Holders
of the requisite percentage in outstand-
ing principal amount thereof have taken
certain actions or exercised certain
rights under the Indenture. See "Descrip-
tion of the New Notes and the Guarantee--
General." The terms of the New Notes and
the Guarantee are identical in all mate-
rial respects to the terms of the Old
Notes and the Guarantee, except that (i)
the offer and sale of the New Notes and
the Guarantee have been registered under
the Securities Act and therefore the New
Notes and the Guarantee are not subject
to certain restrictions of transfer ap-
plicable to the Old Notes and the Guaran-
tee, will not contain legends relating
thereto and will not be entitled to reg-
istration rights or other rights under
the Registration Rights Agreement, and
(ii) the New Notes will not provide for
any increase in the interest rate there-
on. See "The Exchange Offer--Purpose of
the Exchange Offer," "Description of the
New Notes and the Guarantee" and "De-
scription of the Old Notes and the Guar-
antee."
MATURITY DATE...................... May 1, 2005.
INTEREST PAYMENT DATES............. May 1 and November 1, commencing on No-
vember 1, 1998.
OPTIONAL REDEMPTION................ The New Notes will be redeemable at the
option of the Company, in whole or in
part, at any time or after May 1, 2002,
at the redemption prices set forth here-
in, plus accrued and unpaid interest to
the redemption date.
RANKING............................ The New Notes and the Guarantee will con-
stitute general unsecured obligations of
the Company and the
Guarantor,respectively, and will rank
subordinate in right of payment to all
existing and future Senior Debt, includ-
ing all of the obligations under the
Credit Agreement. As of March 31, 1998,
on a pro forma basis after giving effect
to the Offering, the Reorganization
Transactions and the Distribution, the
Company and the Guarantor would have had
outstanding an aggregate principal amount
of approximately $800 million of Senior
Debt. In addition, the New Notes and the
Guarantee effectively will be subordi-
nated to all outstanding indebtedness and
other liabilities and commitments (in-
cluding trade payables and operating
lease obligations) of the Company's sub-
sidiaries. As of March 31, 1998, on a pro
forma basis as described above, the out-
standing indebtedness of the Company's
subsidiaries would
16
<PAGE>
have been approximately $800 million
(substantially all of which constitutes
Guarantees of indebtedness under the Com-
pany Credit Agreement), excluding trade
payables and operating lease obligations
aggregating approximately $3.2 billion.
Subject to certain limitations, the Com-
pany Credit Agreement and the Indenture
will permit the Company and its subsidi-
aries to incur additional indebtedness,
including Senior Debt.
CHANGE OF CONTROL.................. Upon a Change of Control, each Holder of
New Notes will have the right to require
the Company to repurchase such Holder's
New Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest
to the date of repurchase. However, the
Company Credit Agreement provides that a
Change of Control will constitute a de-
fault thereunder, which would permit the
lenders to cause the indebtedness under
the Company Credit Agreement to become
immediately due and payable or to insti-
tute a payment blockage with respect to
the New Notes. In order to repurchase New
Notes upon a Change of Control, the Com-
pany would have to repay all of its obli-
gations under the Company Credit Agree-
ment (and any other agreements relating
to Senior Debt that contain similar
Change of Control provisions) or would
have to obtain the consent of the holders
of such indebtedness. There can be no as-
surance that the Company will have the
financial resources to repurchase the New
Notes in the event of a Change of Con-
trol, particularly if such Change of Con-
trol requires the Company to refinance,
or results in the acceleration of, other
indebtedness. See "Description of the
Company Credit Agreement" and "Descrip-
tion of the New Notes and the Guarantee--
Repurchase at the Option of Holders upon
a Change of Control."
CERTAIN COVENANTS.................. The Indenture contains certain covenants,
including, but not limited to, covenants
limiting: (i) the incurrence by the Guar-
antor and its Restricted Subsidiaries (as
defined) of additional indebtedness; (ii)
the payment of dividends on and the re-
demption of capital stock by the Company
and the Guarantor; (iii) the creation of
liens securing indebtedness; (iv) re-
strictions on the ability of Restricted
Subsidiaries to pay dividends; (v) trans-
actions with affiliates; (vi) the sale of
assets; and (vii) the Guarantor's and the
Company's ability to consolidate or merge
with or into, or to transfer all or sub-
stantially all of their assets to, an-
other person. See "Description of the New
Notes and the Guarantee--Certain Cove-
nants."
ABSENCE OF MARKET FOR THE NEW The New Notes will be a new issue of se-
NOTES............................. curities for which there currently is no
market. Although J.P. Morgan & Co. and
Goldman Sachs & Co., the initial purchas-
ers of the Old Notes (the "Initial Pur-
chasers"), have informed the Company that
they currently intend to make a market in
the New Notes, they are not obligated to
do so, and any such market making may be
discontinued at any time without notice.
Accordingly, there can be no assurance as
to the development or liquidity of any
market for the New Notes. The Company
currently does not intend to apply for
listing of the New Notes on any securi-
ties exchange or for quotation through
the National Association of Securities
Dealers Automated Quotation System.
17
<PAGE>
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be consid-
ered by Holders in connection with an investment in the New Notes and the Guar-
antee.
CERTAIN CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES
The sale of the Old Notes and the Guarantee was not registered under the Secu-
rities Act or any state securities laws and therefore the Old Notes and the
Guarantee may not be offered, sold or otherwise transferred except in compli-
ance with the registration requirements of the Securities Act and any other ap-
plicable securities laws, or pursuant to an exemption therefrom or in a trans-
action not subject thereto, and in each case in compliance with certain other
conditions and restrictions, including the Company's and the Trustee's right in
certain cases to require the delivery of opinions of counsel, certifications
and other information prior to any such transfer. Old Notes which remain out-
standing after consummation of the Exchange Offer will continue to bear a leg-
end reflecting such restrictions on transfer. In addition, upon consummation of
the Exchange Offer, Holders of Old Notes which remain outstanding will not be
entitled to any rights to have the resale of such Old Notes registered under
the Securities Act or to any similar rights under the Registration Rights
Agreement. The Company currently does not intend to register under the Securi-
ties Act the resale of any Old Notes and the Guarantee which remain outstanding
after consummation of the Exchange Offer.
To the extent that Old Notes are tendered and accepted in the Exchange Offer, a
Holder's ability to sell Old Notes could be adversely affected. In addition,
although the Old Notes are eligible for trading in the "PORTAL" market, to the
extent that Old Notes are tendered and accepted in connection with the Exchange
Offer, any trading market for Old Notes which remain outstanding after the Ex-
change Offer could be adversely affected.
The New Notes and any Old Notes which remain outstanding after consummation of
the Exchange Offer will constitute a single series of debt securities under the
Indenture and, accordingly, will vote together as a single class for purposes
of determining whether Holders of the requisite percentage in outstanding prin-
cipal amount thereof have taken certain actions or exercised certain rights un-
der the Indenture. See "Description of the New Notes and the Guarantee--Gener-
al."
The Old Notes provide that, if the Exchange Offer is not consummated or the
Shelf Registration Statement is not declared effective on or prior to September
28, 1998, the Company will pay additional interest (in addition to the interest
otherwise due on the Old Notes) to each Holder of the Old Notes during the
first 90-day period following September 28, 1998, in an amount equal to 0.25%
per annum. The amount of interest will increase by an additional 0.25% per an-
num for each subsequent 90-day period until consummation of the Exchange Offer
or the effectiveness of the Shelf Registration Statement, up to a maximum
amount of additional interest of 1.00% per annum. Following consummation of the
Exchange Offer, however, the Old Notes will not be entitled to any increase in
the interest rate thereon. The New Notes will not be entitled to any such in-
crease in the interest rate thereon. See "Description of the Old Notes and the
Guarantee."
18
<PAGE>
GUARANTOR
SUMMARY HISTORICAL FINANCIAL DATA AND GUARANTOR
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth (i) summary historical financial data of Guaran-
tor for each of the three years in the period ended December 31, 1997, and the
three months ended March 31, 1998 and 1997, and (ii) summary pro forma finan-
cial data for the year ended December 31, 1997 and the three months ended March
31, 1998. For accounting purposes, the consolidated historical financial state-
ments of Predecessor Company became the historical financial statements of the
Guarantor after the Distribution Date. Because the Guarantor and the Company
are holding companies whose primary assets are the capital stock of their sub-
sidiaries and whose businesses are conducted primarily through their subsidiar-
ies, separate financial statements of the Company are not presented herein.
The summary historical financial data presented herein have been derived from
the audited consolidated financial statements of the Guarantor for the fiscal
years ended December 31 and unaudited condensed consolidated financial state-
ments of the Guarantor for the three months ended March 31, both of which are
included elsewhere in this Prospectus. The summary pro forma statement of oper-
ations data and other financial data give effect to the Reorganization Transac-
tions, the Distribution and the Offering as if each had occurred on January 1,
1997. The summary pro forma balance sheet data at March 31, 1998 give effect to
these events as if each had occurred as of such date.
The following summary historical financial data relate to the business of the
Guarantor as it was operated as part of Predecessor Company and may not reflect
the financial position, results of operations or cash flows that would have
been obtained had the Guarantor been a separate, publicly held company during
such periods. In particular, the effect of lease payments that would have been
incurred by the Guarantor pursuant to the Master Lease Agreement are not re-
flected herein. The Guarantor also is incurring interest expense related to the
Company Credit Agreement at higher rates than incurred by Predecessor Company.
In addition, the historical financial statements of Predecessor Company include
certain expenses that, since completion of the Reorganization Transactions,
will not be included in future Guarantor financial statements. Such expenses
include (i) expenses for depreciation on real estate assets which the Guarantor
leases from Predecessor Company; (ii) interest expense related to long-term
debt incurred by Predecessor Company and (iii) professional and administrative
expenses related to the Reorganization Transactions. The following table should
be read in conjunction with "Guarantor Unaudited Pro Forma Consolidated Finan-
cial Statements," "Guarantor Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Guarantor," "Management's Discussion and Analysis of Pro Forma Financial Condi-
tion and Results of Operations of the Guarantor" and the historical consoli-
dated financial statements of Guarantor presented elsewhere in this Prospectus.
19
<PAGE>
GUARANTOR
SUMMARY HISTORICAL FINANCIAL DATA AND GUARANTOR
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
------------------------------------ --------------------------------------------------
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------------ --------------------------------------------------
Dollars in thousands, PRO FORMA PRO FORMA
except 1998 1998 1997 1997 1997 1996 1995
per share amounts ---------- ---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 822,616 $ 823,316 $ 680,696 $3,361,474 $3,116,004 $ 2,577,783 $ 2,323,956(c)
<CAPTION>
---------- ---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries, wages and
benefits............... 480,364 480,364 396,573 1,922,204 1,788,053 1,490,938 1,360,018
Supplies................ 76,052 76,052 66,033 327,100 303,140 261,621 233,066
Rent.................... 79,521 24,135 18,948 318,425 89,474 77,795 79,476
Other operating
expenses............... 126,658 127,258 109,786 539,668 490,327 405,797 372,657
Depreciation and
amortization........... 24,776 35,470 24,372 95,649 123,865 99,533 89,478
Interest expense........ 24,997 37,195 10,660 99,991 102,736 45,922 60,918
Investment income....... (1,180) (1,180) (1,567) (8,891) (6,057) (12,203) (13,444)
Non-recurring
transactions........... - 7,664(a) - - - 125,200(b) 109,423(c)
<CAPTION>
---------- ---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
811,188 786,958 624,805 3,294,146 2,891,538 2,494,603 2,291,592
<CAPTION>
---------- ---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income
taxes.................. 11,428 36,358 55,891 67,328 224,466 83,180 32,364
Provision for income
taxes.................. 5,257 17,477 21,909 30,971 89,338 35,175 24,001
<CAPTION>
---------- ---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from operations.. $ 6,171 $ 18,881 $ 33,982 $ 36,357 $ 135,128 $ 48,005 $ 8,363
<CAPTION>
========== ========== ========== ========== ========== =========== ===========
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings per common
share from operations:
Basic................... $ 0.09 $ 0.28 $ 0.49 $ 0.51 $ 1.96 $ 0.69 $ 0.22
Diluted................. 0.09 0.28 0.48 0.51 1.92 0.68 0.29
BALANCE SHEET DATA:
Working capital......... $ 469,578 $ 395,781 $ 427,690 n/a $ 445,086 $ 320,123 $ 239,666
Assets.................. 2,451,788 3,388,237 2,660,706 n/a 3,334,739 1,968,856 1,912,454
Long-term debt.......... 1,076,264 1,920,901 1,286,843 n/a 1,919,624 710,507 778,100
Stockholders' equity.... 898,856 930,833 833,483 n/a 905,350 797,091 772,064
OTHER FINANCIAL DATA:
EBITDA, as adjusted(d).. $ 60,021 $ 115,507 $ 89,356 $ 254,077 $ 445,010 $ 341,632 $ 278,739
EBITDA margin, as
adjusted............... 7.3% 14.0% 13.1% 7.6% 14.3% 13.3% 12.0%
Ratio of earnings to
fixed charges.......... 1.2x 1.7x 3.9x 1.3x 2.5x 2.1x 1.4x
Fixed charge coverage
ratio(e)............... 1.7x 2.3x 5.0x 1.7x 3.6x n/a n/a
Capital expenditures:
Existing facilities and
construction.......... n/a $ 78,732 $ 60,887 n/a $ 281,672 $ 135,027 $ 136,893
Acquisitions........... n/a 12,275 346,110 n/a 1,011,689 26,236 59,343
</TABLE>
- -------
(a) Includes pretax charges for professional and administrative expenses re-
lated to the Reorganization Transactions.
(b) Includes pretax charges incurred to complete the integration of The
Hillhaven Corporation ("Hillhaven") resulting from the merger of Hillhaven
into Predecessor Company on September 28, 1995 (the "Hillhaven Merger"),
which included costs associated with the planned disposition of 34 nursing
centers, the reorganization of the institutional pharmacy business and the
planned replacement of one hospital and three nursing centers.
(c) Includes pretax charges aggregating $103.9 million incurred primarily in
connection with the consummation of the Hillhaven Merger, which included
costs associated with direct transaction costs, employee benefit and sever-
ance costs, the planned disposition of certain nursing center properties and
changes in estimates in accrued revenues of $24.5 million recorded in connec-
tion with certain prior-year nursing center third-party reimbursement issues
(recorded as a reduction of revenues). Non-recurring transactions in 1995
also include $5.5 million recorded in connection with the merger (the "Na-
tionwide Merger") of Hillhaven with Nationwide Care, Inc. ("Nationwide").
20
<PAGE>
(continued)
(d) EBITDA, as adjusted, represents operating income before depreciation, amor-
tization, net interest, income taxes and non-recurring transactions. While
EBITDA should not be construed as a substitute for operating income or a bet-
ter indicator of liquidity than cash flows from operating activities, which
are determined in accordance with generally accepted accounting principles,
it is included herein to provide additional information with respect to the
ability of the Company and the Guarantor to meet their future debt service,
capital expenditure and working capital requirements. EBITDA is not necessar-
ily a measure of the Company's or the Guarantor's ability to fund its cash
needs. EBITDA is included herein because management believes that certain in-
vestors find it to be a useful tool for measuring a company's ability to
service debt.
(e) Fixed charge coverage ratio (as defined) represents the ratio of (i) the
sum of (x) EBITDA and (y) one-third of all rental expense attributable to op-
erating leases with an initial term, including any renewals at the option of
either party, in excess of one year, to (ii) Fixed Charges (as defined). See
"Description of the New Notes and the Guarantee--Certain Definitions."
RECENT DEVELOPMENTS
On June 18, 1998, the Guarantor disclosed earnings expectations for the Guaran-
tor based on its recently completed analysis of the Budget Act. The Guarantor
indicated that diluted earnings per share for the second quarter ended June 30,
1998 would range from $0.03 to $0.05 per share on a pro forma basis before one-
time charges. The second quarter results are being negatively affected by the
transition to the new prospective payment system for nursing centers, reim-
bursement issues associated with the Reorganization Transactions and a decline
in nursing center census. The Guarantor also expects to record one-time charges
of approximately $120 million for costs related to the Reorganization Transac-
tions and losses associated with the sales of its home health and hospice oper-
ations. The Guarantor also indicated that it anticipates earnings per share for
the third quarter ended September 30, 1998 to approximate between $0.12 and
$0.15 per share and fourth quarter results between $0.17 and $0.20 per share.
In addition, the Guarantor indicated that earning targets for 1999 could range
between $0.75 and $0.80 per share. In connection with this announcement, the
Guarantor announced that a number of cost reductions were being implemented in
anticipation of the new prospective payment system. These reductions include a
reduction in the work force, primarily in the number of therapists. The Guaran-
tor also indicated that it does not anticipate acquiring additional healthcare
facilities over the next 12 to 18 months. In addition, the Guarantor announced
that it has delayed indefinitely the construction of its planned corporate
headquarters building.
On April 20, 1998, Atria announced that it had entered into a definitive merger
agreement with Kapson Senior Quarters Corp. ("Kapson"), an affiliate of Lazard
Freres Real Estate Investors LLC ("Lazard"), under which Kapson will acquire
Atria. Under the terms of the merger agreement, a subsidiary of Kapson will
merge into Atria and the public stockholders of Atria will receive $20.25 per
share in cash. The Guarantor, which holds approximately 43% of the currently
outstanding Atria Common Stock, will also receive $20.25 per share in cash for
approximately 88% of its Atria Common Stock (valued at approximately $177.5
million) and will retain its remaining shares of Atria after the closing of the
merger. In consideration for its continuing investment, the Guarantor will re-
tain a seat on Atria's Board of Directors and is entitled to certain registra-
tion rights with respect to its remaining shares of Atria Common Stock. On May
13, 1998, ARV Assisted Living, Inc. ("ARV") filed a lawsuit seeking to enjoin
Kapson from acquiring Atria. In addition to compensatory and punitive damages,
the lawsuit seeks to obtain preliminary and permanent injunctions to prevent
Lazard from breaking its contractual and fiduciary duties to ARV by acquiring
Atria, through Kapson, without first offering ARV the opportunity to be the ac-
quiring party and without obtaining ARV's consent to allow Lazard to make the
acquisition should ARV choose not to pursue it. On June 25, 1998, the Superior
Court for Orange County, California declined to reach a decision on the merits
of the dispute between Lazard and ARV. The court directed Lazard and Atria to
continue their efforts to finalize the acquisition of Atria by Kapson. The
court preliminarily enjoined the closing of the merger prior to the outcome of
a one week bench trial beginning on August 3, 1998. Lazard has informed Atria
that it believes that ARV's claims are without merit and that it intends to
contest vigorously the allegations in ARV's complaint. The merger is subject to
customary conditions including approval of Atria's stockholders and certain
regulatory approvals. The Company expects that the merger will be completed
during 1998.
21
<PAGE>
RISK FACTORS
In addition to the other matters described or incorporated by reference in this
Prospectus, prospective Holders of New Notes should consider the specific fac-
tors set forth below.
SUBSTANTIAL LEVERAGE AND ABILITY TO MEET DEBT SERVICE REQUIREMENTS
The Company and the Guarantor are highly leveraged and a substantial portion of
their cash flow from operations will be dedicated to the payment of principal
and interest on indebtedness. As of March 31, 1998, after giving pro forma ef-
fect to the Reorganization Transactions, the Distribution and the Offering, the
Company and the Guarantor would have had outstanding indebtedness of approxi-
mately $1.09 billion, which represents approximately 55% of the Guarantor's to-
tal capitalization. Subject to certain limitations, the Company Credit Agree-
ment and the Indenture permit the Company, the Guarantor and their respective
subsidiaries to incur additional indebtedness. On a pro forma basis as de-
scribed above, for the year ended December 31, 1997 and the three months ended
March 31, 1998, the Guarantor's ratio of earnings to fixed charges (calculated
in accordance with the requirements of the Commission) would have been 1.3 to 1
and 1.2 to 1, respectively.
The ability of the Company and the Guarantor to service their indebtedness, and
to comply with the financial and restrictive covenants contained in the Company
Credit Agreement and the Indenture, is dependent upon their future performance
and business growth which are subject to financial, economic, competitive, reg-
ulatory and other factors, many of which are beyond their control. While the
Company and the Guarantor believe that they will be able to generate sufficient
cash flow to cover required debt service payments, no assurance can be given to
that effect. If the Company and the Guarantor are unable to generate sufficient
funds to meet debt service obligations, the Company and the Guarantor may be
required to refinance some or all of such debt, sell assets or raise additional
equity. No assurance can be given that such refinancings, asset sales or equity
sales can be accomplished or, if accomplished, would raise sufficient funds to
meet debt service obligations. See "Management's Discussion and Analysis of Fi-
nancial Condition and Results of Operations of the Guarantor--Liquidity and--
Capital Resources," "Management's Discussion and Analysis of Pro Forma Finan-
cial Condition and Results of Operations of the Guarantor--Liquidity and--Capi-
tal Resources" and "Description of the Company Credit Agreement." The Company's
and the Guarantor's high degree of leverage and related financial covenants
could have a material adverse effect on their ability to withstand competitive
pressures or adverse economic conditions, make material acquisitions, obtain
future financing or take advantage of business opportunities that may arise. In
addition, a downturn in general economic conditions or in their business could
have a material adverse effect on the Company's and the Guarantor's ability to
meet debt service obligations or to conduct their business in the ordinary
course.
The Company Credit Agreement contains financial covenants which, among other
things, require the Guarantor to maintain certain financial ratios and restrict
the ability of the Company, the Guarantor and their respective subsidiaries to
incur indebtedness, make acquisitions or investments, create or permit liens
and make capital expenditures. The Indenture contains covenants which restrict
the Company and the Guarantor from incurring additional indebtedness, creating
liens on its assets, making certain asset dispositions and entering into trans-
actions with affiliates. If the Company and the Guarantor are unable to gener-
ate sufficient cash flows or otherwise obtain the funds necessary to make re-
quired payments of principal and interest under, or are unable to comply with
the covenants of, the Company Credit Agreement or the Indenture, the Company
and the Guarantor could be in default under the terms thereof, which would per-
mit the lenders pursuant to the Company Credit Agreement to accelerate the ma-
turity of the Senior Debt created pursuant thereto and receive payment in full
prior to the receipt by the Holders of New Notes of any payment of principal
of, premium, if any, and interest on the New Notes. See "Description of the
Company Credit Agreement," "Description of the New Notes and the Guarantee,"
and "Description of the Old Notes and the Guarantee."
SUBORDINATION OF THE NOTES AND GUARANTEE; RISKS ASSOCIATED WITH HOLDING COMPANY
STRUCTURE; DEPENDENCE ON SUBSIDIARIES
The Notes and the Guarantee are subordinated to all Senior Debt including all
obligations under the Company Credit Agreement. In the event of a circumstance
in which the contractual subordination provisions apply, Holders of Notes will
not be entitled to receive and will have an obligation to pay over to holders
of Senior Debt any payments they may receive in respect of the Notes or the
Guarantee. As of March 31, 1998, on a pro forma basis after giving effect to
the Reorganization Transactions, the Distribution and the Offering, there would
have been outstanding an aggregate principal amount of approximately $800 mil-
lion of Senior Debt, which would rank senior in right of payment to the Notes
and the Guarantee. Furthermore, subject to certain limitations, the Company
Credit Agreement and the Indenture permit the Company, the Guarantor and their
respective subsidiaries to incur additional indebtedness, including Senior
Debt. The indebtedness under the Company Credit Agreement will become due prior
to the time the principal obligations under the Notes become
22
<PAGE>
due. Certain subsidiaries of the Company have issued guarantees under the Com-
pany Credit Agreement which are secured by a pledge of the equity interests in
other subsidiaries owned by them, and the Company and the Guarantor have
pledged all intercompany debt owed to them as well as the issued and outstand-
ing capital stock of certain of their subsidiaries to secure indebtedness under
the Company Credit Agreement. In the event of a bankruptcy, liquidation or re-
organization of the Company or the Guarantor, the assets of the Company and the
Guarantor would be available to pay obligations on the Notes and the Guarantee
only after all Senior Debt has been paid in full, and there may not be suffi-
cient assets remaining to pay amounts due on any or all of the Notes then out-
standing. See "Description of the Company Credit Agreement," "Description of
the New Notes and the Guarantee" and "Description of the Old Notes and the
Guarantee."
In addition, the operations of the Company and the Guarantor are conducted pri-
marily through their subsidiaries. Therefore, the Company's and the Guarantor's
ability to make required principal and interest payments with respect to in-
debtedness, including the Notes and the Guarantee, depends on the earnings of
their subsidiaries and on their ability to receive funds from such subsidiaries
through dividends or other payments. Since the Notes and the Guarantee are ob-
ligations of the Company and the Guarantor only, the Company's and the Guaran-
tor's subsidiaries are not obliged or required to pay any amounts due pursuant
to the Notes or the Guarantee or to make funds available therefor in the form
of dividends or advances to the Company or the Guarantor. Furthermore, the
Notes effectively will be subordinated to all outstanding indebtedness and
other liabilities and commitments (including Trade Payables and operating lease
obligations) of the Company's subsidiaries. Any right of the Company or the
Guarantor to receive assets of any of their subsidiaries upon the latter's liq-
uidation or reorganization (and the consequent right of Holders of Notes to
participate in those assets) effectively will be subordinated to the claims of
that subsidiary's creditors, except to the extent that the Company or the Guar-
antor are recognized as creditors of such subsidiary, in which case the claims
of the Company and the Guarantor would still be subordinate to any security in-
terest in the assets of such subsidiary and any indebtedness of such subsidiary
senior to that held by the Company and the Guarantor. As of March 31, 1998, on
a pro forma basis as described above, the aggregate outstanding indebtedness of
the Company's and the Guarantor's subsidiaries would have been approximately
$800 million, excluding Trade Payables and operating lease obligations aggre-
gating approximately $3.2 billion.
RISK OF FAILURE TO OBTAIN REGULATORY AND OTHER APPROVALS
The Company's hospitals, nursing centers and institutional pharmacies are li-
censed by various state and Federal agencies. As a result of the Reorganization
Transactions and the Distribution, the changes in the entities conducting these
operations were treated as a change of ownership by various state and Federal
regulatory agencies.
Substantially all of the approvals necessary to transfer licenses to the Com-
pany were received prior to the consummation of the Reorganization Transac-
tions. In circumstances in which the Company was not able to obtain any such
approvals prior to the consummation of the Reorganization Transactions, the
Company entered into management agreements with Predecessor Company with terms
designed to result in substantially the same economic result to the Company as
if the necessary approvals to transfer such licenses had been obtained. In con-
nection with these agreements, the Company became a creditor of Predecessor
Company and is subject to Predecessor Company credit risk with respect to the
revenues attributable to the facilities subject to those agreements. Upon ob-
taining the necessary approvals for the transfer of such licenses, these agree-
ments will be terminated and the facilities subject to such agreements will be
leased to the Guarantor under the Master Lease Agreement.
Prior to the Distribution Date, Predecessor Company leased seven long-term
acute care hospitals and 76 nursing centers from third parties (the "Third
Party Leases"). The rent obligation under the Third Party Leases for the 1998
fiscal year is approximately $34.2 million. In connection with the Reorganiza-
tion Transactions, Predecessor Company assigned the Third Party Leases to the
Guarantor and sought to obtain any necessary consents as well as releases for
Predecessor Company. If such consents and releases are not obtained, Predeces-
sor Company will remain primarily liable for the obligations under the Third
Party Leases; however, the assignment of the Third Party Leases may result in a
default under certain Third Party Leases. As of date hereof, the Company has
not received consents to assignment of and release for one long-term acute care
hospital and 16 nursing centers.
HEALTHCARE INDUSTRY RISKS
Dependence on Reimbursement; Medicare and Medicaid as Material Sources of
Revenues
The Company derives a substantial portion of its net operating revenues from
third-party payors, including the Medicare and Medicaid programs. In 1997 and
for the three months ended March 31, 1998, the Company derived approximately
23
<PAGE>
60% of its total revenues from the Medicare and Medicaid programs. Such pro-
grams are highly regulated and subject to frequent and substantial changes. The
Budget Act is intended to reduce the increase in Medicare payments by $115 bil-
lion over the next five years and makes extensive changes in the Medicare and
Medicaid programs. In addition, private payors, including managed care payors,
increasingly are demanding discounted fee structures and the assumption by
healthcare providers of all or a portion of the financial risk. Efforts to im-
pose greater discounts and more stringent cost controls by private payors are
expected to continue. There can be no assurances that adequate reimbursement
levels will continue to be available for services to be provided by the Company
which are currently being reimbursed by Medicare, Medicaid or private payors.
Significant limits on the scope of services reimbursed and on reimbursement
rates and fees could have a material adverse effect on the Guarantor's and the
Company's liquidity, financial condition and results of operations.
Extensive Regulation
The healthcare industry is subject to extensive Federal, state and local regu-
lation including, but not limited to, regulations relating to licensure, con-
duct of operations, ownership of facilities, addition of facilities, services
and prices for services (collectively, the "Healthcare Regulations"). In par-
ticular, Medicare and Medicaid antikickback, antifraud and abuse amendments
codified under Section 1128(B)(b) of the Social Security Act (the "Antikickback
Amendments") prohibit certain business practices and relationships that might
affect the provisions and cost of healthcare services reimbursable under Medi-
care and Medicaid, including the payment or receipt of remuneration for the re-
ferral of patients whose care will be paid by Medicare or other governmental
programs. Sanctions for violating the Antikickback Amendments include criminal
penalties and civil sanctions, including fines and possible exclusion from gov-
ernment programs such as the Medicare and Medicaid programs. In the ordinary
course of its business, the Company is subject regularly to inquiries, investi-
gations and audits by the Federal and state agencies that oversee these laws
and regulations.
Pursuant to the Medicare and Medicaid Patient and Program Protection Act of
1987, the Department of Health and Human Services ("HHS") has issued regula-
tions that describe some of the conduct and business relationships permissible
under the Antikickback Amendments ("Safe Harbors"). The fact that a given busi-
ness arrangement does not fall within a Safe Harbor does not render the ar-
rangement per se illegal. Business arrangements of healthcare service providers
that fail to satisfy the applicable Safe Harbors criteria, however, risk in-
creased scrutiny and possible sanctions by enforcement authorities.
The Health Insurance Portability and Accountability Act of 1997, which became
effective January 1, 1997, amends, among other things, Title XI (42 U.S.C. 1301
et seq.) to broaden the scope of current fraud and abuse laws to include all
health plans, whether or not they are reimbursed under Federal programs.
In addition, Section 1877 of the Social Security Act, which restricts referrals
by physicians of Medicare and other government-program patients to providers of
a broad range of designated health services with which they have ownership or
certain other financial arrangements, was amended effective January 1, 1995, to
significantly broaden the scope of prohibited physician referrals under the
Medicare and Medicaid programs to providers with which they have ownership or
certain other financial arrangements (the "Self-Referral Prohibitions"). Many
states have adopted or are considering similar legislative proposals, some of
which extend beyond the Medicaid program to prohibit the payment or receipt of
remuneration for the referral of patients and physician self-referrals regard-
less of the source of the payment for the care. These laws and regulations are
extremely complex and little judicial or regulatory interpretation exists. The
Company does not believe its arrangements are in violation of the Self-Referral
Prohibitions. There can be no assurance, however, that governmental officials
charged with responsibility for enforcing the provisions of the Self-Referral
Prohibitions will not assert that one or more of the Company's arrangements is
in violation of such provisions.
The Budget Act also provides a number of additional antifraud and abuse provi-
sions. The Budget Act contains new civil monetary penalties for violations of
the Antikickback Amendments and imposes an affirmative duty on providers to in-
sure that they do not employ or contract with persons excluded from the Medi-
care program. The Budget Act also provides a minimum ten year period for exclu-
sion from participation in Federal healthcare programs for persons convicted of
a prior healthcare offense.
Some states require state approval for development and expansion of healthcare
facilities and services, including findings of need for additional or expanded
healthcare facilities or services. Certificates of Need ("CON"), which are is-
sued by governmental agencies with jurisdiction over healthcare facilities, are
at times required for expansion of existing facilities, construction of new fa-
cilities, addition of beds, acquisition of major items of equipment or intro-
duction of new services. The
24
<PAGE>
Company operates hospitals in 11 states that require state approval for the ex-
pansion of its facilities and services under CON programs. There can be no as-
surance that the Company will be able to obtain a CON for any or all future
projects. If the Company is unable to obtain the requisite CON, its growth and
business could be adversely affected.
The Company and the Guarantor are unable to predict the future course of Feder-
al, state and local regulation or legislation, including Medicare and Medicaid
statutes and regulations. Changes in the regulatory framework could have a ma-
terial adverse effect on the Guarantor's and the Company's financial condition
and results of operations.
Healthcare Reform Legislation
Healthcare is one of the largest industries in the United States and continues
to attract much legislative interest and public attention. The Budget Act, en-
acted in August 1997, contains extensive changes to the Medicare and Medicaid
programs intended to reduce the projected amount of increase in payments under
those programs by $115 billion and $13 billion, respectively, over the next
five years. Under the Budget Act, annual growth rates for Medicare will be re-
duced from over 10% to approximately 7.5% for the next five years based on spe-
cific program baseline projections from the last five years. Virtually all
spending reductions will come from providers and changes in program components.
The Budget Act affects reimbursement systems for each of the Company's operat-
ing units.
The Budget Act will reduce payments to many of the Company's facilities, in-
cluding, but not limited to, payments made to the Company's hospitals, by re-
ducing incentive payments pursuant to the Tax Equity and Fiscal Responsibility
Act of 1982 ("TEFRA"), allowable costs for capital expenditures and bad debts,
and payments for services to patients transferred from a prospective payment
system ("PPS") hospital. The reductions in allowable costs for capital expendi-
tures became effective October 1, 1997. The reductions in the TEFRA incentive
payments and allowable costs for bad debts are expected to be effective between
May 1, 1998 and September 1, 1998 with respect to the Company's hospitals. The
reductions for payments for services to patients transferred from a PPS hospi-
tal are expected to be effective October 1, 1998. The Budget Act also requires
the establishment of a prospective payment system for nursing centers for cost
reporting periods beginning on or after July 1, 1998. During the first three
years, the per diem rates for nursing centers will be based on a blend of fa-
cility-specific costs and Federal costs. Thereafter, the per diem rates will be
based solely on Federal costs. The rates for such services were made available
by the Health Care Financing Administration ("HCFA") on May 5, 1998. The pay-
ment received under the new prospective payment system will cover all services
for Medicare patients including all ancillary services, such as respiratory
therapy, physical therapy, occupational therapy, speech therapy and certain
covered drugs.
Management believes that the Budget Act will adversely impact the Company's
hospital business by reducing payments previously described. Over the long
term, management believes that the new prospective payment system will benefit
its nursing center operations because (i) management believes that the average
acuity levels of its patients will exceed the national average (which should
result in increased payments per patient day) and (ii) because the Company ex-
pects to benefit from its ability to reduce the cost of providing ancillary
services to patients in its facilities. As the nursing center industry adapts
to the cost containment measures inherent in the new prospective payment sys-
tem, management believes that the volume of ancillary services provided per pa-
tient day to nursing center patients could decline. In addition, as a result of
these changes, many nursing centers may elect to provide ancillary services to
their patients through internal staff and will no longer contract with outside
parties for ancillary services. For these reasons and others, since the enact-
ment of the Budget Act, sales of new contracts have declined and may continue
to decline subject to the Company's success in implementing its Vencare compre-
hensive, full-service contracts sales strategy. The Company is actively imple-
menting strategies and operational modifications to address changes in the Fed-
eral reimbursement system including reducing the number of therapists in the
Company's nursing centers by approximately 1,000 and changing the skill mix of
employees to reduce costs and maximize efficiencies.
There can be no assurance that payments under governmental and private third-
party payor programs will remain at levels comparable to present levels or will
be sufficient to cover the costs allocable to patients eligible for reimburse-
ment pursuant to such programs. In addition, there can be no assurance that fa-
cilities leased by the Company, or the provision of services and supplies by
the Company, will meet the requirements for participation in such programs. The
Company could be adversely affected by the continuing efforts of governmental
and private third-party payors to contain the amount of reimbursement for
healthcare services.
In January 1998, HCFA issued rules changing Medicare reimbursement guidelines
for therapy services provided by the Company (including the rehabilitation con-
tract therapy business acquired as part of the acquisition of TheraTx). Under
the new rules, HCFA established salary equivalency limits for speech and occu-
pational therapy services and revised limits for physical and respiratory ther-
apy services. The limits are based on a blend of data from wage rates for hos-
pitals and nursing
25
<PAGE>
centers and include salary, fringe benefit and expense factors. Rates are de-
fined by specific geographic market areas, based upon a modified version of the
hospital wage index. The new limits are effective for services provided on or
after April 10, 1998 and are expected to impact negatively Vencare operating
results in 1998. The Company will continue to charge client nursing centers in
accordance with the revised guidelines until such nursing centers transition to
the new prospective payment system. Under the new prospective payment system
for nursing centers, the reimbursement for these services provided to nursing
center patients will be a component of the total reimbursement allowed per
nursing center patient and the salary equivalency guidelines will no longer be
applicable. Most of the Company's client nursing centers are expected to tran-
sition to the new prospective payment system on or before January 1, 1999.
There also continue to be state legislative proposals that would impose more
limitations on government and private payments to providers of healthcare serv-
ices such as the Company. Many states have enacted or are considering enacting
measures that are designed to reduce their Medicaid expenditures and to make
certain changes to private healthcare insurance. Some states also are consider-
ing regulatory changes that include a moratorium on the designation of addi-
tional long-term care hospitals and changes in the Medicaid reimbursement sys-
tem applicable to the Company's hospitals. There are also a number of legisla-
tive proposals including cost caps and the establishment of Medicaid prospec-
tive payment systems for nursing centers. Moreover, by repealing the Boren
Amendment, the Budget Act eases existing impediments on the states' ability to
reduce their Medicaid reimbursement levels.
There can be no assurance that the Budget Act, new salary equivalency rates,
future healthcare legislation or other changes in the administration or inter-
pretation of governmental healthcare programs will not have a material adverse
effect on the Guarantor's and the Company's financial condition, results of op-
erations and liquidity.
Risks Relating to State Regulation
The Company operates seven hospitals and a chronic unit in Florida, a state
which regulates hospital rates. These operations contribute a significant por-
tion of the Company's revenues and operating income from its hospitals. Accord-
ingly, the Company's hospital revenues and operating income could be materially
adversely affected by Florida's rate setting laws or other cost containment ef-
forts. The Company also operates 11 hospitals in Texas, nine hospitals in Cali-
fornia, and five hospitals in Illinois which contribute a significant portion
of the Company's revenues and operating income from its hospitals. Although
Texas, California and Illinois do not currently regulate hospital rates, the
adoption of such legislation or other cost containment measures in these or
other states could have a material adverse effect on the Company's hospital
revenues and operating income. Moreover, the repeal of the Boren Amendment by
the Budget Act provides the states with greater flexibility to reduce their
Medicaid reimbursement levels. The Company is unable to predict whether and in
what form such legislation will be adopted. Certain other states in which the
Company operates hospitals require disclosure of specified financial informa-
tion. In evaluating markets for expansion, the Company considers the regulatory
environment including, but not limited to, any mandated rate setting.
Highly Competitive Industry
The healthcare services industry is highly competitive. The Company faces com-
petition from general acute care hospitals and long-term care hospitals which
provide services comparable to those offered by the Company's hospitals. Many
general acute care hospitals are larger and more established than the Company's
hospitals. Certain hospitals that compete with the Company's hospitals are op-
erated by not-for-profit, nontaxpaying or governmental agencies, which can fi-
nance capital expenditures on a tax-exempt basis, and which receive funds and
charitable contributions unavailable to the Company's hospitals. The Company
may experience increased competition from existing hospitals as well as hospi-
tals converted, in whole or in part, to specialized care facilities. The
Company's nursing centers compete on a local and regional basis with other
nursing centers, and competition also exists for the Vencare operations. The
Company will compete with other healthcare companies, including Predecessor
Company, for the acquisition and development of additional hospitals, nursing
centers and other healthcare assets and businesses.
CERTAIN LEGAL PROCEEDINGS AND OTHER ACTIONS
On April 7, 1998, the Circuit Court of the Thirteenth Judicial Circuit for
Hillsborough County, Florida, issued a temporary injunction order against the
Company's nursing center in Tampa, Florida which ordered the nursing center to
cease notifying and requiring the discharge of any resident. The Company dis-
continued requiring the discharge of any resident from its Tampa nursing center
on April 7, 1998. Following the conduct of a complaint survey at the facility,
the State of Florida Agency for Health Care Administration ("AHCA") imposed a
fine of $270,000 for related regulatory violations. In addition, HCFA has im-
posed a fine of $113,000. The Company has appealed both the AHCA and HCFA
fines. The Company submitted an acceptable plan of correction at the Tampa
nursing center and has been informed by AHCA that "immediate
26
<PAGE>
jeopardy" no longer exists and the threatened termination of the Tampa nursing
center's Medicare provider agreement has been reversed.
The Tampa Prosecuting Attorney's office has indicated to the Company that it
is conducting an independent criminal investigation into the circumstances
surrounding the Tampa resident discharges. The Company is cooperating fully
with this investigation.
The Company has received notice that the State of Georgia has found regulatory
violations with respect to patient discharges, among other things, at one of
the Company's nursing centers in Savannah, Georgia. The state recommended a
federal fine of approximately $510,000 for these violations, and HCFA has im-
posed that fine. The Company has not yet determined whether it will appeal
this fine.
The HCFA Administrator of the Medicare and Medicaid programs has indicated
that the Company's facilities in other states also are being monitored. There
can be no assurance that HCFA or other regulators in other jurisdictions will
not initiate investigations relating to these matters or other circumstances,
and there can be no assurance that the results of any such investigations
would not have a material adverse effect on the Company or the Guarantor. See
"--Healthcare Industry Risks."
On April 9, 1998, a class action lawsuit captioned Mongiovi et al. v. Vencor,
Inc., et al., Case No. 98-769-CIV-T24E, was filed in the United States
District Court for the Middle District of Florida on behalf of a purported
class consisting of certain residents of the Tampa nursing center and other
residents in the Company's nursing centers nationwide. The complaint alleges
various breaches of contract, and statutory and regulatory violations
including violations of Federal and state RICO statutes. The original
complaint has been amended to delineate several purported subclasses. The
plaintiffs seek class certification, unspecified damages, attorneys' fees and
costs. The Company intends to defend this action vigorously.
A class action lawsuit entitled A. Carl Helwig v. Vencor, Inc., et al. was
filed on December 24, 1997 in the United States District Court for the Western
District of Kentucky (Civil Action No. 3-97CV-8354). The class action claims
were brought by an alleged stockholder of the Guarantor against the Guarantor
and certain executive officers and directors of the Guarantor. The complaint
alleges that the Guarantor and certain executive officers of the Guarantor
during a specified time frame violated Sections 10(b) and 20(a) of the Ex-
change Act, by, among other things, issuing to the investing public a series
of false and misleading statements concerning the Guarantor's current opera-
tions and the inherent value of the Guarantor's common stock. The complaint
further alleges that as a result of these purported false and misleading
statements concerning the Guarantor's revenues and successful acquisitions,
the price of the Guarantor's common stock was artificially inflated. In par-
ticular, the complaint alleges that the Guarantor issued false and misleading
financial statements during the first, second and third calendar quarters of
1997 which misrepresented and understated the impact that changes in Medicare
reimbursement policies would have on the Guarantor's core services and profit-
ability. The complaint further alleges that the Guarantor issued a series of
materially false statements concerning the purportedly successful integration
of its recent acquisitions and prospective earnings per share for 1997 and
1998 which the Guarantor knew lacked any reasonable basis and were not being
achieved. The suit seeks damages in an amount to be proven at trial, pre-judg-
ment and post-judgment interest, reasonable attorneys' fees, expert witness
fees and other costs, and any extraordinary equitable and/or injunctive relief
permitted by law or equity to assure that the plaintiff has an effective reme-
dy. The Guarantor believes that the allegations in the complaint are without
merit and intends to defend this action vigorously.
On June 19, 1997, a class action lawsuit was filed in the United States Dis-
trict Court for the District of Nevada on behalf of a class consisting of all
persons who sold shares of Transitional common stock during the period from
February 26, 1997 through May 4, 1997, inclusive. The complaint alleges that
Transitional purchased shares of its common stock from members of the invest-
ing public after it had received a written offer to acquire all of
Transitional's common stock and without disclosing that such an offer had been
made. The complaint further alleges that defendants disclosed that there were
"expressions of interest" in acquiring Transitional when, in fact, at that
time, the negotiations had reached an advanced stage with actual firm offers
at substantial premiums to the trading price of Transitional's stock having
been made which were actively being considered by Transitional's Board of Di-
rectors. The complaint asserts claims pursuant to Sections 10(b) and 20(a) of
the Exchange Act and common law principles of negligent misrepresentation and
names as defendants Transitional as well as certain senior executives and di-
rectors of Transitional. The plaintiff seeks class certification, unspecified
damages, attorneys' fees and costs. The Company has filed a motion to dismiss
and is awaiting the court's decision. The Company is vigorously defending this
action.
27
<PAGE>
The Company's subsidiary, American X-Rays, Inc. ("AXR"), is the defendant in a
qui tam lawsuit which was filed in the United States District Court for the
Eastern District of Arkansas and served on the Company on July 7, 1997. The
United States Department of Justice has intervened in the suit which was
brought under the Federal Civil False Claims Act. AXR provided portable X-ray
services to nursing facilities (including those operated by the Company) and
other healthcare providers. The Company's interest in AXR was acquired when
Hillhaven was merged into Predecessor Company in September 1995 and when Prede-
cessor Company purchased the remaining interest in AXR in February 1996. The
suit alleges that AXR submitted false claims to the Medicare and Medicaid pro-
grams. The suit seeks damages in an amount of not less than $1,000,000, treble
damages and civil penalties. In conjunction with the qui tam action, the United
States Attorney's Office for the Eastern District of Arkansas also is con-
ducting a criminal investigation into the allegations contained in the qui tam
complaint and has indicted four former employees of AXR. AXR has been informed
that it is not a target of the investigation. The Company is cooperating fully
in the investigation.
On June 6, 1997, Transitional announced that it had been advised that it was a
target of a Federal grand jury investigation being conducted by the United
States Attorney's Office for the District of Massachusetts (the "USAO") arising
from activities of Transitional's formerly owned dialysis business. The inves-
tigation involves an alleged illegal arrangement in the form of a partnership
which existed from June 1987 to June 1992 between Damon Corporation and Transi-
tional. Transitional spun off its dialysis business, now called Vivra Incorpo-
rated, on September 1, 1989. In January 1998, the Company was informed that no
criminal charges would be filed against the Company. The Company has further
been informed that the USAO intends to file a civil action against Transitional
relating to the partnership's former Medicare billing practices. If such a suit
is filed, the Company will vigorously defend the action.
In addition, the Company and the Guarantor are subject regularly to inquiries,
investigations and audits by Federal and state agencies that oversee various
healthcare regulations and laws.
CONFLICTS OF INTEREST
Conflicting Interests of Management
Because of the pre-existing and continuing ownership interests and interrela-
tionships between Predecessor Company and the Guarantor, there are inherent
conflicts of interest and loyalties with respect to the ongoing operations of
Predecessor Company and the Guarantor. W. Bruce Lunsford is Chairman of the
Board, President and Chief Executive Officer of the Guarantor and Chairman of
the Board and Chief Executive Officer of Predecessor Company, and one other di-
rector of Predecessor Company and the Guarantor are the same. Consequently, the
terms of certain transactions and agreements, including the Master Lease Agree-
ment and other agreements entered into between Predecessor Company and the
Guarantor in connection with the Reorganization Transactions and the Distribu-
tion, may not reflect arm's length negotiations between independent parties.
Management believes, based on advice of its financial advisor, that the Master
Lease Agreement reflects terms that would have been obtained in arm's length
negotiations.
Conflicting Demands for Management Time
Mr. Lunsford is Chairman of the Board, President and Chief Executive Officer of
the Guarantor and Chairman of the Board and Chief Executive Officer of Prede-
cessor Company. Therefore, Mr. Lunsford is subject to competing demands on his
time. Mr. Lunsford provides overall leadership and direction to Predecessor
Company and the Guarantor. While the amount of time that Mr. Lunsford allocates
to his positions at each of Predecessor Company and the Guarantor varies de-
pending on the particular demands at Predecessor Company and the Guarantor at
any given time, it is anticipated that overall Mr. Lunsford will spend approxi-
mately forty percent of his time in his positions at Predecessor Company and
approximately sixty percent of his time in his positions at the Guarantor.
Conflicting Corporate Objectives and Inherent Conflicts of Interest
The Guarantor and Predecessor Company are permitted to pursue business opportu-
nities independently from one another subject to certain rights of first offer,
and their interests may conflict. The interests of Predecessor Company and the
Guarantor may potentially conflict because, among other reasons, (i) under the
Reorganization Agreement the liabilities of Predecessor Company were divided
between Predecessor Company and the Guarantor; (ii) the Guarantor leases the
Leased Properties from Predecessor Company pursuant to the Master Lease Agree-
ment; (iii) the Guarantor may develop the Development Properties and thereaf-
ter, at the option of Predecessor Company, the Guarantor will sell to, and
lease back from, Predecessor Company, the Development Properties pursuant to
the Development Agreement; (iv) Predecessor Company and the Guarantor each have
certain rights of first offer under the Participation Agreement; and (v) cer-
tain corporate and administrative services are provided by the Guarantor to
Predecessor Company, and certain assets and liabilities are allocated to the
Guarantor and Predecessor Company under the terms of the Employee Benefits
Agreement, the Intellectual Property Agreement, the Tax Sharing Agreement and
the Transition Services Agreement. Each of the Guarantor and
28
<PAGE>
Predecessor Company has implemented conflicts of interests policies, including
the creation of a committee of independent directors that reviews transactions
presenting a conflict. There can be no assurance that conflicts of interest
policies adopted by Predecessor Company and the Guarantor will successfully
eliminate the influence of such conflicts, and as a result most decisions re-
lating to the contractual and other business relationships between Predecessor
Company and the Guarantor will be subject to conflicts of interest and loyal-
ties.
LACK OF HISTORICAL FINANCIAL INFORMATION FOR GUARANTOR
The historical consolidated and pro forma financial information included in
this Prospectus may not necessarily reflect the results of operations, finan-
cial position and cash flows of the Guarantor in the future or the results of
operations, financial position and cash flows had the Guarantor operated as a
separate stand-alone entity and had the Company and the Guarantor operated un-
der the relationships they have had since the Reorganization Transactions dur-
ing the periods presented. The financial information included herein does not
reflect a number of significant changes that have or may occur in the funding
and operations of the Company and the Guarantor as a result of or in connection
with the Reorganization Transactions and the Distribution. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Guarantor," "Management's Discussion and Analysis of Pro Forma Financial Condi-
tion and Results of Operations of the Guarantor" and "Guarantor Unaudited Pro
Forma Consolidated Financial Statements."
POSSIBLE INABILITY TO IMPLEMENT GROWTH STRATEGY
There can be no assurance that the Company will be able to continue its growth
or be able to successfully implement its strategy to develop long-term
healthcare networks. There can be no assurance that suitable acquisitions, for
which other healthcare companies (including those with greater financial re-
sources than the Company) may be competing, can be accomplished on terms favor-
able to the Company or that financing, if necessary, can be obtained for such
acquisitions. In addition, the Company does not anticipate acquiring additional
healthcare facilities over the next 12 to 18 months. The Company may not be
able to effectively and profitably integrate the operations of acquired enti-
ties or future acquisitions or otherwise achieve the intended benefits of such
acquisitions. In addition, unforeseen expenses, difficulties, complications or
delays may be encountered in connection with the expansion of operations, which
could inhibit the Company's growth.
POSSIBLE INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
Upon a Change of Control, each Holder of Notes will have the right to require
the Company to repurchase any or all of the outstanding Notes owned by such
Holder at a price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest. However, the Company's ability to repurchase the
Notes upon a Change of Control may be limited by the terms of then existing
contractual obligations of the Company and its subsidiaries. The Indenture does
not prohibit the Company or the Guarantor in the future from incurring indebt-
edness (including Senior Debt) otherwise permitted by the Indenture that con-
tains Change of Control provisions. Furthermore, the Company Credit Agreement
provides that a Change of Control will constitute a default thereunder, which
would permit the lenders to cause the indebtedness under the Company Credit
Agreement to become immediately due and payable or to institute a payment
blockage with respect to the Notes. In order to repurchase Notes upon a Change
of Control, the Company would have to repay all of its obligations under the
Company Credit Agreement (and any other agreements relating to Senior Debt that
contains similar Change of Control provisions) or would have to obtain the con-
sent of the holders of such indebtedness. There can be no assurance that the
Company will have adequate financial resources to repurchase the Notes in the
event of a Change of Control, particularly if such Change of Control requires
the Company to refinance, or results in the acceleration of, other indebted-
ness. If the Company fails to repurchase all of the Notes tendered for purchase
upon the occurrence of a Change of Control, such failure will constitute an
Event of Default (as defined) under the Indenture. See "--Substantial Leverage
and Ability to Meet Debt Service Requirements."
The Change of Control provision may not necessarily afford the Holders protec-
tion in the event of a highly leveraged transaction, including a reorganiza-
tion, restructuring, merger or other similar transaction involving the Company
that may adversely affect the Holders, because such transactions may not in-
volve a shift in voting power, beneficial ownership or management control or,
even if they do, may not involve a shift of the magnitude required under the
definition of Change of Control to trigger such provisions. Except as described
under "Description of the New Notes and the Guarantee--Repurchase at the Option
of the Holders Upon a Change of Control," the Indenture does not contain provi-
sions that permit Holders of Notes to require the Company to repurchase or re-
deem the Notes in the event of a takeover, recapitalization or similar transac-
tion.
29
<PAGE>
LACK OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes are a new issue of securities for which there is currently no ac-
tive trading market, and the Company does not intend to apply for listing of
the New Notes on any securities exchanges or for quotation through the National
Association of Securities Dealers Automated Quotation System. If any of the New
Notes are traded after their initial issuance, they may trade at a discount
from the initial offering price of the Old Notes, depending upon prevailing in-
terest rates, the market for similar securities and other factors, including
general economic conditions, and the financial condition of, performance of and
prospects for the Company and the Guarantor.
Although the Initial Purchasers have advised the Company that they currently
intend to make a market in the New Notes, they are not obligated to do so and
may discontinue such market-making at any time without notice. Accordingly,
there can be no assurance as to the development or liquidity of any market for
the New Notes.
30
<PAGE>
USE OF PROCEEDS
Neither the Company nor the Guarantor will receive any cash proceeds from the
issuance of the New Notes and the Guarantee. In consideration for issuing the
New Notes as described in this Prospectus, the Company will receive Old Notes
in like principal amount. The Old Notes surrendered in exchange for the New
Notes will be retired and canceled. Accordingly, the issuance of the New Notes
and the Guarantee will not result in any change in the indebtedness of the Com-
pany or the Guarantor.
The net proceeds from the Offering were approximately $293.5 million.
The following table sets forth the sources and uses of the proceeds from the
Offering and the other Company Financing Transactions:
Dollars in thousands
<TABLE>
<S> <C>
SOURCES:
- -------- ----------
Company Revolving Credit Facility.................................. $ 72,000
Company Term A Loan................................................ 250,000
Company Term B Loan................................................ 250,000
Company Bridge Loan................................................ 200,000
9 7/8% Guaranteed Senior Subordinated Notes due 2005............... 300,000
Proceeds from the issuance of Guarantor Series A Preferred Stock... 17,700
<CAPTION>
----------
<S> <C>
Total sources.................................................... $1,089,700
<CAPTION>
==========
<S> <C>
USES:
- -----
Predecessor Company Bank Facility.................................. $ 256,746
Predecessor Company Notes.......................................... 647,609
Other Predecessor Company indebtedness............................. 42,844
Loans to Company officers in connection with the issuance of
Guarantor Series A Preferred Stock................................ 15,930
Transaction costs and available cash............................... 126,571
<CAPTION>
----------
<S> <C>
Total uses....................................................... $1,089,700
<CAPTION>
==========
</TABLE>
Approximately $61.5 million of the indebtedness under the Predecessor Company
Bank Facility was owed to Morgan Guaranty Trust Company of New York ("Morgan
Guaranty"), one of the agent banks under the Predecessor Company Bank Facility.
Morgan Guaranty, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated,
is an affiliate of J.P. Morgan Securities Inc., the lead manager of the Offer-
ing.
31
<PAGE>
GUARANTOR PRO FORMA CAPITALIZATION
The following table sets forth at March 31, 1998 the actual capitalization of
the Guarantor and as adjusted on a pro forma basis to give effect to the Reor-
ganization Transactions, the Company Financing Transactions, the issuance of
the $17.7 million Guarantor Series A Preferred Stock and the Distribution. For
accounting purposes, the historical consolidated financial statements of Prede-
cessor Company became the historical consolidated financial statements of the
Guarantor as of the Distribution Date. Accordingly, the actual capitalization
of the Guarantor presented below is identical to that of Predecessor Company.
See "Guarantor Unaudited Pro Forma Consolidated Financial Statements."
<TABLE>
<CAPTION>
----------------------
AS OF MARCH 31, 1998
----------------------
ACTUAL PRO FORMA
Dollars in thousands ---------- ----------
<S> <C> <C>
LONG-TERM DEBT, INCLUDING AMOUNTS DUE WITHIN ONE
YEAR:
Senior collateralized debt.......................... $ 56,737 $ -
Bank revolving credit agreement due 2002............ 1,134,900 -
8 5/8% Senior Subordinated Notes due 2007........... 750,000 2,391
Other............................................... 11,930 12,209
Company Revolving Credit Facility................... - 72,000
Company Term A Loan................................. - 250,000
Company Term B Loan................................. - 250,000
Company Bridge Loan................................. - 200,000
9 7/8% Guaranteed Senior Subordinated Notes due
2005............................................... - 300,000
<CAPTION>
---------- ----------
<S> <C> <C>
Total debt......................................... 1,953,567 1,086,600
<CAPTION>
---------- ----------
<S> <C> <C>
Guarantor Series A Preferred Stock................... - 1,770(a)
<CAPTION>
---------- ----------
<S> <C> <C>
COMMON STOCKHOLDERS' EQUITY:
Common stock........................................ 18,388 16,891
Capital in excess of par value...................... 770,505 680,373
Retained earnings................................... 300,684 201,592
<CAPTION>
---------- ----------
<S> <C> <C>
1,089,577 898,856
Common treasury stock............................... (158,744) -
<CAPTION>
---------- ----------
<S> <C> <C>
Common stockholders' equity........................ 930,833 898,856
<CAPTION>
---------- ----------
<S> <C> <C>
Total capitalization............................... $2,884,400 $1,987,226
<CAPTION>
========== ==========
</TABLE>
(a)For accounting purposes, the Guarantor Series A Preferred Stock is presented
net of related employee loans which aggregated $15.9 million.
32
<PAGE>
GUARANTOR
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data of the Guar-
antor for each of the five years in the period ended December 31, 1997 and the
three months ended March 31, 1998 and 1997. For accounting purposes, the his-
torical consolidated financial statements of Predecessor Company became the
historical financial statements of the Guarantor on the Distribution Date. Ac-
cordingly, the selected historical financial data presented for the five years
ended December 31, 1997 have been derived from the audited consolidated finan-
cial statements of Predecessor Company. The selected historical financial data
for the three month periods have been derived from unaudited condensed consoli-
dated financial statements of Predecessor Company and reflect all adjustments
(consisting of normal recurring adjustments) that, in the opinion of the man-
agement of the Guarantor, are necessary for a fair presentation of such infor-
mation. The following selected financial data relate to the business of the
Guarantor as it was operated as part of Predecessor Company and may not reflect
the results of operations or financial position that would have been obtained
had the Guarantor been a separate, publicly held company during such periods.
In particular, the effect of lease payments that would have been incurred by
the Guarantor pursuant to the Master Lease Agreement are not reflected herein.
The Guarantor also is incurring interest expense related to the Company Credit
Agreement at higher rates than incurred by Predecessor Company. In addition,
the historical financial statements of Predecessor Company include certain ex-
penses that, since completion of the Reorganization Transactions, will not be
included in future Guarantor financial statements. Such expenses include (i)
expenses for depreciation on real estate assets which the Guarantor leases from
Predecessor Company, (ii) interest expense related to long-term debt which was
assumed by Predecessor Company and (iii) professional and administrative ex-
penses related to the Reorganization Transactions. The following table should
be read in conjunction with "Guarantor Unaudited Pro Forma Consolidated Finan-
cial Statements," "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Guarantor," "Management's Discussion and Anal-
ysis of Pro Forma Financial Condition and Results of Operations of the Guaran-
tor" and the historical consolidated financial statements of the Guarantor pre-
sented elsewhere herein. The summary historical financial data set forth below
reflect the three-for-two split of Predecessor Company common stock distributed
on October 25, 1994.
33
<PAGE>
GUARANTOR
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ -----------------------------------------------------------------
Dollars in thousands, 1998 1997 1997 1996 1995 1994 1993
except per share amounts ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 823,316 $ 680,696 $3,116,004 $2,577,783 $2,323,956(c) $2,032,827 $1,727,436
<CAPTION>
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries, wages and
benefits............... 480,364 396,573 1,788,053 1,490,938 1,360,018 1,167,181 985,163
Supplies................ 76,052 66,033 303,140 261,621 233,066 216,587 186,473
Rent.................... 24,135 18,948 89,474 77,795 79,476 79,371 74,323
Other operating
expenses............... 127,258 109,786 490,327 405,797 372,657 312,087 270,014
Depreciation and
amortization........... 35,470 24,372 123,865 99,533 89,478 79,519 69,126
Interest expense........ 37,195 10,660 102,736 45,922 60,918 62,828 73,559
Investment income....... (1,180) (1,567) (6,057) (12,203) (13,444) (13,126) (16,056)
Non-recurring
transactions........... 7,664(a) - - 125,200(b) 109,423(c) (4,540)(d) 5,769(e)
<CAPTION>
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
786,958 624,805 2,891,538 2,494,603 2,291,592 1,899,907 1,648,371
<CAPTION>
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income
taxes.................. 36,358 55,891 224,466 83,180 32,364 132,920 79,065
Provision for income
taxes.................. 17,477 21,909 89,338 35,175 24,001 46,781 10,089
<CAPTION>
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from operations.. $ 18,881 $ 33,982 $ 135,128 $ 48,005 $ 8,363 $ 86,139 $ 68,976
<CAPTION>
========== ========== ========== ========== ========== ========== ==========
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings per common
share from
operations:............
Basic................... $ 0.28 $ 0.49 $ 1.96 $ 0.69 $ 0.22 $ 1.41 $ 1.28
Diluted................. 0.28 0.48 1.92 0.68 0.29 1.28 1.22
BALANCE SHEET DATA:
Working capital......... $ 395,781 $ 427,690 $ 445,086 $ 320,123 $ 239,666 $ 129,079 $ 114,339
Assets.................. 3,388,237 2,660,706 3,334,739 1,968,856 1,912,454 1,656,205 1,563,350
Long-term debt.......... 1,920,901 1,286,843 1,919,624 710,507 778,100 746,212 784,801
Stockholders' equity.... 930,833 883,483 905,350 797,091 772,064 596,454 485,550
OTHER FINANCIAL DATA:
EBITDA, as adjusted(f).. $ 115,507 $ 89,356 $ 445,010 $ 341,632 $ 278,739 $ 257,601 $ 211,463
EBITDA margin, as
adjusted............... 14.0% 13.1% 14.3% 13.3% 12.0% 12.7% 12.2%
Ratio of earnings to
fixed charges.......... 1.7x 3.9x 2.5x 2.1x 1.4x 2.5x 1.8x
Capital expenditures:
Existing facilities and
construction.......... $ 78,732 $ 60,887 $ 281,672 $ 135,027 $ 136,893 $ 111,486 $ 74,111
Acquisitions........... 12,275 346,110 1,011,689 26,236 59,343 36,391 44,055
</TABLE>
- -------
(a) Includes pretax charges for professional and administrative expenses
related to the Reorganization Transactions.
(b) Includes pretax charges incurred to complete the integration of Hillhaven
into Predecessor Company, which included costs associated with the planned
disposition of 34 nursing centers, the reorganization of the institutional
pharmacy business and the planned replacement of one hospital and three
nursing centers.
(c) Includes pretax charges aggregating $103.9 million incurred primarily in
connection with the consummation of the Hillhaven Merger, which included
costs associated with direct transaction costs, employee benefit and
severance costs, the planned disposition of certain nursing center
properties and changes in estimates in accrued revenues of $24.5 million
recorded in connection with certain prior-year nursing center third-party
reimbursement issues (recorded as a reduction of revenues). Non-recurring
transactions in 1995 also include $5.5 million recorded in connection with
the Nationwide Merger.
(d) Includes a gain resulting from the sales of assets and nursing center
restructuring activities.
(e) Includes a charge related to the restructuring of certain nursing centers
held for sale.
(f) EBITDA, as adjusted, represents operating income before depreciation,
amortization, net interest, income taxes and non-recurring transactions.
While EBITDA should not be construed as a substitute for operating income
or a better indicator of liquidity than cash flows from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of the Company and the Guarantor to
meet their future debt service, capital expenditure and working capital
requirements. EBITDA is not necessarily a measure of the Company's or the
Guarantor's ability to fund its cash needs. EBITDA is included herein
because management believes that certain investors find it to be a useful
tool for measuring a company's ability to service debt.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE GUARANTOR
The Guarantor Selected Historical Financial Data and the consolidated financial
statements included in this Prospectus set forth certain data with respect to
the financial position, results of operations and cash flows of the Guarantor
which should be read in conjunction with the following discussion and analysis.
On the Distribution Date, the historical consolidated financial statements of
Predecessor Company became the historical consolidated financial statements of
the Guarantor. For accounting purposes, the assets and liabilities of the Guar-
antor were recorded at their historical carrying values at the Distribution
Date. Prior year discussions refer to the Guarantor's business as it was con-
ducted by Predecessor Company.
Because the Guarantor and the Company are holding companies whose primary as-
sets are the capital stock of their subsidiaries and whose businesses are con-
ducted primarily through their subsidiaries, separate financial statements of
the Company will not be presented. Accordingly, a discussion of the financial
condition and results of operations of the Company is not being presented sepa-
rately herein.
GENERAL
The Company is one of the largest providers of long-term healthcare services in
the United States. At March 31, 1998, the Company operated 62 long-term acute
care hospitals (5,313 licensed beds), 305 nursing centers (39,960 licensed
beds) and the Vencare contract services business which primarily provides re-
spiratory and rehabilitation therapies, medical services and pharmacy manage-
ment services to approximately 2,900 healthcare facilities.
Hillhaven Merger
The Hillhaven Merger was consummated on September 28, 1995. At the time of the
Hillhaven Merger, Hillhaven operated 311 nursing centers, 56 retail and insti-
tutional pharmacies and 23 independent and assisted living communities with
3,122 units. Annualized revenues approximated $1.7 billion. See Note 2 of the
Notes to Consolidated Financial Statements for a description of the Hillhaven
Merger.
Prior to the merger, Hillhaven completed the Nationwide Merger on June 30,
1995. At the time of the Nationwide Merger, Nationwide operated 23 nursing cen-
ters containing 3,257 licensed beds and four independent and assisted living
communities with 442 units. Annualized revenues approximated $125 million. See
Note 3 of the Notes to Consolidated Financial Statements for a description of
the Nationwide Merger.
As discussed in the Notes to Consolidated Financial Statements, the Hillhaven
Merger and the Nationwide Merger have been accounted for by the pooling-of-in-
terests method. Accordingly, the accompanying consolidated financial statements
and financial and operating data included herein give retroactive effect to
these transactions and include the combined operations of the Guarantor,
Hillhaven and Nationwide for all periods presented.
Stock Offerings of Atria
In August 1996, the Guarantor completed the initial public offering of Atria,
its independent and assisted living business, through the issuance of 5,750,000
shares of Atria common stock (the "Atria IPO"). For accounting purposes, the
accounts of Atria continued to be consolidated with those of the Guarantor and
minority interests in the earnings and equity of Atria were recorded from the
consummation date of the Atria IPO through June 30, 1997. In July 1997, Atria
completed a secondary equity offering which reduced the Guarantor's ownership
percentage to less than 50%. Accordingly, the Guarantor's investment in Atria
beginning July 1, 1997 has been accounted for under the equity method. At March
31, 1998, the Guarantor owned 10,000,000 shares, or approximately 43%, of
Atria's outstanding common stock. See Note 4 of the Notes to Consolidated Fi-
nancial Statements for a description of the Atria stock offerings.
TheraTx Merger
On March 21, 1997, the merger with TheraTx was completed following a cash ten-
der offer (the "TheraTx Merger"). At the time of the TheraTx Merger, TheraTx
primarily provided rehabilitation and respiratory therapy management services
and operated 26 nursing centers. Annualized revenues approximated $425 million.
The TheraTx Merger has been accounted for by the purchase method, which re-
quires that the accounts of acquired entities be included with those of the
Guarantor since the acquisition of a controlling interest. Accordingly, the ac-
companying consolidated financial statements include the operations of TheraTx
since March 21, 1997. See Note 5 of the Notes to Consolidated Financial State-
ments for a description of the TheraTx Merger.
35
<PAGE>
Transitional Merger
On June 24, 1997, the Guarantor acquired approximately 95% of the outstanding
common stock of Transitional through a cash tender offer, after which time the
operations of Transitional were consolidated with those of the Guarantor in ac-
cordance with the purchase method of accounting (the "Transitional Merger"). On
August 26, 1997, the Transitional Merger was completed. At the time of the
Transitional Merger, Transitional operated 19 long-term acute care hospitals
and provided respiratory therapy management services. Annualized revenues ap-
proximated $350 million. In addition, Transitional owns a 44% voting equity in-
terest (61% ownership interest) in BHC, an operator of psychiatric and behav-
ioral clinics. See Note 6 of the Notes to Consolidated Financial Statements for
a description of the Transitional Merger.
RESULTS OF OPERATIONS
A summary of key operating data follows:
<TABLE>
<CAPTION>
--------------------------------------------------------
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ----------------------------------
1998 1997 1997 1996 1995
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
REVENUES (IN THOUSANDS):
Hospitals............... $ 246,365 $ 154,900 $ 785,829 $ 551,268 $ 456,486
Nursing centers......... 434,190 404,253 1,722,416 1,615,141 1,512,679(a)
Vencare................. 169,773 119,046 642,471 399,068 316,254
Atria................... - 14,217 31,199 51,846 47,976
<CAPTION>
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
850,328 692,416 3,181,915 2,617,323 2,333,395
Elimination............. (27,012) (11,720) (65,911) (39,540) (9,439)
<CAPTION>
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$823,316 $ 680,696 $3,116,004 $2,577,783 $2,323,956
<CAPTION>
========= ========= ========== ========== ==========
<S> <C> <C> <C> <C> <C>
HOSPITAL DATA:
Revenue mix %:
Medicare.............. 60.3 63.5 63.0 59.4 57.5
Medicaid.............. 8.2 9.6 8.1 12.3 11.7
Private and other..... 31.5 26.9 28.9 28.3 30.8
Patient days:
Medicare.............. 173,967 106,646 520,144 375,128 314,009
Medicaid.............. 28,535 21,705 96,490 97,521 76,781
Private and other..... 45,747 31,502 151,176 113,495 98,822
<CAPTION>
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
248,249 159,853 767,810 586,144 489,612
<CAPTION>
========= ========= ========== ========== ==========
<S> <C> <C> <C> <C> <C>
Average daily census.... 2,758 1,776 2,104 1,601 1,341
Occupancy %............. 56.7 59.2 52.9 53.7 47.6
NURSING CENTER DATA:
Revenue mix %:
Medicare.............. 33.5 32.2 32.1 29.7 28.6
Medicaid.............. 41.3 43.4 42.9 44.3 44.5
Private and other..... 25.2 24.4 25.0 26.0 26.9
Patient days:
Medicare.............. 408,002 406,642 1,610,470 1,562,645 1,511,259
Medicaid.............. 1,949,544 1,962,287 8,152,503 8,191,450 8,146,881
Private and other..... 692,932 663,575 2,859,265 2,812,668 2,911,460
<CAPTION>
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
3,050,478 3,032,504 12,622,238 12,566,763 12,569,600
<CAPTION>
========= ========= ========== ========== ==========
<S> <C> <C> <C> <C> <C>
Average daily census.... 33,894 33,694 34,581 34,335 34,437
Occupancy %............. 88.6 91.2 90.5 91.9 92.2
ANCILLARY SERVICES DATA:
End of period data:
Number of Vencare
single service
contracts............ 3,639 4,946 3,846 4,346 4,072
Number of Vencare full
service contracts.... 99 - 31 - -
<CAPTION>
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
3,738 4,946 3,877 4,346 4,072
<CAPTION>
========= ========= ========== ========== ==========
</TABLE>
(a) Includes a charge of $24.5 million recorded in connection with the
Hillhaven Merger.
36
<PAGE>
Three Months Ended March 31, 1998 and 1997
Hospital revenue increases in the first quarter of 1998 resulted primarily from
the Transitional Merger and an increase in patient days and improved patient
mix. Revenues attributable to the Transitional Merger were $69.6 million. Hos-
pital patient days rose 55% to 248,249 from 159,853 in the same period last
year. Non-Medicaid patient days (for which payment rates are generally higher
than Medicaid) increased 59% to 219,714 in the first quarter of 1998, while
Medicaid patient days increased 31% to 28,535.
Excluding the effect of sales and acquisitions, nursing center revenues in-
creased 3% over the first quarter of 1997. Revenue growth was adversely im-
pacted by a 2% decline in private patient days in the first quarter 1998. In an
effort to attract increased volumes of Medicare and private pay patients, the
Guarantor began implementing a plan in 1996 to expend approximately $200 mil-
lion by the end of 1998 to improve existing facilities and expand the range of
services provided to accommodate higher acuity patients.
Vencare revenues include $60.3 million related to contract rehabilitation ther-
apy and certain other ancillary service businesses acquired as part of the
TheraTx Merger. Vencare ancillary service contracts in effect at March 31, 1998
totaled 3,738 compared to 4,946 at March 31, 1997. During 1997, the Guarantor
terminated approximately 700 contracts which did not meet certain growth crite-
ria and eliminated approximately 670 contracts by combining previously separate
pharmacy, enteral and infusion therapy contracts. These transactions did not
materially impact Vencare operating results. Pharmacy revenues (included in
Vencare operations) declined 3% to $40.1 million in the first quarter of 1998
from $41.5 million in the same period last year.
In 1997, the Guarantor initiated the marketing of its Vencare full-service an-
cillary services contracts to provide a full range of services to nursing cen-
ters not operated by the Guarantor. The change in the Guarantor's marketing
strategy for selling ancillary services was developed in response to the antic-
ipated prospective payment system established under the Budget Act. The Guaran-
tor believes that by bundling services through one provider, nursing centers
can provide quality patient care more efficiently with the added benefit of
centralized patient medical records. Under the new prospective payment system,
ancillary services provided by nursing centers will be subject to fixed pay-
ments. In this new environment, the Guarantor believes that its full-service
ancillary services contracts will enhance the ability of nursing center opera-
tors to manage effectively the costs of providing quality patient care.
First quarter 1998 income from operations totaled $18.9 million ($0.28 per di-
luted share), down 44% from $34.0 million ($0.48 per diluted share) for the
same period in 1997. During the first quarter of 1998, the Guarantor incurred
non- recurring charges of $7.7 million net of tax, or $0.11 per diluted share,
for professional and administrative expenses related to the Reorganization
Transactions. The Guarantor expects to record additional costs associated with
the consummation of the Reorganization Transactions in the second quarter of
1998.
Excluding non-recurring charges, the decline in operating income was attribut-
able to growth in costs, primarily information systems, related to anticipated
changes in the Guarantor's nursing center and Vencare businesses resulting from
the provisions of the Budget Act. Management believes that these cost increases
will continue for the remainder of 1998.
During the first quarter of 1997, the Guarantor recorded an after-tax loss of
$2.3 million ($0.03 per share) in connection with the refinancing of the bank
credit agreements of both the Guarantor and TheraTx.
Years Ended 1997, 1996 and 1995
Hospital revenues increased in both 1997 and 1996 from the acquisition of fa-
cilities and growth in same-store patient days. Hospital patient days rose 31%
to 767,810 in 1997 and 20% to 586,144 in 1996. Same-store patient days grew 6%
in 1997. Revenues attributable to the Transitional Merger were $138.9 million.
Hospital revenues in 1997 were also favorably impacted by increases in both
Medicare and private patient days (for which payment rates are generally higher
than Medicaid) and a decline in Medicaid patient days. Price increases in both
1997 and 1996 were not significant.
During 1997, the Guarantor sold 28 under-performing or non-strategic nursing
centers and acquired 26 nursing centers in connection with the TheraTx Merger.
Excluding the effect of these sales and acquisitions, nursing center revenues
increased 3%, while patient days declined 2%. The increase in same-store nurs-
ing center revenues resulted primarily from price increases and a 3% increase
in Medicare patient days.
Excluding the effect of sales and acquisitions, nursing center revenue growth
was adversely impacted by a 5% decline in private patient days in 1997. In an
effort to attract increased volumes of Medicare and private payment patients,
the Guarantor implemented a plan to expend approximately $200 million during
1997 and 1998 to improve existing facilities and expand the range of services
provided to accommodate higher acuity patients.
37
<PAGE>
Vencare revenues for 1997 include $199.4 million related to contract rehabili-
tation therapy and certain other ancillary service businesses acquired as part
of the TheraTx Merger. Excluding the TheraTx Merger and other sales and acqui-
sitions, Vencare revenues grew 12% in 1997 and 26% in 1996 primarily as a re-
sult of growth in volume of ancillary services provided per contract, and in
1996, growth in the number of contracts. Vencare ancillary service contracts in
effect at December 31, 1997 totaled 3,877 compared to 4,346 at December 31,
1996 and 4,072 at December 31, 1995. During 1997, the Guarantor terminated ap-
proximately 700 contracts which did not meet certain growth criteria and elimi-
nated approximately 670 contracts by combining previously separate pharmacy,
enteral and infusion therapy contracts.
Pharmacy revenues (included in Vencare operations) declined 4% to $167.1 mil-
lion in 1997 from $174.1 million in the same period last year. The decline was
primarily attributable to the effects of the restructuring of the institutional
pharmacy business initiated in the fourth quarter of 1996 and the sale of the
retail pharmacy outlets in January 1997. Pharmacy revenues rose 3% in 1996 from
$168.8 million in 1995.
As discussed in Note 4 of the Notes to Consolidated Financial Statements, the
decline in Atria revenues in 1997 resulted from a change to the equity method
of accounting for the Guarantor's investment in Atria beginning July 1, 1997.
The increase in 1996 revenues resulted primarily from price increases, growth
in occupancy and expansion of ancillary services.
In the fourth quarter of 1996, the Guarantor recorded pretax charges aggregat-
ing $125.2 million ($79.9 million net of tax) primarily to complete the inte-
gration of Hillhaven. In November 1996, the Guarantor executed a definitive
agreement to sell certain under-performing or non-strategic nursing centers. A
charge of $65.3 million was recorded in connection with the planned disposition
of these nursing centers. In addition, the Guarantor's previously independent
institutional pharmacy business, acquired as part of the Hillhaven Merger, was
integrated into Vencare, resulting in a charge of $39.6 million related primar-
ily to costs associated with employee severance and benefit costs (approxi-
mately 500 employees), facility close down expenses and the write-off of cer-
tain deferred costs for services to be discontinued. A provision for loss to-
taling $20.3 million related to the planned replacement of one hospital and
three nursing centers was also recorded in the fourth quarter. See Note 9 of
the Notes to Consolidated Financial Statements.
During 1997, the Guarantor sold 28 of the 34 non-strategic nursing centers
planned for disposition. Proceeds from the transaction aggregated $11.2 mil-
lion. In addition, one facility was sold and one was closed in January 1998,
and two nursing centers were sold on April 1, 1998 after receipt of regulatory
approvals. In February 1998, the Guarantor was unable to receive the necessary
licensure approvals to sell two non-strategic nursing centers for which provi-
sions for loss had been recorded in 1996. The Guarantor intends to continue to
operate these facilities. Accrued provisions for loss at December 31, 1997 were
not significant. The reorganization of the institutional pharmacy business was
substantially completed in 1997, which included the elimination of duplicative
administrative functions and establishment of the pharmacy operations as an in-
tegrated part of the Guarantor's hospital operations. The Guarantor expects
that construction activities related to the replacement of one hospital and
three nursing centers will be completed in 1998 and 1999. Accrued provision for
loss related to the facilities to be sold or replaced aggregated $22.2 million
at December 31, 1997.
In the third quarter of 1995, the Guarantor recorded pretax charges aggregating
$128.4 million ($89.9 million net of tax) primarily in connection with the con-
summation of the Hillhaven Merger. The charges included (i) $23.2 million of
investment advisory and professional fees, (ii) $53.8 million of employee bene-
fit plan and severance costs (approximately 500 employees), (iii) $26.9 million
of losses associated with the planned disposition of certain nursing center
properties and (iv) $24.5 million of charges to reflect the Guarantor's change
in estimates of accrued revenues recorded in connection with certain prior-year
nursing center third-party reimbursement issues. Operating results for 1995
also include pretax charges of $5.5 million ($3.7 million net of tax) recorded
in the second quarter related primarily to the Nationwide Merger. See Note 9 of
the Notes to Consolidated Financial Statements.
Income from operations for 1997 totaled $135.1 million, compared to $48.0 mil-
lion and $8.3 million for 1996 and 1995, respectively. Excluding the effect of
non-recurring transactions, income from operations increased 6% in 1997 from
$127.9 million ($1.81 per share-diluted) in 1996 and 25% in 1996 from $101.9
million ($1.45 per share-diluted) in 1995.
Operating results in 1997 were adversely impacted by a decline in fourth quar-
ter income from operations to $27.2 million ($0.40 per share-diluted) from
$35.9 million ($0.51 per share-diluted) in the fourth quarter of 1996 (exclud-
ing non-recurring charges). The reduction in earnings resulted primarily from
(i) a loss of certain large Vencare contracts and growth in costs associated
with the shift in Vencare product mix from fee-for-service to fixed fee ar-
rangements in anticipation of the new prospective systems affecting Medicare
reimbursement for nursing centers expected to take effect on July 1, 1998 and
(ii) operating losses associated with the Transitional Merger. Vencare revenues
were $158.2 million in the fourth
38
<PAGE>
quarter of 1997 compared to the previous quarter total of $183.2 million. In
the fourth quarter of 1997, the sale of certain non-strategic assets acquired
in connection with the TheraTx Merger resulted in a $13.5 million decline in
Vencare revenues from the third quarter. See "--Healthcare Reform Legislation."
In 1997, the Guarantor initiated the marketing of its Vencare full-service an-
cillary services contracts to provide a full range of services to nursing cen-
ters not operated by the Guarantor. The change in the Guarantor's marketing
strategy for selling ancillary services was developed in response to the antic-
ipated prospective payment system established under the Budget Act. The Guaran-
tor believes that by bundling services through one provider, nursing centers
can provide quality patient care more efficiently with the added benefit of
centralized patient medical records. Under the new prospective payment system,
ancillary services provided by nursing centers will be subject to fixed pay-
ments. In this new environment, the Guarantor believes that its full-service
ancillary services contracts will enhance the ability of nursing center opera-
tors to manage effectively the costs of providing quality patient care.
As the nursing center industry adapts to the cost containment measures inherent
in the new prospective payment system, management believes that the volume of
ancillary services provided per patient day to nursing center patients could
decline. In addition, as a result of these changes, many nursing centers may
elect to provide ancillary services to their patients through internal staff
and will no longer contract with outside parties for ancillary services. For
these reasons and others, since the enactment of the Budget Act, sales of new
contracts have declined and may continue to decline subject to the Guarantor's
success in implementing its Vencare comprehensive, full-service contract sales
strategy.
Operating results (including interest costs) associated with the hospitals ac-
quired in the Transitional Merger reduced income from operations in the fourth
quarter by $3.7 million or $0.05 per share and $9.2 million or $0.13 per share
for the second half of 1997.
Excluding the effect of non-recurring transactions, growth in operating income
in 1996 resulted primarily from increased hospital volume, growth in higher
margin ancillary services in both Vencare and the nursing center business and
realization of substantial synergies resulting from the Hillhaven Merger. Man-
agement believes that additional revenues resulting from patient cross-refer-
rals within the healthcare network created by the Hillhaven Merger aggregated
approximately $80 million in 1996. In addition, cost reductions from elimina-
tion of duplicative functions, increased cost efficiencies and refinancing of
long-term debt increased 1996 pretax income by approximately $20 million.
For more information concerning the provision for income taxes as well as in-
formation regarding differences between effective income tax rates and statu-
tory rates, see Note 11 of the Notes to Consolidated Financial Statements.
LIQUIDITY
Cash provided by operations totaled $58.0 million and $60.0 million for the
three months ended March 31, 1998 and 1997, respectively, and $270.9 million
for 1997 compared to $183.5 million for 1996 and $113.6 million for 1995. De-
spite growth in operating cash flows during each of the past three fiscal
years, cash flows from operations have been adversely impacted by growth in the
outstanding days of revenues in accounts receivable. Days of revenues in ac-
counts receivable were 66 at March 31, 1998 and 67 at December 31, 1997 com-
pared to 54 at December 31, 1996. Growth in accounts receivable was primarily
attributable to growth in rehabilitation contracts resulting from the TheraTx
Merger (collection periods for which typically require in excess of three
months), delays associated with the conversion of Transitional hospital finan-
cial systems and, in 1997 and 1996, the restructuring of the Guarantor's phar-
macy operations. Management believes that certain of these factors may have an
adverse effect on cash flows from operations in 1998.
In connection with the TheraTx Merger and the Transitional Merger, Predecessor
Company increased the amount of the Predecessor Company Credit Facility from
$1.0 billion to $2.0 billion in 1997. At March 31, 1998, available borrowings
under the Predecessor Company Credit Facility approximated $817 million.
As discussed in Note 13 of the Notes to Consolidated Financial Statements,
Predecessor Company completed the $750 million private placement of the Company
Notes in July 1997. The net proceeds of the offering were used to reduce out-
standing borrowings under the Predecessor Company Credit Facility.
Predecessor Company had agreed to guarantee up to $75 million of Atria's $200
million bank credit facility (the "Atria Bank Facility") at December 31, 1997
and lesser amounts each year thereafter through 2000. At December 31, 1997,
there were no outstanding guaranteed borrowings under the Atria Bank Facility.
The guarantee agreement was terminated prior to the Distribution Date.
39
<PAGE>
Working capital totaled $395.8 million at March 31, 1998 compared to $445.1
million at December 31, 1997 and $320.1 million at December 31, 1996. Manage-
ment believes that current levels of working capital are sufficient to meet ex-
pected liquidity needs.
At March 31, 1998 and December 31, 1997, the Guarantor's ratio of debt to debt
and equity approximated 68% compared to 49% at December 31, 1996. Management
intends to reduce the Guarantor's leverage ratio from current levels. The pri-
mary sources of funds expected to reduce long-term debt in 1998 include pro-
ceeds from the sale of certain non-strategic assets, including the Atria Common
Stock.
CAPITAL RESOURCES
Excluding acquisitions, capital expenditures totaled $78.7 million and $60.9
million for the three months ended March 31, 1998 and 1997, respectively, and
$281.7 million for 1997 compared to $135.0 million for 1996 and $136.9 million
for 1995 which include $22.6 million, $7.4 million and $4.0 million related to
Atria, respectively. Planned capital expenditures in 1998 (excluding acquisi-
tions) are expected to approximate $250 million to $300 million and include
significant expenditures related to nursing center improvements, construction
of additional nursing centers, information systems and administrative facili-
ties. Management believes that its capital expenditure program is adequate to
expand, improve and equip existing facilities.
In connection with its analysis of the Budget Act, management determined in the
second quarter of 1998 to suspend the construction of substantially all of the
Development Properties. Accordingly, management believes that expected proceeds
from sales of completed Development Properties in 1998 to Predecessor Company
could approximate $25 million.
During 1997, the Guarantor expended approximately $359.4 million and $615.6
million in connection with the TheraTx Merger and the Transitional Merger, re-
spectively. These acquisitions were financed primarily through the issuance of
long-term debt. See Notes 5 and 6 of the Notes to Consolidated Financial State-
ments for a discussion of these acquisitions. The Guarantor also expended $12.3
million and $9.7 million during the first quarters of 1998 and 1997 and $36.6
million, $26.2 million and $59.3 million for acquisitions of new facilities
(and related healthcare businesses) and previously leased nursing centers dur-
ing 1997, 1996 and 1995, respectively, of which $14.6 million, $5.2 million and
$44.2 million related to additional hospital facilities. Upon completion of
management's plans to reduce long-term debt discussed above, the Guarantor may
acquire additional hospitals, nursing centers and ancillary service businesses
in the future. See "--Other Information".
Capital expenditures for the three months ended March 31, 1998 and 1997 and the
last three years were financed primarily through additional borrowings, inter-
nally generated funds and, in 1996, from the collection of notes receivable ag-
gregating $78.2 million. In addition, capital expenditures in 1995 were fi-
nanced through the public offering of 2.2 million shares of Predecessor Company
common stock, the proceeds from which totaled $66.5 million. The Guarantor in-
tends to finance a substantial portion of its capital expenditures with inter-
nally generated funds and additional long-term debt. Sources of capital include
available borrowings under the Company Credit Agreement, public or private debt
and equity. At March 31, 1998, the estimated cost to complete and equip con-
struction in progress approximated $158 million.
In the fourth quarter of 1997, Predecessor Company repurchased 2,925,000 shares
of the Predecessor Company common stock at an aggregate cost of $81.7 million.
Repurchases of 1,950,000 shares of Predecessor Company common stock in 1996 to-
taled $55.3 million. These transactions were financed primarily through
borrowings under the Predecessor Company Credit Facility.
At March 31, 1998, the Guarantor was a party to certain interest rate swap
agreements that eliminate the impact of changes in interest rates on $400 mil-
lion of outstanding floating rate debt. One agreement for $100 million expires
in April 1998 and provides for fixed rates at 5.7% plus 3/8% to 1 1/8%. A sec-
ond agreement on $300 million of floating rate debt provides for fixed rates at
6.4% plus 3/8% to 1 1/8% and expires in $100 million increments in May 1999,
November 1999 and May 2000. The fair values of the swap agreements are not rec-
ognized in the consolidated financial statements. See Notes 1 and 13 of the
Notes to Consolidated Financial Statements.
As discussed in Note 13 of the Notes to Consolidated Financial Statements,
Predecessor Company called for redemption all of its outstanding convertible
debt securities in the fourth quarter of 1995, resulting in the issuance of ap-
proximately 7,259,000 shares of Predecessor Company common stock. Approximately
$34.4 million of the convertible securities were redeemed in exchange for cash
equal to 104.2% of face value plus accrued interest. These transactions had no
material effect on earnings per common share.
40
<PAGE>
HEALTHCARE REFORM LEGISLATION
The Budget Act, enacted in August 1997, contains extensive changes to the Medi-
care and Medicaid programs intended to reduce the projected amount of increase
in payments under those programs by $115 billion and $13 billion, respectively,
over the next five years. Under the Budget Act, annual growth rates for Medi-
care will be reduced from over 10% to approximately 7.5% for the next five
years based on specific program baseline projections from the last five years.
Virtually all spending reductions will come from providers and changes in pro-
gram components. The Budget Act affects reimbursement systems for each of the
Guarantor's operating units.
The Budget Act will reduce payments made to the Guarantor's hospitals by reduc-
ing TEFRA incentive payments, allowable costs for capital expenditures and bad
debts, and payments for services to patients transferred from a PPS hospital.
The reductions in allowable costs for capital expenditures became effective Oc-
tober 1, 1997. The reductions in the TEFRA incentive payments and allowable
costs for bad debts are expected to be effective between May 1, 1998 and Sep-
tember 1, 1998 with respect to the Guarantor's hospitals. The reductions for
payments for services to patients transferred from a PPS hospital are expected
to be effective October 1, 1998. The Budget Act also requires the establishment
of a prospective payment system for nursing centers for cost reporting periods
beginning on or after July 1, 1998. During the first three years, the per diem
rates for nursing centers will be based on a blend of facility-specific costs
and Federal costs. Thereafter, the per diem rates will be based solely on Fed-
eral costs. The rates for such services were made available by HCFA on May 5,
1998. The payments received under the new prospective payment system will cover
all services for Medicare patients, including all ancillary services, such as
respiratory therapy, physical therapy, occupational therapy, speech therapy and
certain covered drugs.
Management believes that the Budget Act will adversely impact its hospital
business by reducing the payments previously described. The TEFRA limits have
not had a material adverse effect on the Guarantor's results of operations, and
the Guarantor does not expect that the TEFRA limits will have a material ad-
verse effect on its results of operations in 1998. The reductions in the TEFRA
incentive payments, which are expected to be effective between May 1, 1998 and
September 1, 1998 with respect to the Guarantor's hospitals, will have an ad-
verse impact on hospital revenues in the future.
Over the long term, management believes that the new prospective payment system
will benefit nursing center operations because (i) management believes that the
average acuity levels of its patients will exceed the national average (which
should result in increased payments per patient day) and (ii) the Guarantor ex-
pects to benefit from its ability to reduce the cost of providing ancillary
services to patients in its facilities. As the nursing center industry adapts
to the cost containment measures inherent in the new prospective payment sys-
tem, the Guarantor believes that the volume of ancillary services provided per
patient day to nursing center patients could decline. In addition, as a result
of these changes, many nursing centers may elect to provide ancillary services
to their patients through internal staff and will no longer contract with out-
side parties for ancillary services. For these reasons and others, since the
enactment of the Budget Act, sales of new contracts have declined and may con-
tinue to decline subject to the Guarantor's success in implementing its Vencare
comprehensive, full-service contracts sales strategy. The Guarantor is actively
implementing strategies and operational modifications to address changes in the
Federal reimbursement system including reducing the number of therapists by ap-
proximately 1,000 and changing the skill mix of employees to reduce costs and
maximize efficiencies.
In January 1998, HCFA issued rules changing Medicare reimbursement guidelines
for therapy services provided by the Guarantor (including the rehabilitation
contract therapy business acquired as part of the TheraTx Merger). Under the
new rules, HCFA established salary equivalency limits for speech and occupa-
tional therapy services and revised existing limits for physical and respira-
tory therapy services. The limits are based on a blend of data from wage rates
for hospitals and nursing centers, and include salary, fringe benefit and ex-
pense factors. Rates are defined by specific geographic market areas, based
upon a modified version of the hospital wage index. The new limits are effec-
tive for services provided on or after April 10, 1998 and are expected to im-
pact negatively Vencare operating results in 1998. The Guarantor will continue
to charge client nursing centers in accordance with the revised guidelines un-
til such nursing centers transition to the new prospective payment system. Un-
der the new prospective payment system, the reimbursement for these services
provided to nursing center patients will be a component of the total reimburse-
ment allowed per nursing center patient and the salary equivalency guidelines
will no longer be applicable. Most of the Guarantor's client nursing centers
are expected to transition to the new prospective payment system on or before
January 1, 1999.
41
<PAGE>
There also continue to be state legislative proposals that would impose more
limitations on government and private payments to providers of healthcare serv-
ices such as the Guarantor. Many states have enacted or are considering enact-
ing measures that are designed to reduce their Medicaid expenditures and to
make certain changes to private healthcare insurance. Some states also are con-
sidering regulatory changes that include a moratorium on the designation of ad-
ditional long-term care hospitals and changes in Medicaid reimbursement system
applicable to the Guarantor's hospitals. There are also a number of legislative
proposals including cost caps and the establishment of Medicaid prospective
payment systems for nursing centers. Moreover, by repealing the Boren Amend-
ment, the Budget Act eases existing impediments on the states' ability to re-
duce their Medicaid reimbursement levels.
There can be no assurance that the Budget Act, new salary equivalency rates,
future healthcare legislation or other changes in the administration or inter-
pretation of governmental healthcare programs will not have a material adverse
effect on the Guarantor's financial condition, results of operations or liquid-
ity.
Medicare revenues as a percentage of total revenues were 35% and 34% for the
three months ended March 31, 1998 and 1997, respectively, and 34%, 31% and 30%
for 1997, 1996 and 1995, respectively, while Medicaid percentages of revenues
approximated 25%, 29%, 26%, 31% and 33% for the respective periods.
OTHER INFORMATION
On June 18, 1998, the Guarantor disclosed earnings expectations for the Guaran-
tor based on its recently completed analysis of the Budget Act. The Guarantor
indicated that diluted earnings per share for the second quarter ended June 30,
1998 would range from $0.03 to $0.05 per share on a pro forma basis before one-
time charges. The second quarter results are being negatively affected by the
transition to the new prospective payment system for nursing centers, reim-
bursement issues associated with the Reorganization Transactions and a decline
in nursing center census. The Guarantor also expects to record one-time charges
of approximately $120 million for costs related to the Reorganization Transac-
tions and losses associated with the sales of its home health and hospice oper-
ations. The Guarantor also indicated that it anticipates earnings per share for
the third quarter ended September 30, 1998 to approximate between $0.12 to
$0.15 per share and fourth quarter results between $0.17 to $0.20 per share. In
addition, the Guarantor indicated that earnings targets for 1999 could range
between $0.75 to $0.80 per share. In connection with this announcement, the
Guarantor announced that a number of cost reductions were being implemented in
anticipation of the new prospective payment system. These reductions include a
reduction in the work force, primarily in the number of therapists. The Guaran-
tor also indicated that it does not anticipate acquiring additional healthcare
facilities over the next 12 to 18 months. In addition, the Guarantor announced
that it has delayed indefinitely the construction of its planned corporate
headquarters building.
On April 20, 1998, Atria announced that it had entered into a definitive merger
agreement with Kapson, an affiliate of Lazard, under which Kapson will acquire
Atria. Under the terms of the merger agreement, a subsidiary of Kapson will
merge into Atria and the public stockholders of Atria will receive $20.25 per
share in cash. The Guarantor, which holds approximately 43% of the currently
outstanding Atria Common Stock, will also receive $20.25 per share in cash for
approximately 88% of its Atria Common Stock (valued at approximately $177.5
million) and will retain its remaining shares of Atria after the closing of the
merger. In consideration for its continuing investment, the Guarantor will re-
tain a seat on Atria's Board of Directors and is entitled to certain registra-
tion rights with respect to its remaining shares of Atria Common Stock. On May
13, 1998, ARV filed a lawsuit seeking to enjoin Kapson from acquiring Atria. In
addition to compensatory and punitive damages, the lawsuit seeks to obtain pre-
liminary and permanent injunctions to prevent Lazard from breaking its contrac-
tual and fiduciary duties to ARV by acquiring Atria, through Kapson, without
first offering ARV the opportunity to be the acquiring party and without ob-
taining ARV's consent to allow Lazard to make the acquisition should ARV choose
not to pursue it. On June 25, 1998, the Superior Court for Orange County, Cali-
fornia declined to reach a decision on the merits of the dispute between Lazard
and ARV. The court directed Lazard and Atria to continue their efforts to fi-
nalize the acquisition of Atria by Kapson. The court preliminarily enjoined the
closing of the merger prior to the outcome of a one week bench trial beginning
on August 3, 1998. Lazard has informed Atria that it believes that ARV's claims
are without merit and that it intends to contest vigorously the allegations in
ARV's complaint. The merger is subject to customary conditions including ap-
proval of Atria's stockholders and certain regulatory approvals. The Guarantor
expects that the merger will be completed during 1998.
In June 1997, the Guarantor announced that it had entered into a strategic al-
liance with CNA Financial Corporation ("CNA") to develop and market a long-term
care insurance product. Under this arrangement, CNA will offer a long-term care
insurance product which features as a benefit certain discounts for services
provided by members of the Guarantor's network of long-term care providers.
Members of this network will act as preferred providers of care to covered
insureds. CNA will be responsible for underwriting, marketing and distributing
the product through its national distribution network
42
<PAGE>
and will provide administrative insurance product support. The Guarantor will
reinsure 50% of the risk through a newly formed wholly owned insurance company
and will provide utilization review services. Management believes that the al-
liance with CNA will not have a material impact on the Guarantor's liquidity,
financial position or results of operations in 1998.
The Guarantor has initiated a program to prepare its information systems, clin-
ical equipment and facilities for the year 2000. An external professional or-
ganization has been engaged to assist in the management and implementation of
this program. Management is currently implementing a plan to replace substan-
tially all of the Guarantor's financial information systems before the year
2000, the costs of which have not been determined. Most of these costs will be
capitalized and amortized over a three to five year period. Required modifica-
tions to the Guarantor's proprietary VenTouchTM and TherasysTM clinical infor-
mation systems are minimal and will generally be accomplished through the use
of existing internal resources. Clinical equipment in the Guarantor's facili-
ties will generally be replaced or modified as needed through the use of exter-
nal professional resources. Incremental costs to complete the necessary changes
to clinical equipment could approximate $10 million to $20 million over the
next two years.
Various lawsuits and claims arising in the ordinary course of business are
pending against the Guarantor. Resolution of litigation and other loss contin-
gencies is not expected to have a material adverse effect on the Guarantor's
liquidity, financial position or results of operations. See Notes 15 and 23 of
the Notes to Consolidated Financial Statements.
As discussed in Note 1 of the Notes to Consolidated Financial Statements, on
December 31, 1997, Statement of Financial Accounting Standards ("SFAS") No. 128
required Guarantor to change the method of computing earnings per common share
on a retroactive basis. The change in calculation method did not have a mate-
rial impact on previously reported earnings per common share.
Beginning in 1998, the Guarantor adopted the provisions of SFAS No. 130 ("SFAS
130") "Reporting Comprehensive Income," which establishes new rules for the re-
porting of comprehensive income and its components. SFAS 130 requires, among
other things, unrealized gains or losses on the Guarantor's available-for-sale
securities, which prior to adoption were reported as changes in common stock-
holders' equity, to be disclosed as other comprehensive income. The adoption of
SFAS 130 had no impact on the Guarantor's net income or common stockholders'
equity for the three months ended March 31, 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
("SFAS 131") "Disclosure about Segments of an Enterprise and Related Informa-
tion," which will become effective in December 1998 and requires interim dis-
closures beginning in 1999. SFAS 131 requires public companies to report cer-
tain information about operating segments, products and services, the geo-
graphic areas in which they operate and major customers. The operating segments
are to be based on the structure of the enterprise's internal organization
whose operating results are regularly reviewed by senior management. Management
has not yet determined the effect, if any, of SFAS 131 on the consolidated fi-
nancial statement disclosures.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5 ("SOP 98-5") "Reporting on the Costs of Start-Up Activities,"
which requires entities to expense start-up costs, including organizational
costs, as incurred. SOP 98-5 requires most entities to write off as a cumula-
tive effect of a change in accounting principle any previously capitalized
start-up or organizational costs. SOP 98-5 is effective for most entities for
fiscal years beginning after December 15, 1998. The Guarantor plans to adopt
the provisions of SOP 98-5 in the first quarter of 1999. The amount of such un-
amortized costs were $14.4 million at March 31, 1998.
43
<PAGE>
GUARANTOR
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following financial statements reflect the unaudited pro forma consolidated
statement of income of the Guarantor for the year ended December 31, 1997 and
the three months ended March 31, 1998 as if the Reorganization Transactions,
the Distribution and the Offering had occurred on January 1, 1997. The summary
pro forma consolidated balance sheet at March 31, 1998 gives effect to these
events as if each had occurred as of such date. The pro forma information may
not necessarily reflect the financial position and results of operations of the
Guarantor that would have been obtained had the Guarantor been a separate, pub-
licly held company on such date or at the beginning of the period indicated. In
addition, the pro forma financial statements do not purport to be indicative of
future operating results of the Guarantor.
For accounting purposes, the historical consolidated financial statements of
Predecessor Company became the historical consolidated financial statements of
the Guarantor after the Distribution Date. Accordingly, the pro forma consoli-
dated financial statements of the Guarantor are based upon the historical con-
solidated statements of Predecessor Company.
The accompanying unaudited pro forma consolidated financial statements should
be read in conjunction with "Management's Discussion and Analysis of Pro Forma
Financial Condition and Results of Operations of the Guarantor" included else-
where herein.
44
<PAGE>
GUARANTOR
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
----------------------------------------
REORGANIZATION
TRANSACTIONS
GUARANTOR AND PRO FORMA
HISTORICAL DISTRIBUTION GUARANTOR
In thousands, except per share amounts ---------- -------------- ---------
<S> <C> <C> <C>
Revenues.............................. $823,316 $ (700)(a) $822,616
<CAPTION>
---------- -------------- ---------
<S> <C> <C> <C>
Salaries, wages and benefits.......... 480,364 - 480,364
Supplies.............................. 76,052 - 76,052
Rent.................................. 24,135 55,386 (a) 79,521
Other operating expenses.............. 127,258 (600)(b) 126,658
Depreciation and amortization......... 35,470 (10,694)(c) 24,776
Interest expense...................... 37,195 (12,198)(d) 24,997
Investment income..................... (1,180) - (1,180)
<CAPTION>
---------- -------------- ---------
<S> <C> <C> <C>
779,294 31,894 811,188
<CAPTION>
---------- -------------- ---------
<S> <C> <C> <C>
Income before income taxes............ 44,022 (32,594) 11,428
Provision for income taxes............ 17,477 (12,220)(e) 5,257
<CAPTION>
---------- -------------- ---------
<S> <C> <C> <C>
Income from operations................ $ 26,545 $(20,374) $ 6,171
<CAPTION>
========== ============== =========
<S> <C> <C> <C>
Earnings per common share:
Basic................................ $ 0.39 $ 0.09
Diluted.............................. 0.39 0.09
Shares used in computing earnings per
common share:
Basic................................ 67,448 67,448
Diluted.............................. 67,857 1,416 (f) 69,273
Ratio of earnings to fixed charges.... 1.7x 1.2x
</TABLE>
See accompanying notes to the unaudited
pro forma consolidated financial statements.
45
<PAGE>
GUARANTOR
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
--------------------------------------------------------------------
THERATX REORGANIZATION
AND GUARANTOR TRANSACTIONS
GUARANTOR TRANSITIONAL HISTORICAL AND PRO FORMA
HISTORICAL MERGERS(G) AS ADJUSTED DISTRIBUTION GUARANTOR
In thousands, except per share amounts ---------- ------------ ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................. $3,116,004 $248,270 $3,364,274 $ (2,800)(a) $3,361,474
<CAPTION>
---------- ------------ ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Salaries, wages and bene-
fits..................... 1,788,053 134,151 1,922,204 - 1,922,204
Supplies.................. 303,140 23,960 327,100 - 327,100
Rent...................... 89,474 7,451 96,925 221,500 (a) 318,425
Other operating expenses.. 490,327 51,741 542,068 (2,400)(b) 539,668
Depreciation and amortiza-
tion..................... 123,865 14,558 138,423 (42,774)(c) 95,649
Interest expense.......... 102,736 30,827 133,563 (33,572)(d) 99,991
Investment income......... (6,057) (2,834) (8,891) - (8,891)
<CAPTION>
---------- ------------ ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
2,891,538 259,854 3,151,392 142,754 3,294,146
<CAPTION>
---------- ------------ ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Income before income tax-
es....................... 224,466 (11,584) 212,882 (145,554) 67,328
Provision for income tax-
es....................... 89,338 (4,611) 84,727 (53,756)(e) 30,971
<CAPTION>
---------- ------------ ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Income from operations.... $ 135,128 $ (6,973) $ 128,155 $ (91,798) $ 36,357
<CAPTION>
========== ============ =========== ============== ==========
<S> <C> <C> <C> <C> <C>
Earnings per common share:
Basic................... $ 1.96 $ 0.51
Diluted................. 1.92 0.51
Shares used in computing
earnings per common
share:
Basic................... 68,938 68,938
Diluted................. 70,359 1,416(f) 71,775
Ratio of earnings to fixed
charges.................. 2.5x 1.3x
</TABLE>
See accompanying notes to the unaudited
pro forma consolidated financial statements.
46
<PAGE>
GUARANTOR
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
------------------------------------------
REORGANIZATION
TRANSACTIONS
GUARANTOR AND PRO FORMA
HISTORICAL DISTRIBUTION GUARANTOR
In thousands ---------- -------------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 51,165 $ 17,700 (h) $ 53,605
(109,645)(i)
(15,930)(j)
124,801 (k)
(14,486)(l)
Accounts and notes receivable... 633,775 - 633,775
Inventories..................... 27,683 - 27,683
Income taxes.................... 77,921 49,027 (m) 103,580
(23,368) (n)
Other........................... 45,629 - 45,629
<CAPTION>
---------- -------------- ----------
<S> <C> <C> <C>
836,173 28,099 864,272
<CAPTION>
---------- -------------- ----------
<S> <C> <C> <C>
Property and equipment, at cost:
Land............................ 146,183 (118,863)(o) 27,320
Buildings....................... 1,111,446 (1,050,772)(o) 60,674
Equipment....................... 613,364 (3,726)(o) 609,638
Construction in progress........ 218,998 - 218,998
<CAPTION>
---------- -------------- ----------
<S> <C> <C> <C>
2,089,991 (1,173,361) 916,630
Accumulated depreciation........ (518,895) 232,801 (o) (286,094)
<CAPTION>
---------- -------------- ----------
<S> <C> <C> <C>
1,571,096 (940,560) 630,536
Goodwill.......................... 669,327 - 669,327
Investments in affiliates......... 181,862 - 181,862
Other............................. 129,779 (38,474)(p) 105,791
14,486 (l)
<CAPTION>
---------- -------------- ----------
<S> <C> <C> <C>
$3,388,237 $ (936,449) $2,451,788
<CAPTION>
========== ============== ==========
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQ-
UITY
Current liabilities:
Accounts payable................ $ 97,646 $ - $ 97,646
Salaries, wages and other
compensation................... 184,252 - 184,252
Other accrued liabilities....... 125,828 (23,368)(n) 102,460
Long-term debt due within one
year........................... 32,666 (32,666)(k) 10,336
10,336 (q)
<CAPTION>
---------- -------------- ----------
<S> <C> <C> <C>
440,392 (45,698) 394,694
<CAPTION>
---------- -------------- ----------
<S> <C> <C> <C>
Long-term debt.................... 1,920,901 (834,301)(k) 1,076,264
(10,336)(q)
Deferred credits and other liabil-
ities............................ 93,649 (15,907)(r) 77,742
Minority interests in equity of
consolidated entities............ 2,462 - 2,462
Series A Preferred Stock.......... - 17,700 (h) 1,770
(15,930)(j)
Common stockholders' equity....... 930,833 (109,645)(i) 898,856
991,768 (k)
49,027 (m)
(940,560)(o)
(38,474)(p)
15,907 (r)
<CAPTION>
---------- -------------- ----------
<S> <C> <C> <C>
$3,388,237 $ (936,449) $2,451,788
<CAPTION>
========== ============== ==========
</TABLE>
See accompanying notes to the unaudited
pro forma consolidated financial statements.
47
<PAGE>
GUARANTOR
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
For accounting purposes, the historical consolidated financial statements of
Predecessor Company became the historical consolidated financial statements of
the Guarantor after the Distribution Date. Accordingly, the accompanying unau-
dited pro forma consolidated financial statements of the Guarantor are based
upon the historical consolidated financial statements of Predecessor Company.
The unaudited March 31, 1998 and December 31, 1997 pro forma consolidated
statements of income exclude certain non-recurring costs associated with the
Reorganization Transactions which are expected to approximate $99.1 million net
of income taxes. The historical unaudited March 31, 1998 Consolidated Statement
of Income excludes non-recurring costs of $7.7 million associated with the Re-
organization Transactions.
NOTE 2--THERATX AND TRANSITIONAL MERGERS
The December 31, 1997 pro forma consolidated financial statements reflect the
TheraTx Merger and Transitional Merger as if each had occurred on January 1,
1997. Pro forma financial data as of December 31, 1997 have been derived by
combining the financial results of the Guarantor and TheraTx (based upon year
end reporting periods ended December 31) and Transitional (based upon year end
reporting periods ended November 30). Pro forma income from operations as of
December 31, 1997 excludes $29.7 million of costs incurred by both TheraTx and
Transitional in connection with the acquisitions.
NOTE 3--PRO FORMA ADJUSTMENTS
(a) To record the elimination of rental income for leased facilities ($700,000
for the three months ended March 31, 1998 and $2.8 million for the year
ended December 31, 1997) assumed by Predecessor Company and the estimated
Annual Base Rent (as defined in the Master Lease Agreement) payable to
Predecessor Company in connection with the Master Lease Agreement ($55.4
million for the three months ended March 31, 1998 and $221.5 million for
the year ended December 31, 1997).
(b) To record income related to administrative services provided to Predecessor
Company in connection with the Transition Services Agreement.
(c) To eliminate depreciation expense related to property and equipment re-
tained by Predecessor Company.
(d) To eliminate interest expense related to the Company Financing Transactions
(dollars in thousands):
<TABLE>
<CAPTION>
-------------------------------------
INTEREST
--------------------------
THREE MONTHS
ENDED MARCH YEAR ENDED
31, DECEMBER 31,
DEBT 1998 1997
---------- ------------ ------------
<S> <C> <C> <C>
Company Revolving Credit Facility
(interest rate 8 1/4%)............. $ 72,000 $ 1,485 $ 5,940
Company Term A Loan (interest rate 8
1/4%).............................. 250,000 5,156 20,625
Company Term B Loan (interest rate 8
3/4%).............................. 250,000 5,469 21,875
Company Bridge Loan (interest rate 8
1/4%).............................. 200,000 4,125 16,500
Notes (interest rate of 9 7/8%)..... 300,000 7,406 29,625
Existing debt assumed by the Company
(various interest rates)........... 14,600 263 1,052
<CAPTION>
---------- ------------ ------------
<S> <C> <C> <C>
$1,086,600 23,904 95,617
<CAPTION>
==========
<S> <C> <C> <C>
Add commitment fee related to unused
Company Revolving Credit Facility.. 285 1,140
Add amortization of deferred financ-
ing costs.......................... 808 3,234
<CAPTION>
------------ ------------
<S> <C> <C> <C>
Total interest expense............. 24,997 99,991
Eliminate historical interest ex-
pense.............................. (37,195) (133,563)
<CAPTION>
------------ ------------
<S> <C> <C> <C>
Total interest expense elimina-
tion.............................. $(12,198) $ (33,572)
<CAPTION>
============ ============
</TABLE>
48
<PAGE>
GUARANTOR
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(e) To record the pro forma provision for income taxes, including the effect
of an increase in the effective income tax rate as a result of the Reorga-
nization Transactions and the Distribution.
(f) To reflect the conversion of 17,700 shares of Guarantor Series A Preferred
Stock into approximately 1,416,000 shares of Guarantor common stock.
(g) To reflect the operating results of TheraTx and Transitional for periods
prior to the respective combination dates, and to record additional inter-
est expense and amortization incurred in connection with the TheraTx
Merger and the Transitional Merger.
(h) To record the issuance of 17,700 shares of Guarantor Series A Preferred
Stock (6% non-voting convertible shares due 2008, par value $1.00 per
share, issuance price of $1,000 per share).
(i) To record the payment of transaction costs related to the Reorganization
Transactions and the Distribution.
(j) To record loans to eligible employees related to the issuance of Guarantor
Series A Preferred Stock.
(k) To record amounts borrowed under the Company Credit Agreement ($124.8 mil-
lion) and to eliminate amounts borrowed by Predecessor Company under Pred-
ecessor Company debt facilities ($991.8 million).
(1) To record deferred financing costs related to the Company Credit Agree-
ment.
(m) To record the income tax benefit related to transaction costs and the
write-off of deferred financing costs.
(n) To reclassify currently payable income taxes.
(o) To eliminate property and equipment and related accumulated depreciation
retained by Predecessor Company.
(p) To write off deferred financing costs related to refinanced debt.
(q) To record long-term debt due within one year.
(r) To eliminate deferred income taxes related to property and equipment re-
tained by Predecessor Company.
NOTE 4--INCOME TAXES
Estimated income taxes related to pro forma adjustments (a), (b), (c), (d),
and (g) were recorded at an assumed combined federal and state income tax rate
of 38.5% adjusted for certain nondeductible items that comprise a larger pro-
portionate percentage of the Guarantor's taxable income.
NOTE 5--PRO FORMA EARNINGS PER COMMON SHARE
The computation of earnings per common share reflects the distribution ratio
of one share of Guarantor common stock for each outstanding share of Predeces-
sor Company common stock.
Pro forma basic earnings per common share of the Guarantor are based upon the
number of shares used in computing basic earnings per common share of Prede-
cessor Company, adjusted to reflect quarterly and annual dividend requirements
associated with Guarantor Series A Preferred Stock approximating $266,000 and
$1,062,000 respectively.
Pro forma diluted earnings per common share of the Guarantor are based upon
the number of shares used in computing diluted earnings per common share of
Predecessor Company, adjusted to reflect the assumed conversion of Guarantor
Series A Preferred Stock into approximately 1,416,000 shares of Guarantor com-
mon stock.
49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE GUARANTOR
PRO FORMA RESULTS OF OPERATIONS
The historical consolidated financial statements of Predecessor Company relate
to the business of the Guarantor before the Distribution Date and may not re-
flect the financial position, results of operations and cash flows that would
have been obtained had the Guarantor been a separate, publicly held company
during such periods.
On a pro forma basis, after giving effect to the Reorganization Transactions,
the Distribution and the Offering, the Guarantor estimates that for the three
months ended March 31, 1998, (i) the Guarantor's revenues would have approxi-
mated $822.6 million, (ii) rental payments to Predecessor Company would have
approximated $55.4 million and (iii) net income for the Guarantor would have
been $6.2 million or $0.09 per diluted share of Guarantor common stock. See
"Guarantor Unaudited Pro Forma Consolidated Financial Statements."
On a pro forma basis, after giving effect to the Reorganization Transactions,
the Distribution and the Offering, the Guarantor estimates that for the year
ended December 31, 1997, (i) the Guarantor's revenues would have approximated
$3.36 billion, (ii) rental payments to Predecessor Company would have approxi-
mated $221.5 million and (iii) net income for the Guarantor would have been
$36.4 million or $0.51 per diluted share of Guarantor common stock. See "Guar-
antor Unaudited Pro Forma Consolidated Financial Statements."
LIQUIDITY
In connection with the Reorganization Transactions, Predecessor Company refi-
nanced and repurchased substantially all of its long-term debt, including the
Predecessor Company Bank Facility and the Predecessor Company Notes.
In connection with the refinancing of Predecessor Company's long-term debt, the
Guarantor caused the Company to consummate the Offering as well as the other
Company Financing Transactions which aggregated $1.3 billion at the Distribu-
tion Date. The Company Credit Agreement includes (i) the five year $300 million
Company Revolving Credit Facility, (ii) the $250 million Company Term A Loan
payable in various installments over five years, (iii) the $250 million Company
Term B Loan payable in installments of 1% per year with the outstanding balance
due during the seventh year and (iv) the 18 month $200 million Company Bridge
Loan with interest payable at LIBOR plus 2 1/2%, to be repaid from the proceeds
of the sale of certain non-strategic assets, including the sale of Atria Common
Stock.
The carrying value and fair value of the Guarantor's investment in Atria Common
Stock at March 31, 1998 aggregated $86.9 million and $192.5 million, respec-
tively. If the Guarantor is unable to sell the Atria Common Stock or other as-
sets, the Guarantor expects that it would be required to refinance the Company
Bridge Loan with available amounts under the Company Revolving Credit Facility,
public or private debt and equity or a combination thereof.
The Company Credit Agreement is collateralized by substantially all of the as-
sets and subsidiary capital stock of the Company.
On a pro forma basis, the amount of outstanding debt under the Notes, the Com-
pany Credit Agreement and assumed debt would approximate $1.09 billion at March
31, 1998.
As part of the capitalization plan for the Guarantor, the Guarantor issued
$17.7 million of the Guarantor Series A Preferred Stock prior to the Distribu-
tion Date.
On a pro forma basis, working capital of the Guarantor totaled $469.6 million
at March 31, 1998. Management believes that the expected financing plan dis-
cussed above, cash flows from operations and available borrowings under the
Company Revolving Credit Facility will be sufficient to meet the expected li-
quidity needs of the Company and the Guarantor.
CAPITAL RESOURCES
Under the terms of the Master Lease Agreement, capital expenditures related to
the maintenance and improvement to the Leased Properties will generally be in-
curred by the Guarantor. Planned capital expenditures in 1998 (excluding acqui-
sitions) are expected to approximate $250 million to $300 million and include
significant expenditures related to nursing center improvements, construction
of additional nursing centers, information systems and administrative facili-
ties.
50
<PAGE>
In connection with its analysis of the Budget Act, management determined in the
second quarter of 1998 to suspend the construction of substantially all of the
Development Properties. Accordingly, management believes that expected proceeds
from sales of completed Development Properties in 1998 to Predecessor Company
could approximate $25 million.
Capital expenditures are expected to be financed primarily through cash flows
from operations and additional borrowings. Sources of capital will include
available borrowings under the Company Revolving Credit Facility, public or
private debt and equity.
Upon completion of management's plan to reduce long-term debt, the Guarantor
may acquire additional hospitals, nursing centers and ancillary service busi-
nesses in the future. See "--Other Information." The amount of available capi-
tal to finance such acquisitions will be substantially less than that was
available to Predecessor Company.
HEALTHCARE REFORM LEGISLATION
The Budget Act contains extensive changes to the Medicare and Medicaid programs
intended to reduce the projected amount of increase in payments under those
programs by $115 billion and $13 billion, respectively, over the next five
years. Under the Budget Act, annual growth rates for Medicare will be reduced
from over 10% to approximately 7.5% for the next five years based on specific
program baseline projections from the last five years. Virtually all spending
reductions will come from providers and changes in program components. The Bud-
get Act affects reimbursement systems for each of the Guarantor's operating
units.
The Budget Act will reduce payments made to the Guarantor's hospitals by reduc-
ing TEFRA incentive payments, allowable costs for capital expenditures and bad
debts, and payments for services to patients transferred from a PPS hospital.
The reductions in allowable costs for capital expenditures became effective Oc-
tober 1, 1997. The reductions in the TEFRA incentive payments and allowable
costs for bad debts are expected to be effective between May 1, 1998 and Sep-
tember 1, 1998 with respect to the Guarantor's hospitals. The reductions for
payments for services to patients transferred from a PPS hospital are expected
to be effective October 1, 1998. The Budget Act also requires the establishment
of a prospective payment system for nursing centers for cost reporting periods
beginning on or after July 1, 1998. During the first three years, the per diem
rates for nursing centers will be based on a blend of facility-specific costs
and Federal costs. Thereafter, the per diem rates will be based solely on Fed-
eral costs. The rates for such services were made available by HCFA on May 5,
1998. The payments received under the new prospective payment system will cover
all services for Medicare patients, including all ancillary services, such as
respiratory therapy, physical therapy, occupational therapy, speech therapy and
certain covered drugs.
Management believes that the Budget Act will adversely impact its hospital
business by reducing the payments previously described. The TEFRA limits have
not had a material adverse effect on the Guarantor's results of operations, and
the Guarantor does not expect that the TEFRA limits will have a material ad-
verse effect on its results of operations in 1998. The reductions in the TEFRA
incentive payments which are expected to be effective between May 1, 1998 and
September 1, 1998 with respect to the Guarantor's hospitals, will have an ad-
verse impact on hospital revenues in the future.
Over the long term, management believes that the new prospective payment system
will benefit nursing center operations because (i) management believes that the
average acuity levels of its patients will exceed the national average (which
should result in increased payments per patient day) and (ii) the Guarantor ex-
pects to benefit from its ability to reduce the cost of providing ancillary
services to patients in its facilities. As the nursing center industry adapts
to the cost containment measures inherent in the new prospective payment sys-
tem, the Guarantor believes that the volume of ancillary services provided per
patient day to nursing center patients could decline. In addition, as a result
of these changes, many nursing centers may elect to provide ancillary services
to their patients through internal staff and will no longer contract with out-
side parties for ancillary services. For these reasons and others, since the
enactment of the Budget Act, sales of new contracts have declined and may con-
tinue to decline subject to the Guarantor's success in implementing its Vencare
comprehensive, full-service contracts sales strategy. The Guarantor is actively
implementing strategies and operational modifications to address changes in the
Federal reimbursement system including reducing the number of therapists by ap-
proximately 1,000 and changing the skill mix of employees to reduce costs and
maximize efficiencies.
In January 1998, HCFA issued rules changing Medicare reimbursement guidelines
for therapy services provided by the Guarantor (including the rehabilitation
contract therapy business acquired as part of the TheraTx Merger). Under the
new rules, HCFA established salary equivalency limits for speech and occupa-
tional therapy services and revised limits for physical and respiratory therapy
services. The limits are based on a blend of data from wage rates for hospitals
and nursing centers, and include salary, fringe benefit and expense factors.
Rates are defined by specific geographic market areas, based upon a modified
version of the hospital wage index. The new limits are effective for services
provided on or after
51
<PAGE>
April 10, 1998 and are expected to impact negatively Vencare operating results
in 1998. The Guarantor will continue to charge client nursing centers in accor-
dance with the revised guidelines until such nursing centers transition to the
new prospective payment system. Under the new prospective payment system, the
reimbursement for these services provided to nursing center residents will be a
component of the total reimbursement allowed per nursing center patient and the
salary equivalency guidelines will no longer be applicable. Most of the Guaran-
tor's client nursing centers are expected to transition to the new prospective
payment system on or before January 1, 1999.
There also continue to be state legislative proposals that would impose more
limitations on government and private payments to providers of healthcare serv-
ices such as the Guarantor. Many states have enacted or are considering enact-
ing measures that are designed to reduce their Medicaid expenditures and to
make certain changes to private healthcare insurance. Some states also are con-
sidering regulatory changes that include a moratorium on the designation of ad-
ditional long-term care hospitals and changes in Medicaid reimbursement system
applicable to the Guarantor's hospitals. There are also a number of legislative
proposals including cost caps and the establishment of Medicaid prospective
payment systems for nursing centers. Moreover, by repealing the Boren Amend-
ment, the Budget Act eases existing impediments to the states' ability to re-
duce their Medicaid reimbursement levels.
There can be no assurance that the Budget Act, new salary equivalency rates,
future healthcare legislation or other changes in the administration or inter-
pretation of governmental healthcare programs will not have a material adverse
effect on the Guarantor's financial condition, results of operations or liquid-
ity.
Medicare revenues as a percentage of total revenues were 35% and 34% for the
three months ended March 31, 1998 and 1997, respectively, and 34%, 31% and 30%
for 1997, 1996 and 1995, respectively, while Medicaid percentages of revenues
approximated 25%, 29%, 26%, 31% and 33% for the respective periods.
OTHER INFORMATION
On June 18, 1998, the Guarantor disclosed earnings expectations for the Guaran-
tor based on its recently completed analysis of the Budget Act. The Guarantor
indicated that diluted earnings per share for the second quarter ended June 30,
1998 would range from $0.03 to $0.05 per share on a pro forma basis before one-
time charges. The second quarter results are being negatively affected by the
transition to the new prospective payment system for nursing centers, reim-
bursement issues associated with the Reorganization Transactions and a decline
in nursing center census. The Guarantor also expects to record one-time charges
of approximately $120 million for costs related to the Reorganization Transac-
tions and losses associated with the sales of its home health and hospice oper-
ations. The Guarantor also indicated that it anticipates earnings per share for
the third quarter ended September 30, 1998 to approximate between $0.12 to
$0.15 per share and fourth quarter results between $0.17 to $0.20 per share. In
addition, the Guarantor indicated that earnings targets for 1999 could range
between $0.75 to $0.80 per share. In connection with this announcement, the
Guarantor announced that a number of cost reductions were being implemented in
anticipation of the new prospective payment system. These reductions include a
reduction in the work force, primarily in the number of therapists. The Guaran-
tor also indicated that it does not anticipate acquiring additional healthcare
facilities over the next 12 to 18 months. In addition, the Guarantor announced
that it has delayed indefinitely the construction of its planned corporate
headquarters building.
On April 20, 1998, Atria announced that it had entered into a definitive merger
agreement with Kapson, an affiliate of Lazard, under which Kapson will acquire
Atria. Under the terms of the merger agreement, a subsidiary of Kapson will
merge into Atria and the public stockholders of Atria will receive $20.25 per
share in cash. The Guarantor, which holds approximately 43% of the currently
outstanding Atria Common Stock, will also receive $20.25 per share in cash for
approximately 88% of its Atria Common Stock (valued at approximately $177.5
million) and will retain its remaining shares of Atria after the closing of the
merger. In consideration for its continuing investment, the Guarantor will re-
tain a seat on Atria's Board of Directors and is entitled to certain registra-
tion rights with respect to its remaining shares of Atria Common Stock. On May
13, 1998, ARV filed a lawsuit seeking to enjoin Kapson from acquiring Atria. In
addition to compensatory and punitive damages, the lawsuit seeks to obtain pre-
liminary and permanent injunctions to prevent Lazard from breaking its contrac-
tual and fiduciary duties to ARV by acquiring Atria, through Kapson, without
first offering ARV the opportunity to be the acquiring party and without ob-
taining ARV's consent to allow Lazard to make the acquisition should ARV choose
not to pursue it. On June 25, 1998, the Superior Court for Orange County, Cali-
fornia declined to reach a decision on the merits of the dispute between Lazard
and ARV. The court directed Lazard and Atria to continue their efforts to fi-
nalize the acquisition of Atria by Kapson. The court preliminarily enjoined the
closing of the merger prior to the outcome of a one week bench trial beginning
on August 3, 1998. Lazard has informed Atria that it believes that ARV's claims
are without merit and that it intends to contest vigorously the allegations in
ARV's complaint. The merger is subject to customary conditions including ap-
proval of Atria's stockholders and certain regulatory approvals. The Guarantor
expects that the merger will be completed during 1998.
52
<PAGE>
In connection with the Reorganization Transactions and the Distribution, the
strategic alliance with CNA to develop and market a long-term care insurance
product is expected to be implemented by the Guarantor. Under this arrangement,
CNA will offer a long-term care insurance product which features as a benefit
certain discounts for services provided by members of the Guarantor's network
of long-term care providers. Members of this network will act as preferred
providers of care to covered insureds. CNA will be responsible for underwrit-
ing, marketing and distributing the product through its national distribution
network and will provide administrative insurance product support. The Guaran-
tor will reinsure 50% of the risk through a newly formed wholly-owned insurance
company and will provide utilization review services. Management believes that
the alliance with CNA will not have a material impact on the Guarantor's li-
quidity, financial position or results of operations in 1998.
The Guarantor has initiated a program to prepare its information systems, clin-
ical equipment and facilities for the year 2000. An external professional or-
ganization has been engaged to assist in the management and implementation of
this program. Management is currently implementing a plan to replace substan-
tially all of the Guarantor's financial information systems before the year
2000, the costs of which have not been determined. Most of these costs will be
capitalized and amortized over a three to five year period. Required modifica-
tions to the Guarantor's proprietary VenTouch(TM) and Therasys(TM) clinical in-
formation systems are minimal and will generally be accomplished through the
use of existing internal resources. Clinical equipment in the Guarantor's fa-
cilities will generally be replaced or modified as needed through the use of
external professional resources. Incremental costs to complete the necessary
changes to clinical equipment could approximate $10 million to $20 million over
the next two years.
Various lawsuits and claims arising in the ordinary course of business were as-
sumed by the Guarantor in connection with the Reorganization Transactions. Res-
olution of litigation and other loss contingencies is not expected to have a
material adverse effect on the Guarantor's liquidity, financial position or re-
sults of operations.
Financing arrangements which were consummated on the Distribution Date contain
customary covenants which require, among other things, maintenance of certain
financial ratios and limit amounts of additional debt, repurchases of common
stock, dividends and capital expenditures. In addition, the Company Credit
Agreement requires that one-half of excess cash flow (as defined therein) be
used to repay outstanding borrowings under such credit agreement.
On December 31, 1997, SFAS No. 128 required Predecessor Company to change the
method of computing earnings per common share on a retroactive basis. The
change in calculation method did not have a material impact on previously re-
ported earnings per common share.
Beginning in 1998, the Guarantor adopted the provisions of SFAS No. 130 "Re-
porting Comprehensive Income," which establishes new rules for the reporting of
comprehensive income and its components. SFAS 130 requires, among other things,
unrealized gains or losses on the Guarantor's available-for-sale securities,
which prior to adoption were reported as changes in common stockholders' equi-
ty, to be disclosed as other comprehensive income. The adoption of SFAS 130 had
no impact on the Guarantor's net income or common stockholders' equity for the
three months ended March 31, 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS 131 "Disclo-
sure about Segments of an Enterprise and Related Information," which will be-
come effective in December 1998 and requires interim disclosures beginning in
1999. SFAS 131 requires public companies to report certain information about
operating segments, products and services, the geographic areas in which they
operate and major customers. The operating segments are to be based on the
structure of the enterprise's internal organization whose operating results are
regularly reviewed by senior management. Management has not yet determined the
effect, if any, of SFAS 131 on the consolidated financial statement disclo-
sures.
In April 1998, the Accounting Standards Executive Committee issued SOP 98-5
"Reporting on the Costs of Start-Up Activities," which requires entities to ex-
pense start-up costs, including organizational costs, as incurred. SOP 98-5 re-
quires most entities to write off as a cumulative effect of a change in ac-
counting principle any previously capitalized start-up or organizational costs.
SOP 98-5 is effective for most entities for fiscal years beginning after Decem-
ber 15, 1998. The Guarantor plans to adopt the provisions of SOP 98-5 in the
first quarter of 1999. The amount of such unamortized costs were $14.4 million
at March 31, 1998.
53
<PAGE>
BUSINESS
GENERAL
The Company is one of the largest providers of long-term healthcare services
in the United States. At March 31, 1998, the Company's operations included 62
long-term acute care hospitals containing 5,313 licensed beds, 305 nursing
centers containing 39,960 licensed beds, and the Vencare contract services
business, which provides respiratory and rehabilitation therapies and medical
and pharmacy management services to approximately 2,900 healthcare facilities.
The Company operates in 45 states. Healthcare services provided through this
network include long-term hospital care, nursing care, contract respiratory
therapy services, subacute and post-operative care, in-patient and out-patient
rehabilitation therapy, specialized care for Alzheimer's disease and pharmacy
services. The Company continues to develop VenTouch(TM), a comprehensive
paperless clinical information system designed to increase the operating effi-
ciencies of the Company's facilities.
The Company was incorporated in Delaware on February 26, 1998 and is a wholly
owned subsidiary of the Guarantor. Predecessor Company was incorporated in
Kentucky in 1983 as Vencare, Inc. and commenced operations in 1985. It was re-
organized as a Delaware corporation in 1987 and changed its name to Vencor,
Incorporated in 1989 and to Vencor, Inc. in 1993. On September 28, 1995,
Hillhaven Corporation was merged into Predecessor Company. On March 21, 1997,
Predecessor Company acquired TheraTx, a provider of subacute rehabilitation
and respiratory therapy program management services to nursing centers and an
operator of 26 nursing centers. On June 24, 1997, Predecessor Company acquired
Transitional, an operator of 16 long-term acute care hospitals and three sat-
ellite facilities located in 13 states. On April 30, 1998, Predecessor Compa-
ny, the Guarantor and the Company completed the Reorganization Transactions
thereby transferring the operation of Predecessor Company's historical
healthcare business, other than the Properties, to Guarantor. Effective May 1,
1998, Predecessor Company spun off the Guarantor by distributing the shares of
the Guarantor common stock to the holders of Predecessor Company common stock.
The Guarantor was incorporated in Delaware on March 27, 1998, and is a holding
company whose sole assets are the capital stock of its wholly owned subsidi-
ary, the Company.
Unless the context otherwise requires, the following discussion describes the
Company's business as it has existed since the Reorganization Transactions,
the Distribution and the Offering. Prior year discussions refer to the
Company's business as it was conducted by Predecessor Company.
BUSINESS STRATEGY
The Company believes that the demand for long-term care is increasing. Im-
proved medical care and advances in medical technology continue to increase
the survival rates for victims of disease and trauma. Many of these patients
never fully recover and require long-term care. The incidence of chronic medi-
cal complications increases with age, particularly in connection with certain
degenerative conditions. As the average age of the United States population
increases, the Company believes that there will be an increase in the demand
for long-term care at all levels of the continuum of care.
At the same time, the healthcare system of the United States is experiencing a
period of significant change. Factors affecting the healthcare system include
cost containment, the expansion of managed care, improved medical technology,
an increased focus on measurable clinical outcomes and a growing public aware-
ness of healthcare spending by governmental agencies at Federal and state lev-
els. Payors are increasingly requiring providers to move patients from high-
acuity care environments to lower-acuity care settings as quickly as is medi-
cally appropriate.
The Company will continue its strategy of developing its full-service inte-
grated network to meet the range of needs of patients requiring long-term
care. The Company continues to integrate and expand the operations of its
long-term acute care hospitals and nursing centers and to develop related
healthcare services. The Company provides a full range of clinical expertise,
as well as advanced technologies for cost-efficiencies, to accommodate pa-
tients at all levels of long-term care. Key elements of the Company's strategy
for providing full-service integrated networks for long-term care are set
forth below:
Focus on Long-Term Care Continuum. The factors which affect the selection of
long-term care vary by community and include the Company's local competitive
position as well as its relationships with local referral sources. According-
ly, the Company focuses its resources on developing integrated networks within
each of the local markets it serves. The
54
<PAGE>
Company's history of strategic acquisitions and complementary business develop-
ment initiatives has served to enhance the Company's position as a leader in
local and regional markets. In addition, the Company benefits from economies of
scale through its strategic focus on the long-term care continuum.
The Company intends to continue expanding its long-term care network and will
evaluate new market opportunities based on (i) the need for placement of long-
term patients or residents, (ii) existing provider referral patterns, (iii) the
presence of competitors, (iv) payor mix and (v) the political and regulatory
climate. Over the next 12 to 18 months, the Company does not anticipate acquir-
ing additional healthcare facilities. In addition, the Company intends to sell
all or a portion of its interest in certain non-strategic businesses or the op-
erations of a facility where such disposition would be in the best interest of
the Company. These actions are intended to reduce the Company's outstanding
debt. Once the Company's debt is reduced, the Company intends to once again
initiate development efforts and pursue strategic acquisitions that complement
its core operating businesses.
Increase Penetration of Specialty Care and Ancillary Services. The Company in-
tends to continue to expand the specialty care programs and ancillary services
provided in its nursing centers through its Vencare operations. These services
generally produce higher revenues than do routine nursing care services and
serve to differentiate the Company's nursing centers from others in a given
market. The Company focuses on the expansion of its subacute, medical and reha-
bilitation services, including physical, occupational and speech therapies,
wound care, oncology treatment, brain injury care, stroke therapy and orthope-
dic therapy at its facilities.
Vencare provides respiratory therapy and subacute care services pursuant to
contracts with nursing centers and other healthcare facilities owned by third
parties. The Vencare program also includes rehabilitation therapy services,
pharmacy management services and mobile radiology services. Vencare enables the
Company to provide its services to lower acuity patients in cost-efficient set-
tings.
During 1997, the Company initiated the sale of its Vencare full service ancil-
lary services contracts to provide a full range of services to nursing centers
not operated by the Company. Management believes that by bundling services
through one provider, nursing centers can provide quality patient care more ef-
ficiently with the added benefit of centralizing their medical records. Under
the new prospective payment system imposed by the Budget Act, ancillary serv-
ices provided by nursing centers will be subject to fixed payments. In this new
environment, management believes that its full service ancillary services con-
tracts will enhance the ability of nursing center operators to manage effec-
tively the cost of providing quality patient care.
Further Implement Patient Information System. VenTouch(TM) is a software appli-
cation which allows nurses, physicians and other clinicians to access and man-
age clinical information used in the healthcare delivery process. Among the
features of VenTouch(TM) are on-line access and update of an electronic patient
chart, on-line trend analysis using electronic flowsheets and graphs, and re-
mote access for authorized users. The system is designed to decrease adminis-
trative time, reduce paper and support the delivery of quality patient care.
Prior to the acquisition of Transitional, the Company installed VenTouch(TM) in
all of its hospitals. The Company expects to install VenTouch(TM) in the 19
former Transitional hospitals during 1998. At March 31, 1998, 59 of the
Company's nursing centers were using the VenTouch(TM) information system. The
Company expects to install VenTouch(TM) in 40 to 50 of its nursing centers dur-
ing 1998. In addition, the Company intends to offer VenTouch(TM) in connection
with the services offered by Vencare to nursing centers not operated by the
Company.
HOSPITAL OPERATIONS
The hospitals operated by the Company primarily provide long-term acute care to
medically complex, chronically ill patients. The Company's hospitals have the
capability to treat patients who suffer from multiple systemic failures or con-
ditions such as neurological disorders, head injuries, brain stem and spinal
cord trauma, cerebral vascular accidents, chemical brain injuries, central ner-
vous system disorders, developmental anomalies and cardiopulmonary disorders.
Chronic patients are often dependent on technology for continued life support,
such as mechanical ventilators, total parenteral nutrition, respiration or car-
diac monitors and dialysis machines. Generally, approximately 60% of the
Company's chronic patients are ventilator-dependent for some period of time
during their hospitalization. The Company's patients suffer from conditions
which require a high level of monitoring and specialized care, yet may not ne-
cessitate the continued services of an intensive care unit. Due to their severe
medical conditions, the Company's hospital patients generally are not clini-
cally appropriate for admission to a nursing center or rehabilitation hospital.
The medical condition of most of the Company's hospital patients is periodi-
cally or chronically unstable. By combining general acute care services with
the ability to care for chronic patients, the Company believes that its long-
term care hospitals provide its patients with high quality, cost-effective
care. During 1997, the average length of stay for chronic patients in the long-
term care hospitals operated by the
55
<PAGE>
Company was approximately 43 days. Although the Company's patients range in age
from pediatric to geriatric, typically more than 70% of the Company's chronic
patients are over 65 years of age. The Company's hospital operations are sub-
ject to regulation by a number of government and private agencies. See "--Gov-
ernmental Regulation--Hospitals."
Hospital Facilities
The following table lists by state the number of hospitals and related licensed
beds owned by or leased by the Company, as of March 31, 1998:
<TABLE>
<CAPTION>
---------------------------------------------
NUMBER OF FACILITIES
------------------------------------
LEASED LEASED
FROM FROM
LICENSED OWNED BY PREDECESSOR OTHER
STATE BEDS COMPANY COMPANY PARTIES TOTAL
- ----- -------- -------- ------------ -------- -----
<S> <C> <C> <C> <C> <C>
Arizona........................... 109 - 2 - 2
California........................ 635 3 6 - 9
Colorado.......................... 68 - 1 - 1
Florida (1)....................... 564 - 6 1 7
Georgia (1)....................... 72 - - 1 1
Illinois (1)...................... 613 - 4 1 5
Indiana........................... 159 - 2 1 3
Kentucky (1)...................... 374 - 1 - 1
Louisiana......................... 168 - 1 - 1
Massachusetts (1)................. 86 - 2 - 2
Michigan (1)...................... 400 - 2 - 2
Minnesota......................... 111 - 1 - 1
Missouri (1)...................... 227 - 2 - 2
Nevada............................ 67 - 2 - 2
New Mexico........................ 61 - 1 - 1
North Carolina (1)................ 124 - 1 - 1
Ohio.............................. 94 1 - - 1
Oklahoma.......................... 59 - 1 - 1
Pennsylvania...................... 115 - 2 - 2
Tennessee (1)..................... 49 - 1 - 1
Texas............................. 688 1 6 4 11
Virginia (1)...................... 206 - 1 - 1
Washington (1).................... 80 1 - - 1
Wisconsin......................... 184 1 1 1 3
<CAPTION>
-------- -------- ------------ -------- -----
<S> <C> <C> <C> <C> <C>
Totals............................ 5,313 7 46 9 62
<CAPTION>
======== ======== ============ ======== =====
</TABLE>
(1) These states have CON regulations. See "--Governmental Regulation--
Hospitals."
Services Provided by Hospitals
Chronic. The Company has devised a comprehensive program of care for its
chronic patients that draws upon the talents of interdisciplinary teams, in-
cluding licensed pulmonary specialists. The teams evaluate chronic patients
upon admission to determine treatment programs. Where appropriate, the treat-
ment programs may involve the services of several disciplines, such as pulmo-
nary and physical therapy. Individual attention to patients who have the cogni-
tive and physical abilities to respond to therapy is emphasized. Patients who
successfully complete treatment programs are discharged to nursing centers, re-
habilitation hospitals or home care settings.
General Acute Care. The Company operates two general acute care hospitals. Cer-
tain of the Company's long-term care hospitals also provide general acute care
and outpatient services in support of their long-term care services. Certain of
the Company's hospitals maintain subacute units. General acute care and outpa-
tient services may include inpatient services, diagnostic services, emergency
services, CT scanning, one-day surgery, hospice services, laboratory, X-ray,
respiratory therapy, cardiology and physical therapy. The Company may expand
its general acute care and outpatient services.
56
<PAGE>
Major factors contributing to the growth in demand for the Company's intensive
care hospital services include the following:
Increased Patient Population. Improved medical care and advancements in medical
technology have increased the survival rates for infants born with severe medi-
cal problems, as well as victims of disease and trauma of all ages. Many of
these patients never fully recover and require long-term hospital care. The in-
cidence of chronic respiratory problems increases with age, particularly in
connection with certain degenerative conditions. As the average age of the
United States population increases, the Company believes there will be an in-
crease in the need for long-term hospital care.
Medically Displaced Patients. The Company's hospital patients require a high
level of monitoring and specialized care, yet may not require the continued
services of an intensive care unit. Due to their extended recovery period, the
Company's hospital patients generally would not receive specialized multi-dis-
ciplinary treatment focused on the unique aspects of a long-term recovery pro-
gram in a general acute care hospital, and yet are not appropriate for admis-
sion to a nursing center or rehabilitation hospital.
Economically Displaced Patients. Historically, reimbursement policies and prac-
tices designed to control healthcare costs have made it difficult to place med-
ically complex, chronically ill patients in an appropriate healthcare setting.
Under the Medicare program, general acute care hospitals are reimbursed under
the prospective payment system ("PPS"), a fixed payment system which provides
an economic incentive to general acute care hospitals to minimize the length of
patient stay. As a result, these hospitals generally receive less than full
cost for providing care to patients with extended lengths of stay. Furthermore,
PPS does not provide for reimbursement more frequently than once every 60 days,
placing an additional economic burden on a general acute care hospital provid-
ing long-term care. The Company's long-term care hospitals, however, are ex-
cluded from PPS and generally receive reimbursement on a more favorable basis
for providing long-term hospital care to Medicare patients. Commercial reim-
bursement sources, such as insurance companies and health maintenance organiza-
tions ("HMOs"), some of which pay based on established hospital charges, typi-
cally seek the most economical source of care available. The Company believes
that its emphasis on long-term hospital care allows it to provide high quality
care to chronic patients on a cost-effective basis.
Hospital Patient Admission
Substantially all of the acute and medically complex patients admitted to the
Company's hospitals are transfers from other healthcare providers. Patients are
referred from general acute care hospitals, rehabilitation hospitals, nursing
centers and home care settings. Referral sources include discharge planners,
case managers of managed care plans, social workers, physicians, third party
administrators, HMOs and insurance companies.
The Company employs case managers who educate healthcare professionals from
other hospitals as to the unique nature of the services provided by the
Company's long-term care hospitals. The case managers develop an annual admis-
sion plan for each hospital with assistance from the hospital's administrator.
To identify specific service opportunities, the admission plan for each hospi-
tal is based on a variety of factors, including population characteristics,
physician characteristics and incidence of disability statistics. The admission
plans involve ongoing education of local physicians, utilization review and
case management personnel, acute care hospitals, HMOs and preferred provider
organizations ("PPOs"). The Company maintains a preadmission assessment system
at its regional referral centers to evaluate certain clinical and other infor-
mation in determining the appropriateness of each patient referred to its hos-
pitals.
Professional Staff
Each of the Company's hospitals is staffed with a multi-disciplinary team of
healthcare professionals. A professional nursing staff trained to care for the
long-term acute patient is on duty 24 hours each day in the Company's hospi-
tals. Other professional staff includes respiratory therapists, physical thera-
pists, occupational therapists, speech therapists, pharmacists, registered di-
etitians and social workers.
The physicians at the Company's hospitals generally are not employees of the
Company and may be members of the medical staff of other hospitals. Each of the
Company's hospitals has a fully credentialed, multi-specialty medical staff to
meet the needs of the clinically complex, long-term acute patient. Typically,
each patient is visited at least once a day by a physician. A broad range of
physician services is available including, but not limited to, pulmonology, in-
ternal medicine, infectious diseases, neurology, nephrology, cardiology, radi-
ology and pathology. Generally, the Company does not enter into exclusive con-
tracts with physicians to provide services to its hospital patients.
The Company believes that its future success will depend in large part upon its
continued ability to hire and retain qualified personnel. The Company seeks the
highest quality of professional staff within each market.
57
<PAGE>
Centralized Management and Operations
A hospital administrator supervises and is responsible for the day-to-day oper-
ations at each of the Company's hospitals. Each hospital also employs a con-
troller who monitors the financial matters of each hospital, including the mea-
surement of actual operating results compared to goals established by the Com-
pany. In addition, each hospital employs an assistant administrator to oversee
the clinical operations of the hospital and a quality assurance manager to di-
rect an integrated quality assurance program. The Company's corporate headquar-
ters provides services in the areas of system design and development, training,
human resource management, reimbursement expertise, legal advice, technical ac-
counting support, purchasing and facilities management. Financial control is
maintained through fiscal and accounting policies that are established at the
corporate level for use at each hospital. The Company has standardized operat-
ing procedures and monitors its hospitals to assure consistency of operations.
Hospital Management Information System
The financial information for each hospital is centralized at the corporate
headquarters through its management information system. Prior to the acquisi-
tion of Transitional, the Company had installed its VenTouchTM information sys-
tem, an electronic patient medical record system, in all of its hospitals. The
Company expects to install VenTouchTM in the 19 former Transitional hospitals
during 1998. See "--Management Information Systems."
Quality Assessment and Improvement
The Company maintains a strategic outcomes program which includes a centralized
pre-admission evaluation program and concurrent review of all of its patient
population against utilization and quality screenings, as well as quality of
life outcomes data collection and patient and family satisfaction surveys. In
addition, each hospital has an integrated quality assessment and improvement
program administered by a quality review manager which encompasses utilization
review, quality improvement, infection control and risk management. The objec-
tive of these programs is to ensure that patients are appropriately admitted to
the Company's hospitals and that quality healthcare is rendered to them in a
cost-effective manner.
The Company has implemented a program whereby its hospitals will be reviewed
annually by internal quality auditors for compliance with standards of the
Joint Commission on Accreditation of Health Care Organizations ("JCAHO"). The
purposes of this internal review process are to (i) ensure ongoing compliance
with industry recognized standards for hospitals, (ii) assist management in an-
alyzing each hospital's operations and (iii) provide consulting and educational
programs for each hospital to identify opportunities to improve patient care.
Selected Hospital Operating Data
The following table sets forth certain operating data for the Company's hospi-
tals:
<TABLE>
<CAPTION>
------------------------------------
THREE
MONTHS
ENDEDYEAR ENDED DECEMBER 31,
MARCH 31, -------------------------
1998 1997 1996 1995
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Hospitals in operation at end of peri-
od..................................... 62 60 38 36
Number of licensed beds at end of peri-
od..................................... 5,313 5,273 3,325 3,263
Patient days............................ 248,249 767,810 586,144 489,612
Average daily census.................... 2,758 2,104 1,601 1,341
Occupancy percentage.................... 56.7% 52.9% 53.7% 47.6%
</TABLE>
As used in the above table, the term "licensed beds" refers to the maximum num-
ber of beds permitted in the hospital under its license regardless of whether
the beds are actually available for patient care. "Patient days" refers to the
total number of days of patient care provided by the Company's hospitals for
the periods indicated. "Average daily census" is computed by dividing each hos-
pital's patient days by the number of calendar days the respective hospital is
in operation. "Occupancy percentage" is computed by dividing average daily cen-
sus by the number of licensed beds, adjusted for the length of time each facil-
ity was in operation during each respective period.
Sources of Hospital Revenues
The Company receives payment for hospital services from third-party payors, in-
cluding government reimbursement programs such as Medicare and Medicaid and
nongovernment sources such as commercial insurance companies, HMOs, PPOs and
contracted providers. Patients covered by nongovernment payors will generally
be more profitable to the Company than
58
<PAGE>
those covered by Medicare and Medicaid programs. The following table sets forth
the approximate percentages of the Company's hospital patient days and revenues
derived from the payor sources indicated:
<TABLE>
<CAPTION>
-------------------------------------------------------------
MEDICARE MEDICAID PRIVATE AND OTHER
----------------- ----------------- -----------------------
PATIENT PATIENT PATIENT
DAYS REVENUES DAYS REVENUES DAYS REVENUES
------- -------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
FIRST QUARTER
1998.................... 70% 60% 12% 8% 18% 32%
1997.................... 67 64 14 10 19 26
YEAR ENDED
1997.................... 68% 63% 12% 8% 20% 29%
1996.................... 64 59 17 12 19 29
1995.................... 64 57 16 12 20 31
</TABLE>
For the year ended December 31, 1997, hospital revenues totaled approximately
$785.8 million, or 24.7% of the Company's total revenues. For the three months
ended March 31, 1998, hospital revenues totaled approximately $246.4 million,
or 29.0% of the Company's total revenues. Changes caused by the Budget Act will
reduce the level of Medicare payments made to the Company's hospitals by reduc-
ing TEFRA incentive payments and allowable costs of capital expenditures and
bad debts, and payments for services to patients transferred from a PPS hospi-
tal. See "--Governmental Regula- tion--Healthcare Reform Legislation."
Hospital Competition
As of March 31, 1998, the hospitals operated by the Company were located in 38
geographic markets in 24 states. In each geographic market, there are general
acute care hospitals which provide services comparable to those offered by the
Company's hospitals. In addition, the Company believes that as of December 31,
1997, there were approximately 180 hospitals in the United States certified by
Medicare as general long-term hospitals, some of which provide similar
cardiopulmonary services to those provided by the Company's hospitals. Many of
these general acute care hospitals and long-term hospitals are larger and more
established than the Company's hospitals. Certain hospitals that compete with
the Company's hospitals are operated by not-for-profit, nontaxpaying or govern-
mental agencies, which can finance capital expenditures on a tax-exempt basis,
and which receive funds and charitable contributions unavailable to the
Company's hospitals. Cost containment efforts by Federal and state governments
and other third-party payors designed to encourage more efficient utilization
of hospital services have generally resulted in lower hospital industry occu-
pancy rates in recent years. As a result of these efforts, a number of acute
care hospitals have converted to specialized care facilities. Some hospitals
are developing step-down units which attempt to serve the needs of patients who
require care at a level between that provided by an intensive care unit and a
general medical/surgical floor. This trend is expected to continue due to the
current oversupply of acute care hospital beds and the increasing consolidation
and affiliation of free-standing hospitals into larger systems. As a result,
the Company may experience increased competition from existing hospitals and
converted facilities.
Competition for patients covered by non-government reimbursement sources is in-
tense. The primary competitive factors in the long-term intensive care business
include quality of services, charges for services and responsiveness to the
needs of patients, families, payors and physicians. Other companies have en-
tered the long-term intensive care market with licensed hospitals that compete
with the Company's hospitals.
Some nursing centers, while not licensed as hospitals, have developed units
which provide a greater intensity of care than typically provided by a nursing
center. The condition of patients in these nursing centers is less acute than
the condition of patients in the Company's hospitals.
The competitive position of any hospital, including the Company's hospitals, is
also affected by the ability of its management to negotiate contracts with pur-
chasers of group healthcare services, including private employers, PPOs and
HMOs. Such organizations attempt to obtain discounts from established hospital
charges. The importance of obtaining contracts with PPOs, HMOs and other orga-
nizations which finance healthcare, and its effect on a hospital's competitive
position, vary from market to market, depending on the number and market
strength of such organizations.
The Company will also compete with other healthcare companies for hospital and
other healthcare acquisitions.
59
<PAGE>
NURSING CENTER OPERATIONS
At March 31, 1998, the Company's nursing center operations provided long-term
care and sub-acute medical and rehabilitation services in 305 nursing centers
containing 39,960 licensed beds located in 31 states. During 1997, the Company
completed the sale of 28 of its underperforming or non-strategic nursing cen-
ters. One additional nursing center was sold and one nursing center was closed
in January 1998, and two additional nursing centers were sold on April 1, 1998
upon receipt of regulatory approvals.
The Company's nursing centers provide rehabilitation services, including phys-
ical, occupational and speech therapies. The majority of patients in rehabili-
tation programs stay for eight weeks or less. Patients in rehabilitation pro-
grams generally provide higher revenues than other nursing center patients be-
cause they require a higher level of ancillary services. In addition, manage-
ment believes that the Company is one of the leading providers of care for pa-
tients with Alzheimer's disease. At March 31, 1998, the Company offered spe-
cialized programs covering approximately 3,100 beds in 87 nursing centers for
patients suffering from Alzheimer's disease. Most of these patients reside in
separate units within the nursing centers and are cared for by teams of pro-
fessionals specializing in the unique problems experienced by Alzheimer's pa-
tients.
Nursing Center Marketing
The factors which affect consumers' selection of a nursing center vary by com-
munity and include a nursing center's competitive position and its relation-
ships with local referral sources. Competition creates the standards against
which nursing centers in a given market are judged by various referral sourc-
es, which include physicians, hospital discharge planners, community organiza-
tions and families. Therefore, the Company's nursing center marketing efforts
are conducted at the local market level by the nursing center administrators,
admissions coordinators and others. Nursing center personnel are assisted in
carrying out their marketing strategies by regional marketing staffs. The
Company's marketing efforts are directed toward improving the payor mix at the
nursing centers by maximizing the census of private payment patients and Medi-
care patients.
Nursing Center Operations
Each nursing center is managed by a state-licensed administrator who is sup-
ported by other professional personnel, including a director of nursing, staff
development professional (responsible for employee training), activities di-
rector, social services director, licensed dietitian, business office manager
and, in general, physical, occupational and speech therapists. The directors
of nursing are state-licensed nurses who supervise nursing staff which include
registered nurses, licensed practical nurses and nursing assistants. Staff
size and composition vary depending on the size and occupancy of each nursing
center and on the level of care provided by the nursing center. The nursing
centers contract with physicians who serve as medical directors and serve on
quality assurance committees.
The nursing centers are supported by district and/or regional staff in the
areas of nursing, dietary and rehabilitation services, maintenance, sales and
financial services. In addition, corporate staff provide other services in the
areas of sales assistance, human resource management, state and federal reim-
bursement, state licensing and certification, legal, finance and accounting
support. Financial control is maintained principally through fiscal and ac-
counting policies established at the corporate level for use at the nursing
centers.
Quality of care is monitored and enhanced by quality assurance committees and
family satisfaction surveys. The quality assurance committees oversee patient
healthcare needs and patient and staff safety. Additionally, physicians serve
on the quality assurance committees as medical directors and advise on
healthcare policies and practices. Regional nursing professionals visit each
nursing center periodically to review practices and recommend improvements
where necessary in the level of care provided and to assure compliance with
requirements under applicable Medicare and Medicaid regulations. Surveys of
patients' families are conducted from time to time in which the families are
asked to rate various aspects of service and the physical condition of the
nursing centers. These surveys are reviewed by nursing center administrators
to help ensure quality patient care.
The Company provides training programs for nursing center administrators, man-
agers, nurses and nursing assistants. These programs are designed to maintain
high levels of quality patient care.
Substantially all of the nursing centers are currently certified to provide
services under Medicare and Medicaid programs. A nursing center's qualifica-
tion to participate in such programs depends upon many factors, such as accom-
modations, equipment, services, safety, personnel, physical environment and
adequate policies and procedures.
60
<PAGE>
Selected Nursing Center Operating Data
The following table sets forth certain operating data for the Company's nursing
centers:
<TABLE>
<CAPTION>
----------------------------------------------
THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ----------------------------------
1998 1997 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Number of nursing centers in
operation at end of period... 305 309 313 311
Number of licensed beds at end
of period.................... 39,960 40,383 39,619 39,480
Patient days.................. 3,050,478 12,622,238 12,566,763 12,569,600
Average daily census.......... 33,894 34,581 34,335 34,437
Occupancy percentage.......... 88.6% 90.5% 91.9% 92.2%
</TABLE>
Sources of Nursing Center Revenues
Nursing center revenues are derived principally from Medicare and Medicaid pro-
grams and from private payment patients. Consistent with the nursing center in-
dustry, changes in the mix of the Company's patient population among these
three categories significantly affect the profitability of the Company's opera-
tions. Although Medicare and other high acuity patients generally produce the
most revenue per patient day, profitability is reduced by the costs associated
with the higher level of nursing care and other services required by such pa-
tients. The Company believes that private payment patients generally constitute
the most profitable category and Medicaid patients generally constitute the
least profitable category.
The following table sets forth the approximate percentages of the Company's
nursing center patient days and revenues derived from the payor sources indi-
cated:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
MEDICARE MEDICAID PRIVATE AND OTHER
---------------------- ---------------------- ----------------------
PATIENT DAYS REVENUES PATIENT DAYS REVENUES PATIENT DAYS REVENUES
------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
FIRST QUARTER
1998.................... 13% 34% 64% 41% 23% 25%
1997.................... 13 32 65 43 22 25
YEAR ENDED
1997.................... 13% 32% 65% 43% 22% 25%
1996.................... 12 30 65 44 23 26
1995.................... 12 29 65 44 23 27
</TABLE>
For the year ended December 31, 1997, nursing center revenues totaled approxi-
mately $1.72 billion, or 54.1% of the Company's total revenues. For the three
months ended March 31, 1998, nursing center revenues totaled approximately
$434.2 million, or 51.0% of the Company's total revenues.
Both governmental and private third-party payors employ cost containment mea-
sures designed to limit payments made to healthcare providers. Those measures
include the adoption of initial and continuing recipient eligibility criteria
which may limit payment for services, the adoption of coverage criteria which
limit the services that will be reimbursed and the establishment of payment
ceilings which set the maximum reimbursement that a provider may receive for
services. Furthermore, government reimbursement programs are subject to statu-
tory and regulatory changes, retroactive rate adjustments, administrative rul-
ings and government funding restrictions, all of which may materially increase
or decrease the rate of program payments to the Company for its services. The
Budget Act requires the establishment of a Medicare prospective payment system
for nursing centers for cost reporting periods beginning on or after July 1,
1998. During the first three years, the per diem rates for nursing centers will
be based on a blend of facility-specific costs and Federal costs. Thereafter,
the per diem rates will be based solely on Federal costs. The rates for such
services were made available by HCFA on May 5, 1998. The new prospective pay-
ment system also will cover ancillary services provided to nursing center pa-
tients under the Vencare contract services business. There can be no assurance
that payments under governmental and private third-party payor programs will
remain at levels comparable to present levels or will be sufficient to cover
the costs allocable to patients eligible for reimbursement pursuant to such
programs. In addition, there can be no assurance that facilities leased by the
Company, or the provision of services and supplies by the Company, will meet
the requirements for participation in such programs. The Company could be ad-
versely affected by the continuing efforts of governmental and private third-
party payors to contain the amount of reimbursement for healthcare services.
See "--Governmental Regulation--Nursing Centers" and "--Governmental Regula-
tion--Healthcare Reform Legislation."
61
<PAGE>
Medicare. The Medicare Part A program provides reimbursement for extended care
services furnished to Medicare beneficiaries who are admitted to nursing cen-
ters after at least a three-day stay in an acute care hospital. Covered serv-
ices include supervised nursing care, room and board, social services, physical
and occupational therapies, pharmaceuticals, supplies and other necessary serv-
ices provided by nursing centers.
Until the implementation of the new prospective payment system, nursing center
reimbursement will continue to be based upon reasonable direct and indirect
costs of services provided to beneficiaries. Under the Medicare program, rou-
tine costs are subject to a routine cost limit ("RCL"). The RCL is a national
average cost per patient day which is adjusted for variations in local wages.
Revenues under this program are subject to audit and retroactive adjustment.
Settlements of Medicare audits have not had a material adverse effect on the
Company's nursing center operating results.
Medicaid. Medicaid is a state-administered program financed by state funds and
matching Federal funds. The program provides for medical assistance to the in-
digent and certain other eligible persons. Although administered under broad
Federal regulations, states are given flexibility to construct programs and
payment methods consistent with their individual goals. Accordingly, these pro-
grams differ from state to state in many respects.
Prior to the Budget Act, Federal law, generally referred to as the Boren Amend-
ment, required Medicaid programs to pay rates that are reasonable and adequate
to meet the costs incurred by an efficiently and economically operated nursing
center providing quality care and services in conformity with all applicable
laws and regulations. Despite the Federal requirements, disagreements fre-
quently arise between nursing centers and states regarding the adequacy of Med-
icaid payments. By repealing the Boren Amendment, the Budget Act eases the re-
strictions on the states' ability to reduce their Medicaid reimbursement levels
for such services. In addition, Medicaid programs are subject to statutory and
regulatory changes, administrative rulings, interpretations of policy by the
state agencies and certain government funding limitations, all of which may ma-
terially increase or decrease the level of program payments to nursing centers
operated by the Company. Management believes that the payments under many of
these programs may not be sufficient on an overall basis to cover the costs of
serving certain residents participating in these programs. Furthermore, the Om-
nibus Budget Reconciliation Act of 1987, as amended ("OBRA"), mandates an in-
creased emphasis on ensuring quality patient care, which has resulted in addi-
tional expenditures by nursing centers.
There can be no assurance that the payments under Medicaid programs will remain
at levels comparable to current levels or, in the future, will be sufficient to
cover the costs incurred in serving patients participating in such programs.
The Company provides to eligible individuals Medicaid-covered services consist-
ing of nursing care, room and board and social services. In addition, states
may at their option cover other services such as physical, occupational and
speech therapies and pharmaceuticals.
Private Payment. The Company's nursing centers seek to maximize the number of
private payment patients, including those covered under private insurance and
managed care health plans. Private payment patients typically have financial
resources (including insurance coverage) to pay for their monthly services and
do not rely on government programs for support.
Nursing Center Competition
The Company's nursing centers compete on a local and regional basis with other
nursing centers. The Company's competitive position varies within each commu-
nity served. The Company believes that the quality of care provided, reputa-
tion, location and physical appearance of its nursing centers and, in the case
of private patients, the charges for services, are significant competitive fac-
tors. Although there is limited, if any, price competition with respect to Med-
icare and Medicaid patients (since revenues received for services provided to
such patients are based on fixed rates or cost reimbursement principles), there
is significant competition for private payment patients.
The long-term care industry is divided into a variety of competitive areas
which market similar services. These competitors include nursing centers, hos-
pitals, extended care centers, assisted living facilities and communities, home
health agencies and similar institutions. The industry includes government-
owned, church-owned, secular not-for-profit and for-profit institutions.
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Nursing Center Facilities
The following table lists by state the number of nursing centers and related
licensed beds that were owned by or leased by the Company, as of March 31,
1998:
<TABLE>
<CAPTION>
-------------------------------------------------------------
NUMBER OF FACILITIES
----------------------------------------------------
LEASED FROM
LICENSED OWNED BY PREDECESSOR LEASED FROM
BEDS COMPANY COMPANY OTHER PARTIES MANAGED TOTAL
-------- --------- ------------ ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Alabama(1).............. 592 - 3 1 - 4
Arizona................. 827 - 6 - - 6
California.............. 2,516 1 11 6 3 21
Colorado................ 935 - 4 3 - 7
Connecticut(1).......... 983 - 8 - - 8
Florida(1).............. 2,828 2 15 2 2 21
Georgia(1).............. 1,336 - 5 5 - 10
Idaho................... 903 - 8 1 - 9
Indiana(1).............. 4,152 - 14 12 - 26
Kentucky(1)............. 2,087 1 12 4 - 17
Louisiana(1)............ 485 - - 1 2 3
Maine(1)................ 824 - 10 - - 10
Massachusetts(1)........ 4,232 2 31 3 2 38
Mississippi(1).......... 125 - - 1 - 1
Montana(1).............. 456 - 2 1 - 3
Nebraska(1)............. 167 - 1 - - 1
Nevada(1)............... 288 1 2 - - 3
New Hampshire(1)........ 622 - 3 - 1 4
North Carolina(1)....... 3,140 2 19 6 - 27
Ohio(1)................. 2,161 - 11 4 1 16
Oregon(1)............... 358 - 2 1 - 3
Pennsylvania............ 200 - 1 1 - 2
Rhode Island(1)......... 201 - 2 - - 2
Tennessee(1)............ 2,541 - 4 11 - 15
Texas................... 623 - 1 1 1 3
Utah.................... 848 - 5 1 1 7
Vermont(1).............. 310 - 1 - 1 2
Virginia(1)............. 632 - 4 - - 4
Washington(1)........... 1,504 1 9 3 - 13
Wisconsin(1)............ 2,633 - 12 3 - 15
Wyoming................. 451 - 4 - - 4
------ ------ ----- ------ ------ ------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Totals.................. 39,960 10 210 71 14 305
====== ====== ====== ====== ====== ======
<CAPTION>
</TABLE>
(1) These states have CON regulations. See "--Governmental Regulation--Nursing
Centers."
VENCARE HEALTH SERVICES OPERATIONS
Through its Vencare health services operations, the Company has expanded the
scope of its cardiopulmonary care by providing subacute care, rehabilitation
therapy and respiratory care services and supplies to nursing and subacute care
centers. In November 1996, the Company consolidated its pharmacy operations un-
der its Vencare health services. In addition, the rehabilitation, respiratory
and other healthcare services previously provided by TheraTx have been inte-
grated into the Vencare operations. In May 1998, the Company announced its in-
tention to sell its hospice and home care operations. The Company expects that
these transactions will be completed during the second and third quarter of
1998. For the year ended December 31, 1997, revenues from the Vencare opera-
tions totaled approximately $642.5 million which represented 20.2% of the
Company's total revenues. For the three months ended March 31, 1998, revenues
from the Vencare program totaled approximately $169.8 million which represented
20.0% of the Company's total revenues.
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<PAGE>
During 1997, the Company initiated the sale of its Vencare full-service ancil-
lary services contracts to provide a full range of ancillary services to nurs-
ing centers not operated by the Company. Management believes that by bundling
services through one provider, nursing centers can provide quality patient care
more efficiently with the added benefit of centralizing their medical records.
Under the new prospective payment system imposed by the Budget Act, ancillary
services provided by nursing centers will be subject to fixed payments. In this
new environment, the Company believes that its full-service ancillary services
contract will enhance the ability of nursing center operators to manage effec-
tively the cost of providing quality patient care.
Respiratory Care Services
The Company provides respiratory care services and supplies to nursing and sub-
acute care center patients pursuant to contracts between the Company and the
nursing center or subacute center. The services are provided by respiratory
therapists based at the Company's hospitals. These respiratory therapists per-
form a wide variety of procedures, including oxygen therapy, bronchial hygiene,
nebulizer and aerosol treatments, tracheostomy care, ventilator management and
patient respiratory education. Pulse oximeters and arterial blood gas machines
are used to evaluate the patient's condition, as well as the effectiveness of
the treatment. The Company also provides respiratory equipment and supplies to
nursing and subacute centers.
The Company receives payments from the nursing centers and subacute care cen-
ters for services rendered and these facilities, in turn, receive payments from
the appropriate third-party payor. Respiratory therapy and supplies are gener-
ally covered under the Medicare program. Many commercial insurers and managed
care providers are seeking hospital discharge options for lower acuity respira-
tory patients. Management believes that the Company's pricing and successful
clinical outcomes make its respiratory care program attractive to commercial
insurers and managed care providers.
At March 31, 1998, the Company had entered into contracts to provide respira-
tory therapy services and supplies to approximately 1,500 nursing and subacute
care centers, which includes approximately 300 nursing centers operated by the
Company.
Subacute Services
At March 31, 1998, the Company had entered into contracts to provide subacute
care services to seven nursing and subacute care centers. These services, which
are also an extension of the cardiopulmonary services provided by the Company's
hospitals, may include ventilator management, tracheostomy care, continuation
of airway restoration programs, enteral and parenteral nutritional support, IV
therapy for hydration and medication administration, progressive wound care,
chronic chest tube management, laboratory, radiology, pharmacy and dialysis
services, customized rehabilitation services and program marketing. Subacute
patients generally require assisted ventilation through mechanical ventilation
devices.
Rehabilitation Therapy Services
The Company provides physical, occupational and speech therapies to nursing and
subacute care center patients, as well as home health patients and public
school systems. At March 31, 1998, the Company had entered into contracts to
provide rehabilitation services to patients at 300 facilities.
Mobile Diagnostic Services
The Company is a hospital based provider of on-call mobile X-ray services.
These services are primarily provided to nursing facilities, but the Company
also provides services to correctional facilities, rehabilitation hospitals and
dialysis centers. These services are provided 24 hours a day, 365 days a year
to over 130 facilities.
Competition in the Contract Services Market
Although the respiratory therapy services, rehabilitation services and subacute
services markets are fragmented, significant competition exists for the
Company's contract services. The primary competitive factors for the contract
services business are quality of services, charges for services and responsive-
ness to the needs of patients, families and the facilities in which the serv-
ices are provided. Certain hospitals are establishing and managing their own
step-down and subacute facilities. Other hospital companies have entered the
contract services market through affiliation agreements and management con-
tracts. In addition, many nursing centers are developing internal staff to pro-
vide those services, particularly in response to the planned implementation of
the new prospective payment system for nursing centers.
Pharmacies
The Company provides institutional and other pharmacy services. In November
1996, the Company consolidated its Medisave Pharmacies into its Vencare health
services operations and now provides its hospital-based clinical pharmacy serv-
ices as part of its Vencare services.
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<PAGE>
The institutional pharmacy business focuses on providing a full array of phar-
macy services to over 650 nursing centers and specialized care centers. Insti-
tutional pharmacy sales encompass a wide variety of products including pre-
scription medication, prosthetics, respiratory services, infusion services and
enteral therapies. In addition, the Company provides a variety of pharmaceuti-
cal consulting services designed to assist hospitals, nursing centers and home
health agencies in program administration.
MANAGEMENT INFORMATION SYSTEMS
The financial information for each of the Company's facilities is centralized
at the corporate headquarters through its management information system. The
Company uses a comprehensive financial reporting system which enables it to
monitor certain key financial data at each facility such as payor mix, admis-
sions and discharges, cash collections, net revenues and staffing. In addition,
the financial reporting system provides monthly budget analysis, financial com-
parisons to prior periods and comparisons among the Company's facilities.
The Company has developed the VenTouch(TM) electronic patient medical record
system. VenTouch(TM) is a software application which allows nurses, physicians
and other clinicians to manage clinical information utilized in the patient
care delivery process.
Among the features of VenTouch(TM) are on-line access and update of an elec-
tronic patient chart, an on-line trend analysis using electronic flowsheets and
graphs, and remote access for authorized users. Features specific to the nurs-
ing centers include a complete on-line Resident Assessment Instrument Process
that incorporates state specific guidelines, computer generated Resident As-
sessment Protocols, on-line HCFA Resident Assessment Instrument manual and
electronic data transfer capabilities. The system is designed to decrease ad-
ministrative time, reduce paper and support the delivery of quality patient
care.
Prior to the acquisition of Transitional, the Company had completed the instal-
lation of VenTouch(TM) information system in its hospitals. The Company expects
to install VenTouch(TM) in the 19 former Transitional hospitals during 1998. At
March 31, 1998, 59 of the Company's nursing centers were utilizing the
VenTouch(TM) information system. The Company expects to install VenTouch(TM) in
40 to 50 of its nursing centers during 1998. In addition, the Company intends
to offer VenTouch(TM) in connection with the services offered by Vencare to
nursing centers not operated by the Company.
EMPLOYEES
As of March 31, 1998, the Company would have had approximately 50,800 full-time
and 24,000 part-time and per diem employees. The Company would have been a
party to 28 collective bargaining agreements covering approximately 2,600 em-
ployees as of March 31, 1998.
LIABILITY INSURANCE
The Company's hospitals, contract services, nursing centers and pharmaceutical
operations are insured by the Company's wholly owned captive insurance company,
Cornerstone Insurance Company. Cornerstone Insurance Company is reinsured for
losses in excess of $1,000,000 per claim for nursing centers and $500,000 per
claim for all other operations and $16 million in annual aggregation. Coverages
for losses in excess of various limits are maintained through unrelated commer-
cial insurance carriers to provide $130 million limits per claim and in the ag-
gregate.
The Company believes that its insurance is adequate in amount and coverage.
There can be no assurance that in the future such insurance will be available
at a reasonable price or that the Company will be able to maintain adequate
levels of malpractice insurance coverage.
GOVERNMENTAL REGULATION
Hospitals
Certificates of Need and State Licensing. CON regulations control the develop-
ment and expansion of healthcare services and facilities in certain states. CON
laws generally provide that approval must be obtained from the designated state
health planning agency prior to the expansion of existing facilities, construc-
tion of new facilities, addition of beds, acquisition of major items of equip-
ment or introduction of new services. The stated objective of the CON process
is to promote quality healthcare at the lowest possible cost and avoid unneces-
sary duplication of services, equipment and facilities. Recently, some states
(including Florida, Massachusetts and Tennessee) have amended their CON regula-
tions to require CON approval prior to the conversion of a hospital from a gen-
eral short-term facility to a general long-term facility. Of the 24 states
65
<PAGE>
in which the Company's hospitals were located as of March 31, 1998, Florida,
Georgia, Illinois, Kentucky, Massachusetts, Michigan, Missouri, North Carolina,
Tennessee, Virginia and Washington have CON programs. With one exception, the
Company was not required to obtain a CON in connection with previous acquisi-
tions due to the relatively low renovation costs and the absence of the need
for additional licensed beds or changes in services. CONs may be required in
connection with the Company's future hospital and contract services expansion.
There can be no assurance that the Company will be able to obtain the CONs nec-
essary for any or all future projects. If the Company is unable to obtain the
requisite CONs, its growth and businesses could be adversely affected.
State licensing of hospitals is a prerequisite to the operation of each hospi-
tal and to participation in government programs. Once a hospital becomes li-
censed and operational, it must continue to comply with Federal, state and lo-
cal licensing requirements in addition to local building and life-safety codes.
All of the Company's hospitals in operation have obtained the necessary li-
censes to conduct business.
Medicare and Medicaid. Medicare is a Federal program that provides certain hos-
pital and medical insurance benefits to persons age 65 and over and certain
disabled persons. Medicaid is a medical assistance program administered by each
state pursuant to which hospital benefits are available to certain indigent pa-
tients. Within the Medicare and Medicaid statutory framework, there are sub-
stantial areas subject to administrative rulings, interpretations and discre-
tion which may affect payments made under Medicare and Medicaid. A substantial
portion of the Company's hospital revenues are derived from patients covered by
Medicare and Medicaid. See "--Hospital Operations--Sources of Hospital Reve-
nues."
In order to receive Medicare reimbursement, each hospital must meet the appli-
cable conditions of participation set forth by the Department of Health and Hu-
man Services ("HHS") relating to the type of hospital, its equipment, personnel
and standard of medical care, as well as comply with state and local laws and
regulations. The Company has developed a management system to ensure compliance
with the various standards and requirements. Each of the Company's hospitals
employs a person who is responsible for an on-going quality assessment and im-
provement program. Hospitals undergo periodic on-site Medicare certification
surveys, which are generally limited if the hospital is accredited by JCAHO. As
of March 31, 1998, all but one of the hospitals operated by the Company were
certified as Medicare providers, and 54 of such hospitals were also certified
by their respective state Medicaid programs. Applications are pending for cer-
tification with respect to the other hospitals operated by the Company. A loss
of certification could adversely affect a hospital's ability to receive pay-
ments from Medicare and Medicaid programs.
Prior to 1983, Medicare reimbursed hospitals for the reasonable direct and in-
direct cost of the services provided to beneficiaries. The Social Security
Amendments of 1983 implemented PPS as a means of controlling healthcare costs.
Under PPS, Medicare in-patient costs are reimbursed based upon a fixed payment
amount per discharge using diagnosis related groups ("DRGs"). The DRG payment
under PPS is based upon the national average cost of treating a Medicare pa-
tient's condition. Although the average length of stay varies for each DRG, the
average stay for all Medicare patients subject to PPS is approximately six
days. An additional outlier payment is made for patients with unusually ex-
tended lengths of stay or higher treatment costs. Outlier payments are only de-
signed to cover marginal costs. Additionally, it takes 60 days or more for PPS
payments to be made. Thus, PPS creates an economic incentive for general short-
term hospitals to discharge chronic Medicare patients as soon as clinically
possible. Hospitals that are certified by Medicare as general long-term hospi-
tals are excluded from PPS. Management believes that the incentive for short-
term hospitals to discharge chronic medical patients as soon as clinically pos-
sible creates a substantial referral source for the Company's long-term hospi-
tals.
The Social Security Amendments of 1983 excluded psychiatric, rehabilitation,
cancer, children's and general long-term hospitals from PPS. A general long-
term hospital is defined as a hospital which has an average length of stay
greater than 25 days. Inpatient operating costs for general long-term hospitals
are reimbursed under the cost-based reimbursement system, subject to a computed
target rate (the "Target") per discharge for inpatient operating costs estab-
lished by TEFRA. As discussed below, the Budget Act makes significant changes
to the current TEFRA provisions.
Prior to the Budget Act, Medicare operating costs per discharge in excess of
the Target were reimbursed at the rate of 50% of the excess up to 10% of the
Target. Hospitals whose operating costs were lower than the Target were reim-
bursed their actual costs plus an incentive. This incentive is currently equal
to 50% of the difference between their actual costs and the Target and may not
exceed 5% of the Target. For cost report periods beginning on or after October
1, 1997, the Budget Act reduces the incentive payments to an amount equal to
15% of the difference between the actual costs and the Target, but not to ex-
ceed 2% of the Target. Costs in excess of the Target will still be reimbursed
at the rate of 50% of the excess up to
66
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10% of the Target but the threshold to qualify for such payments will be raised
from 100% to 110% of the Target. The Budget Act also caps the Targets based on
the 75th percentile for each category of hospitals using 1996 data.
Prior to October 1, 1997, new hospitals could apply for an exemption from the
TEFRA Target provisions. For hospitals certified prior to October 1, 1992, the
exemption was optional and, if granted, lasted for three years. For certifica-
tions since October 1, 1992, the exemption is automatic and is effective for
two years. Under the Budget Act, a new provider will no longer receive unlim-
ited cost-based reimbursement for its first few years in operation. Instead,
for the first two years, it will be paid the lower of its costs or 110% of the
median TEFRA Target for 1996 adjusted for inflation. During this two year peri-
od, providers remain subject to the TEFRA penalty and incentive payments dis-
cussed in the previous paragraph.
As of March 31, 1998, 50 of the hospitals operated by the Company were subject
to TEFRA Target provisions. The Company's other long-term hospitals were not
subject to TEFRA because they had qualified for the new hospital exemptions de-
scribed above. During 1998, five more of the Company's hospitals will become
subject to TEFRA Target provisions. The TEFRA Target limits have not had a ma-
terial adverse effect on the Company's results of operations, and the Company
does not expect that the TEFRA limits will have a material adverse effect on
the Company's results of operation in 1998. The reductions in the TEFRA incen-
tive payments, which are expected to be effective between May 1, 1998 and Sep-
tember 1, 1998 with respect to the Company's hospitals, will have an adverse
impact on hospital revenues in the future.
Medicare and Medicaid reimbursements were generally determined from annual cost
reports filed by the Company which are subject to audit by the respective
agency administering the programs. Management believes that adequate provisions
for loss have been recorded for the Company to reflect any adjustments which
could result from audits of these cost reports. Adjustments to the Company's
cost reports have not had an adverse effect on the Company's hospital operating
results.
Federal regulations provide that admission to and utilization of hospitals by
Medicare and Medicaid patients must be reviewed by peer review organizations
("PROs") in order to ensure efficient utilization of hospitals and services. A
PRO may conduct such review either prospectively or retroactively and may, as
appropriate, recommend denial of payments for services provided to a patient.
Such review is subject to administrative and judicial appeal. Each of the
Company's hospitals employs a clinical professional to administer the hospi-
tal's integrated quality assurance and improvement program, including its uti-
lization review program. PRO denials have not had a material adverse effect on
the Company's hospital operating results.
Medicare and Medicaid Antikickback Amendments prohibit certain business prac-
tices and relationships that might affect the provision and cost of healthcare
services reimbursable under Medicare and Medicaid. Sanctions for violating the
Antikickback Amendments include criminal and civil penalties and exclusion from
the Medicare and Medicaid programs. Pursuant to the Medicare and Medicaid Pa-
tient and Program Protection Act of 1987, HHS and the Office of the Inspector
General ("OIG") specified certain Safe Harbors which describe conduct and busi-
ness relationships permissible under the Antikickback Amendments. These Safe
Harbor regulations may result in more aggressive enforcement of the
Antikickback Amendments by HHS and the OIG.
Section 1877 of the Social Security Act (commonly known as "Stark I") states
that a physician who has a financial relationship with a clinical laboratory is
generally prohibited from referring patients to that laboratory. The Omnibus
Budget Reconciliation Act of 1993 contains provisions ("Stark II") amending
Section 1877 to greatly expand the scope of Stark I. Effective January 1995,
Stark II broadened the referral limitations of Stark I to include, among other
designated health services, inpatient and outpatient hospital services. Under
Stark I and Stark II (collectively referred to as the "Stark Provisions"), a
"financial relationship" is defined as an ownership interest or a compensation
arrangement. If such a financial relationship exists, the entity is generally
prohibited from claiming payment for such services under the Medicare or Medic-
aid programs. Compensation arrangements are generally exempted from the Stark
Provisions if, among other things, the compensation to be paid is set in ad-
vance, 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 gen-
erated between the parties. These laws and regulations, however, are extremely
complex and the industry has the benefit of little judicial or regulatory in-
terpretation. The Company expects that business practices of providers and fi-
nancial relationships between providers will be subject to increased scrutiny
as healthcare reform efforts continue on the Federal and state levels.
The Budget Act provides a number of new antifraud and abuse provisions. The
Budget Act contains new civil monetary penalties for violations of the
Antikickback Amendments and imposes an affirmative duty on providers to ensure
that they do not employ or contract with persons excluded from the Medicare
program. The Budget Act also provides a minimum ten year period for exclusion
from participation in Federal healthcare programs for persons convicted of a
prior healthcare offense.
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JCAHO Accreditation. Hospitals receive accreditation from JCAHO, a nationwide
commission which establishes standards relating to the physical plant, admin-
istration, quality of patient care and operation of medical staffs of hospi-
tals. Generally, hospitals and certain other healthcare facilities are re-
quired to have been in operation at least six months in order to be eligible
for accreditation by JCAHO. After conducting on-site surveys, JCAHO awards ac-
creditation for up to three years to hospitals found to be in substantial com-
pliance with JCAHO standards. Accredited hospitals are periodically resur-
veyed, at the option of JCAHO, upon a major change in facilities or organiza-
tion and after merger or consolidation. As of March 31, 1998, 58 of the hospi-
tals operated by the Company were accredited by JCAHO. The Company intends to
apply for JCAHO accreditation for its other hospitals within the next year.
The Company intends to seek and obtain JCAHO accreditation for any additional
facilities it may purchase or lease and convert into long-term hospitals. The
Company does not believe that the failure to obtain JCAHO accreditation at any
hospital would have a material adverse effect on the Company's results of op-
erations.
State Regulatory Environment. The Company operates seven hospitals and a
chronic unit in Florida, a state which regulates hospital rates. These opera-
tions contributes a significant portion of the Company's revenues and operat-
ing income from its hospitals. Accordingly, the Company's hospital revenues
and operating income could be materially adversely affected by Florida rate
setting laws or other cost containment efforts. The Company also operates 11
hospitals in Texas, nine hospitals in California, and five hospitals in Illi-
nois which contribute a significant portion of the Company's revenues and op-
erating income from its hospitals. Although Texas, California and Illinois do
not currently regulate hospital rates, the adoption of such legislation or
other cost containment measures in these or other states could have a material
adverse effect on the Company's hospital revenues and operating income. More-
over, the repeal of the Boren Amendment by the Budget Act eases the impedi-
ments on the states' ability to reduce their Medicaid reimbursement levels.
The Company is unable to predict whether and in what form such legislation
will be adopted. Certain other states in which the Company operates hospitals
require disclosure of specified financial information. In evaluating markets
for expansion, the Company considers the regulatory environment, including but
not limited to, any mandated rate setting.
Nursing Centers
The Company's nursing center business is subject to various Federal and state
regulations. In particular, the development and operation of nursing centers
and the provision of healthcare services are subject to Federal, state and lo-
cal laws relating to the adequacy of medical care, equipment, personnel, oper-
ating policies, fire prevention, rate-setting and compliance with building
codes and environmental laws. Nursing centers are subject to periodic inspec-
tion by governmental and other authorities to assure continued compliance with
various standards, their continued licensing under state law, certification
under the Medicare and Medicaid programs and continued participation in the
Veterans Administration program. The failure to obtain or renew any required
regulatory approvals or licenses could adversely affect the Company's opera-
tions.
Effective October 1, 1990, OBRA increased the enforcement powers of state and
Federal certification agencies. Additional sanctions were authorized to cor-
rect noncompliance with regulatory requirements, including fines, temporary
suspension of admission of new patients to nursing centers and, in extreme
circumstances, decertification from participation in the Medicare or Medicaid
programs.
The nursing centers managed and operated by the Company are licensed either on
an annual or bi-annual basis and certified annually for participation in Medi-
care and Medicaid programs through various regulatory agencies which determine
compliance with Federal, state and local laws. These legal requirements relate
to the quality of the nursing care provided, the qualifications of the admin-
istrative personnel and nursing staff, the adequacy of the physical plant and
equipment and continuing compliance with the laws and regulations governing
the operation of nursing centers. From time to time the nursing centers re-
ceive statements of deficiencies from regulatory agencies. In response, the
Company will implement plans of correction with respect to these nursing cen-
ters to address the alleged deficiencies. The Company believes that its nurs-
ing centers are currently in material compliance with all applicable regula-
tions or laws. See "Risk Factors--Certain Legal Proceedings and Other Ac-
tions."
In certain circumstances, Federal law mandates that conviction for certain
abusive or fraudulent behavior with respect to one nursing center may subject
other facilities under common control or ownership to disqualification for
participation in Medicare and Medicaid programs. In addition, some state regu-
lations provide that all nursing centers under common control or ownership
within a state are subject to delicensure if any one or more of such facili-
ties are delicensed.
Revised Federal regulations under OBRA, which became effective in 1995, affect
the survey process for nursing centers and the authority of state survey agen-
cies and HCFA to impose sanctions on facilities based upon noncompliance with
requirements. Available sanctions include imposition of civil monetary penal-
ties, temporary suspension of payment for new
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<PAGE>
admissions, appointment of a temporary manager, suspension of payment for eli-
gible patients and suspension or decertification from participation in the Med-
icare and/or Medicaid programs. The Company is unable to project how these reg-
ulatory changes and their implementation will affect the Company.
In addition to license requirements, many states have statutes that require a
CON to be obtained prior to the construction of a new nursing center, the addi-
tion of new beds or services or the incurrence of certain capital expenditures.
Certain states also require regulatory approval prior to certain changes in
ownership of a nursing center. Certain states have eliminated their CON pro-
grams and other states are considering alternatives to their CON programs. To
the extent that CONs or other similar approvals are required for expansion of
the Company's operations, either through facility acquisitions, expansion or
provision of new services or other changes, such expansion could be adversely
affected by the failure or inability to obtain the necessary approvals, changes
in the standards applicable to such approvals or possible delays and expenses
associated with obtaining such approvals.
The Company's operations are also subject to Federal and state laws which gov-
ern financial and other arrangements between healthcare providers. These laws
often prohibit certain direct and indirect payments or fee-splitting arrange-
ments between healthcare providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. Such laws include the Antikickback Amendments.
These provisions prohibit, among other things, the offer, payment, solicitation
or receipt of any form of remuneration in return for the referral of Medicare
and Medicaid patients. These operations also are subject to additional
antifraud and abuse provisions contained in the Budget Act. In addition, some
states restrict certain business relationships between physicians and pharma-
cies, and many states prohibit business corporations from providing, or holding
themselves out as a provider of, medical care. Possible sanctions for violation
of any of these restrictions or prohibitions include loss of licensure or eli-
gibility to participate in reimbursement programs as well as civil and criminal
penalties. These laws vary from state to state.
A substantial portion of the Company's nursing center revenues are derived from
patients covered by Medicare and Medicaid. See "--Nursing Center Operations--
Sources of Nursing Center Revenues." The Budget Act requires the establishment
of a prospective payment system for nursing centers for cost reporting periods
beginning on or after July 1, 1998. During the first three years, the per diem
rates for nursing centers will be based on a blend of facility-specific costs
and Federal costs. Thereafter, the per diem rates will be based solely on Fed-
eral costs. The rates for such services were made available by HCFA on May 5,
1998. The prospective payment system also will cover ancillary services pro-
vided to nursing center patients under the Company's Vencare contract services
business.
Pharmacies
The Company's pharmaceutical operations are subject to regulation by the vari-
ous states in which the Company conducts its business as well as by the Federal
government. The Company's pharmacies are regulated under the Food, Drug and
Cosmetic Act and the Prescription Drug Marketing Act, which are administered by
the United States Food and Drug Administration. Under the Comprehensive Drug
Abuse Prevention and Control Act of 1970, which is administered by the United
States Drug Enforcement Administration ("DEA"), dispensers of controlled sub-
stances must register with the DEA, file reports of inventories and transac-
tions and provide adequate security measures. Failure to comply with such re-
quirements could result in civil or criminal penalties.
Healthcare Reform Legislation
In recent years, an increasing number of legislative proposals have been intro-
duced or proposed in Congress and in some state legislatures that could effect
major changes in the healthcare system. The Budget Act, enacted in August 1997,
contains extensive changes to the Medicare and Medicaid programs intended to
reduce the projected amount of increase in payments under those programs by
$115 billion and $13 billion, respectively, over the next five years. Under the
Budget Act, annual growth rates for Medicare will be reduced from over 10% to
approximately 7.5% for the next five years based on specific program baseline
projections from the last five years. Virtually all spending reductions will
come from providers and changes in program components. The Budget Act affects
reimbursement systems for each of the Company's operating units.
The Budget Act will reduce payments made to the Company's hospitals by reducing
TEFRA incentive payments, allowable costs for capital expenditures and bad
debts, and payments for services to patients transferred from a PPS hospital.
The reductions in allowable costs for capital expenditures became effective Oc-
tober 1, 1997. The reductions in the TEFRA incentive payments and allowable
costs for bad debts are expected to be effective between May 1, 1998 and Sep-
tember 1, 1998 with respect to the Company's hospitals. The reductions for pay-
ments for services to patients transferred from a PPS hospital are expected to
be effective October 1, 1998. The Budget Act also requires the establishment of
a prospective payment system for nursing centers for cost reporting periods be-
ginning on or after July 1, 1998. During the first three
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years, the per diem rates for nursing centers will be based on a blend of fa-
cility-specific costs and Federal costs. Thereafter, the per diem rates for
nursing centers will be based solely on Federal costs. The rates for such serv-
ices were made available by HCFA on May 5, 1998. The payments received under
the new prospective payment system will cover all services for Medicare pa-
tients, including all ancillary services, such as respiratory therapy, physical
therapy, occupational therapy, speech therapy and certain covered drugs.
Management believes that the Budget Act will adversely impact its hospital
business by reducing the payments previously described. Over the long term,
management believes that the new prospective payment system will benefit nurs-
ing center operations because (i) management believes that the average acuity
levels of its patients will exceed the national average (which should result in
increased payments per patient day) and (ii) the Company expects to benefit
from its ability to reduce the cost of providing ancillary services to patients
in its facilities. As the nursing center industry adapts to the cost contain-
ment measures inherent in the new prospective payment system, the Company be-
lieves that the volume of ancillary services provided per patient day to nurs-
ing center patients could decline. In addition, as a result of these changes,
many nursing centers may elect to provide ancillary services to their patients
through internal staff and will no longer contract with outside parties for an-
cillary services. For these reasons and others, since the enactment of the Bud-
get Act, sales of new contracts have declined and may continue to decline sub-
ject to the Company's success in implementing its Vencare comprehensive, full-
service contracts sales strategy. The Company is actively implementing strate-
gies and operational modifications to address changes in the Federal reimburse-
ment system including reducing the number of therapists by approximately 1,000
and changing the skill mix of employees to reduce costs and maximize efficien-
cies.
In January 1998, HCFA issued rules changing Medicare reimbursement guidelines
for therapy services provided by the Company (including the rehabilitation con-
tract therapy business acquired as part of the acquisition of TheraTx). Under
the new rules, HCFA established salary equivalency limits for speech and occu-
pational therapy services and revised existing limits for physical and respira-
tory therapy services. The limits are based on a blend of data from wage rates
for hospitals and nursing centers, and include salary, fringe benefit and ex-
pense factors. Rates are defined by specific geographic market areas, based
upon a modified version of the hospital wage index. The new limits are effec-
tive for services provided on or after April 10, 1998 and are expected to im-
pact negatively Vencare operating results in 1998. The Company will continue to
charge client nursing centers in accordance with the revised guidelines until
such nursing centers transition to the new prospective payment system. Under
the new prospective payment system, the reimbursement for these services pro-
vided to nursing center patients will be a component of the total reimbursement
allowed per nursing center patient and the salary equivalency guidelines will
no longer be applicable. Most of the Company's client nursing centers are ex-
pected to transition to the new prospective payment system on or before January
1, 1999.
There also continues to be state legislative proposals that would impose more
limitations on government and private payments to providers of healthcare serv-
ices such as the Company. Many states have enacted or are considering enacting
measures that are designed to reduce their Medicaid expenditures and to make
certain changes to private healthcare insurance. Some states also are consider-
ing regulatory changes that include a moratorium on the designation of addi-
tional long-term care hospitals and changes in the Medicaid reimbursement sys-
tem applicable to the Company's hospitals. There are also a number of legisla-
tive proposals including cost caps and the establishment of Medicaid prospec-
tive payment systems for nursing centers. Moreover, by repealing the Boren
Amendment, the Budget Act eases existing impediments on the states' ability to
reduce their Medicaid reimbursement levels.
There can be no assurance that the Budget Act, new salary equivalency rates,
future healthcare legislation or other changes in the administration or inter-
pretation of governmental healthcare programs will not have a material adverse
effect on the Company's financial condition, results of operations and liquidi-
ty.
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RELATIONSHIP BETWEEN PREDECESSOR COMPANY AND THE GUARANTOR
For the purpose of governing certain of the ongoing relationships between Pred-
ecessor Company and the Guarantor after the Distribution and to provide mecha-
nisms for an orderly transition, Predecessor Company and the Guarantor or their
respective subsidiaries, as applicable, have entered into the various agree-
ments and adopted policies. The Company believes that the agreements contain
terms which generally are comparable to those which would have been reached in
arm's length negotiations with unaffiliated parties.
REORGANIZATION AGREEMENT
Predecessor Company and the Guarantor entered into the Reorganization Agreement
which provides for, among other things, the conditions to the Reorganization
Transactions, the various actions taken in connection with the Reorganization
Transactions and the relationship among the parties subsequent to the Distribu-
tion.
The Reorganization Agreement provides that (i) Predecessor Company shall assume
all "Vencor Liabilities" (as defined in the Reorganization Agreement), and (ii)
the Guarantor shall assume all "Healthcare Company Liabilities" (as defined in
the Reorganization Agreement), including potential liabilities incurred in con-
nection with certain legal proceedings.
In addition, the Reorganization Agreement provides for cross-indemnities that
require (i) Predecessor Company to indemnify the Guarantor (and its subsidiar-
ies, directors, officers, employees and agents and certain other related par-
ties) against all Vencor Liabilities, liabilities that arise out of, or in con-
nection with, the use and operation of the "Vencor Assets" (as defined in the
Reorganization Agreement) by Predecessor Company following the Distribution and
all losses of the Guarantor (and its subsidiaries, directors, officers, employ-
ees and agents and certain other related parties) relating to, arising out of
or due to the failure to pay, perform or discharge in due course the Vencor Li-
abilities by any member of Predecessor Company's group of companies which has
an obligation with respect thereto and (ii) the Guarantor to indemnify Prede-
cessor Company (and its respective subsidiaries, directors, officers, employees
and agents and certain other related parties) against all Healthcare Company
Liabilities, liabilities that arise out of, or in connection with, the use and
operation of the "Healthcare Company Assets" (as defined in the Reorganization
Agreement) by the Guarantor following the Distribution and all losses of Prede-
cessor Company (and its subsidiaries, directors, officers, employees and agents
and certain other related parties) relating to, or arising out of or due to the
failure to pay, perform or discharge in due course the Healthcare Company Lia-
bilities by any member of the Guarantor's group of companies which has an obli-
gation with respect thereto.
MASTER LEASE AGREEMENT
Predecessor Company and the Guarantor entered into four master lease agreements
(collectively, the "Master Lease Agreement") that set forth the material terms
governing the lease of each Leased Property (and upon completion of develop-
ment, the Development Properties purchased by Predecessor Company). The Leased
Properties are divided into groups of properties and a Master Lease Agreement
was entered into with respect to each such group of properties (each a
"Lease"). The following description of the Master Lease Agreement does not pur-
port to be complete but contains a summary of the material provisions of the
Master Lease Agreement.
Concurrently with the Reorganization Transactions, Predecessor Company leased
the Leased Properties to the Guarantor. The Guarantor assigned the Leases to
subsidiaries of the Guarantor pursuant to the Leases. The Guarantor continues
to guaranty the obligations under the Leases. Each Lease includes land, build-
ings, structures and other improvements on the land, easements and similar ap-
purtenances to the land and improvements, and permanently affixed equipment,
machinery and other fixtures relating to the operation of the Leased Proper-
ties.
The Leases have primary terms ranging from 10 to 15 years (the "Base Term"). At
the option of the Guarantor, the Leases may be extended for one five-year re-
newal term beyond the Base Term (the "First Renewal Term") at the then existing
rental rate plus 2% per annum. At the option of the Guarantor, the Leases may
be extended for two additional five-year renewal terms beyond the First Renewal
Term (together with the First Renewal Term, the "Renewal Term") at the then
fair market value rental rate. The Base Term and Renewal Term of each Lease is
subject to termination upon default by either party and certain other condi-
tions described in the Leases.
Use of the Leased Property
The Master Lease Agreement requires that the Guarantor utilize the Leased Prop-
erties solely for the provision of healthcare services and related uses and as
Predecessor Company may otherwise consent (which consent may be granted or
withheld in its discretion). The Guarantor is responsible for maintaining or
causing to be maintained all licenses, certificates and
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permits necessary for it to comply with the Healthcare Regulations. The Guaran-
tor is obligated to continuously operate each Leased Property as a provider of
healthcare services.
Rental Amounts
The Master Lease Agreement is what is commonly known as a triple-net lease or
an absolute-net lease. The Annual Base Rent (as defined in the Master Lease
Agreement) for the twelve-month period commencing on the Distribution Date for
the Leased Properties is approximately $221.5 million, with a 2% per annum es-
calator over the previous twelve-month period if certain lessee revenue parame-
ters are obtained. In addition, the Guarantor is required to pay for (i) all
insurance required in connection with the Leased Properties and the business
conducted on the Leased Properties, (ii) all taxes levied on or with respect to
the Leased Properties (other than taxes on the net income of Predecessor Compa-
ny) and (iii) all utilities and other services necessary or appropriate for the
Leased Properties and the business conducted on the Leased Properties.
Maintenance, Modification and Capital Additions
The Guarantor is required to maintain the Leased Properties in good repair and
condition, making all repairs, modifications and additions required by law, in-
cluding any Capital Addition (as defined). The Guarantor is required to pay for
all Maintenance Capital Expenditures. Maintenance Capital Expenditures are all
capital expenditures and other expenses for the maintenance, repair, restora-
tion or refurbishment of a Leased Property (and any Capital Addition). The
Guarantor is also required under the Master Lease Agreement to maintain all
personal property at each of the Leased Properties in good order, condition and
repair, as shall be necessary to operate the Leased Property in compliance with
all applicable licensure and certification requirements, in compliance with all
applicable legal requirements and insurance requirements and otherwise in ac-
cordance with customary practice in the industry.
The Guarantor may undertake any capital addition that materially adds to or im-
proves a Leased Property (a "Capital Addition") provided that Predecessor Com-
pany shall approve the plans and specifications, and the Guarantor complies
with customary construction requirements. In addition, the Guarantor's right to
make such Capital Additions will be subject to prior approval of the mortgage
lien holder, if any, on the applicable Leased Property. Predecessor Company
may, at its option, elect to pay for or finance all or part of the cost of such
Capital Addition in which event the base rent for the Leased Properties will be
adjusted. To the extent Predecessor Company has not elected to pay for, or fi-
nance, any part of such cost, the Guarantor will not be permitted to commence
any such Capital Addition unless it has demonstrated to the reasonable satis-
faction of Predecessor Company that it has the funds or the financing reasona-
bly estimated to be necessary to complete such Capital Addition. If the Guaran-
tor pays for, or finances, the Capital Addition, the base rent will not be ad-
justed. Any Capital Addition will become the property of Predecessor Company
and subject to the Master Lease Agreement as part of the Leased Properties.
Insurance
The Guarantor is required to maintain liability, all risk property and workers'
compensation insurance for the Leased Properties at a level at least comparable
to those in place with respect to the Leased Properties as of the Distribution
Date.
The Master Lease Agreement provides that in the event a Leased Property is to-
tally destroyed, or is substantially destroyed such that the damage renders the
Leased Property unsuitable for its intended use as a result of a casualty cov-
ered by insurance, the Guarantor will have the option to either restore the
Leased Property at the Guarantor's cost to its pre-destruction condition or of-
fer to purchase the Leased Property (in either event all insurance proceeds,
net of administrative and related costs, will be made available to the Guaran-
tor). If Predecessor Company rejects the offer to purchase, the Guarantor will
have the option to either restore the Leased Property or terminate the Lease
with respect to the Leased Property. If the damage is such that the Leased
Property is not rendered unsuitable for its intended use, or if it is not cov-
ered by insurance, the Master Lease Agreement requires the Guarantor to restore
the Leased Property to its original condition.
Environmental Matters
The Master Lease Agreement provides that the Guarantor will indemnify Predeces-
sor Company (and its officers, directors and stockholders) against any environ-
mental claims (including penalties and clean up costs) resulting from any con-
dition arising on or under, or relating to, the Leased Properties at any time
on or after the date of the Master Lease Agreement. The Guarantor also will in-
demnify Predecessor Company (and its officers, directors and stockholders)
against any environmental claim (including penalties and clean up costs) re-
sulting from any condition permitted to deteriorate, on or after the date of
the Master Lease Agreement. Predecessor Company will indemnify the Guarantor
(and its officers, directors and stockholders) against any environmental claims
(including penalties and clean-up costs) resulting from any condition arising
on or under, or relating to, the Leased Properties at any time before the date
of the Master Lease Agreement.
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Assignment and Subletting
The Master Lease Agreement provides that the Guarantor may not assign, sublease
or otherwise transfer any Lease or any portion of a Leased Property as a whole
(or in substantial part), including upon a Change of Control (as defined),
without the consent of Predecessor Company, which may not be unreasonably with-
held if the proposed assignee is a creditworthy entity with sufficient finan-
cial stability to satisfy its obligations under the lease, has not less than
four years experience in operating health care facilities, has a favorable
business and operational reputation and character and agrees to comply with the
use restrictions in the Master Lease Agreement. Predecessor Company's obliga-
tion to consent to a subletting or assignment is subject to the reasonable ap-
proval rights of any Facility Mortgagee (as defined) and/or the lenders under
the Company Credit Agreement. The Guarantor may sublease up to 20% of each
Leased Property for restaurants, gift shops and other stores or services cus-
tomarily found in hospitals or nursing centers without the consent of Predeces-
sor Company, subject, however, to there being no material alteration in the
character of the Leased Property or in the nature of the business conducted on
such Leased Property and to requirements of the Code with which Predecessor
Company must comply to retain REIT status. A "Change of Control" under the Mas-
ter Lease Agreement includes any of (a) a change in the composition of the
board of directors of either the Guarantor or the tenant such that at the end
of any period of 12 consecutive months the persons constituting a majority of
such board of directors are not the same as the persons constituting a majority
at the start of such period (or persons appointed by such majority), (b) the
sale or other disposition by the Guarantor of any part of its interest in the
tenant or substantially all of the assets of the Guarantor (other than a bona
fide pledge in connection with a commercial financing) or (c) a merger or con-
solidation involving the Guarantor as a result of which the stockholders of the
Guarantor immediately prior to such event do not own at least 50% of the capi-
tal stock of the surviving entity. A Change of Control will constitute an as-
signment for purposes of the Master Lease Agreement.
Events of Default
An "Event of Default" will be deemed to have occurred under any Lease if, among
other things, the Guarantor fails to pay rent or other amounts within five days
after notice; fails to comply with covenants continuing for 30 days or, so long
as diligent efforts to cure such failure are being made, such longer period
(not over 180 days) as is necessary to cure such failure; ceases to operate any
Leased Property as a provider of healthcare services; loses any required
healthcare license, permit or approval; fails to maintain insurance; creates or
allows to remain certain liens; certain bankruptcy or insolvency events occur;
a reduction occurs in the number of licensed beds in excess of 10% of the num-
ber of licensed beds in the applicable facility on the date the applicable fa-
cility is leased; certification for reimbursement under Medicare with respect
to a participating facility is revoked; or a tenant becomes subject to regula-
tory sanctions and has failed to cure or satisfy such regulatory sanctions
within its specified cure period in any material respect with respect to any
facility. Upon an Event of Default under a particular Master Lease Agreement,
the Predecessor Company may terminate such agreement on ten days' notice and
repossess all of the facilities subject to such Master Lease Agreement.
If an Event of Default caused by (i) the loss of any required healthcare li-
cense, permit or approval, (ii) a reduction in the number of licensed beds in
excess of 10% of the number of licensed beds in the applicable facility or a
revocation of certification for reimbursement under Medicare with respect to
any facility that participates in such programs, or (iii) the tenant becoming
subject to regulatory sanctions and failing to cure or satisfy such regulatory
sanctions within its specified cure period, Predecessor Company may, if it so
desires, terminate the lease with respect to the applicable facility that is
the subject of the Event of Default and collect liquidated damages attributable
to such facility multiplied by the number of years remaining on the lease; pro-
vided, however, that after the occurrence of four Events of Default as set
forth in this paragraph, determined on a cumulative basis, Predecessor Company
shall be permitted, if it so desires, to exercise all of the rights and reme-
dies set forth in the Master Lease Agreement with respect to all facilities
covered under the Master Lease Agreement, without regard to the facility from
which the Event of Default emanated.
The Guarantor's Right of First Refusal to Purchase
The Master Lease Agreement provides that if Predecessor Company receives a bona
fide offer from a third party to purchase any Leased Property during the first
three years of the Base Term and Predecessor Company wishes to accept the of-
fer, prior to entering into a contract of sale with the third party, Predeces-
sor Company must first offer the Guarantor the right to purchase the Leased
Property on substantially the same terms and conditions as are contained in the
third party offer.
Governing Law
The Leases with respect to any particular property are governed by New York
law, except as to the creation of the leasehold estate and the remedies, which
are governed by the law of the jurisdiction in which the Leased Property is lo-
cated.
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DEVELOPMENT AGREEMENT
Predecessor Company and the Guarantor entered into the Development Agreement
pursuant to which the Guarantor may develop the Development Properties. The
Guarantor, if it so desires, will complete the construction of each Development
Property substantially in accordance with the existing plans and specifications
for each such Development Property. The Guarantor will proceed diligently to
complete the development of each Development Property in accordance with the
existing construction schedule. Upon completion of each such Development Prop-
erty, Predecessor Company will have the option to purchase the Development
Property from the Guarantor at a purchase price equal to the amount of the
Guarantor's actual costs in acquiring, developing and improving such Develop-
ment Property prior to the purchase date.
If Predecessor Company purchases a Development Property from the Guarantor, the
Guarantor will lease such Development Property from Predecessor Company. The
annual base rent to be paid by the Guarantor under such leases will be ten per-
cent of the actual cost incurred by the Guarantor in acquiring and developing
such Development Property. The terms of the leases for such Development Proper-
ties will be substantially similar to those set forth in the Master Lease
Agreement.
Although the Guarantor is under no obligation to develop the Development Prop-
erties, if the Guarantor determines to develop any Development Property, each
such Development Property shall be subject to the Development Agreement.
PARTICIPATION AGREEMENT
Predecessor Company and the Guarantor entered into the Participation Agreement
to provide each other with rights to participate in certain transactions for a
period of three years following the Reorganization Transactions. The Participa-
tion Agreement provides, subject to certain terms, that Predecessor Company
will provide the Guarantor with a right of first offer to become the lessee of
any real property acquired or developed by Predecessor Company and to be oper-
ated as a hospital, nursing center or other healthcare facility, provided that
the Guarantor and Predecessor Company negotiate a mutually satisfactory lease
arrangement. As to opportunities for the Guarantor to become the lessee of any
assets under such a lease arrangement, the Participation Agreement provides
that Predecessor Company must provide the Guarantor with written notice of the
lease opportunity. During the 30 days following such notice, the Guarantor will
have a right of first offer to become a lessee and the right to negotiate with
Predecessor Company on an exclusive basis regarding the terms and conditions of
the lease. If a mutually satisfactory agreement cannot be reached within the
30-day period (or such longer period to which the Guarantor and Predecessor
Company may agree), Predecessor Company may offer the opportunity to others for
a period of 180 days thereafter before it must again offer the opportunity to
the Guarantor in accordance with the procedures specified above. Predecessor
Company is not required to provide the Guarantor with a right of first offer
when the real property is being operated by a third party on the date of acqui-
sition or completion of development.
The Participation Agreement also provides, subject to certain terms, that the
Guarantor will provide Predecessor Company with a right of first offer to pur-
chase or finance any healthcare related real property that the Guarantor deter-
mines to sell or mortgage to a third party, provided that the Guarantor and
Predecessor Company negotiate mutually satisfactory terms for such purchase or
mortgage. The Guarantor must provide Predecessor Company with written notice of
the purchase or mortgage opportunity. During the 30 days following such notice,
Predecessor Company will have a right of first offer to become the owner of
such property and the right to negotiate with the Guarantor on an exclusive ba-
sis regarding the terms and conditions of such purchase or mortgage. If a mutu-
ally satisfactory agreement cannot be reached within the 30-day period (or such
longer period to which the Guarantor and Predecessor Company may agree), the
Guarantor may offer the opportunity to others for a period of 180 days thereaf-
ter before it must again offer the opportunity to Predecessor Company in accor-
dance with the procedures specified above; provided, however, that Predecessor
Company may not lease such real property to a third party for less than the
Guarantor's final offer for such property without the Guarantor first being
given an opportunity to match such third party's offer and that Predecessor
Company may not sell or mortgage such real property to a third party for less
than the Guarantor's final offer for such purchase or mortgage of the property
without Predecessor Company first being given an opportunity to match such
third party's offer. The Guarantor will not be required to provide Predecessor
Company with a right of first offer when the Guarantor elects to retain owner-
ship of a property or if the Guarantor decides to sell the operations of the
facility related to the real property.
Each of Predecessor Company and the Guarantor have the right to terminate the
Participation Agreement in the event of a Change of Control (as defined in the
Master Lease Agreement) of the other party.
EMPLOYEE BENEFITS AGREEMENT
Predecessor Company and the Guarantor entered into the Employee Benefits Agree-
ment with regard to their respective liabilities for employee benefit-related
matters for employees of Predecessor Company and the Guarantor in respect of
periods before and after the Distribution Date and to provide for certain other
employee benefit matters.
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The Employee Benefits Agreement provides that the Guarantor establish and as-
sume employee pension and welfare benefit plans which are generally comparable
to those provided by Predecessor Company as of the Distribution Date. These
plans include comprehensive health and life insurance, disability, retirement
and 401(k) plans. On or prior to the Distribution Date, Predecessor Company
and the Guarantor took such actions to cause (i) Predecessor Company to autho-
rize the substitution of the Guarantor as plan sponsors and plan administra-
tors of the Predecessor Company's Retirement Savings Plan and the Retirement
Savings Plan for Certain Employees of Predecessor Company and (ii) the Guaran-
tor to assume and be solely responsible for all liabilities and obligations as
of the Distribution Date of Predecessor Company under such plans, except as
otherwise provided in the Employee Benefits Agreement.
The Employee Benefits Agreement provides for (i) the Guarantor to establish a
supplemental executive retirement plan with terms and conditions substantially
identical to Predecessor Company's Supplemental Executive Retirement Plan, and
for the Guarantor to be solely responsible for the liabilities under such plan
with respect to the employees of the Guarantor immediately after the Distribu-
tion Date who were participants in such plan, and (ii) the Guarantor to assume
and be solely responsible for the liabilities under The Hillhaven Corporation
Supplemental Executive Retirement Plan, other than for participants in such
plan who are Predecessor Company employees immediately following the Distribu-
tion Date.
The Employee Benefits Agreement also provides that the Guarantor establish (i)
a deferred compensation plan with terms and conditions substantially identical
to those of Predecessor Company's Deferred Compensation Plan, and that Prede-
cessor Company assign and the Guarantor assume and be solely responsible for
the payment of liabilities for deferred compensation under such plan to the
employees of the Guarantor immediately after the Distribution Date who were
participants in such plan and are not continuing employees of Predecessor Com-
pany, and former Predecessor Company employees entitled to benefits thereun-
der, and (ii) a non-employee directors deferred compensation plan with terms
and conditions substantially identical to those of Predecessor Company's Non-
Employee Directors Deferred Compensation Plan, and that Predecessor Company
assign and the Guarantor assume and be solely responsible for the payment of
liabilities for deferred compensation under such plan to the directors of the
Guarantor immediately after the Distribution Date who were participants in
such plan and are not continuing directors of Predecessor Company.
The Employee Benefits Agreement further provides that Predecessor Company and
the Guarantor take such action for Predecessor Company to assign and the Guar-
antor to assume and be solely responsible for liabilities and obligations un-
der any individual agreement between Predecessor Company and any of its em-
ployees under which certain benefits are payable upon a termination of employ-
ment under certain enumerated circumstances following a Change in Control (as
defined in such employment agreements); provided that such agreements will be
modified to cover solely a Change in Control of the Guarantor.
The Employee Benefits Agreement also provides for the establishment of certain
incentive compensation and stock option plans providing certain equity-based
benefits to certain employees and non-employee directors of the Guarantor
which are generally comparable to those provided by Predecessor Company. In
connection with the establishment of such plans, the Guarantor assumed and be-
came liable for certain obligations payable to the Guarantor's employees and
non-employee directors under those plans. On the Distribution Date, the Guar-
antor assumed certain substitute options (described below) issued in respect
of Predecessor Company options granted under certain Predecessor Company in-
centive compensation and stock option plans to employees and non-employee di-
rectors.
The Employee Benefits Agreement also provides for the treatment of outstanding
options to purchase Predecessor Company common stock ("Existing Options"). As
of the Distribution Date, each Existing Option was adjusted pursuant to the
provisions of the applicable plan under which such option was granted and the
agreement evidencing such option to reflect the Distribution, with the result
that each Existing Option was replaced as of the Distribution Date with an op-
tion to purchase the Guarantor common stock and an option to purchase Prede-
cessor Company common stock ("Guarantor Options" and "Predecessor Company Op-
tions," respectively). The number of shares of Predecessor Company common
stock subject to options equals the number of shares of the Guarantor common
stock subject to options. The exercise price of the Predecessor Company Option
was modified, and the exercise price of the Guarantor Option was set, so that
the combined exercise price of the options to purchase the Guarantor common
stock and Predecessor Company common stock equaled that of the Existing Op-
tions, allocated between the Guarantor Options and Predecessor Company Options
in proportion to the market value of the Guarantor common stock and Predeces-
sor Company common stock immediately following the Distribution. The holder is
permitted to exercise each option separately, while employed by the Predeces-
sor Company or the Guarantor and during such subsequent period as is permitted
under the applicable plan and agreement evidencing such option. All other
terms of the Existing Options remained the same following the Distribution.
Predecessor Company is responsible for the
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<PAGE>
delivery of shares of Predecessor Company common stock upon exercise of a
Predecessor Company Option, and the Guarantor is responsible for the delivery
of shares of the Guarantor common stock upon exercise of a Guarantor Option
regardless of which entity employs the holder of such options at the time of
exercise.
The Employee Benefits Agreement also provides for the treatment of performance
shares awarded under Predecessor Company's 1987 Incentive Compensation Program
(the "Program") but not earned as of the Distribution Date. Such outstanding
awards were adjusted pursuant to the provisions of the Program and the agree-
ment evidencing such award, with the result that such shares, in respect of
employees of the Guarantor immediately following the Distribution, be shares
of the Guarantor common stock, and in respect of employees of Predecessor Com-
pany immediately following the Distribution, be shares of Predecessor Company
common stock (in each case with appropriate increases to reflect the market
value of the Guarantor common stock and Predecessor Company common stock, re-
spectively, immediately following the Distribution), and in respect of indi-
viduals who are employees of both Predecessor Company and the Guarantor fol-
lowing the Distribution, be shares of both Predecessor Company common stock
and the Guarantor common stock (with similar appropriate adjustments).
The Employee Benefits Agreement also provides that as soon as practicable fol-
lowing the Distribution Date, but in no event later than January 1, 1999, all
employees of Predecessor Company who became employees of the Guarantor immedi-
ately following the Distribution, former Predecessor Company employees on
long-term disability and retirees, and dependents and survivors thereof (col-
lectively, "Covered Participants") will cease to be covered by Predecessor
Company's employee welfare benefit plans. On or prior to January 1, 1999, the
Guarantor will take such action as is necessary to establish welfare benefit
plans (substantially identical to Predecessor Company welfare benefit plans)
for the benefit of Covered Participants. The Employee Benefits Agreement fur-
ther provides for (i) the treatment of welfare benefit plan claims, (ii) the
Guarantor to cause to be waived certain pre-existing conditions and "actively
at work" requirements under its welfare benefit plans, (iii) the treatment of
disability claims and vacation accruals, and (iv) Predecessor Company and the
Guarantor to take any further action as is necessary to provide for the pro-
curement and continuation of welfare benefits for their respective employees.
The Employee Benefits Agreement provides that all active employees (with cer-
tain exceptions) of Predecessor Company were transferred to and become employ-
ees of the Guarantor or one of its subsidiaries or affiliates.
The Employee Benefits Agreement also provides that (i) each of Predecessor
Company and the Guarantor shall indemnify and hold harmless the other (includ-
ing their subsidiaries, directors, shareholders, officers, employees, agents,
consultants, representatives, successors, transferees or assignees) from any
Losses (as defined in the Employee Benefits Agreement) arising out of, or with
respect to, the liabilities and obligations assumed, and agreements made, by
each of them pursuant to the Employee Benefits Agreement, and (ii) in any sit-
uation where the liabilities or obligations of an employee benefit plan main-
tained by Predecessor Company prior to the Distribution Date are divided by
Predecessor Company and the Guarantor under the Employee Benefits Agreement,
there will be equitably shared by Predecessor Company and the Guarantor, in
proportion to the liabilities retained or assumed with respect to such plan as
of the Distribution Date over the total liabilities of such plan as of the
Distribution Date, any Losses arising out of, or with respect to, the liabili-
ties and obligation of such plan, other than arising out of or relating to
acts or omission occurring after the Distribution Date (except those acts or
omissions relating to investment performance and calculations of benefits af-
ter the Distribution Date).
INTELLECTUAL PROPERTY AGREEMENT
The Guarantor and Predecessor Company entered into the Intellectual Property
Agreement providing that all of the intellectual property owned or licensed by
Predecessor Company as of the Distribution Date be transferred to the Guaran-
tor, and the Guarantor grant to Predecessor Company a royalty-free perpetual
license to use certain intellectual property, subject to termination upon the
occurrence of certain events, including a change of control or bankruptcy of
Predecessor Company.
TAX ALLOCATION AGREEMENT
Predecessor Company and the Guarantor entered into the Tax Allocation Agree-
ment which allocates responsibility for U.S. Federal income and various other
taxes ("Taxes") among the companies.
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The Tax Allocation Agreement provides that Predecessor Company will be liable
for Taxes of Predecessor Company's consolidated group attributable to periods
prior to the Distribution Date (the "Pre-Distribution Taxes") with respect to
the portion of such Taxes attributable to the property to be held by Predeces-
sor Company after the Distribution Date, and the Guarantor will be liable for
Pre-Distribution Taxes with respect to the portion of such Taxes attributable
to property to be held by the Guarantor after the Distribution Date. Predeces-
sor Company will be liable for any Taxes attributable to the Reorganization
Transactions and the Distribution except that the Guarantor will be liable for
any such Taxes to the extent that the Guarantor is expected to derive certain
future Tax benefits (regardless of whether the Guarantor's tax liability is ac-
tually reduced) as a result of the payment of such Taxes. Predecessor Company
and its subsidiaries are liable for Taxes payable with respect to periods after
the Distribution Date that are attributable to Predecessor Company's operations
after the Distribution Date and the Guarantor and its subsidiaries are liable
for Taxes payable with respect to periods after the Distribution Date that are
attributable to the Guarantor's operations after the Distribution Date. If, in
connection with a Tax audit or the filing of an amended return, a taxing au-
thority adjusts Predecessor Company's or the Guarantor's Tax liability with re-
spect to Taxes for which the other party was liable under the Tax Allocation
Agreement, such other party would be liable for the resulting Tax assessment or
would be entitled to the resulting Tax refunds.
TRANSITION SERVICES AGREEMENTS
Predecessor Company and the Guarantor entered into the Transition Services
Agreement, pursuant to which the Guarantor will provide Predecessor Company
with transitional administrative and support services, including but not lim-
ited to finance and accounting, human resources, risk management, legal sup-
port, and information systems support (the "Transition Services") through De-
cember 31, 1998. The Transition Services Agreement provides that, in considera-
tion for the performance of a Transition Service, Predecessor Company will pay
the Guarantor $200,000 per month for such services.
The Transition Services Agreement provides that the Guarantor has the right to
terminate the provision of certain Transition Services under certain circum-
stances including the occurrence of certain changes in the ownership or benefi-
cial control of Predecessor Company, and also contains provisions whereby Pred-
ecessor Company will generally agree to indemnify the Guarantor for all claims,
losses, damages, liabilities and other costs incurred by the Guarantor to a
third party which arise in connection with the provision of a Transition Serv-
ice, other than those costs resulting from the Guarantor's own willful miscon-
duct or fraud. In general, Predecessor Company can terminate a Transition Serv-
ice after an agreed notice period.
CONFLICTS OF INTEREST POLICIES
The Guarantor and Predecessor Company are permitted to pursue business opportu-
nities independently from one another, subject to certain rights of first of-
fer. As a result, the corporate objectives of the Guarantor and Predecessor
Company may not align and decisions of management at each may be subject to
conflicts of interest. In addition, certain contractual relations between the
two companies, such as the Master Lease Agreement and Development Agreement,
are subject to inherent conflicts of interest.
Each of Predecessor Company and the Guarantor has adopted certain policies to
minimize potential conflicts of interest with respect to their respective
Boards of Directors and officers, including forming a committee of independent
directors to review transactions which present such a conflict. In addition,
each of Predecessor Company's and the Guarantor's Boards of Directors are sub-
ject to certain provisions of Delaware law that are designed to eliminate or
minimize certain potential conflicts of interest. There can be no assurance,
however, that these policies and provisions always will be successful in elimi-
nating the influence of such conflicts, and as a result, most decisions relat-
ing to the contractual and other business relationships between Predecessor
Company and the Guarantor will continue to be subject to conflicts of interest
and loyalties.
CERTAIN LEGAL PROCEEDINGS AND OTHER ACTIONS
In connection with the Reorganization Agreement, liabilities arising from the
following legal proceedings and other actions were assumed by the Guarantor and
the Guarantor agreed to indemnify Predecessor Company against any losses it may
incur arising out of or in connection with such legal proceedings and other ac-
tions.
On April 7, 1998, the Circuit Court of the Thirteenth Judicial Circuit for
Hillsborough County, Florida, issued a temporary injunction order against the
Company's nursing center in Tampa, Florida which ordered the nursing center to
cease notifying and requiring the discharge of any resident. The Company dis-
continued requiring the discharge of any resident from its
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<PAGE>
Tampa nursing center on April 7, 1998. Following the conduct of a complaint
survey at the facility, AHCA imposed a fine of $270,000 for related regulatory
violations. In addition, HCFA has imposed a fine of $113,000. The Company has
appealed both the AHCA and HCFA fines. The Company submitted an acceptable
plan of correction at the Tampa nursing center and has been informed by AHCA
that "immediate jeopardy" no longer exists and the threatened termination of
the Tampa nursing center's Medicare provider agreement has been reversed.
The Tampa Prosecuting Attorney's office has indicated to the Company that it
is conducting an independent criminal investigation into the circumstances
surrounding the Tampa resident discharges. The Company is cooperating fully
with this investigation.
The Company has received notice that the State of Georgia has found regulatory
violations with respect to patient discharges, among other things, at one of
the Company's nursing centers in Savannah, Georgia. The state recommended a
federal fine of approximately $510,000 for these violations, and HCFA has im-
posed that fine. The Company has not yet determined whether it will appeal
this fine.
The HCFA Administrator of the Medicare and Medicaid programs has indicated
that the Company's facilities in other states also are being monitored. There
can be no assurance that HCFA or other regulators in other jurisdictions will
not initiate investigations relating to these matters or other circumstances,
and there can be no assurance that the results of any such investigations
would not have a material adverse effect on the Company or the Guarantor. See
"Risk Factors--Healthcare Industry Risks."
On April 9, 1998, a class action lawsuit captioned Mongiovi et al. v. Vencor,
Inc., et al., Case No. 98-769-CIV-T24E, was filed in the United States Dis-
trict Court for the Middle District of Florida on behalf of a purported class
consisting of certain residents of the Tampa nursing center and other resi-
dents in the Company's nursing centers nationwide. The complaint alleges vari-
ous breaches of contract, and statutory and regulatory violations including
violations of Federal and state RICO statutes. The original complaint has been
amended to delineate several purported subclasses. The plaintiffs seek class
certification, unspecified damages, attorneys' fees and costs. The Company in-
tends to defend this action vigorously.
A class action lawsuit entitled A. Carl Helwig v. Vencor, Inc., et al. was
filed on December 24, 1997 in the United States District Court for the Western
District of Kentucky (Civil Action No. 3-97CV-8354). The class action claims
were brought by an alleged stockholder of the Guarantor against the Guarantor
and certain executive officers and directors of the Guarantor. The complaint
alleges that Guarantor and certain executive officers of Guarantor during a
specified time frame violated Sections 10(b) and 20(a) of the Exchange Act,
by, among other things, issuing to the investing public a series of false and
misleading statements concerning the Guarantor's current operations and the
inherent value of the Guarantor's common stock. The complaint further alleges
that as a result of these purported false and misleading statements concerning
the Guarantor's revenues and successful acquisitions, the price of the Guaran-
tor common stock was artificially inflated. In particular, the complaint al-
leges that the Guarantor issued false and misleading financial statements dur-
ing the first, second and third calendar quarters of 1997 which misrepresented
and understated the impact that changes in Medicare reimbursement policies
would have on the Guarantor's core services and profitability. The complaint
further alleges that the Guarantor issued a series of materially false state-
ments concerning the purportedly successful integration of its recent acquisi-
tions and prospective earnings per share for 1997 and 1998 which the Guarantor
knew lacked any reasonable basis and were not being achieved. The suit seeks
damages in an amount to be proven at trial, pre-judgment and post-judgment in-
terest, reasonable attorneys' fees, expert witness fees and other costs, and
any extraordinary equitable and/or injunctive relief permitted by law or eq-
uity to assure that the plaintiff has an effective remedy. The Guarantor be-
lieves that the allegations in the complaint are without merit and intends to
defend this action vigorously.
On June 19, 1997, a class action lawsuit was filed in the United States Dis-
trict Court for the District of Nevada on behalf of a class consisting of all
persons who sold shares of Transitional common stock during the period from
February 26, 1997 through May 4, 1997, inclusive. The complaint alleges that
Transitional purchased shares of its common stock from members of the invest-
ing public after it had received a written offer to acquire all of
Transitional's common stock and without disclosing that such an offer had been
made. The complaint further alleges that defendants disclosed that there were
"expressions of interest" in acquiring Transitional when, in fact, at that
time, the negotiations had reached an advanced stage with actual firm offers
at substantial premiums to the trading price of Transitional's stock having
been made which were actively being considered by Transitional's Board of Di-
rectors. The complaint asserts claims pursuant to Sections 10(b) and 20(a) of
the Exchange Act and common law principles of negligent misrepresentation and
names as defendants Transitional as well as certain senior executives and di-
rectors of Transitional. The plaintiff seeks class certification, unspec-
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<PAGE>
ified damages, attorneys' fees and costs. The Company has filed a motion to
dismiss and is awaiting the court's decision. The Company is vigorously defend-
ing this action.
The Company's subsidiary, American X-Rays, Inc. ("AXR"), is the defendant in a
qui tam lawsuit which was filed in the United States District Court for the
Eastern District of Arkansas and served on the Company on July 7, 1997. The
United States Department of Justice has intervened in the suit which was
brought under the Federal Civil False Claims Act. AXR provided portable X-ray
services to nursing facilities (including those operated by the Company) and
other healthcare providers. The Company's interest in AXR was acquired when
Hillhaven was merged into Predecessor Company in September 1995 and when Prede-
cessor Company purchased the remaining interest in AXR in February 1996. The
suit alleges that AXR submitted false claims to the Medicare and Medicaid pro-
grams. The suit seeks damages in an amount of not less than $1,000,000, treble
damages and civil penalties. In conjunction with the qui tam action, the United
States Attorney's Office for the Eastern District of Arkansas also is con-
ducting a criminal investigation into the allegations contained in the qui tam
complaint and has indicted four former employees of AXR. AXR has been informed
that it is not a target of the investigation. The Company is cooperating fully
in the investigation.
On June 6, 1997, Transitional announced that it had been advised that it was a
target of a Federal grand jury investigation being conducted by the United
States Attorney's Office for the District of Massachusetts (the "USAO") arising
from activities of Transitional's formerly owned dialysis business. The inves-
tigation involves an alleged illegal arrangement in the form of a partnership
which existed from June 1987 to June 1992 between Damon Corporation and Transi-
tional. Transitional spun off its dialysis business, now called Vivra Incorpo-
rated, on September 1, 1989. In January 1998, the Company was informed that no
criminal charges would be filed against the Company. The Company has further
been informed that the USAO intends to file a civil action against Transitional
relating to the partnership's former Medicare billing practices. If such a suit
is filed, the Company will vigorously defend the action.
As is typical in the healthcare industry, the Company and the Guarantor are
subject to claims and legal actions by patients and others in the ordinary
course of business; and the Company and the Guarantor believe that all such
claims and legal actions currently pending against them either are adequately
covered by insurance or would not have a material adverse effect on the Company
or the Guarantor if decided in a manner unfavorable to them. In addition, the
Company and the Guarantor are subject regularly to inquiries, investigations
and audits by Federal and state agencies that oversee various healthcare regu-
lations and laws.
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE GUARANTOR
Set forth below are the names, ages (as of January 1, 1998) and titles with
the Guarantor of the persons who are directors and executive officers of the
Guarantor. Each of the executive officers named below was elected on April 30,
1998 to the indicated offices and serves at the pleasure of the Guarantor
Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
W. Bruce Lunsford....... 50 Chairman of the Board, President, Chief Executive Officer and Director
Michael R. Barr......... 48 Chief Operating Officer, Executive Vice President and Director
W. Earl Reed, III....... 46 Chief Financial Officer, Executive Vice President and Director
Jill L. Force........... 45 Senior Vice President, General Counsel and Assistant Secretary
Richard E. Chapman...... 49 Senior Vice President and Chief Information Officer
James H. Gillenwater,
Jr..................... 40 Senior Vice President, Planning and Development
Richard A. Lechleiter... 39 Vice President, Finance and Corporate Controller
Ulysses L. Bridgeman,
Jr..................... 44 Director
Elaine L. Chao.......... 45 Director
Donna R. Ecton.......... 50 Director
William H. Lomicka...... 60 Director
R. Gene Smith........... 63 Director
</TABLE>
W. Bruce Lunsford, a founder of Predecessor Company, certified public accoun-
tant and attorney, continues to serve as Chairman of the Board and Chief Exec-
utive Officer of Predecessor Company since Predecessor Company commenced oper-
ations in 1985. Mr. Lunsford is the Chairman of the Board of Atria Communi-
ties, Inc. and a director of National City Corporation, a bank holding compa-
ny, Churchill Downs Incorporated, and Res-Care, Inc., a provider of residen-
tial training and support services for persons with developmental disabilities
and certain vocational training services.
Michael R. Barr, a founder of Predecessor Company, physical therapist and cer-
tified respiratory therapist, served as a director of Predecessor Company from
1985 to April 30, 1998. Mr. Barr was Chief Operating Officer and Executive
Vice President of Predecessor Company from February 1996 to April 30, 1998.
From November 1995 to February 1996, he was Executive Vice President of Prede-
cessor Company and Chief Executive Officer of Predecessor Company's Hospital
Division. Mr. Barr served as Vice President, Operations of Predecessor Company
from 1985 to November 1995. Mr. Barr is a director of Colorado MEDtech, Inc.,
a medical products and equipment company.
W. Earl Reed, III, a certified public accountant, served as a director of
Predecessor Company from 1987 to April 30, 1998. He was Chief Financial Offi-
cer and Executive Vice President of Predecessor Company from November 1995 to
April 30, 1998. From 1987 to November 1995, Mr. Reed served as Vice President,
Finance and Development of Predecessor Company.
Jill L. Force, a certified public accountant and attorney, has served as Se-
nior Vice President, General Counsel and Assistant Secretary of Predecessor
Company from January 1, 1998 to April 30, 1998. From December 1996 to January
1998, she served as Senior Vice President, General Counsel and Secretary of
Predecessor Company. From November 1995 through December 1996, she served as
Vice President, General Counsel and Secretary of Predecessor Company. From
1989 to 1995, she was General Counsel and Secretary of Predecessor Company.
Ms. Force is a director of Healthcare Recoveries, Inc., a provider of health
insurance subrogation and related recovery services.
Richard E. Chapman served as Senior Vice President and Chief Information Offi-
cer of Predecessor Company from October 1997 to April 30, 1998. From March
1993 to October 1997, Mr. Chapman was Senior Vice President of Information
Systems of Columbia/HCA Healthcare Corp., Vice President of Galen Health Care,
Inc. from March 1993 to August 1993, and of Humana Inc. from September 1990 to
February 1993.
James H. Gillenwater, Jr. served as Senior Vice President, Planning and Devel-
opment of Predecessor Company from December 1996 to April 30, 1998. From No-
vember 1995 through December 1996, he served as Vice President, Planning and
Development of Predecessor Company. From 1989 to November 1995, he was Direc-
tor of Planning and Development of Predecessor Company.
Richard A. Lechleiter, a certified public accountant, served as Vice Presi-
dent, Finance and Corporate Controller of Predecessor Company from November
1995 to April 30, 1998. From June 1995 to November 1995, he was Director of
Finance of Predecessor Company. Mr. Lechleiter was Vice President and Control-
ler of Columbia/HCA Healthcare Corp. from Septem-
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<PAGE>
ber 1993 to May 1995, of Galen Health Care, Inc. from March 1993 to August
1993, and of Humana Inc. from September 1990 to February 1993.
Ulysses L. Bridgeman, Jr. was a director of Predecessor Company from May 1997
to April 30, 1998. Mr. Bridgeman has been President of Bridgeman Foods, Inc., a
franchisee of 51 Wendy's Old Fashioned Hamburger Restaurants, since 1988.
Elaine L. Chao was a director of Predecessor Company from May 1997 to April 30,
1998. Ms. Chao is a Distinguished Fellow of The Heritage Foundation in Washing-
ton, D.C. From 1992 to 1996, Ms. Chao was President and Chief Executive Officer
of the United Way of America. From 1991 to 1992, she served as the Director of
the Peace Corps. Ms. Chao is a director of Dole Food Company, Inc., NASD, Inc.
and Protective Life Corporation.
Donna R. Ecton was a director of Predecessor Company from 1992 to April 30,
1998. Since December 1996, Ms. Ecton has been Chief Operating Officer of
PETsMART, Inc., a pet supplies retailer. From 1995 to 1996, she was Chairman,
President and Chief Executive Officer of Business Mail Express, Inc., an expe-
dited print and mail services company. From 1991 to 1994, she was President and
Chief Executive Officer of Van Houten North America, Inc. and Andes Candies
Inc., confectionery products businesses. Ms. Ecton is a director of Barnes
Group, Inc., a diversified manufacturing, aerospace and distribution company,
PETsMART, Inc., and H&R Block, Inc.
William H. Lomicka was a director of Predecessor Company from 1987 to April 30,
1998. Since 1989, he has served as President of Mayfair Capital, Inc., a pri-
vate investment firm. Mr. Lomicka serves as a director of Regal Cinemas, Inc.,
a regional motion picture exhibitor, and Sabratek Corporation, a company which
designs, produces and markets medical products for the alternative site
healthcare marketplace.
R. Gene Smith, a founder of Predecessor Company, has served as a director of
Predecessor Company from 1985 and Vice Chairman of the Board since 1987. From
1987 to 1995, Mr. Smith was President of New Jersey Blockbuster, Ltd., which
held the Blockbuster Video franchise for northern New Jersey. Since 1988, Mr.
Smith has been Chairman of the Board of Taco Tico, Inc., an operator of Mexican
fast-food restaurants. Since 1993, Mr. Smith has been Managing General Partner
of Direct Programming Services, which is a marketer of direct broadcast satel-
lite television services through 1996. In addition, he has been President and
owner of R. Gene Smith, Inc., a private investment firm, since 1980. Mr. Smith
is also a director of Atria Communities, Inc.
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<PAGE>
DESCRIPTION OF THE COMPANY CREDIT AGREEMENT
GENERAL
Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), as documentation
agent and collateral agent, NationsBank, N.A. ("NationsBank"), as administra-
tive agent, and a syndicate of other financial institutions (the "Lender
Group") have established the Company Credit Agreement. Pursuant to the Company
Credit Agreement, the Company obtained certain loans which were used to repay
indebtedness of Predecessor Company as well as to support the general corporate
purposes of the Company and its subsidiaries. See "Use of Proceeds." The Com-
pany has the further right under the Company Credit Agreement to request
NationsBank, as the swingline bank under the Company Credit Agreement, to make
certain swingline loans to the Company to provide funds to the Company for the
purposes permitted under the Company Credit Agreement until the Company obtains
a borrowing from the Lender Group. The obligations of the Company under the
Company Credit Agreement are guaranteed by the Guarantor and the Company's ma-
terial subsidiaries (other than its insurance subsidiaries).
SECURITY
The obligations of the Company under the Company Credit Agreement and the fore-
going Guarantees (as defined in the Company Credit Agreement) are secured by
(i) a lien on the capital stock of the Company and its present and future mate-
rial subsidiaries (other than its insurance subsidiaries), (ii) all present and
future intercompany debt, (iii) leasehold mortgages of leases under the Master
Lease Agreement, (iv) a pledge of the Atria Common Stock and BHC Common Stock
and (v) substantially all other personal property of the Guarantor and its ma-
terial subsidiaries (other than its insurance subsidiaries).
INTEREST RATES
Borrowings under the Company Credit Agreement bear interest, at the option of
the Company, by reference to the Base Rate, the Adjusted CD Rate or the London
Interbank Offered Rate, as each such term is defined in the Company Credit
Agreement. The actual interest rates applicable to borrowings under the Company
Credit Agreement, as well as the fees imposed for the issuance or renewal of
letters of credit under the Company Credit Agreement, are determined based upon
the Guarantor's then existing leverage ratio, which is defined in the Company
Credit Agreement as the ratio of the Guarantor's adjusted consolidated debt for
borrowed money to its consolidated earnings before interest, taxes, deprecia-
tion and amortization and rental expense (subject to certain adjustments). The
interest rates, commitment fees and letter of credit fees set forth in the Com-
pany Credit Agreement are subject to change as the Guarantor's leverage ratio
increases or decreases.
MANDATORY REDUCTION OF COMPANY CREDIT AGREEMENT
The Company Credit Agreement is subject to mandatory reduction (i) quarterly in
predetermined amounts beginning September 30, 1998 and (ii) at any time upon
the occurrence of certain events as specified therein.
COVENANTS
The Company Credit Agreement imposes certain affirmative and negative covenants
on the Guarantor and its subsidiaries. As part of these covenants, the Guaran-
tor is required to meet four separate financial tests, including a minimum net
worth test, a maximum leverage ratio, a minimum fixed charge coverage ratio and
a maximum senior debt leverage ratio. The negative covenants in the Company
Credit Agreement restrict or limit, among other things, (i) the incurrence of
certain debt by the Guarantor and its subsidiaries, (ii) the pledge of assets
of the Guarantor and its subsidiaries, (iii) certain mergers, consolidations
and sales of assets by the Guarantor and its subsidiaries, (iv) the payment of
certain dividends or distributions by the Guarantor and the redemption, pur-
chase, retirement or other acquisition of the equity interests of the Guaran-
tor, (v) the investment by the Guarantor and its subsidiaries in certain minor-
ity-owned affiliates, (vi) certain other transactions with affiliates of the
Guarantor and (vii) the Guarantor and its subsidiaries from agreeing to any re-
striction, other than in the Company Credit Agreement and certain other identi-
fied agreements, that prohibits any subsidiary of the Company from paying divi-
dends or repaying debt to the Company or any of its subsidiaries, from making
any loans or advances to the Company or any of its subsidiaries, or from grant-
ing any liens or security interests in its assets to secure the obligations of
the Company or any of its subsidiaries under the Company Credit Agreement or
guarantees thereof.
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<PAGE>
EVENTS OF DEFAULT
The Company Credit Agreement provides that certain events will constitute
events of default under the Company Credit Agreement, which events include, but
are not limited to, the failure by the Company to pay amounts owed under the
Company Credit Agreement, the failure by the Guarantor or its subsidiaries to
observe or perform the covenants set forth in the Company Credit Agreement, the
inaccuracy of the representations and warranties set forth in the Company
Credit Agreement, the imposition of certain judgments against the Guarantor or
its subsidiaries, the failure by the Guarantor or its subsidiaries to pay cer-
tain other debt, the occurrence of certain bankruptcy or insolvency proceedings
or events with respect to the Guarantor or its subsidiaries, the invalidity or
unenforceability of any lien or guaranty securing the obligations of the Com-
pany under the Company Credit Agreement, or the occurrence of a change of con-
trol of the Guarantor, which is defined in the Company Credit Agreement as the
acquisition of beneficial ownership of 35% or more of the outstanding shares of
common stock of the Guarantor by a person or a related group of persons or the
replacement of a majority of the members of the board of directors of the Guar-
antor within a period of 24 consecutive months.
FEES AND EXPENSES
The Company Credit Agreement provides that the Company will pay certain fees to
the Lender Group, the amounts of which are based upon the unused commitment un-
der the revolving credit facility and the amounts available for drawing under
issued letters of credit. The Company is also obligated to pay certain fees to
Morgan Guaranty as the documentation agent and the collateral agent in connec-
tion with the Company Credit Agreement and NationsBank as the administrative
agent under the Company Credit Agreement and to reimburse them for certain ex-
penses.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes and the Guarantee, the Company and
the Guarantor entered into the Registration Rights Agreement with the Initial
Purchasers, pursuant to which the Company and the Guarantor agreed to use their
best efforts to file with the Commission a registration statement with respect
to the exchange of the Old Notes and the Guarantee for debt securities with
terms identical in all material respects to the terms of the Old Notes and the
Guarantee, except that (i) the offer and sale of the New Notes and the Guaran-
tee have been registered under the Securities Act and therefore the New Notes
and the Guarantee will not be subject to certain restrictions on transfer ap-
plicable to the Old Notes and the Guarantee, will not contain certain legends
relating thereto and will not be entitled to registration and other rights un-
der the Registration Rights Agreement, and (ii) the New Notes will not provide
for any increase in the interest rate thereon. In that regard, the Old Notes
provide, among other things, that, if the Exchange Offer is not consummated or
the Shelf Registration Statement is not declared effective by September 28,
1998, the Company will pay additional interest (in addition to the interest
otherwise due on the Old Notes) to each Holder of Old Notes during the first
90-day period following December 18, 1997, in an amount equal to 0.25% per an-
num. The amount of interest will increase by an additional 0.25% per annum for
each subsequent 90-day period until consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement, up to a maximum amount of ad-
ditional interest of 1.00% per annum. Upon consummation of the Exchange Offer
or the effectiveness of the Shelf Registration Statement, Holders of Old Notes
will not be entitled to any increase in the rate of interest thereon or any
further registration rights under the Registration Rights Agreement. See "Pro-
spectus Summary--Certain Consequences of a Failure to Exchange Old Notes" and
"Description of the Old Notes and the Guarantee."
The Exchange Offer is not being made to, nor will the Company accept tenders
for exchange from, Holders of Old Notes in any jurisdiction in which the Ex-
change Offer or the acceptance therefor would not be in compliance with the se-
curities or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE
The Company and the Guarantor hereby offer, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange up to $300 million aggregate principal amount of New
Notes, together with the Guarantee, for a like aggregate principal amount of
Old Notes, together with the Guarantee, properly tendered on or prior to the
Expiration Date and not properly withdrawn in accordance with the procedures
described below. The Company will issue, promptly after the Expiration Date, an
aggregate principal amount of up to $300 million of New Notes in exchange for a
like principal amount of outstanding Old Notes tendered and accepted in connec-
tion with the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of Old
Notes being tendered. As of the date of this Prospectus, $300 million aggregate
principal amount of Old Notes is outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights in connec-
tion with the Exchange Offer. Old Notes which are not tendered for exchange or
are tendered but not accepted in connection with the Exchange Offer will remain
outstanding and be entitled to the benefits of the Indenture, but will not be
entitled to any further registration rights under the Registration Rights
Agreement.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted Old Notes will be returned, without ex-
pense, to the tendering Holder thereof promptly after the Expiration Date.
Holders who tender Old Notes in connection with the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Old Notes in connection with the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes described below, in
connection with the Exchange Offer. See "--Fees and Expenses."
NEITHER THE BOARDS OF DIRECTORS OF THE COMPANY OR THE GUARANTOR NOR THE COMPANY
OR THE GUARANTOR MAKE ANY RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER
TO TENDER OR REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PUR-
SUANT TO THE EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE
ANY SUCH RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION
WHETHER TO TENDER PURSUANT TO
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THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AF-
TER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH
THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on , 1998,
unless the Exchange Offer is extended by the Company (in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange Of-
fer is extended).
The Company expressly reserves the right in its sole and absolute discretion,
subject to applicable law, at any time and from time to time, (i) to delay the
acceptance of the Old Notes for exchange, (ii) to terminate the Exchange Offer
(whether or not any Old Notes have theretofore been accepted for exchange) if
the Company determines, in its sole and absolute discretion, that any of the
events or conditions referred to under "--Certain Conditions to the Exchange
Offer" have occurred or exist or have not been satisfied, (iii) to extend the
Expiration Date of the Exchange Offer and retain all Old Notes tendered pursu-
ant to the Exchange Offer, subject, however, to the right of Holders of Old
Notes to withdraw their tendered Old Notes as described under "--Withdrawal
Rights," and (iv) to waive any condition or otherwise amend the terms of the
Exchange Offer in any respect. If the Exchange Offer is amended in a manner de-
termined by the Company to constitute a material change, or if the Company
waives a material condition of the Exchange Offer, the Company will promptly
disclose such amendment by means of a prospectus supplement that will be dis-
tributed to the registered Holders of Old Notes, and the Company will extend
the Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be fol-
lowed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company may choose to make any public announcement and
subject to applicable law, the Company shall have no obligation to publish, ad-
vertise or otherwise communicate any such public announcement other than by is-
suing a release to the Dow Jones News Service.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the Company
will exchange, and will issue to the Exchange Agent, New Notes for Old Notes
validly tendered and not withdrawn (pursuant to the withdrawal rights described
under "--Withdrawal Rights") promptly after the Expiration Date.
In all cases, delivery of New Notes in exchange for Old Notes tendered and ac-
cepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by, the Exchange Agent of (i) Old Notes or a book-entry confir-
mation of a book-entry transfer of Old Notes into the Exchange Agent's account
at The Depository Trust Company ("DTC"), (ii) the Letter of Transmittal, prop-
erly completed and duly executed, with any required signature guarantees, and
(iii) any other documents required by the Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a book-entry
transfer of Old Notes into the Exchange Agent's account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company will be
deemed to have accepted for exchange, and thereby exchanged, Old Notes validly
tendered and not withdrawn as, if and when the Company gives oral or written
notice to the Exchange Agent of the Company's acceptance of such Old Notes for
exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent
for the Company for the purpose of receiving, tenders of Old Notes, Letters of
Transmittal and related documents, and as agent for tendering Holders for the
purpose of receiving Old Notes, Letters of Transmittal and related documents
and transmitting New Notes to validly tendering Holders. Such exchange will be
made promptly after the Expiration Date. If, for any reason whatsoever, accept-
ance for exchange or the exchange of any Old Notes tendered pursuant to the Ex-
change Offer is delayed (whether before or after the Company's acceptance for
exchange of Old Notes) or the Company extends the Exchange Offer or is unable
to accept for exchange or exchange Old Notes tendered pursuant to the Exchange
Offer, then, without prejudice to the Company's rights set forth herein, the
Exchange Agent may, nevertheless, on behalf of the Company and subject to Rule
14e-1(c) under the Exchange Act, retain tendered Old Notes and such Old Notes
may not be withdrawn except to the extent tendering Holders are entitled to
withdrawal rights as described under "--Withdrawal Rights."
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Pursuant to the Letter of Transmittal, a Holder of Old Notes will warrant and
agree in the Letter of Transmittal that it has full power and authority to ten-
der, exchange, sell, assign and transfer Old Notes, that the Company will ac-
quire good, marketable and unencumbered title to the tendered Old Notes, free
and clear of all liens, restrictions, charges and encumbrances, and the Old
Notes tendered for exchange are not subject to any adverse claims or proxies.
The Holder also will warrant and agree that it will, upon request, execute and
deliver any additional documents deemed by the Company or the Exchange Agent to
be necessary or desirable to complete the exchange, sale, assignment and trans-
fer of the Old Notes tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OLD NOTES
Valid Tender. Except as set forth below, in order for Old Notes to be validly
tendered pursuant to the Exchange Offer, a properly completed and duly executed
Letter of Transmittal, with any required signature guarantees and any other re-
quired documents, must be received by the Exchange Agent at one of its ad-
dresses set forth under "--Exchange Agent," and either (i) tendered Old Notes
must be received by the Exchange Agent, or (ii) such Old Notes must be tendered
pursuant to the procedures for book-entry transfer set forth below and a book-
entry confirmation must be received by the Exchange Agent, in each case on or
prior to the Expiration Date, or (iii) the guaranteed delivery procedures set
forth below must be complied with.
If less than all of the Old Notes are tendered, a tendering Holder should fill
in the amount of Old Notes being tendered in the appropriate box on the Letter
of Transmittal. The entire amount of Old Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER, AND
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY IN-
SURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFI-
CIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Exchange Agent will establish an account with respect
to the Old Notes at DTC for purposes of the Exchange Offer within two business
days after the date of this Prospectus. Any financial institution that is a
participant in DTC's book-entry transfer facility system may make a book-entry
delivery of the Old Notes by causing DTC to transfer such Old Notes into the
Exchange Agent's account at DTC in accordance with DTC's procedures for trans-
fers. However, although delivery of Old Notes may be effected through book-en-
try transfer into the Exchange Agent's account at DTC, the Letter of Transmit-
tal properly completed and duly executed, with any required signature guaran-
tees and any other required documents, must in any case be delivered to and re-
ceived by the Exchange Agent at its address set forth under "--Exchange Agent"
on or prior to the Expiration Date, or the guaranteed delivery procedures set
forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT CON-
STITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Old Notes need not be endorsed and
signature guarantees on the Letter of Transmittal are unnecessary unless (a) a
certificate for the Old Notes is registered in a name other than that of the
person surrendering the certificate or (b) such registered Holder completes the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
in the Letter of Transmittal. In the case of (a) or (b) above, such certifi-
cates for Old Notes must be duly endorsed or accompanied by a properly executed
bond power, with the endorsement or signature on the bond power and on the Let-
ter of Transmittal guaranteed by a firm or other entity identified in Rule
17Ad-15 under the Exchange Act as an "eligible guarantor institution," includ-
ing (as such terms are defined herein): (i) a bank; (ii) a broker, dealer, mu-
nicipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (iv) a national securities exchange, registered securi-
ties association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association (an "Eligible Institution"),
unless surrendered on behalf of such Eligible Institution. See Instruction 1 to
the Letter of Transmittal.
Guaranteed Delivery. If a Holder desires to tender Old Notes pursuant to the
Exchange Offer and the certificates for such Old Notes are not immediately
available or time will not permit all required documents to reach the Exchange
Agent on or before the Expiration Date, or the procedures for book-entry trans-
fer cannot be completed on a timely basis, such Old Notes may nevertheless be
tendered, provided that all of the following guaranteed delivery procedures are
complied with:
(i) such tenders are made by or through an Eligible Institution;
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(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form accompanying the Letter of Transmittal, is
received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all ten-
dered Old Notes, in proper form for transfer, together with a prop-
erly completed and duly executed Letter of Transmittal, with any re-
quired signature guarantees and any other documents required by the
Letter of Transmittal, are received by the Exchange Agent, within
three New York Stock Exchange trading days after the date of execu-
tion of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
mail (or facsimile in the case of an Eligible Institution) to the Exchange
Agent and must include a guarantee by an Eligible Institution in the form set
forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Notes in ex-
change for Old Notes tendered and accepted for exchange pursuant to the Ex-
change Offer will in all cases be made only after timely receipt by the Ex-
change Agent of Old Notes, or of a book-entry confirmation with respect to
such Old Notes, and a properly completed and duly executed Letter of Transmit-
tal, together with any required signature guarantees and any other documents
required by the Letter of Transmittal. Accordingly, the delivery of New Notes
might not be made to all tendering Holders at the same time, and will depend
upon when Old Notes, book-entry confirmations with respect to Old Notes and
other required documents are received by the Exchange Agent.
The Company's acceptance for exchange of Old Notes tendered pursuant to any of
the procedures described above will constitute a binding agreement between the
tendering Holder and the Company upon the terms and subject to the conditions
of the Exchange Offer.
Determination of Validity. All questions as to the form of documents, validi-
ty, eligibility (including time of receipt) and acceptance for exchange of any
tendered Old Notes will be determined by the Company, in its sole discretion,
whose determination shall be final and binding on all parties. The Company re-
serves the absolute right, in its sole and absolute discretion, to reject any
and all tenders determined by it not to be in proper form or the acceptance of
which, or exchange for, may in the view of counsel to the Company, be unlaw-
ful. The Company also reserves the absolute right, subject to applicable law,
to waive any of the conditions of the Exchange Offer as set forth under "--
Certain Conditions to the Exchange Offer" or any condition or irregularity in
any tender of Old Notes of any particular Holder whether or not similar condi-
tions or irregularities are waived in the case of other Holders.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) will be fi-
nal and binding. No tender of Old Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. Neither the Company any affiliates or assigns of the Company, the Ex-
change Agent nor any other person shall be under any duty to give any notifi-
cation of any irregularities in tenders or incur any liability for failure to
give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a trust-
ee, executor, administrator, guardian, attorney-in-fact, officer of a corpora-
tion or other person acting in a fiduciary or representative capacity, such
person should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company, in its sole discretion, of such
person's authority to so act must be submitted.
A beneficial owner of Old Notes that are held by or registered in the name of
a broker, commercial bank, trust company or other nominee or custodian is
urged to contact such entity promptly if such beneficial owner wishes to par-
ticipate in the Exchange Offer.
RESALES OF NEW NOTES
The Company and the Guarantor are making the Exchange Offer in reliance on the
position of the staff of the Division of Corporation Finance of the Commission
as set forth in certain interpretative letters addressed to third parties in
other transactions. The Company and the Guarantor, however, have not sought
their own interpretative letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpreta-
tive letters to third parties. Based on these interpretations by the staff of
the Division of Corporation Finance of the Commission, and subject to the two
immediately following sentences, the Company and the Guarantor believe that
the New Notes and the Guarantee issued pursuant to this Exchange Offer in
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exchange for Old Notes and the Guarantee may be offered for resale, resold and
otherwise transferred by a Holder thereof (other than a Holder who is a broker-
dealer) without further compliance with the registration and prospectus deliv-
ery requirements of the Securities Act, provided that such New Notes are ac-
quired in the ordinary course of such Holder's business and that such Holder is
not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Notes and the Guarantee. However, any Holder of Old Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing New Notes, or any broker-dealer who purchased
Old Notes from the Company to resell pursuant to Rule 144A or any other avail-
able exemption under the Securities Act, (i) will not be able to rely on the
interpretations of the staff of the Division of Corporation Finance of the Com-
mission set forth in the above-mentioned interpretative letters, (ii) will not
be permitted or entitled to tender such Old Notes in the Exchange Offer and
(iii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or other transfer of such Old
Notes unless such sale is made pursuant to an exemption from such requirements.
In addition, as described below, if any broker-dealer holds Old Notes acquired
for its own account as a result of market-making or other trading activities
and exchanges such Old Notes for New Notes, then such broker-dealer must de-
liver a prospectus meeting the requirements of the Securities Act in connection
with any resales of such New Notes.
Each Holder of Old Notes who wishes to exchange Old Notes for New Notes in the
Exchange Offer will be required to represent that (i) it is not an "affiliate"
of the Company, (ii) any New Notes to be received by it are being acquired in
the ordinary course of its business, (iii) it has no arrangement or understand-
ing with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Notes, and (iv) if such Holder is not a broker-
dealer, such Holder is not engaged in, and does not intend to engage in, a dis-
tribution (within the meaning of the Securities Act) of such New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the Ex-
change Offer must acknowledge that it acquired the Old Notes for its own ac-
count as the result of market-making or other trading activities and must agree
that it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretative letters referred to
above, the Company believes that broker-dealers who acquired Old Notes for
their own accounts as a result of market-making or other trading activities
("Participating Broker-Dealers") may fulfill their prospectus delivery require-
ments with respect to the New Notes received upon exchange of such Old Notes
(other than Old Notes which represent an unsold allotment from the original
sale of the Old Notes) with a prospectus meeting the requirements of the Secu-
rities Act, which may be the prospectus prepared for an exchange offer so long
as it contains a description of the plan of distribution with respect to the
resale of such New Notes. Accordingly, this Prospectus may be used by a Partic-
ipating Broker-Dealer during the period referred to below in connection with
resales of New Notes received in exchange for Old Notes where such Old Notes
were acquired by such Participating Broker-Dealer for its own account as a re-
sult market-making or other trading activities.
Subject to certain provisions set forth in the Registration Rights Agreement,
the Company has agreed that this Prospectus may be used by a Participating Bro-
ker-Dealer in connection with resales of such New Notes for a period ending 180
days after the Expiration Date (subject to extension under certain limited cir-
cumstances described below) or, if earlier, when all such New Notes have been
disposed of by such Participating Broker-Dealer. Any Participating Broker-
Dealer who is an "affiliate" of the Company may not rely on such interpretative
letters and must comply with the registration and prospectus delivery require-
ments of the Securities Act in connection with any resale transaction. See
"Plan of Distribution."
In that regard, each Participating Broker-Dealer who surrenders Old Notes pur-
suant to the Exchange Offer will be deemed to have agreed, by execution of the
Letter of Transmittal, that, upon receipt of notice from the Company of the oc-
currence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any mate-
rial respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by refer-
ence therein, in light of the circumstances under which they were made, not
misleading, or of the occurrence of certain other events specified in the Reg-
istration Rights Agreement, such Participating Broker-Dealer will suspend the
sale of New Notes pursuant to this Prospectus until the Company has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participat-
ing Broker-Dealer or the Company has given notice that the sale of New Notes
may be resumed, as the case may be. If the Company gives such notice to suspend
the sale of the New Notes, it shall extend the 180-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus
in connection with the sale of New Notes by the number of days during the pe-
riod from and including the date of the giving of such notice to and including
the date when Participating Broker-Dealers shall have received copies of the
amended or supplemented Prospectus necessary to permit resales of the New Notes
or to and including the date on which the Company has given notice that the
sale of New Notes may be resumed, as the case may be.
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WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn at
any time on or prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic, or facsimile
transmission of such notice of withdrawal must be timely received by the Ex-
change Agent at one of its addresses set forth under "--Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if certificates for such
Old Notes have been tendered) the name of the registered Holder of the Old
Notes as set forth on the Old Notes, if different from that of the person who
tendered such Old Notes. If Old Notes have been delivered or otherwise identi-
fied to the Exchange Agent, then prior to the physical release of such Old
Notes, the tendering Holder must submit the serial numbers shown on the partic-
ular Old Notes to be withdrawn and the signature on the notice of withdrawal
must be guaranteed by an Eligible Institution, except in the case of Old Notes
tendered for the account of an Eligible Institution. If Old Notes have been
tendered pursuant to the procedures for book-entry transfer set forth in "--
Procedures for Tendering Old Notes," the notice of withdrawal will be effective
if delivered to the Exchange Agent by written, telegraphic, telex or facsimile
transmission. Withdrawals of tenders of Old Notes may not be rescinded. Old
Notes properly withdrawn will not be deemed validly tendered for purposes of
the Exchange Offer, but may be retendered at any subsequent time or prior to
the Expiration Date by following any of the procedures described above under
"--Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of re-
ceipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for fail-
ure to give any such notification. Any Old Notes which have been tendered but
which are withdrawn will be returned to Holders thereof promptly after with-
drawal.
INTEREST ON THE NEW NOTES
Each New Note will bear interest at the rate of 9 7/8% per annum from the most
recent date to which interest has been paid or duly provided for on the Old
Notes surrendered in exchange for such New Note, or, if no interest has been
paid or duly provided for on such Old Note, from April 30, 1998. Interest on
the New Notes will be payable semiannually on May 1 and November 1 of each
year, commencing on November 1, 1998.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
accrued interest on such Old Notes for any period from and after the last In-
terest Payment Date to which interest has been paid or duly provided for, will
not receive any accrued interest on such Old Notes, and will be deemed to have
waived the right to receive any interest on such Old Notes accrued from and af-
ter such Interest Payment Date or, if no such interest has been paid or duly
provided for, from and after April 30, 1998.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension of
the Exchange Offer, the Company will not be required to accept for exchange, or
to exchange, any Old Notes for any New Notes, and, as described below, may ter-
minate the Exchange Offer (whether or not any Old Notes have theretofore been
accepted for exchange) or may waive any conditions to or amend the Exchange Of-
fer, if any of the following conditions have occurred or exists or have not
been satisfied:
(a) the Exchange Offer, or the making of any exchange by a Holder, violates
any applicable law or any applicable interpretation of the staff of the
Commission;
(b) any action or proceeding shall have been instituted or threatened in
any court or by or before any governmental agency or body with respect
to the Exchange Offer which, in the Company's judgment, would reasona-
bly be expected to impair the ability of the Company to proceed with
the Exchange Offer;
(c) any law, statute, rule or regulation shall have been adopted or enacted
with, in the Company's judgment, would reasonably be expected to impair
the ability of the Company to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by Federal or state au-
thorities which, in the Company's judgment, would reasonably be ex-
pected to impair the ability of the Company to proceed with the Ex-
change Offer;
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(e) trading on the New York Stock Exchange or generally in the United
States over-the-counter market shall have been suspended by order of
the Commission or any other governmental authority which, in the
Company's judgment, would reasonably be expected to impair the ability
of the Company to proceed with the Exchange Offer; or
(f) a stop order shall have been issued by the Commission or any state se-
curities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge
of the Company, threatened for that purpose.
If the Company determines in its sole and absolute discretion that any of the
foregoing events or conditions has occurred or exists or has not been satis-
fied, the Company may, subject to applicable law, terminate the Exchange Offer
(whether or not any Old Notes have theretofore been accepted for exchange) or
may waive any such condition or otherwise amend the terms of the Exchange Offer
in any respect. If such waiver or amendment constitutes a material change to
the Exchange Offer, the Company will promptly disclose such waiver by means a
prospectus supplement that will be distributed to the registered Holders of the
Old Notes, and the Company will extend the Exchange Offer to the extent re-
quired by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
First Chicago Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. Delivery of the Letters of Transmittal and any other
required documents, questions, requests for assistance, and requests for addi-
tional copies of this Prospectus or of the Letter of Transmittal should be di-
rected to the Exchange Agent as follows:
By Mail: By Hand: By Overnight Delivery:
Tenders & Exchanges Tenders & Exchanges Tenders & Exchanges
P.O. Box 2569 c/o The Depository Trust 14 Wall St., 8th Floor
Suite 4660-VENCOR Company Suite 4680
Jersey City, New Jersey 55 Water Street, DTC TAD New York, New York 10005
07303 Vietnam Veterans
Memorial Plaza
New York, New York 10041
To Confirm by Telephone or for Information:
(201) 324-0137
Delivery to other than one of the above addresses will not constitute a valid
delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket ex-
penses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket ex-
penses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of Old Notes, and in handling or tendering
for their customers.
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered Holder of the Old Notes tendered, or if a transfer tax is imposed
for any reason other than the exchange of Old Notes in connection with the Ex-
change Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption there-
from is not submitted with the Letter of Transmittal, the amount of such trans-
fer taxes will be billed directly to such tendering Holder.
The Company will not make any payment to brokers, dealers or others soliciting
acceptance of the Exchange Offer.
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DESCRIPTION OF THE NEW NOTES AND THE GUARANTEE
GENERAL
The Old Notes and the Guarantee were issued and the New Notes and the Guarantee
will be issued pursuant to an Indenture (the "Indenture") among the Company,
the Guarantor and PNC Bank, National Association, as Trustee (the "Trustee").
The terms of the New Notes and the Guarantee include those stated in the Inden-
ture and those made part of the Indenture by reference to the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The New Notes and the
Guarantee are subject to all such terms, and Holders of New Notes and the Guar-
antee are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The statements under this caption relating to the New Notes, the Guar-
antee and the Indenture are summaries and do not purport to be complete, and
where reference is made to particular provisions of the Indenture, such provi-
sions, including the definitions of certain terms, are qualified in their en-
tirety by such reference. The definitions of certain terms used in the follow-
ing summary are set forth below under "--Certain Definitions."
The Old Notes and the New Notes will constitute a single series of debt securi-
ties under the Indenture. If the Exchange Offer is consummated, Holders of the
Old Notes who do not exchange their Old Notes for New Notes will vote together
with the Holders of New Notes for all relevant purposes under the Indenture. In
that regard, the Indenture requires that certain actions by the Holders there-
under (including acceleration following an Event of Default thereunder) must be
taken, and certain rights must be exercised, by specified minimum percentages
of the aggregate principal amount of the outstanding Notes. In determining
whether Holders of the requisite percentage in principal amount have given any
notice, consent or waiver or taken any other action permitted under the Inden-
ture, any Old Notes which remain outstanding after the Exchange Offer will be
aggregated with the New Notes and the Holders of such Old Notes and New Notes
will vote together as a single series for all such purposes. Accordingly, all
references herein to specified percentages in aggregate principal amount of the
outstanding Notes shall be deemed to mean, at any time after the Exchange Offer
is consummated, such percentage in aggregate principal amount of the Old Notes
and New Notes then outstanding.
The New Notes and the Old Notes are sometimes referred to as, collectively, the
"Notes" and, individually, a "Note."
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be general unsecured obligations of the Company limited in
aggregate principal amount to $300 million and will mature on May 1, 2005. In-
terest on the New Notes will accrue at the rate per annum set forth on the
cover page of this Prospectus and will be payable semi-annually in arrears on
May 1 and November 1 of each year, commencing on November 1, 1998, to Holders
of record on the immediately preceding April 15 and October 15, respectively.
Interest on the New Notes will accrue from the most recent date to which inter-
est has been paid or, if no interest has been paid, from the date of original
issuance.
Interest on the New Notes will be computed on the basis of a 360-day year com-
prised of twelve 30-day months. Principal of, premium, if any, and interest on
the New Notes will be payable at the office or agency of the Company maintained
for such purpose within the City and State of New York or, at the option of the
Company, payment of interest may be made by check mailed to Holders of New
Notes at their respective addresses set forth in the register of Holders of New
Notes; provided that all payments with respect to Global Notes, the Holders of
which have given wire transfer instructions on or prior to the relevant record
date to the paying agent, will be required to be made by wire transfer of imme-
diately available funds to the accounts specified by such Holders. Until other-
wise designated by the Company, the Company's office or agency in New York will
be the office of the Trustee maintained for such purpose. The New Notes will be
issued in denominations of $1,000 and integral multiples thereof.
GUARANTEE
Under the Indenture, the Guarantor will irrevocably and unconditionally guaran-
tee (the "Guarantee") the due and punctual payment of the principal of, premi-
um, if any, and interest on, and all other amounts payable under, the New Notes
when and as the same shall become due and payable, whether on the stated matu-
rity, upon acceleration, by call for redemption or upon repurchase or purchase
pursuant to a Change of Control Offer or Asset Sale Offer. The Guarantor has
(i) agreed that its obligations under the Guarantee will be as if it were prin-
cipal obligor and not merely surety, and will be enforceable irrespective of
any invalidity, irregularity or unenforceability of the New Notes or the Inden-
ture and (ii) waived its right to require the Trustee to pursue or exhaust its
legal or equitable remedies against the Company prior to exercising its rights
under the Guarantee. The Guarantee will not be discharged with respect to any
New Note except by payment in full of the principal thereof, interest thereon
and all other amounts payable thereunder. Moreover, if at any time any amount
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paid under a New Note is rescinded or must otherwise be restored, the rights
of the Holders of New Notes under the Guarantee will be reinstated with re-
spect to such payments as though such payments had not been made.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the New Notes
and the Guarantee will be subordinated in right of payment, as set forth in
the Indenture, to the prior payment in full of all Senior Debt, whether out-
standing on the Closing Date or thereafter incurred. Upon any distribution to
creditors of the Company or the Guarantor in a liquidation or dissolution of
the Company or the Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company, the Guarantor or
their respective property, an assignment for the benefit of creditors or any
marshaling of the Company's or the Guarantor's assets and liabilities, the
holders of Senior Debt will be entitled to receive payment in full of all such
Senior Debt (including all Obligations with respect thereto) before Holders of
New Notes will be entitled to receive any payment with respect to the New
Notes or the Guarantee, and until all amounts with respect to Senior Debt are
paid in full, any distribution to which Holders of New Notes or the Guarantee
would be entitled shall be made to the holders of Senior Debt (except payments
made from the trust described under "--Legal Defeasance and Covenant Defea-
sance" and except that Holders of New Notes may receive securities so long as
(i) the New Notes and the Guarantee are not treated in any case or proceeding
or other event described above as part of the same class of claims as the Se-
nior Debt or any class of claims on a parity with or senior to the Senior Debt
for any payment or distribution, (ii) such securities are subordinated at
least to the same extent as the New Notes and the Guarantee are to the Senior
Debt and any securities issued in exchange for such Senior Debt and (iii) such
securities are authorized by an order or decree of a court of competent juris-
diction in a reorganization proceeding under any applicable bankruptcy, insol-
vency or similar law which gives effect to the subordination of the New Notes
and the Guarantee to Senior Debt in a manner and with an effect which would be
required if this parenthetical clause were not included in this paragraph;
provided that the Senior Debt is assumed by the new corporation, if any, re-
sulting from any such reorganization or readjustment and issuing of such secu-
rities).
Neither the Company nor the Guarantor may make any payment upon or in respect
of the New Notes or the Guarantee (except in such subordinated securities as
described above or from the trust described under "--Legal Defeasance and Cov-
enant Defeasance") if (i) a Payment Default on Designated Senior Debt occurs
and is continuing or (ii) any other default occurs and is continuing with re-
spect to Designated Senior Debt that permits holders of the Designated Senior
Debt as to which such default relates to accelerate its maturity and the
Trustee receives a notice of such default ("a Payment Blockage Notice") from
the Company, the Guarantor or the representative of the holders of any Desig-
nated Senior Debt. Payments on the New Notes or the Guarantee may be resumed
(a) in the case of a Payment Default, upon the date on which such Payment De-
fault is cured or waived and (b) in case of a nonpayment default, the earlier
of the date on which such nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been accelerated. No new
period of payment blockage may be commenced unless and until 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage No-
tice. No nonpayment default that existed or was continuing on the date of de-
livery of any Payment Blockage Notice to the Trustee will be, or will be made,
the basis for a subsequent Payment Blockage Notice.
As a result of the subordination provisions described above, in the event of a
liquidation, insolvency or similar proceeding, Holders of New Notes may re-
cover less ratably than creditors of the Company or the Guarantor who are
holders of Senior Debt. See "Risk Factors--Subordination of the Notes and
Guarantee; Risks Associated with Holding Company Structure; Dependence on Sub-
sidiaries." As of March 31, 1998, on a pro forma basis after giving effect to
the Reorganization Transactions, the Offering and related events, there would
have been outstanding an aggregate principal amount of approximately $800 mil-
lion of Senior Debt, which would rank senior in right of payment to the New
Notes and the Guarantee.
The Indenture will limit, subject to certain financial tests, the amount of
additional Indebtedness, including Senior Debt, that the Guarantor and its Re-
stricted Subsidiaries can incur. See "--Certain Covenants--Incurrence of In-
debtedness and Issuance of Disqualified Stock." The operations of the Company
and the Guarantor are conducted primarily through their Subsidiaries. There-
fore, the Guarantor and the Company are dependent upon the cash flow of their
Subsidiaries to meet their obligations, including obligations under the New
Notes and the Guarantee. The New Notes and the Guarantee effectively will be
subordinated to all outstanding Indebtedness and other liabilities and commit-
ments (including Trade Payables and operating lease obligations) of the
Company's and the Guarantor's Subsidiaries. Any right of the Company or the
Guarantor to receive assets of any of their Subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the Holders of New
Notes to participate in those assets) effectively will be subordinated to the
claims of that Subsidiary's creditors, except to the extent that the Company
or the Guarantor are recognized as a creditor of such Subsidi-
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ary, in which case the claims of the Company and the Guarantor would still be
subordinate to any security interest in the assets of such Subsidiary and any
Indebtedness of such Subsidiary senior to that held by the Company or the Guar-
antor. As of March 31, 1998, on a pro forma basis as described above, the out-
standing Indebtedness of the Company's Subsidiaries (substantially all of which
constitutes Guarantees of Indebtedness under the Company Credit Agreement)
would have been approximately $800 million, excluding Trade Payables and oper-
ating lease obligations aggregating approximately $3.2 billion.
OPTIONAL REDEMPTION
The New Notes will not be redeemable at the Company's option prior to May 1,
2002. Thereafter, the New Notes will be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest to the applicable redemption
date, if redeemed during the twelve-month period beginning on May 1 of the
years indicated below:
<TABLE>
<CAPTION>
----------
YEAR PERCENTAGE
---- ----------
<S> <C>
2002 104.9375%
2003 102.4688%
2004 and thereafter 100.0000%
</TABLE>
If less than all of the New Notes are to be redeemed at any time, selection of
New Notes for redemption will be made by the Trustee on a pro rata basis, by
lot or by such method as the Trustee will deem fair and appropriate; provided
that no New Notes of $1,000 or less will be redeemed in part. Notices of re-
demption will be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of New Notes to be redeemed at
its registered address. If any New Note is to be redeemed in part only, the no-
tice of redemption that relates to such New Note will state the portion of the
principal amount thereof to be redeemed. A new New Note in principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original New Note. On and after the re-
demption date, interest will cease to accrue on New Notes or portions of them
called for redemption.
MANDATORY REDEMPTION
Except as set forth below under the captions "--Repurchase at the Option of
Holders upon a Change of Control" and "--Certain Covenants--Asset Sales," the
Company will not be required to make any mandatory redemption or sinking fund
payments with respect to the New Notes.
REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of New Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's New Notes pursuant to the of-
fer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon to the date of purchase (the "Change of Control Payment") on a
date that is not more than 90 days after the occurrence of such Change of Con-
trol (the "Change of Control Payment Date"). Prior to the mailing of notice to
Holders provided for in the succeeding paragraph, but in any event within 30
days following any Change of Control, the Company covenants to (i) repay in
full all Senior Debt that would prohibit the repurchase of the New Notes as
provided for in the succeeding paragraph or (ii) obtain any requisite consents
under instruments governing any such Senior Debt to permit the repurchase of
the New Notes as provided for in the succeeding paragraph. The Company shall
first comply with the covenant in the preceding sentence before it shall be re-
quired to repurchase New Notes pursuant to the "Repurchase at the Option of
Holders upon a Change of Control" covenant.
Within 30 days following any Change of Control, the Company will mail, or at
the Company's request the Trustee will mail, a notice to each Holder offering
to repurchase the New Notes held by such Holder pursuant to the procedures
specified in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the New Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent lawful,
(i) accept for payment all New Notes or portions thereof properly tendered and
not withdrawn pursuant to the Change of Control Offer, (ii) deposit with the
paying
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agent an amount equal to the Change of Control Payment in respect of all New
Notes or portions thereof so tendered and (iii) deliver or cause to be deliv-
ered to the Trustee the New Notes so accepted together with an Officer's Cer-
tificate stating the aggregate principal amount of New Notes or portions
thereof being purchased by the Company. The paying agent will promptly mail to
each Holder of New Notes so tendered the Change of Control Payment for such New
Notes, and the Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new New Note equal in principal
amount to any unpurchased portion of the New Notes surrendered, if any; pro-
vided that each such new New Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
A failure by the Company to comply with the provisions of the three preceding
paragraphs will constitute an Event of Default. Except as described above with
respect to a Change of Control, the Indenture will not contain provisions that
permit Holders of New Notes to require that the Company repurchase or redeem
the New Notes in the event of a takeover, recapitalization or similar transac-
tion. See "--Events of Defaults and Remedies."
The Company Credit Agreement provides that a Change of Control will constitute
a Default thereunder, which would permit the lenders to cause the indebtedness
under the Company Credit Agreement to become immediately due and payable or to
institute a payment blockage. See "--Subordination." Any future credit agree-
ments or other agreements relating to Senior Debt to which the Company becomes
a party may contain similar provisions.
There can be no assurances that the Company will have sufficient funds avail-
able or will be able to obtain third party financing at the time of any Change
of Control to make any debt payment (including repurchases of New Notes) re-
quired by the "Repurchase at the Option of Holders upon a Change of Control"
covenant of the Indenture (as well as any similar covenant that may be con-
tained in other securities of the Company that might be outstanding at the
time). The "Repurchase at the Option of Holders upon a Change of Control" cove-
nant of the Indenture will, unless the consents referred to above are obtained,
require the Company to repay all Senior Debt then outstanding that by its terms
would prohibit such New Note repurchase, either prior to or concurrently with
such New Note repurchase.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Guarantor will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any distribution on account of the Guarantor's or any Re-
stricted Subsidiary's Equity Interests (other than (x) dividends or distribu-
tions payable in Qualified Equity Interests of the Guarantor and (y) dividends
or distributions payable to the Guarantor or any Restricted Subsidiary of the
Guarantor); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Guarantor or any of its Restricted Subsidiaries; (iii)
make any voluntary or optional principal payment on, or voluntary or optional
purchase, redemption, defeasance, or other acquisition or retirement for value
of, any Subordinated Debt; or (iv) make any Investment that is a Restricted In-
vestment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment (the amount of
any such Restricted Payment, if other than cash, shall be the fair market value
(as conclusively evidenced by a resolution of the Board of Directors of the
Guarantor set forth in an Officer's Certificate delivered to the Trustee within
60 days prior to the date of such Restricted Payment) of the asset(s) proposed
to be transferred by the Guarantor or such Restricted Subsidiary, as the case
may be, pursuant to such Restricted Payment):
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(b) the Guarantor would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the most recently ended four full fiscal quar-
ter period for which internal financial statements are available imme-
diately preceding the date of such Restricted Payment, have been per-
mitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph
of the covenant in the Indenture described below under the caption "--
Incurrence of Indebtedness and Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate of all other Re-
stricted Payments made by the Guarantor and its Restricted Subsidiaries
after March 31, 1998 (excluding Restricted Payments permitted by
clauses (B), (D) and (E) of the next succeeding paragraph), is less
than the sum of (i) 50% of the Consolidated Net Income of the Guarantor
for the period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after March 31, 1998 to the end of
the Guarantor's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Pay-
ment (or, if such Consolidated Net
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Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Guarantor
from the issue or sale (other than to a Restricted Subsidiary) since
March 31, 1998 of Qualified Equity Interests of the Guarantor or of debt
securities of the Guarantor or any of its Restricted Subsidiaries that
have been converted into or exchanged for such Qualified Equity Inter-
ests of the Guarantor, plus (iii) $25 million.
If no Default or Event of Default has occurred and is continuing, or would oc-
cur as a consequence thereof, the foregoing provisions will not prohibit the
following Restricted Payments: (A) the payment of any dividend within 60 days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of the Indenture; (B) the pay-
ment of cash dividends on any series of Disqualified Stock issued after the
date of the Indenture in an aggregate amount not to exceed the cash received
by the Guarantor since the date of the Indenture upon issuance of such Dis-
qualified Stock; (C) the payment of dividends on Existing Preferred Stock at
an annual rate of 6%; (D) the redemption, repurchase, retirement or other ac-
quisition of any Equity Interests of the Guarantor or any Restricted Subsidi-
ary in exchange for, or out of the net cash proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary of the Guarantor) of
Qualified Equity Interests of the Guarantor; provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c) (ii) of the
preceding paragraph; (E) the defeasance, redemption or repurchase of Subordi-
nated Debt (including any Subordinated Debt that constitutes Acquired Debt)
with the net cash proceeds from an incurrence of Permitted Refinancing Indebt-
edness or in exchange for or out of the net cash proceeds from the substan-
tially concurrent sale (other than to a Restricted Subsidiary) of Qualified
Equity Interests of the Guarantor; provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase, retire-
ment or other acquisition shall be excluded from clause (c) (ii) of the pre-
ceding paragraph; (F) the repurchase, redemption or other acquisition or re-
tirement for value of any Equity Interests of the Guarantor or any Restricted
Subsidiary held by any member of the Guarantor's (or any of its Restricted
Subsidiary's) management pursuant to any management equity subscription agree-
ment or stock option agreement; provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not ex-
ceed $5 million in any twelve-month period; and (G) the repurchase of any In-
debtedness that is pari passu with the Notes or any Subordinated Debt at a
purchase price no greater than 101% of the principal amount of such Indebted-
ness or Subordinated Debt, as the case may be, in the event of a Change of
Control pursuant to a provision similar to the provision described under "--
Repurchase at the Option of Holders upon a Change of Control;" provided that
prior to such repurchase the Company has made a Change of Control Offer as
provided under "--Repurchase at the Option of Holders upon a Change of Con-
trol" and has repurchased all Notes validly tendered for payment in connection
with such Change of Control Offer.
Not later than the date of making any Restricted Payment, the Guarantor shall
deliver to the Trustee an Officer's Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed.
Incurrence of Indebtedness and Issuance of Disqualified Stock
The Indenture will provide that the Guarantor will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, Guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") after the
date of the Indenture any Indebtedness (including Acquired Debt) and that nei-
ther the Company nor the Guarantor will issue any Disqualified Stock and the
Guarantor will not permit any of its Restricted Subsidiaries (other than the
Company) to issue any shares of preferred stock; provided, however, that the
Company and the Guarantor may incur Indebtedness (including Acquired Debt) and
the Company and the Guarantor may issue shares of Disqualified Stock if (i) no
Default or Event of Default will have occurred and be continuing or would oc-
cur as a consequence thereof and (ii) the Fixed Charge Coverage Ratio for the
Guarantor's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred or such Disqualified Stock is issued
would have been at least (x) 1.50 to 1 if such incurrence or issuance occurs
on or before April 30, 1999, (y) 1.75 to 1 if such incurrence or issuance oc-
curs after April 30, 1999 and on or before April 30, 2000 and (z) 2.00 to 1 if
such incurrence or issuance occurs after April 30, 2000, in each case, deter-
mined on a pro forma basis (including a pro forma application of the net pro-
ceeds therefrom) as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period. Indebtedness consisting of reimbursement obligations
in respect of a letter of credit will be deemed to be incurred when the letter
of credit is first issued. Neither the Company nor the Guarantor will permit
any of their respective Unrestricted Subsidiaries to incur any Indebtedness
other than Non-Recourse Debt.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and the Guarantor of Senior Debt under
the Company Credit Agreement in an aggregate principal amount at any
time outstanding not to exceed an amount equal to $1.0 billion less the
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aggregate amount of all mandatory payments applied to repay loans (other
than revolving credit loans) outstanding thereunder or permanently re-
duce the revolving credit commitments thereunder; provided that the Com-
pany and the Guarantor may incur Senior Debt in an aggregate principal
amount at any time outstanding not to exceed $300 million under the re-
volving credit facility under the Company Credit Agreement;
(ii) the incurrence by the Company and the Guarantor of Indebtedness repre-
sented by the Notes and the Guarantee;
(iii) Existing Indebtedness;
(iv) the incurrence by the Guarantor or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net pro-
ceeds of which are used to extend, refinance, renew, replace, defease
or refund, Indebtedness that was permitted by the Indenture to be in-
curred (including, without limitation, Existing Indebtedness);
(v) the incurrence by the Guarantor or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Guarantor and any of
its Restricted Subsidiaries; provided that upon either (a) the transfer
or other disposition by the Guarantor or a Restricted Subsidiary of any
Indebtedness so permitted under this clause (v) to a Person other than
the Guarantor or a Restricted Subsidiary or (b) the issuance, sale,
transfer or other disposition of Equity Interests (including by consol-
idation or merger) in a Restricted Subsidiary to a Person other than
the Guarantor or a Restricted Subsidiary which results in such Re-
stricted Subsidiary ceasing to be a Restricted Subsidiary, the provi-
sions of this clause (v) shall no longer be applicable to such Indebt-
edness and such Indebtedness shall be deemed to have been incurred at
the time of any such issuance, sale, transfer or other disposition, as
the case may be;
(vi) the incurrence by the Guarantor or any of its Restricted Subsidiaries
of Hedging Obligations or Guarantees thereof, provided that such Hedg-
ing Obligations are incurred for the purpose of fixing or hedging in-
terest rate or currency risk with respect to any fixed or floating
rate Indebtedness that is permitted by the Indenture to be outstanding
or any receivable or liability, the payment of which is determined by
reference to a foreign currency; provided that the notional principal
amount of any such Hedging Obligation does not exceed the principal
amount of the Indebtedness to which such Hedging Obligation relates;
(vii) the incurrence by the Guarantor or any of its Restricted Subsidiaries
of Indebtedness represented by performance bonds, standby letters of
credit or appeal bonds, in each case to the extent incurred in the
ordinary course of business of the Guarantor or such Restricted Sub-
sidiary;
(viii) the incurrence by any Restricted Subsidiary (other than the Company)
of Indebtedness, the aggregate principal amount of which, together
with all other Indebtedness of the Guarantor's Restricted Subsidiar-
ies (other than the Company) at the time outstanding, does not ex-
ceed the greater of (1) 10% of the Guarantor's Stockholders' Equity
as of the date of incurrence or (2) $10 million; provided that, in
the case of clause (1) only, the Fixed Charge Coverage Ratio for the
Guarantor's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding
the date on which such Indebtedness (including Acquired Subsidiary
Debt) is incurred would have been at least (x) 1.50 to 1 if such
incurrence occurs on or before April 30, 1999, (y) 1.75 to 1 if such
incurrence occurs after April 30, 1999 and on or before April 30,
2000 and (z) 2.00 to 1 if such incurrence occurs after April 30,
2000, in each case, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if such Indebt-
edness had been incurred at the beginning of such four-quarter peri-
od, provided further, that solely for the purpose of determining
whether the aggregate principal amount of Indebtedness of the Guar-
antor's Restricted Subsidiaries (other than the Company) at any time
outstanding exceeds 10% of the Guarantor's Stockholders' Equity, Ac-
quired Subsidiary Debt shall be excluded; and
(ix) the incurrence by the Company and the Guarantor of Indebtedness (in
addition to Indebtedness permitted by any other clause of this para-
graph) in an aggregate principal amount at any time outstanding not to
exceed $25 million.
Asset Sales
The Indenture provides that the Guarantor will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Guar-
antor (or the Restricted Subsidiary, as the case may be) receives considera-
tion at the time of such Asset Sale at least equal to the fair market value
(as conclusively determined by a resolution of the Board of Directors of the
Guarantor set forth in an Officer's Certificate delivered to the Trustee) of
the assets or Equity Interests issued or sold or otherwise disposed of and
(ii) at least 75% of the consideration therefor received by the Guarantor or
such Restricted Subsidiary is in the form of cash; provided that for purposes
of this provision, the amount of (A) any liabilities (as shown on the Guaran-
tor's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto), of the
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Guarantor or any Restricted Subsidiary (other than, in the case of an Asset
Sale by the Company or the Guarantor, liabilities that are by their terms sub-
ordinated to the Notes or the Guarantee, as the case may be) that are assumed
by the transferee of any such assets and (B) any securities or other obliga-
tions received by the Guarantor or any such Restricted Subsidiary from such
transferee that are immediately converted by the Guarantor or such Restricted
Subsidiary into cash (or as to which the Guarantor or such Restricted Subsidi-
ary has received at or prior to the consummation of the Asset Sale a commitment
(which may be subject to customary conditions) from a nationally recognized in-
vestment, merchant or commercial bank to convert into cash within 90 days of
the consummation of such Asset Sale and which are thereafter actually converted
into cash within such 90-day period) will be deemed to be cash (but shall not
be deemed to be Net Proceeds for purposes of the following provisions until re-
duced to cash). Notwithstanding the foregoing, it will not be a violation of
the foregoing provisions if the Guarantor or a Restricted Subsidiary receives
Investments as all or part of the consideration for an Asset Sale (which con-
sideration is not otherwise permitted), if such Investments constitute Re-
stricted Investments permitted by the covenant in the Indenture described under
the caption "--Restricted Payments."
Pursuant to the Indenture, within 365 days after the receipt of any Net Pro-
ceeds from an Asset Sale, the Guarantor or the Restricted Subsidiary, as the
case may be, may apply such Net Proceeds (i) to purchase one or more Healthcare
Facilities and/or a controlling interest in the Capital Stock of a Person own-
ing one or more Healthcare Facilities, (ii) to make a capital expenditure or to
acquire other tangible assets, in each case, that are used or useful in any
business in which the Guarantor or any of its Restricted Subsidiaries is per-
mitted to be engaged pursuant to the covenant described below under the caption
"--Certain Covenants--Line of Business," (iii) to permanently reduce Existing
Indebtedness of a Restricted Subsidiary (other than the Company), or (iv) to
permanently reduce Senior Debt (and, in the case of revolving credit loans, to
correspondingly reduce commitments with respect thereto). Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." When the ag-
gregate amount of Excess Proceeds exceeds $15 million, the Company will be re-
quired to make an offer to all Holders of Notes and holders of any other In-
debtedness of the Company ranking on a parity with the Notes from time to time
outstanding with similar provisions requiring the Company to make an offer to
purchase or to redeem such Indebtedness with the proceeds from any asset sales,
pro rata in proportion to the respective principal amounts of Notes and such
other Indebtedness then outstanding (an "Asset Sale Offer") to purchase the
maximum principal amount of the Notes and such other Indebtedness that may be
purchased out of the Excess Proceeds, at an offer price in cash equal to 100%
of the principal amount thereof plus accrued and unpaid interest thereon to the
date of purchase, in accordance with the procedures set forth in the Indenture.
To the extent that the aggregate amount of Notes and such other Indebtedness
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of Notes and such other Indebtedness surren-
dered by holders thereof exceeds the amount of Excess Proceeds, the Notes and
such other Indebtedness will be purchased on a pro rata basis. Upon completion
of an Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
The Company Credit Agreement prohibits the Company from repurchasing Notes pur-
suant to an Asset Sale Offer unless certain conditions are met. In order to re-
purchase Notes pursuant to an Asset Sale Offer, the Company would have to repay
all obligations under the Company Credit Agreement (and any other agreements
relating to Senior Debt that contain similar provisions) or would have to ob-
tain the consent of the holders of such Indebtedness. In the event the Company
makes an Asset Sale Offer, the Company will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with such Asset Sale Offer.
Liens
The Indenture provides that the Guarantor will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien (except Permitted Liens) on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom unless all Obligations under the Indenture,
the Notes and the Guarantee are secured on an equal and ratable basis (or on a
senior basis, in case of Subordinated Debt) with the Obligations so secured un-
til such time as such Obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Guarantor will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or re-
striction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the Guarantor or any of its Restricted Sub-
sidiaries (1) on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any Indebtedness owed
to the Guarantor or any of its Restricted Subsidiaries, (ii) make loans or
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advances to the Guarantor or any of its Restricted Subsidiaries or (iii) trans-
fer any of its properties or assets to the Guarantor or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the date of the Indenture,
(b) the Indenture, (c) applicable law or state insurance regulations, (d) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Guarantor or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in con-
nection with or in contemplation of such acquisition or in violation of the
covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Disqualified Stock"), which en-
cumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person (including its Subsidiaries), or
the property or assets of the Person (including its Subsidiaries), so acquired,
provided that the Consolidated EBITDA of such Person is not taken into account
in determining whether such acquisition was permitted by the terms of the In-
denture except to the extent that such Consolidated EBITDA would be permitted
to be dividended to the Company or the Guarantor by such Person or by a Re-
stricted Subsidiary which is the parent of such Person without the prior con-
sent or approval of any third party, (e) any operating lease or capital lease,
insofar as the provisions thereof limit grants of a security interest in, or
other assignments of, the related leasehold interest to any other Person, (f)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, (g) Permitted Refinancing Indebtedness, provided
that the restrictions contained in the agreements governing such Permitted Re-
financing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, or (h) the Company
Credit Agreement and related documentation as the same is in effect on the date
of the Indenture and as amended or replaced from time to time, provided that no
such amendment or replacement is more restrictive as to the matters enumerated
above than the Company Credit Agreement and related documentation as in effect
on the date of the Indenture. Nothing contained in the provisions of the Inden-
ture described in this paragraph shall prevent the Guarantor or any Restricted
Subsidiary from entering into any agreement resulting in the incurrence of
Liens otherwise permitted under the provisions of the Indenture described above
under "--Liens."
Line of Business
The Indenture provides that the Guarantor will not, and will not permit any of
its Restricted Subsidiaries to, engage to any material extent in any business
other than the ownership, operation or management of Healthcare Facilities, in-
cluding the acceptance of risk for the provision of long-term care.
Limitation on Senior Subordinated Debt
The Indenture provides that neither the Company nor the Guarantor will incur,
create, issue, assume, Guarantee or otherwise become liable for any Indebted-
ness that is subordinate or junior in right of payment to any Senior Debt and
senior in any respect in right of payment to the Notes or the Guarantee.
Merger, Consolidation or Sale of Assets
The Indenture provides that neither the Company nor the Guarantor will consoli-
date or merge with or into (whether or not the Company or the Guarantor, as ap-
plicable, is the surviving corporation), or sell, assign, transfer, lease, con-
vey or otherwise dispose of all or substantially all of the properties or as-
sets of the Company or of the Guarantor in one or more related transactions, to
another corporation, Person or entity unless (i) the surviving corporation or
the entity or the Person formed by or surviving any such consolidation or
merger (if other than the Company or the Guarantor, as applicable) or to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made (the "Surviving Entity") is a corporation organized or existing
under the laws of the United States, any state thereof or the District of Co-
lumbia; (ii) the Surviving Entity assumes all the obligations of the Company or
the Guarantor, as the case may be, under the Notes or the Guarantee, as appli-
cable, and the Indenture pursuant to a supplemental Indenture in form reasona-
bly satisfactory to the Trustee; (iii) immediately before and after giving ef-
fect to such transaction and treating any Indebtedness which becomes an obliga-
tion of the Company or the Guarantor, as applicable, as a result of such trans-
action as having been incurred by the Company or the Guarantor, as applicable,
at the time of the transaction, no Default or Event of Default shall have oc-
curred and be continuing; and (iv) the Company or the Guarantor, as applicable,
or the Surviving Entity (A) will have Consolidated Net Worth immediately after
the transaction and prior to any purchase accounting adjustments equal to or
greater than the Consolidated Net Worth of the Company or the Guarantor, as ap-
plicable, immediately preceding the transaction and (B) will, at the time of
such transaction and after giving pro forma effect thereto as if such transac-
tion had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the cove-
nant in the Indenture described above under the caption "--Incurrence of In-
debtedness and Issuance of Disqualified Stock."
Notwithstanding the foregoing, (i) a consolidation or merger by the Company or
the Guarantor with or into or (ii) the sale, assignment, transfer, lease, con-
veyance or other disposition by the Company or the Guarantor of all or substan-
tially all of
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their respective property or assets to, one or more of their Subsidiaries shall
not relieve either the Company or the Guarantor from their respective obliga-
tions under the Indenture, the Notes and the Guarantee.
Transactions with Affiliates
The Indenture provides that the Guarantor will not, and will not permit any of
its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into or make any contract, agreement, understanding, loan, advance or
Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (I) in the case of an Affiliate Transaction in
excess of $1.0 million involving Ventas, Inc. or any of its subsidiaries, the
Guarantor delivers to the Trustee a resolution of the Board of Directors of the
Guarantor set forth in an Officer's Certificate certifying that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors of the Guarantor and (II) in all other cases (i) such Affil-
iate Transaction is on terms that are no less favorable to the Guarantor or the
relevant Restricted Subsidiary than those that could have been obtained in a
comparable transaction by the Guarantor or such Restricted Subsidiary with an
unrelated Person and (ii) the Guarantor delivers to the Trustee (a) with re-
spect to any Affiliate Transaction involving aggregate consideration in excess
of $5.0 million, a resolution of the Board of Directors of the Guarantor set
forth in an Officer's Certificate certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has been ap-
proved by a majority of the disinterested members of the Board of Directors of
the Guarantor and (b) with respect to any Affiliate Transaction involving ag-
gregate consideration in excess of $15.0 million, an opinion as to the fairness
to the Guarantor or such Restricted Subsidiary of such Affiliate Transaction
from a financial point of view issued by an investment banking firm of national
standing. Notwithstanding the foregoing: (A) transactions or payments pursuant
to any employment arrangements, employee relocations or employee or director
benefit plans entered into by the Guarantor or any of its Restricted Subsidiar-
ies in the ordinary course of business and consistent with the past practice of
the Guarantor or such Restricted Subsidiary, (B) transactions between or among
the Guarantor and/or its Restricted Subsidiaries, (C) transactions pursuant to
or performance of the Existing Affiliate Agreements and the Reorganization
Agreements on the terms in effect on the date of the Indenture, (D) transac-
tions between a Person and an Affiliate existing at the time such Person is
merged with or into or becomes a Restricted Subsidiary, except to the extent
such transaction was entered into in connection with, or in contemplation of,
such Person merging with or into or becoming a Restricted Subsidiary, (E) the
payment of dividends on and redemption of Existing Preferred Stock and (F)
transactions between the Guarantor or any Restricted Subsidiary and Atria in
accordance with agreements in existence on the date of the Indenture, in each
case, shall not be deemed to be Affiliate Transactions.
Notwithstanding the foregoing, any Investment in Affiliates permitted by the
provisions of the Indenture described above under the caption "--Restricted
Payments" shall not be prohibited by the foregoing limitations on Affiliate
Transactions.
Limitations on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries
The Indenture provides that the Guarantor will not permit any Restricted Sub-
sidiary (other than the Company), directly or indirectly, to Guarantee or se-
cure the payment of any other Indebtedness of the Guarantor or any of its Re-
stricted Subsidiaries (except Indebtedness of a Restricted Subsidiary of such
Restricted Subsidiary) unless such Restricted Subsidiary simultaneously exe-
cutes and delivers a supplemental indenture to the Indenture providing for the
Guarantee of the payment of the Notes by such Restricted Subsidiary, which
Guarantee shall be senior to or pari passu with such Restricted Subsidiary's
Guarantee of or pledge to secure such other Indebtedness. Notwithstanding the
foregoing, any such Guarantee by a Restricted Subsidiary of the Notes shall
provide by its terms that it shall be automatically and unconditionally re-
leased and discharged upon a sale or other disposition, by way of merger or
otherwise, to any Person not an Affiliate of the Guarantor, of the Guarantor's
stock in, or the assets of, such Restricted Subsidiary, which sale or other
disposition results in such Restricted Subsidiary ceasing to be a Restricted
Subsidiary and such sale or other disposition is made in compliance with, and
the Net Proceeds therefrom are applied in accordance with, the applicable pro-
visions of the Indenture. The form of such supplemental indenture will be at-
tached as an exhibit to the Indenture. The foregoing provisions will not be ap-
plicable to (i) Guarantees by Restricted Subsidiaries of the Company's Indebt-
edness under the Company Credit Agreement and with respect to Hedging Obliga-
tions related to the Company Credit Agreement, (ii) Guarantees of Indebtedness
of a Person by its subsidiaries in effect prior to the time such Person is
merged with or into or became a Restricted Subsidiary, provided that such Guar-
antees do not extend to any other Indebtedness of such Person or any other Per-
son and (iii) any one or more Guarantees of up to $10 million in aggregate
principal amount of Indebtedness of the Guarantor or any Restricted Subsidiary
at any time outstanding.
TERMINATION OF CERTAIN COVENANTS IF NOTES RATED INVESTMENT GRADE
Notwithstanding the foregoing, the Company's and the Guarantor's obligations to
comply with the provisions of the Indenture described above under the captions
"--Certain Covenants--Restricted Payments," "--Incurrence of Indebtedness
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and Issuance of Disqualified Stock," "--Asset Sales," "--Dividends and Other
Payment Restrictions Affecting Restricted Subsidiaries," "--Line of Business,"
"--Limitation on Senior Subordinated Debt," "--Transactions with Affiliates"
and "--Limitations on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries" will terminate if and when the Notes become Investment Grade Rat-
ed.
REPORTS
The Indenture provides that, whether or not required by the rules and regula-
tions of the Commission, so long as any Notes are outstanding, the Guarantor
will furnish to Holders of Notes (i) all quarterly and annual financial infor-
mation that would be required to be contained in a filing with the Commission
on Forms 10-Q and 10-K if the Guarantor were required to file such Forms, in-
cluding a "Management's Discussion and Analysis of Financial Condition and Re-
sults of Operations" and, with respect to the annual information only, a report
thereon by the Guarantor's certified independent accountants and (ii) all cur-
rent reports that would be required to be filed with the Commission on Form 8-K
if the Guarantor were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Guarantor will
file a copy of all such information and reports with the Commission for public
availability and make such information available to securities analysts and
prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of De-
fault: (i) default for 30 days in the payment when due of interest on the Notes
(whether or not prohibited by the provisions of the Indenture described under
"--Subordination" above); (ii) default in payment when due of the principal of
or premium, if any, on the Notes (whether or not prohibited by the provisions
of the Indenture described under "--Subordination" above); (iii) failure by the
Company or the Guarantor to comply with the provisions described under the cap-
tions "--Repurchase at the Option of Holders upon a Change of Control," "--Cer-
tain Covenants--Asset Sales," "--Restricted Payments" or "--Incurrence of In-
debtedness and Issuance of Disqualified Stock;" (iv) failure by the Company or
the Guarantor for 30 days after notice to comply with any of its other agree-
ments in the Indenture, the Notes or the Guarantee; (v) any default that occurs
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company, the Guarantor or any Significant Subsidiary of the Guarantor
(or the payment of which is Guaranteed by the Company, the Guarantor or any
Significant Subsidiary of the Guarantor), whether such Indebtedness or Guaran-
tee exists on the date of the Indenture or is thereafter created, which default
(a) constitutes a Payment Default or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or that has been
so accelerated, aggregates $25 million or more; (vi) the termination of any
Master Lease Agreement upon an Event of Default (as defined in such Master
Lease Agreement) or the surrender or repossession of all of the Leased Property
(as defined in each Master Lease Agreement) upon an Event of Default thereun-
der; (vii) failure by the Company, the Guarantor or any Significant Subsidiary
of the Guarantor to pay final judgments aggregating in excess of $25 million,
which judgments are not paid, discharged or stayed for a period of 60 days; and
(viii) certain events of bankruptcy or insolvency with respect to the Company,
the Guarantor or any Significant Subsidiary of the Guarantor.
If any Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in aggregate principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately; provided, that for so
long as the Company Credit Agreement is in effect, such declaration shall not
become effective until the earlier of (i) five Business Days after receipt of
the written notice declaring the Notes to be due and payable immediately by the
Administrative Agent and the Documentation Agent under the Company Credit
Agreement or (ii) acceleration of the Indebtedness under the Company Credit
Agreement. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company, the Guarantor or any Significant Subsidiary of the Guarantor, all out-
standing Notes will become due and payable without further action or notice.
Holders of Notes may not enforce the Indenture or the Notes except as provided
in the Indenture. Subject to certain limitations, Holders of a majority in ag-
gregate principal amount of the then outstanding Notes may direct the Trustee
in its exercise of any trust or power. The Trustee may withhold from Holders of
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it deter-
mines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then out-
standing by notice to the Trustee on behalf of the Holders of all of the Notes,
may waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
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The Company and the Guarantor are required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Company and the
Guarantor are required upon becoming aware of any Default or Event of Default,
to deliver to the Trustee a statement specifying such Default or Event of De-
fault.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company or
the Guarantor, as such, shall have any liability for any obligations of the
Company or the Guarantor under the New Notes, the Guarantee, the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of New Notes by accepting a New Note waives and re-
leases all such liability. The waiver and release are part of the consideration
for issuance of the New Notes and the Guarantee. Such waiver may not be effec-
tive to waive liabilities under the Federal securities laws and it is the view
of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company and the Guarantor may, at their option and at any time, elect to
have all of their obligations discharged with respect to the outstanding New
Notes and the Guarantee ("Legal Defeasance") except for (i) the rights of Hold-
ers of outstanding New Notes to receive payments in respect of the principal
of, premium, if any, and interest on such New Notes when such payments are due
from the trust referred to below, (ii) the Company's obligations with respect
to the New Notes concerning issuing temporary New Notes, registration of New
Notes, mutilated, destroyed, lost or stolen New Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's and the Guarantor's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company and the
Guarantor may, at their option and at any time, elect to have the obligations
of the Company and the Guarantor released with respect to certain covenants
that are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Notes or the Guarantee. In the event Cove-
nant Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership and insolvency events) described under "Events of Default" will no
longer constitute an Event of Default with respect to the Notes or the Guaran-
tee.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company or the Guarantor must irrevocably deposit with the Trustee, in trust,
for the benefit of Holders of Notes, cash in U.S. dollars, noncallable Govern-
ment Securities, or a combination thereof, in such amounts as will be suffi-
cient, in the opinion of a nationally recognized firm of independent public ac-
countants, to pay the principal of, premium, if any, and interest on such out-
standing Notes on the stated maturity; (ii) in the case of Legal Defeasance,
the Company or the Guarantor shall have delivered to the Trustee an opinion of
counsel in the United States confirming that (A) the Company or the Guarantor
has received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the date of the Indenture, there has been a change in the
applicable Federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of such out-
standing Notes will not recognize income, gain or loss for Federal income tax
purposes as a result of such Legal Defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred, (iii) in
the case of Covenant Defeasance, the Company or the Guarantor shall have deliv-
ered to the Trustee an opinion of counsel in the United States confirming that
the Holders of such outstanding Notes will not recognize income, gain or loss
for Federal income tax purposes as a result of such Covenant Defeasance and
will be subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than a Default or Event of De-
fault resulting from the borrowing of funds to be applied to such deposit) or
insofar as Events of Default from bankruptcy or insolvency events are con-
cerned, at any time in the period ending on the 91st day after the date of de-
posit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which the Guarantor or any of its Re-
stricted Subsidiaries is a party or by which the Guarantor or any of its Re-
stricted Subsidiaries is bound (other than a breach, violation or default re-
sulting from the borrowing of funds to be applied to such deposit); (vi) the
Company or the Guarantor must have delivered to the Trustee an opinion of coun-
sel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy, insolven-
cy, reorganization or similar laws affecting creditors' rights generally; (vii)
the Company or the Guarantor must deliver to the Trustee an Officer's Certifi-
cate stating that the deposit was not made by the Company or the Guarantor with
the intent of preferring the Holders of such Notes over the other creditors of
the Company or the Guarantor with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others; and (viii) the Company or the
Guarantor must deliver to the Trustee an Officer's Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance, as the case may be, have been
complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to fur-
nish appropriate endorsements and transfer documents and the Company may re-
quire a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The registered Holder of a New Note will be treated as the owner of
it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, the
New Notes or the Guarantee may be amended or supplemented with the consent of
the Holders of at least a majority in aggregate principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange offer for such Notes), and any existing default or compliance with
any provision of the Indenture, the New Notes or the Guarantee may be waived
with the consent of the Holders of a majority in aggregate principal amount of
the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for such Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supple-
ment or waiver, (ii) reduce the principal of or change the fixed maturity of
any New Note or alter the provisions with respect to the redemption of the New
Notes (other than provisions relating to the covenants described under the cap-
tions "--Repurchase at the Option of Holders upon a Change of Control" and "--
Certain Covenants--Asset Sales"), (iii) reduce the rate of or change the time
for payment of interest on any New Note, (iv) waive a Default or Event of De-
fault in the payment of principal of, premium, if any, or interest on, the New
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount thereof and a waiver of the pay-
ment default that resulted from such acceleration), (v) make any New Note pay-
able in money other than that stated in the New Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of New Notes to receive payments of principal of, premium, if
any, or interest on the New Notes, (vii) waive a redemption payment with re-
spect to any New Note (other than a payment required by one of the covenants
described under the captions "--Repurchase at the Option of Holders upon a
Change of Control" and "--Certain Covenants--Asset Sales"), (viii) modify the
ranking or priority of the New Notes or the Guarantee or modify the definition
of Senior Debt or Designated Senior Debt or amend or modify the subordination
provisions of the Indenture in any manner adverse to the Holders or (ix) make
any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of New Notes,
the Company, the Guarantor and the Trustee may amend or supplement the Inden-
ture or the New Notes to cure any ambiguity, defect or inconsistency, to pro-
vide for uncertificated New Notes in addition to or in place of certificated
New Notes, to provide for the assumption of the Company's or the Guarantor's
obligations to Holders of New Notes in the case of a transaction described
above under "--Certain Covenants--Merger, Consolidation or Sale of Assets", to
make any change that would provide any additional rights or benefits to Holders
of New Notes or that does not adversely affect the legal rights under the In-
denture of any such Holder, or to comply with requirements of the Commission in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee, should
the Trustee become a creditor of the Company or the Guarantor, to obtain pay-
ment of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be permit-
ted to engage in other transactions; however, if the Trustee acquires any con-
flicting interest (as defined in the Indenture or the Trust Indenture Act) it
must eliminate such conflict within 90 days or resign.
The Holders of a majority in aggregate principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the con-
duct of his own affairs. Subject to such provisions, the Trustee will not be
under any obligation to exercise any of its rights or powers under the Inden-
ture at the request of any Holder of New Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
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THE GLOBAL NOTES
Old Notes offered and sold in reliance on Regulation S in the Offering were
initially represented by a single, temporary Global Note in definitive, fully
registered form without interest coupons (the "Temporary Regulation S Global
Note") and were deposited with the Trustee as custodian for DTC and registered
in the name of a nominee for DTC for the accounts of Morgan Guaranty Trust Com-
pany of New York, Brussels office, as operator of the Euroclear System
("Euroclear") or Cedel Bank, S.A. ("Cedel"). The Temporary Regulation S Global
Note is exchangeable for a single, permanent global note (the "Permanent Regu-
lation S Global Note", and together with the Temporary Regulation S Global
Note, the "Regulation S Global Note").
Old Notes offered and sold to qualified institutional buyers as defined in Rule
144A ("Qualified Institutional Buyers") in the Offering in reliance on Rule
144A are represented by a single, permanent Global Note in definitive, fully
registered form (the "QIB Global Note," and together with the Regulation S
Global Note, the "Global Notes") which were registered in the name of a nominee
of DTC and deposited on behalf of purchasers of the Old Notes represented
thereby with a custodian for DTC for credit to the respective accounts of the
purchasers (or to such other accounts as they directed) at DTC.
Old Notes originally purchased by or transferred to Qualified Institutional
Buyers who elected to take physical delivery of their certificates instead of
holding their interest through the QIB Global Note (and which were thus ineli-
gible to trade through DTC) (collectively referred to herein as the "Non-Global
Purchasers") were issued in the form of certificated notes in definitive, fully
registered form (the "Certificated Notes").
Pursuant to procedures established by DTC (a) upon the issuance of the Global
Notes, DTC or its custodian credits, on its internal system, the principal
amount of Notes of the individual beneficial interests represented by the
Global Notes to the respective accounts of persons who have accounts with DTC
and (b) ownership of beneficial interests in the Global Notes was shown on, and
the transfer of such ownership will be effected only through, records main-
tained by DTC or its nominee (with respect to interests of Participants (as de-
fined herein)) and the records of Participants (with respect to interests of
persons other than Participants). Such accounts initially were designated by or
on behalf of the Initial Purchasers and ownership of beneficial interests in
the Global Notes will be limited to persons who have accounts with DTC ("Par-
ticipants") or persons who hold interests through Participants. Interests in
the Global Notes may be held directly through DTC, by Participants, or indi-
rectly through organizations which are Participants.
Investors may hold their interests in the Regulation S Global Note directly
through Cedel or Euroclear, if they are participants in such systems, or indi-
rectly through organizations which are participants in such systems. After June
9, 1998 (but not earlier), investors may also hold such interests through orga-
nizations other than Cedel or Euroclear that are Participants in the DTC sys-
tem. Cedel and Euroclear will hold such interests in the Regulation S Global
Note on behalf of their participants through customers' securities accounts in
their respective names on the books of their respective depositaries, which in
turn will hold such interests in the Offshore Global Note in customers' securi-
ties accounts in the depositaries' names on the books of DTC.
So long as DTC, or its nominee, is the registered owner or Holder of the Global
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or Holder of Notes represented by such Global Notes for all purposes un-
der the Indenture. No beneficial owner of an interest in any Global Notes will
be able to transfer that interest except in accordance with applicable proce-
dures of DTC, Euroclear and Cedel, in addition to those provided for under the
Indenture. Payments of the principal of, premium, if any, and interest on the
Global Notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Guarantor or the Trustee or
any paying agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership in-
terests in the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
The Company and the Guarantor expect that DTC or its nominee, upon receipt of
any payment of principal, premium, if any, or interest in respect of the Global
Notes, will credit Participants' accounts with payments in amounts proportion-
ate to their respective beneficial interests in the principal amount of the
Global Notes as shown on the records of DTC or its nominee. The Company and the
Guarantor also expect that payments by Participants to owners of beneficial in-
terests in the Global Notes held through such Participants will be governed by
standing instructions and customary practice, as is now the case with securi-
ties held for the accounts of customers registered in the names of nominees for
such customers. Such payments will be the responsibility of such Participants.
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Transfers between Participants will be effected in the ordinary way in accor-
dance with DTC rules and will be settled in immediately available funds. If a
Holder requires physical delivery of a Certificated Note for any reason, in-
cluding to sell Notes to persons in states which require physical delivery of
the Notes, or to pledge such securities, such Holder must transfer its interest
in a Global Note in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in the other Global Note
will, upon transfer, cease to be an interest in such Global Note and become an
interest in the other Global Note and, accordingly, will thereafter be subject
to all transfer restrictions, if any, and other procedures applicable to bene-
ficial interests in such other Global Note for as long as it remains such an
interest.
DTC has advised the Company and the Guarantor that it will take any action per-
mitted to be taken by a Holder of Notes (including the presentation of Notes
for exchange) only at the direction of one or more Participants to whose ac-
count the DTC interests in the Global Notes are credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such Par-
ticipant or Participants has or have given such direction. However, if there is
an Event of Default under the Indenture, DTC will exchange the Global Notes in
whole for Certificated Notes, which it will distribute to the Participants.
DTC has advised the Company and the Guarantor as follows: DTC is a limited pur-
pose trust company organized under the laws of the State of New York, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold securi-
ties for Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in ac-
counts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations. In-
direct access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial rela-
tionship, with a Participant either directly or indirectly ("Indirect Partici-
pants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing proce-
dures in order to facilitate transfers of interests in the Global Notes among
Participants of DTC, Euroclear and Cedel, they are under no obligation to per-
form such procedures, and such procedures may be discontinued at any time. None
of the Company, the Guarantor or the Trustee will have any responsibility for
the performance by DTC, Euroclear or Cedel or the Participants or Indirect Par-
ticipants of their respective obligations under the rules and procedures gov-
erning their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for the
Global Notes and a successor depositary is not appointed by the Company or the
Guarantor within 90 days, Certificated Notes will be issued in exchange for the
Global Notes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference is
made to the Indenture for full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
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"Acquired Debt" means, with respect to any specified Person, (i) Indebtedness
of any other Person existing at the time such other Person is merged with or
into or became a Restricted Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in contempla-
tion of, such other Person merging with or into or becoming a Restricted Sub-
sidiary of such specified Person, and (ii) Indebtedness secured by a Lien en-
cumbering any asset acquired by such specified Person.
"Acquired Subsidiary Debt" means, with respect to any specified Person, (i) In-
debtedness of any other Person existing at the time such other Person is merged
with or into or became a Restricted Subsidiary of such specified Person, except
to the extent such Indebtedness was incurred in connection with, or in contem-
plation of, such other Person merging with or into or becoming a Restricted
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person, except to the extent
such Lien was created or incurred in connection with, or in contemplation of,
such acquisition.
"Affiliate" of any specified Person means any other Person directly or indi-
rectly controlling or controlled by or under direct or indirect common control
with such specified Person. For purposes of this definition, "control" (includ-
ing, with correlative meanings, the terms "controlling," "controlled by" and
"under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the di-
rection of the management or policies of such Person, whether through the own-
ership of voting securities, by agreement or otherwise; provided that benefi-
cial ownership of 10% or more of the voting securities of a Person shall be
deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of any
assets (including, without limitation, by way of a sale and leaseback); pro-
vided that the sale, lease, conveyance or other disposition of all or substan-
tially all of the property or assets of the Company or of the Guarantor will be
governed by the provisions of the Indenture described above under the caption
"--Repurchase at the Option of Holders upon a Change of Control" and/or the
provisions described above under the caption "--Certain Covenants--Merger, Con-
solidation or Sale of Assets" and not by the provisions of the Asset Sale cove-
nant, and (ii) the issuance or sale by the Guarantor or any of its Restricted
Subsidiaries of Equity Interests of any of the Guarantor's Restricted Subsidi-
aries, in the case of either clause (i) or (ii), whether in a single transac-
tion or a series of related transactions (a) that have a fair market value in
excess of $15 million or (b) for net proceeds in excess of $15 million. Not-
withstanding the foregoing: (a) a transfer of assets by the Guarantor to a Re-
stricted Subsidiary or by a Restricted Subsidiary to the Guarantor or to an-
other Restricted Subsidiary, (b) an issuance of Equity Interests by a Re-
stricted Subsidiary to the Guarantor or to another Restricted Subsidiary, (c)
sales of assets of Behavioral Healthcare Corp., (d) sales of Development Prop-
erties consummated in accordance with the terms set forth in the Development
Agreement and (e) transfers or dispositions of assets in accordance with the
Licensing Arrangements, in each case, will not be deemed to be an Asset Sale.
"Atria" means Atria Communities, Inc., a Delaware corporation, and its succes-
sors.
"Board of Directors" means, with respect to any Person, the Board of Directors
of such Person, or any authorized committee of the Board of Directors of such
Person.
"Business Day" means any day except a Saturday, Sunday or other day on which
commercial banks in The City of New York are authorized by law to close.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock, (ii)
in the case of an association or business entity, any and all shares, inter-
ests, participations, rights or other equivalents (however designated) of cor-
porate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Change of Control" means the occurrence of any of the following: (i) the sale,
lease, transfer, conveyance or other disposition, in one or a series of related
transactions, of all or substantially all of the properties or assets of the
Company or of the Guarantor to any Person or group (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act), (ii) the acquisition by
any Person or group (as defined above) of a direct or indirect interest in more
than 50% of the voting power of the voting stock of the Company or of the Guar-
antor, by way of merger or consolidation or otherwise, or (iii) the first day
on which a majority of the members of the Board of Directors of the Company or
the Guarantor are not Continuing
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Directors. Notwithstanding the foregoing, a merger or consolidation of the Com-
pany with or into the Guarantor shall not be deemed a Change of Control.
"Company Credit Agreement" means that certain Credit Agreement, dated as of
April 29, 1998, by and among the Company, the Guarantor, Morgan Guaranty Trust
Company of New York, as Documentation Agent and Collateral Agent, NationsBank
N.A., as Administrative Agent, the lenders party thereto, the Swingline Bank
party thereto, the LC Issuing Bank party thereto and the Senior Managing
Agents, Managing Agents and Co-Agents party thereto, including any related
notes, collateral documents, instruments and agreements executed in connection
therewith, and in each case as further amended, modified, extended, renewed,
refunded, replaced or refinanced in whole or in part, from time to time (in-
cluding amendments, modifications, extensions, renewals, refundings, replace-
ments or refinancings which increase the principal amount of Indebtedness per-
mitted thereunder; provided that any such increase will not increase the amount
of Indebtedness which may be incurred at the time of such increase pursuant to
clause (i) of the second paragraph of the covenant described above under "--
Certain Covenants--Incurrence of Indebtedness and Issuance of Disqualified
Stock").
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (i) an amount equal
to any extraordinary loss plus any net loss realized in connection with an as-
set sale (to the extent such losses were deducted in computing such Consoli-
dated Net Income), plus (ii) any non-cash charges (to the extent such charges
were deducted in computing such Consolidated Net Income), except for any non-
cash charges that represent accruals of, or reserves for, cash disbursements to
be made in any future accounting period, plus (iii) provision for taxes based
on income or profits of such Person and its Restricted Subsidiaries for such
period, to the extent such provision for taxes was included in computing such
Consolidated Net Income, plus (iv) the Fixed Charges of such Person and its Re-
stricted Subsidiaries for such period, to the extent that such Fixed Charges
were deducted in computing such Consolidated Net Income, plus (v) depreciation
and amortization (including amortization of goodwill and all other intangibles
but excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation and amortization were deducted in computing such
Consolidated Net Income, in each case, on a consolidated basis and determined
in accordance with GAAP. Notwithstanding the foregoing, the amounts referred to
in clauses (i) through (v) above as they relate to a Restricted Subsidiary of
the referent Person shall be added to Consolidated Net Income to compute Con-
solidated EBITDA only to the extent (and in the same proportion) that the Net
Income of such Restricted Subsidiary was included in calculating the Consoli-
dated Net Income of such Person and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company or the
Guarantor by such Restricted Subsidiary or by a Restricted Subsidiary which is
the parent of such Restricted Subsidiary without prior approval (that has not
been obtained), pursuant to the terms of its charter and all agreements, in-
struments, judgments, decrees, orders, statutes, rules and governmental regula-
tions applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period, the
aggregate of the Net Income of such Person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP; pro-
vided that (i) the Net Income of any Person that is not a Restricted Subsidiary
or that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash to
the referent Person or a Restricted Subsidiary thereof, (ii) the Net Income of
any Restricted Subsidiary shall be excluded to the extent that the declaration
or payment of dividends or similar distributions by that Restricted Subsidiary
of that Net Income is not at the date of determination permitted to be
dividended to the Company or the Guarantor by such Restricted Subsidiary or by
a Restricted Subsidiary which is the parent of such Restricted Subsidiary with-
out any prior governmental approval (that has not been obtained) or, directly
or indirectly, by operation of the terms of its charter or any agreement, in-
strument, judgment, decree, order, statute, rule or governmental regulation ap-
plicable to that Restricted Subsidiary or its stockholders, (iii) solely for
the purpose of calculating the amount of Restricted Payments that may be made
pursuant to clause (c) of the first paragraph of the covenant described above
under the caption "--Certain Covenants--Restricted Payments", the Net Income of
any Person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition shall be excluded and (iv) the cumulative ef-
fect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date, the
sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the re-
spective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock), less
all write-ups (other than write-ups resulting from foreign currency transla-
tions and write-ups of tangible assets of a going concern business made in ac-
cordance with GAAP as a result of the acquisition of such business) subsequent
to the date of the Indenture in the book value of any asset owned by such Per-
son or a consolidated Restricted Subsidiary of such Person, and excluding, the
cumulative effect of a change in accounting principles, all as determined in
accordance with GAAP.
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"Continuing Director" means, as of any date of determination, any member of the
Board of Directors of the Company or the Guarantor who (i) was a member of such
Board of Directors on the date of the Indenture, (ii) was nominated for elec-
tion or elected to such Board of Directors with the approval of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election or (iii) was nominated for election or elected to such
Board of Directors by the Guarantor.
"Default" means any event that is, or with the passage of time or the giving of
notice or both would be, an Event of Default.
"Designated Senior Debt" means (i) so long as the Company Credit Agreement is
outstanding, all Indebtedness under the Company Credit Agreement and (ii)
thereafter, any other Senior Debt permitted under the Indenture the principal
amount of which is $25 million or more and that has been designated by the Com-
pany or the Guarantor as "Designated Senior Debt."
"Development Agreement" means the agreement relating to the Development Proper-
ties identified in the Proxy Statement.
"Development Properties" means the properties under development or proposed to
be developed by the Guarantor or its Subsidiaries and that will, at the option
of Ventas, Inc., be sold to Ventas, Inc. or any of its subsidiaries upon com-
pletion of the development thereof and leased back from Ventas, Inc. or such
subsidiary by the Guarantor or its Subsidiaries, all as described in the Proxy
Statement.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is exchange-
able), or upon the happening of any event, matures or is mandatorily redeem-
able, pursuant to a sinking fund obligation or otherwise, or redeemable at the
option of the holder thereof, in whole or in part, on or prior to the date on
which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is con-
vertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Affiliate Agreements" means the agreements listed in Schedule 6 to
the Company Credit Agreement on the date of the Indenture.
"Existing Indebtedness" means Indebtedness of the Guarantor and its Restricted
Subsidiaries (other than Indebtedness under the Company Credit Agreement) in
existence on the date of the Indenture, until such amounts are repaid, includ-
ing all reimbursement obligations with respect to letters of credit outstanding
as of the date of the Indenture (other than letters of credit issued pursuant
to the Company Credit Agreement).
"Existing Preferred Stock" means the Series A Convertible Preferred Stock of
the Guarantor with an aggregate liquidation preference of $17.7 million issued
in connection with the Reorganization Transactions.
"Fixed Charge Coverage Ratio" means, with respect to any Person for any period,
the ratio of (i) the sum of (x) the Consolidated EBITDA of such Person for such
period and (y) one-third of all rental expense of such Person and its Re-
stricted Subsidiaries for such period attributable to operating leases with an
initial term, including any renewals at the option of either party, in excess
of one year, to (ii) the Fixed Charges of such Person for such period. In the
event that the Guarantor or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues preferred stock subsequent to the commencement of the four-quarter
reference period for which the Fixed Charge Coverage Ratio is being calculated
but on or prior to the date on which the event for which the calculation of the
Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, Guarantee or redemption of Indebtedness, or such issu-
ance or redemption of preferred stock, as if the same had occurred at the be-
ginning of the applicable four-quarter reference period. In addition, for pur-
poses of making the computation referred to above, (i) acquisitions that have
been made by the Guarantor or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing transac-
tions, during the four-quarter reference period or subsequent to such reference
period and on or prior to the Calculation Date shall be deemed to have occurred
on the first day of the four-quarter reference period and (ii) the Consolidated
EBITDA, rental expense and Fixed Charges attributable to discontinued opera-
tions, as determined in accordance with GAAP, and operations or businesses dis-
posed of prior to the Calculation Date, shall be excluded.
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"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued (in-
cluding, without limitation, amortization of original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease Obliga-
tions, commissions, discounts and other fees and charges incurred in respect of
letters of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations), and (ii) the consolidated interest expense of
such Person and its Restricted Subsidiaries that was capitalized during such
period, and (iii) any interest expense on Indebtedness of another Person that
is Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries
(whether or not such Guarantee or Lien is called upon), and (iv) the product of
(a) all cash dividend payments (and non-cash dividend payments in the case of a
Person that is a Restricted Subsidiary) on any series of preferred stock of
such Person, times (b) a fraction, the numerator of which is one and the denom-
inator of which is one minus the then current combined Federal, state and local
statutory tax rate of such Person, expressed as a decimal and (v) one-third of
all rental expense of such Person and its Restricted Subsidiaries for such pe-
riod attributable to operating leases with an initial term, including any re-
newals at the option of either party, in excess of one year, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the Finan-
cial Accounting Standards Board or in such other statements by such other enti-
ties as have been approved by a significant segment of the accounting profes-
sion, as in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable instru-
ments for collection in the ordinary course of business), direct or indirect,
in any manner (including, without limitation, letters of credit and reimburse-
ment agreements in respect thereof), of all or any part of any Indebtedness.
"Healthcare Facility" means (i) a hospital, outpatient clinic, nursing center,
assisted or independent living community, long-term care facility or any other
facility that is used or useful in the provision of healthcare or custodial
care services, (ii) any healthcare business affiliated or associated with a
Healthcare Facility or (iii) any business related or ancillary to the provision
of healthcare services or the operation of a Healthcare Facility, including,
but not limited to, contract therapy services such as rehabilitation, respira-
tory, speech and occupational therapy services, as well as hospice and home
care services.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap agree-
ments and interest rate collar agreements, (ii) foreign exchange contracts or
currency swap agreements and (iii) other agreements or arrangements designed to
protect such Person against fluctuations in interest rates or currency values.
"Indebtedness" means, with respect to any Person, any indebtedness of such Per-
son, whether or not contingent, in respect of borrowed money or evidence by
bonds, notes, debentures or similar instruments or letters of credit (or reim-
bursement agreements in respect thereof) or banker's acceptances or represent-
ing Capital Lease Obligations or the balance deferred and unpaid of the pur-
chase price of any property or representing any Hedging Obligations, except any
such balance that constitutes an accrued expense or Trade Payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the Guar-
antee by such Person of any indebtedness of any other Person.
"Investment Grade Rated" means, with respect to the Notes, both a rating of the
Notes by S&P of "BBB" -- (or higher) and a rating of the Notes by Moody's of
"Baa3" (or higher).
"Investments" means, with respect to any Person, all investments by such Person
in other Persons (including Affiliates) in the forms of direct or indirect
loans (including Guarantees of Indebtedness or other obligations), advances or
capital contributions, purchases or other acquisitions for consideration of In-
debtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP. For purposes of the definition of "Unrestricted Subsidiary" and the
"Restricted Payments" covenant described above, (i) "Investment" shall include
the fair market value of the assets (net of liabilities) of any Restricted Sub-
sidiary at the time that such Restricted Subsidiary is designated an Unre-
stricted Subsidiary and shall exclude the fair market value of the assets (net
of liabilities) of any Unrestricted Subsidiary at the time that such Unre-
stricted Subsidiary is designated a Restricted
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<PAGE>
Subsidiary and (ii) any property transferred to or from any Person shall be
valued at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors of the Guarantor.
"Issue Date" means the original issue date of the Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset given to
secure Indebtedness, whether or not filed, recorded or otherwise perfected un-
der applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction with respect to any such lien, pledge, charge or security
interest).
"Master Lease Agreements" means the master lease agreements that set forth the
material terms governing the lease of certain properties owned by Ventas, Inc.
to the Guarantor and its Subsidiaries substantially as described in the Proxy
Statement.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person for such period, the net income
(loss) of such Person for such period, determined in accordance with GAAP, ex-
cluding, however, (i) any gain (but not loss), together with any related provi-
sion for taxes on such gain (but not loss), realized in connection with (a) any
asset sale (including, without limitation, dispositions pursuant to sale and
leaseback transactions) or (b) the disposition of any securities by such Person
or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary
or nonrecurring gain (but not loss), together with any related provision for
taxes on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Guarantor or
any of its Restricted Subsidiaries in respect of any Asset Sale, net of the di-
rect costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and sales commissions) and any other ex-
penses incurred or to be incurred by the Guarantor or a Restricted Subsidiary
as a direct result of the sale of such assets (including, without limitation,
severance, relocation, lease termination and other similar expenses), taxes ac-
tually paid or payable as a result thereof, payments made to retire Indebted-
ness where payment of such Indebtedness is required in connection with such As-
set Sale and any reserve for adjustment in respect of the sale price of such
asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness of a Subsidiary (i) as to which neither
the Guarantor nor any of its Restricted Subsidiaries (a) provides credit sup-
port of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness of the Guarantor or any of its Restricted Subsidiar-
ies), or (b) is directly or indirectly liable (as a guarantor or otherwise) and
(ii) no default with respect to which would permit (upon notice, lapse of time
or both) any holder of any other Indebtedness of the Guarantor or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated ma-
turity.
"Obligations" means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Payment Default" means any failure to pay any scheduled installment of princi-
pal of, premium, if any, or interest on any Indebtedness within the grace pe-
riod provided for such payment in the documentation governing, such Indebted-
ness.
"Permitted Liens" means (i) Liens securing Senior Debt under the Company Credit
Agreement or Guarantees thereof; (ii) Liens in favor of the Company or the
Guarantor; (iii) Liens on assets of a Person existing at the time such Person
is merged into or consolidated with the Guarantor or any Restricted Subsidiary
of the Guarantor or becomes a Restricted Subsidiary of the Guarantor; provided
that such Liens were in existence prior to the contemplation of such merger,
consolidation or acquisition and do not extend to any assets other than those
of the Person merged into or consolidated with the Guarantor or that becomes a
Restricted Subsidiary of the Guarantor; (iv) Liens on property existing at the
time of acquisition thereof by the Guarantor or any Restricted Subsidiary of
the Guarantor, provided that such Liens were in existence prior to the contem-
plation of such acquisition; (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business; (vi) Liens existing
on the date of the Indenture; (vii) Liens for taxes, assessments or governmen-
tal charges or claims that are not yet delinquent or that are being contested
in good faith by appropriate proceedings promptly instituted and diligently
concluded, provided
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<PAGE>
that any reserve or other appropriate provision as shall be required in con-
formity with GAAP shall have been made therefor; (viii) Liens on any asset se-
curing Indebtedness incurred or assumed for the purpose of financing all or
any part of the cost of acquiring or constructing such asset, provided that
such Lien attaches to such asset concurrently with or within 180 days after
the acquisition or completion of construction thereof and attaches to no asset
other than such asset so financed; (ix) Liens arising in the ordinary course
of business which (a) do not secure Indebtedness, (b) do not secure any single
obligation (or series of related obligations) in an amount exceeding $5 mil-
lion, provided that the limitation in this clause (b) shall not apply to Liens
securing worker's compensation, unemployment insurance and other types of so-
cial security, and (c) do not in the aggregate materially detract from the
value of the assets of the Guarantor and its Restricted Subsidiaries, taken as
a whole, or materially impair the use thereof in the operation of their busi-
ness; (x) Liens on cash (not exceeding $20 million in aggregate amount) of
Cornerstone Insurance Company to secure its reimbursement obligations under
letters of credit issued for its account; (xi) other Liens or title defects
(including matters which an accurate survey might disclose) which (a) do not
secure Indebtedness and (b) do not materially detract from the value of real
property or materially impair the use thereof by the Guarantor or any of its
Restricted Subsidiaries in the operation of its business; (xii) Liens securing
Hedging Obligations permitted by the second paragraph of the covenant de-
scribed above under the caption "--Certain Covenants--Incurrence of Indebted-
ness and Issuance of Disqualified Stock"; (xiii) other Liens on assets of the
Guarantor or any Restricted Subsidiary of the Guarantor securing Indebtedness
that is permitted by the terms of the Indenture to be outstanding having an
aggregate principal amount at any one time outstanding not to exceed 5% of the
Stockholders' Equity of the Guarantor; and (xiv) Liens to secure Permitted Re-
financing Indebtedness incurred to refinance Indebtedness that was secured by
a Lien permitted under the Indenture and that was incurred in accordance with
the provisions of the Indenture; provided that such Liens do not extend to or
cover any property or assets of the Guarantor or any Restricted Subsidiary
other than assets or property securing the Indebtedness so refinanced.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Guarantor
or any of its Restricted Subsidiaries issued in exchange for, or the net pro-
ceeds of which are used solely to extend, refinance, renew, replace, defease
or refund, other Indebtedness of the Guarantor or any of its Restricted Sub-
sidiaries (other than Indebtedness constituting revolving credit loans under
the Company Credit Agreement permitted to be incurred under clause (i) of the
second paragraph of the covenant described above under "--Certain Covenants--
Incurrence of Indebtedness and Issuance of Disqualified Stock"), provided that
(i) the principal amount of such Permitted Refinancing Indebtedness does not
exceed the principal amount of the Indebtedness so extended, refinanced, re-
newed, replaced, defeased or refunded (plus the amount of any premiums paid
and reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final matu-
rity date of, and has a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of, the Indebtedness being extend-
ed, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebt-
edness being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing In-
debtedness is subordinated in right of payment to the Notes on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Guarantor or by the Restricted Subsidiary which is the obligor on the Indebt-
edness being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, a corporation, a partnership, an association, a
trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Proxy Statement" means the Proxy Statement dated March 25, 1998 and distrib-
uted by Predecessor Company to its stockholders.
"Qualified Equity Interests" means all Equity Interests of the Guarantor other
than Disqualified Stock of the Guarantor.
"Reorganization Agreements" means the agreements listed in Schedule 2 to the
Company Credit Agreement on the date of the Indenture.
"Restricted Investment" means any Investment by the Guarantor or any Re-
stricted Subsidiary in any Person other than (i) an Investment in the Guaran-
tor or a Restricted Subsidiary or in any Person that, as a result of such In-
vestment, becomes a Restricted Subsidiary or will be merged or consolidated
with or into or will transfer or convey all or substantially all of its assets
to, the Guarantor or a Restricted Subsidiary, (ii) with respect to Restricted
Subsidiaries that are insurance companies, an Investment permitted by applica-
ble insurance laws, (iii) an Investment in any Person that engages primarily
in the ownership, operation or management of Healthcare Facilities or is a
supplier to Healthcare Facilities, (iv) Temporary Cash Investments and (v)
loans to certain individuals in connection with their purchase of Existing
Preferred Stock on the Issue Date.
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"Restricted Subsidiary" means any Subsidiary of the Guarantor other than an Un-
restricted Subsidiary and any Subsidiary of an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Rating Group and its successors.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means (i) all Indebtedness of the Company and the Guarantor under
the Company Credit Agreement, including principal of, premium, if any, and in-
terest on such Indebtedness and all other amounts due on or in connection with
such Indebtedness including all charges, fees and expenses, (ii) all other In-
debtedness of the Company and the Guarantor, including principal of, premium,
if any, and interest on such Indebtedness, unless the instrument under which
such Indebtedness is created, incurred, assumed or Guaranteed expressly pro-
vides that such Indebtedness is not senior or superior in right of payment to
the Notes and the Guarantee, and all renewals, extensions modifications, amend-
ments or refinancings thereof and (iii) all interest on any Indebtedness re-
ferred to in clause (i) and (ii) accruing during the pendency of any bankruptcy
or insolvency proceeding whether or not allowed thereunder. Notwithstanding the
foregoing, Senior Debt shall not include (a) Subordinated Debt of the Company
or the Guarantor; provided, however, that no Indebtedness shall be deemed to be
Subordinated Debt of the Company or the Guarantor solely by reason of such
other Indebtedness being secured and such Indebtedness not being secured, (b)
the Notes, (c) the Guarantee, (d) any Indebtedness of the Guarantor to any of
its Restricted Subsidiaries, (e) any Indebtedness which, when incurred and
without respect to any election under Section 1111 (b) of the Bankruptcy Code,
is without recourse to the Company or the Guarantor, (f) any Indebtedness of
the Company or the Guarantor, to the extent not permitted by the covenant de-
scribed above under "--Certain Covenants--Incurrence of Indebtedness and Issu-
ance of Disqualified Stock", (g) any 8 5/8% Senior Subordinated Notes due 2007
of Predecessor Company assumed by the Guarantor in connection with the Reorga-
nization Transactions, (h) any Indebtedness to any employee of the Guarantor or
any of its Restricted Subsidiaries, (i) any liability for taxes owed or owing
by the Company or the Guarantor and (j) Trade Payables.
"Significant Subsidiary" means, at any date of determination, any Subsidiary
that, together with its Subsidiaries, (i) accounted for more than 10% of the
consolidated revenues of the Guarantor and its consolidated Subsidiaries or
(ii) was the owner of more than 10% of the consolidated assets of the Guarantor
and its consolidated Subsidiaries, all as set forth on the most recently avail-
able audited financial statements of the Guarantor.
"Stockholders' Equity" means, with respect to any Person as of any date, the
stockholders' equity of such Person determined in accordance with GAAP as of
the date of the most recent available internal financial statements of such
Person, and calculated on a pro forma basis to give effect to any acquisition
or disposition by such Person consummated or to be consummated since the date
of such financial statements and on or prior to the date of such calculation.
"Subordinated Debt" means any Indebtedness of the Company (whether outstanding
on the Issue Date or thereafter incurred) which is by its terms expressly sub-
ordinate or junior in right of payment to the Notes and any Guarantee or In-
debtedness of the Guarantor (whether outstanding on the Issue Date or thereaf-
ter incurred) which is by its terms expressly subordinate or junior in right of
payment to the Guarantee.
"Subsidiary" means, with respect to any Person, (i) any corporation, associa-
tion or other business entity of which more than 50% of the total voting power
of shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person (or a combination thereof)
and (ii) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the only
general partners of which are such Person or one or more Subsidiaries of such
Person (or any combination thereof). Unrestricted Subsidiaries shall not be in-
cluded in the definition of Subsidiary for any purposes of the Indenture (ex-
cept, as the context may otherwise require, for purposes of the definition of
"Unrestricted Subsidiary").
"Temporary Cash Investment" means any of the following: (i) securities issued
or directly and fully guaranteed or insured by the United States of America or
any agency or instrumentality thereof; provided that the full faith and credit
of the United States of America is pledged in support thereof, (ii) time de-
posit accounts, bankers' acceptances, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof issued by
any office located in the United States of America of a bank or trust company
which is organized or licensed under the laws of the United States of America
or any state thereof and which bank or trust company has capital, surplus and
undivided profits
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<PAGE>
aggregating in excess of $500 million and has outstanding debt which is rated
"P-1" (or higher) by Moody's or "A-1" (or higher) by S&P or any money-market
fund sponsored by a registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for underlying se-
curities of the types described in clause (i) above entered into with an office
located in the United States of America of a bank or trust company meeting the
qualifications described in clause (ii) above, (iv) commercial paper, maturing
not more than 90 days after the date of acquisition, issued by a corporation
(other than Ventas, Inc. or any of its Affiliates or an Affiliate of the Com-
pany or the Guarantor) organized under the laws of the United States of America
or any state thereof with a rating, at the date of acquisition, of "P-1" (or
higher) by Moody's or "A-1" (or higher) by S&P, (v) securities with maturities
of six months or less from the date of acquisition issued or fully and uncondi-
tionally guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "P-1" (or higher) by Moody's or "A-1" (or higher) by S&P and
(vi) money market funds which invest substantially all of their assets in secu-
rities described in the preceding clauses (i) through (v).
"Trade Payables" means, with respect to any Person, any accounts payable or any
other indebtedness or monetary obligation to trade creditors created, assumed
or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary
course of business in connection with the acquisition of goods or services.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the Board
of Directors of the Guarantor as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary (i) has no Indebtedness
other than Non-Recourse Debt, (ii) is not party to any agreement, contract, ar-
rangement or understanding with the Guarantor or any Restricted Subsidiary of
the Guarantor unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Guarantor or such Restricted Subsid-
iary than those that might be obtained at the time from Persons who are not Af-
filiates of the Guarantor, (iii) is a Person with respect to which neither the
Guarantor nor any of its Restricted Subsidiaries has any direct or indirect ob-
ligation (x) to subscribe for additional Equity Interests or (y) to maintain or
preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results and (iv) has not guaranteed or other-
wise directly or indirectly provided credit support for any Indebtedness of the
Guarantor or any of its Restricted Subsidiaries.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not cease to
qualify as an Unrestricted Subsidiary if the Company or the Guarantor Guaran-
tees Indebtedness of such Unrestricted Subsidiary and such Guarantee is a Re-
stricted Investment which is permitted by the provisions of the Indenture de-
scribed above under the caption "--Certain Covenants--Restricted Payments."
Any such designation by the Board of Directors of the Guarantor shall be evi-
denced to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officer's Certificate cer-
tifying that such designation complied with the foregoing conditions and was
permitted under the covenant described above under the caption "--Certain Cove-
nants--Restricted Payments." If, at any time, any Unrestricted Subsidiary would
fail to meet the foregoing requirements as an Unrestricted subsidiary it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Re-
stricted Subsidiary of the Guarantor as of such date (and, if such Indebtedness
is not permitted to be incurred as of such date under the Indenture, the Com-
pany and the Guarantor shall be in Default under the Indenture). The Board of
Directors of the Guarantor may at any time designate any Unrestricted Subsidi-
ary to be a Restricted Subsidiary; provided that such designation shall be
deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Guarantor of any outstanding Indebtedness of such Unrestricted Subsidiary and
such designation shall only be permitted if (i) such Indebtedness is permitted
under the Indenture, and (ii) no Default or Event of Default would be in exist-
ence following such designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by (b) the number of years (cal-
culated to the nearest one-twelfth) that will elapse between such date and the
making of such payment, by (ii) the then outstanding principal amount of such
Indebtedness.
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DESCRIPTION OF THE OLD NOTES AND THE GUARANTEE
The terms of the Old Notes and the Guarantee are identical in all material re-
spects to the terms of the New Notes and the Guarantee, except that (i) the
sale of the Old Notes and the Guarantee was not registered under the Securi-
ties Act, therefore, the Old Notes and the Guarantee are subject to certain
restrictions on transfer, contain certain legends relating thereto and are en-
titled to certain registration rights under the Registration Rights Agreement
(which rights will terminate upon consummation of the Exchange Offer); and
(ii) the New Notes will not provide for any increase in the interest rate
thereon. In that regard, the Old Notes provide that, in the event that the Ex-
change Offer is not consummated or the Shelf Registration Statement is not de-
clared effective on or prior to September 28, 1998, the Company will pay addi-
tional interest (in addition to the interest otherwise due on the Old Notes)
to each Holder of the Old Notes during the first 90-day period following Sep-
tember 28, 1998, in an amount equal to 0.25% per annum. The amount of interest
will increase by an additional 0.25% per annum for each subsequent 90-day pe-
riod until consummation of the Exchange Offer or the effectiveness of the
Shelf Registration Statement, up to a maximum amount of additional interest of
1.00% per annum. Such additional interest will cease accruing on such Old
Notes upon consummation of the Exchange Offer or the effectiveness of the
Shelf Registration Statement. The New Notes are not entitled to any such in-
crease in the interest rate thereon. In addition, the Old Notes and the New
Notes will constitute a single series of debt securities under the Indenture.
See "Description of the New Notes and the Guarantee--General." Accordingly,
Holders of Old Notes should review the information set forth under "Prospectus
Summary--Certain Consequences of a Failure to Exchange Old Notes" and "De-
scription of the New Notes and the Guarantee."
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the principal United States Federal income tax conse-
quences of the exchange of Old Notes for New Notes deals only with an initial
purchaser of Old Notes who purchased the Old Notes at their original issue
price and who or that is (i) a citizen or resident of the United States, (ii) a
domestic corporation, (iii) an estate the income of which is subject to United
States Federal income taxation regardless of its source or (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the au-
thority to control all substantial decisions of such trust (a "U.S. Holder").
It does not discuss the rules that may apply to special classes of holders such
as life insurance companies, banks, tax-exempt organizations, dealers in secu-
rities or commodities, traders in securities that elect to mark to market, per-
sons that hold Notes that are a hedge or that are hedged against interest rate
risks or that are part of a straddle or conversion transaction, or persons
whose functional currency is not the U.S. dollar. The summary is based on cur-
rent provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
its legislative history, existing and proposed regulations thereunder, pub-
lished rulings and court decisions, all as in effect on the date hereof and all
subject to change at any time, perhaps with retroactive effect.
Although the matter is not free from doubt, an exchange of Old Notes for New
Notes should not be a taxable exchange to U.S. Holders.
Any amount paid as backup withholding will be creditable against the Holder's
Federal income tax liability.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Notes for its own account
in connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus
may be used by Participating Broker-Dealers during the period referred to be-
low in connection with resales of New Notes received in exchange for Old Notes
if such Old Notes were acquired by such Participating Broker-Dealers for their
own accounts as a result of market-making or other trading activities. The
Company has agreed that this Prospectus may be used by a Participating Broker-
Dealer in connection with resales of such New Notes for a period ending 180
days after the Expiration Date (subject to extension under certain limited
circumstances described herein) or, if earlier, when all such New Notes have
been disposed of by such Participating Broker-Dealer. See "The Exchange Of-
fer--Resales of New Notes."
Neither the Company nor the Guarantor will receive any cash proceeds from the
issuance of the New Notes and the Guarantee offered hereby. New Notes received
by broker-dealers for their own accounts in connection with the Exchange Offer
may be sold from time to time in one or more transactions in the over-the-
counter market, in negotiated transactions, through the writing of options on
the New Notes or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or at negotiated prices. Any such resale may be made directly to pur-
chasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and the
purchasers of any such New Notes. Any broker-dealer that resells New Notes
that were received by it for its own account in connection with the Exchange
Offer and any broker-dealer that participates in a distribution of such New
Notes may be deemed to be an "underwriter" within the meaning of the Securi-
ties Act, and any profit on any such resale of New Notes and any commissions
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a bro-
ker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Let-
ter of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer other than commissions or concessions of any brokers or dealers
and will indemnify the Holders of the Old Notes (including any broker-dealer)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes and the Guarantee will be passed upon for the
Company and the Guarantor by Sullivan & Cromwell.
EXPERTS
The consolidated financial statements of the Guarantor at December 31, 1997
and 1996, and for each of the three years in the period ended December 31,
1997, included in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as stated in their report thereon
appearing herein and are included in reliance upon such report given the au-
thority of such firm as experts in accounting and auditing. For accounting
purposes, the historical financial statements of Predecessor Company became
the historical financial statements of the Guarantor after the Distribution
Date.
The consolidated financial statements of Transitional Hospitals Corporation
(formerly Community Psychiatric Centers) as of November 30, 1996 and 1995 and
for each of the two years in the period ended November 30, 1996, included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The consolidated financial statements of Transitional Hospitals Corporation
(formerly Community Psychiatric Centers) for the year ended November 30, 1994,
included in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as stated in their report thereon ap-
pearing herein and are included in reliance upon such report given the author-
ity of such firm as experts in accounting and auditing.
115
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
VENCOR, INC. (PREDECESSOR COMPANY):
Report of Independent Auditors............................................ F-2
Consolidated Financial Statements:
Consolidated Statement of Operations for the years ended December 31,
1997, 1996 and 1995.................................................... F-3
Consolidated Balance Sheet, December 31, 1997 and 1996.................. F-4
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1997,
1996 and 1995.......................................................... F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1996 and 1995.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Quarterly Consolidated Financial Information (Unaudited)................ F-22
Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Statement of Income for the three months ended
March 31, 1998
and 1997............................................................... F-23
Condensed Consolidated Balance Sheet, March 31, 1998 and December 31,
1997................................................................... F-24
Condensed Consolidated Statement of Cash Flows for the three months
ended March 31, 1998
and 1997............................................................... F-25
Notes to Condensed Consolidated Financial Statements.................... F-26
TRANSITIONAL HOSPITALS CORPORATION:
Report of Independent Accountants......................................... F-33
Report of Independent Auditors............................................ F-34
Consolidated Financial Statements:
Consolidated Balance Sheets, November 30, 1996 and 1995................. F-35
Consolidated Statements of Operations for the years ended November 30,
1996, 1995 and 1994.................................................... F-36
Consolidated Statements of Stockholders' Equity for the years ended
November 30, 1996, 1995 and 1994....................................... F-37
Consolidated Statements of Cash Flows for the years ended November 30,
1996, 1995 and 1994.................................................... F-38
Notes to Consolidated Financial Statements.............................. F-39
Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Statements of Operations for the six months ended
May 31, 1997 and 1996.................................................. F-52
Condensed Consolidated Balance Sheets, May 31, 1997 and November 30,
1996................................................................... F-53
Condensed Consolidated Statements of Cash Flows for the six months ended
May 31, 1997 and 1996.................................................. F-54
Notes to Condensed Consolidated Financial Statements.................... F-55
FINANCIAL STATEMENT SCHEDULES:
Valuation and Qualifying Accounts--Vencor, Inc. ........................ S-1
Valuation and Qualifying Accounts--Transitional Hospitals Corporation
and Subsidiaries....................................................... S-2
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Vencor, Inc.
We have audited the accompanying consolidated balance sheet of Vencor, Inc. as
of December 31, 1997 and 1996, and the related consolidated statements of oper-
ations, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. Our audits also included the financial state-
ment schedule listed on page F-1. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to ex-
press an opinion on these financial statements and schedule based on our au-
dits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Vencor, Inc. at December 31, 1997 and 1996, and the consolidated results of its
operations and cash flows for each of the three years in the period ended De-
cember 31, 1997 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.
/s/ Ernst & Young LLP
Louisville, Kentucky
January 26, 1998
F-2
<PAGE>
VENCOR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................... $3,116,004 $2,577,783 $2,323,956
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Salaries, wages and benefits............... 1,788,053 1,490,938 1,360,018
Supplies................................... 303,140 261,621 233,066
Rent....................................... 89,474 77,795 79,476
Other operating expenses................... 490,327 405,797 372,657
Depreciation and amortization.............. 123,865 99,533 89,478
Interest expense........................... 102,736 45,922 60,918
Investment income.......................... (6,057) (12,203) (13,444)
Non-recurring transactions................. - 125,200 109,423
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
2,891,538 2,494,603 2,291,592
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Income before income taxes................. 224,466 83,180 32,364
Provision for income taxes................. 89,338 35,175 24,001
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Income from operations..................... 135,128 48,005 8,363
Extraordinary loss on extinguishment of
debt, net of income tax benefit of $2,634
in 1997 and $14,839 in 1995............... (4,195) - (23,252)
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss)....................... 130,933 48,005 (14,889)
Preferred stock dividend requirements and
other items............................... - - (5,280)
Gain on redemption of preferred stock...... - - 10,176
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Income (loss) available to common
stockholders........................... $ 130,933 $ 48,005 $ (9,993)
<CAPTION>
========== ========== ==========
<S> <C> <C> <C>
Earnings (loss) per common share:
Basic:
Income from operations................... $ 1.96 $ 0.69 $ 0.22
Extraordinary loss on extinguishment of
debt.................................... (0.06) - (0.38)
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss)....................... $ 1.90 $ 0.69 $ (0.16)
<CAPTION>
========== ========== ==========
<S> <C> <C> <C>
Diluted:
Income from operations................... $ 1.92 $ 0.68 $ 0.29
Extraordinary loss on extinguishment of
debt.................................... (0.06) - (0.32)
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss)....................... $ 1.86 $ 0.68 $ (0.03)
<CAPTION>
========== ========== ==========
<S> <C> <C> <C>
Shares used in computing earnings (loss)
per common share:
Basic..................................... 68,938 69,704 61,196
Diluted................................... 70,359 70,702 71,967
</TABLE>
See accompanying notes.
F-3
<PAGE>
VENCOR, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 82,473 $ 112,466
Accounts and notes receivable less allowance for loss
of $63,551--1997 and $23,915--1996.................. 619,068 420,758
Inventories.......................................... 27,605 24,939
Income taxes......................................... 73,413 67,808
Other................................................ 55,589 35,162
<CAPTION>
---------- ----------
<S> <C> <C>
858,148 661,133
Property and equipment, at cost:
Land................................................. 144,074 113,749
Buildings............................................ 1,084,770 975,399
Equipment............................................ 592,335 435,787
Construction in progress (estimated cost to complete
and equip after December 31, 1997--$119,000)........ 174,851 84,835
<CAPTION>
---------- ----------
<S> <C> <C>
1,996,030 1,609,770
Accumulated depreciation............................. (488,212) (416,608)
<CAPTION>
---------- ----------
<S> <C> <C>
1,507,818 1,193,162
Goodwill less accumulated amortization of $18,886--1997
and $7,228--1996...................................... 659,311 14,644
Investments in affiliates.............................. 178,301 14,837
Other.................................................. 131,161 85,080
<CAPTION>
---------- ----------
<S> <C> <C>
$3,334,739 $1,968,856
<CAPTION>
========== ==========
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 106,019 $ 103,518
Salaries, wages and other compensation............... 163,642 111,366
Other accrued liabilities............................ 115,933 71,434
Long-term debt due within one year................... 27,468 54,692
<CAPTION>
---------- ----------
<S> <C> <C>
413,062 341,010
Long-term debt......................................... 1,919,624 710,507
Deferred credits and other liabilities................. 94,653 84,053
Minority interests in equity of consolidated entities.. 2,050 36,195
Contingencies
Stockholders' equity:
Preferred stock, $1.00 par value; authorized 1,000
shares; none issued and outstanding................. - -
Common stock, $0.25 par value; authorized 180,000
shares; issued 73,470 shares--1997 and 72,615
shares--1996........................................ 18,368 18,154
Capital in excess of par value....................... 766,078 713,527
Retained earnings.................................... 281,803 150,870
<CAPTION>
---------- ----------
<S> <C> <C>
1,066,249 882,551
Common treasury stock; 6,159 shares--1997 and 3,730
shares--1996........................................ (160,899) (85,460)
<CAPTION>
---------- ----------
<S> <C> <C>
905,350 797,091
<CAPTION>
---------- ----------
<S> <C> <C>
$3,334,739 $1,968,856
<CAPTION>
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
VENCOR, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
SHARES PAR VALUE
---------------------------- ------------------
COMMON CAPITAL IN COMMON
PREFERRED COMMON TREASURY PREFERRED COMMON EXCESS OF RETAINED TREASURY
STOCK STOCK STOCK STOCK STOCK PAR VALUE EARNINGS STOCK TOTAL
--------- ------- -------- --------- ------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1994................... 98 59,178 (2,174) $ 15 $14,794 $472,661 $136,614 $ (27,630) $596,454
Net loss............... (14,889) (14,889)
Cash dividends on
preferred stock
($67.98 per share) and
provision for
redemption value...... (2,380) (2,380)
In-kind dividend on
preferred stock....... 3 2,900 (2,900) -
Issuance of common
stock in connection
with employee benefit
plans................. 664 (150) 166 24,111 (11,098) 13,179
Issuance of common
stock in connection
with acquisitions..... 439 (3,227) 5,498 2,271
Increase in value of
common stock purchase
warrants of acquired
entities.............. 9,810 (9,810) -
Public offering of
common stock.......... 2,200 550 65,944 66,494
Conversion of long-term
debt.................. 7,260 1,815 149,645 151,460
Issuance of common
stock to grantor
trust................. 3,927 (3,927) 982 87,297 (88,279) -
Hillhaven Merger:
Issuance of common
stock and related
income tax benefits... 2,732 683 51,561 52,244
Termination of grantor
trust................. (3,786) 3,786 (946) (87,146) 88,279 187
Redemption of preferred
stock................. (101) (15) (91,253) (91,268)
Other.................. (17) 1 (4) 2,074 (3,770) 12 (1,688)
<CAPTION>
--------- ------- -------- --------- ------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... - 72,158 (2,025) - 18,040 684,377 102,865 (33,218) 772,064
Net income............. 48,005 48,005
Increase in equity
resulting from initial
public offering of
Atria Communities,
Inc. common stock..... 19,828 19,828
Issuance of common
stock in connection
with employee benefit
plans................. 457 246 114 9,223 3,083 12,420
Repurchase of common
stock................. (1,950) (55,305) (55,305)
Other.................. (1) 99 (20) 79
<CAPTION>
--------- ------- -------- --------- ------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1996................... - 72,615 (3,730) - 18,154 713,527 150,870 (85,460) 797,091
Net income............. 130,933 130,933
Increase in equity
resulting from
secondary public
offering of Atria
Communities, Inc.
common stock.......... 22,553 22,553
Issuance of common
stock in connection
with employee benefit
plans................. 855 496 214 29,336 6,212 35,762
Repurchase of common
stock................. (2,925) (81,651) (81,651)
Other.................. 662 662
<CAPTION>
--------- ------- -------- --------- ------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1997................... - 73,470 (6,159) $ - $18,368 $766,078 $281,803 $(160,899) $905,350
<CAPTION>
========= ======= ======== ========= ======= ========== ======== ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
VENCOR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ 130,933 $ 48,005 $ (14,889)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 123,865 99,533 89,478
Provision for doubtful accounts...... 31,176 15,001 7,851
Deferred income taxes................ 53,164 (34,814) (23,570)
Extraordinary loss on extinguishment
of debt............................. 6,829 - 38,091
Non-recurring transactions........... - 121,789 102,166
Other................................ (9,737) (9,316) 6,958
Change in operating assets and
liabilities:
Accounts and notes receivable....... (87,914) (64,304) (107,761)
Inventories and other assets........ (2,309) 1,284 (3,478)
Accounts payable.................... (14,177) 2,165 22,157
Income taxes payable................ 22,850 (23,892) 5,356
Other accrued liabilities........... 16,251 28,088 (8,722)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net cash provided by operating
activities........................ 270,931 183,539 113,637
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from investing activities:
Purchase of property and equipment.... (281,672) (135,027) (136,893)
Acquisition of TheraTx, Incorporated.. (359,439) - -
Acquisition of Transitional Hospitals
Corporation.......................... (615,620) - -
Other acquisitions.................... (36,630) (26,236) (59,343)
Sale of assets........................ 75,988 9,147 899
Collection of notes receivable........ 8,687 78,151 4,715
Net change in investments............. (4,513) (445) (12,779)
Other................................. (20,461) (6,576) (8,241)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net cash used in investing
activities........................ (1,233,660) (80,986) (211,642)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in borrowings under
revolving lines of credit............ 418,700 (1,500) 161,600
Issuance of long-term debt............ 734,630 10,495 438,052
Repayment of long-term debt........... (130,516) (31,586) (474,896)
Payment of deferred financing costs... (22,052) (1,816) (3,863)
Public offering of common stock....... - 52,247 66,494
Other issuances of common stock....... 13,832 2,242 6,520
Repurchase of common stock............ (81,651) (55,305) -
Redemption of preferred stock......... - - (91,268)
Payment of dividends.................. - - (2,779)
Other................................. (207) (46) (5,691)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net cash provided by (used in)
financing activities.............. 932,736 (25,269) 94,169
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Change in cash and cash equivalents..... (29,993) 77,284 (3,836)
Cash and cash equivalents at beginning
of period.............................. 112,466 35,182 39,018
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents at end of
period................................. $ 82,473 $ 112,466 $ 35,182
<CAPTION>
=========== =========== ===========
<S> <C> <C> <C>
Supplemental information:
Interest payments..................... $ 76,864 $ 46,527 $ 69,916
Income tax payments................... 16,042 55,303 42,218
</TABLE>
See accompanying notes.
F-6
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ACCOUNTING POLICIES
Reporting Entity
Vencor, Inc. (the "Company") operates an integrated network of healthcare
services in 46 states primarily focused on the needs of the elderly. At Decem-
ber 31, 1997, the Company operated 60 long-term acute care hospitals (5,273
licensed beds), 309 nursing centers (40,383 licensed beds) and the Vencare
contract services business ("Vencare") which primarily provides respiratory
and rehabilitation therapies, medical services and pharmacy management serv-
ices to approximately 2,900 healthcare facilities.
On September 28, 1995, the Company consummated a merger with The Hillhaven
Corporation ("Hillhaven") in a tax-free, stock-for-stock transaction (the
"Hillhaven Merger"). See Note 2.
Prior to its merger with the Company, Hillhaven consummated a merger with Na-
tionwide Care, Inc. ("Nationwide") on June 30, 1995 in a tax-free, stock-for-
stock transaction (the "Nationwide Merger"). See Note 3.
In the third quarter of 1996, the Company completed an initial public offering
related to its independent and assisted living business through the issuance
of 5,750,000 common shares of Atria Communities, Inc. ("Atria") (the "Atria
IPO"). See Note 4.
On March 21, 1997, the Company completed the acquisition of TheraTx, Incorpo-
rated ("TheraTx"), a provider of rehabilitation and respiratory therapy man-
agement services and operator of nursing centers (the "TheraTx Merger"), pur-
suant to a cash tender offer. See Note 5.
On June 24, 1997, the Company acquired substantially all of the outstanding
common stock of Transitional Hospitals Corporation ("Transitional"), an opera-
tor of 19 long-term acute care hospitals, pursuant to a cash tender offer. The
Company completed the merger of its wholly owned subsidiary with and into
Transitional on August 26, 1997 (the "Transitional Merger"). See Note 6.
Basis of Presentation
The consolidated financial statements include all subsidiaries. Significant
intercompany transactions have been eliminated. Investments in affiliates in
which the Company has a 50% or less interest are accounted for by the equity
method.
The accompanying consolidated financial statements have been prepared in ac-
cordance with generally accepted accounting principles and include amounts
based upon the estimates and judgments of management. Actual amounts may dif-
fer from these estimates.
The Hillhaven Merger and the Nationwide Merger have been accounted for by the
pooling-of-interests method. Accordingly, the consolidated financial state-
ments included herein give retroactive effect to these transactions and in-
clude the combined operations of the Company, Hillhaven and Nationwide for all
periods presented.
The TheraTx Merger and Transitional Merger have been accounted for by the pur-
chase method, which requires that the accounts and operations of acquired en-
tities be included with those of the Company since the acquisition of a con-
trolling interest. Accordingly, the accompanying consolidated financial state-
ments include the operations of TheraTx and Transitional since March 21, 1997
and June 24, 1997, respectively. The Company expects to finalize the purchase
price allocations related to these transactions in 1998.
For accounting purposes, the accounts of Atria continued to be consolidated
with those of the Company and minority interests in the earnings and equity of
Atria were recorded from the consummation date of the Atria IPO through June
30, 1997. In July 1997, Atria completed a secondary equity offering which re-
duced the Company's ownership percentage to less than 50%. Accordingly, the
Company's investment in Atria beginning July 1, 1997 has been accounted for
under the equity method.
Revenues
Revenues are recorded based upon estimated amounts due from patients and
third-party payors for healthcare services provided, including anticipated
settlements under reimbursement agreements with Medicare, Medicaid and other
third-party payors.
F-7
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
Revenues (Continued)
A summary of revenues by payor type follows (dollars in thousands):
<TABLE>
<CAPTION>
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Medicare.................................... $1,068,624 $ 822,589 $ 691,297
Medicaid.................................... 841,598 821,828 776,278
Private and other........................... 1,271,693 972,906 865,820
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
3,181,915 2,617,323 2,333,395
Elimination................................. (65,911) (39,540) (9,439)
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
$3,116,004 $2,577,783 $2,323,956
<CAPTION>
========== ========== ==========
</TABLE>
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less. Carrying values of cash and cash equivalents
approximate fair value due to the short-term nature of these instruments.
Accounts Receivable
Accounts receivable consist primarily of amounts due from the Medicare and Med-
icaid programs, other government programs, managed care health plans, commer-
cial insurance companies and individual patients. Amounts recorded include es-
timated provisions for loss related to uncollectible accounts and disputed
items that have continuing significance, such as third-party reimbursements
that continue to be claimed in current cost reports.
Inventories
Inventories consist primarily of medical supplies and are stated at the lower
of cost (first-in, first-out) or market.
Property and Equipment
Depreciation expense, computed by the straight-line method, was $105.3 million
in 1997, $91.6 million in 1996 and $79.7 million in 1995. Depreciation rates
for buildings range generally from 20 to 45 years. Estimated useful lives of
equipment vary from 5 to 15 years.
Goodwill
Costs in excess of the fair value of identifiable net assets of acquired enti-
ties are amortized using the straight-line method principally over 40 years.
Amortization expense for 1997, 1996 and 1995 totaled $11.4 million, $2.7 mil-
lion and $2.0 million, respectively.
The Company regularly reviews the carrying value of certain long-lived assets
and the related identifiable intangible assets with respect to any events or
circumstances that indicate impairment or that the amortization period may re-
quire adjustment. If such circumstances suggest the recorded amounts cannot be
recovered, calculated based on estimated cash flows (undiscounted) over the re-
maining amortization period, the carrying value of such assets are reduced ac-
cordingly. At December 31, 1997, the Company does not believe that the carrying
value or the amortization period of its long-lived assets and related identifi-
able intangibles requires such adjustments.
Preopening Costs
Costs incurred prior to the opening of new facilities are deferred and amor-
tized on a straight-line basis over a three year period. At December 31, 1997
and 1996, the Company's unamortized preopening costs (included in other assets)
were $15.0 million and $1.5 million, respectively.
Professional Liability Risks
Provisions for loss for professional liability risks are based upon actuarially
determined estimates. To the extent that subsequent claims information varies
from management's estimates, earnings are charged or credited.
Derivative Instruments
The Company is a party to interest rate swap agreements that eliminate the im-
pact of changes in interest rates on certain outstanding floating rate debt.
Each interest rate swap agreement is associated with all or a portion of the
principal balance of a specific debt obligation. These agreements involve the
exchange of amounts based on variable rates for amounts based on fixed interest
rates over the life of the agreement, without an exchange of the notational
amount upon which the
F-8
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--ACCOUNTING POLICIES (CONTINUED)
Derivative Instruments (Continued)
payments are based. The differential to be paid or received as interest rates
change is accrued and recognized as an adjustment of interest expense related
to the debt, and the related amount payable to or receivable from
counterparties is included in accrued interest. The fair values of the swap
agreements are not recognized in the financial statements. Gains and losses on
terminations of interest rate swap agreements are deferred (included in other
assets) and amortized as an adjustment to interest expense over the remaining
term of the original contract life of the terminated swap agreement.
Earnings per Common Share
In 1997, the Financial Accounting Standards Board (the "FASB") issued Statement
No. 128, "Earnings Per Share" ("SFAS 128"), replacing the calculation of pri-
mary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted earn-
ings per share is similar to the previously reported fully diluted earnings per
share. Earnings per share for all periods presented have been restated to con-
form to the requirements of SFAS 128. The impact of the restatement was not
significant.
The computation of diluted earnings per common share give retroactive effect to
the Hillhaven Merger and the Nationwide Merger and is based upon the weighted
average number of common shares outstanding and the dilutive effect of common
stock equivalents consisting primarily of stock options. In addition, the 1995
computation also includes the dilutive effect of convertible debt securities.
During 1995, all convertible debt securities were redeemed in exchange for cash
or converted into the Company's common stock. Accordingly, the computation of
diluted earnings per common share assumes that the equivalent number of common
shares underlying such debt securities were outstanding during the entire year
even though the result thereof is antidilutive.
In connection with the Hillhaven Merger, the Company realized a gain in 1995 of
approximately $10.2 million upon the cash redemption of Hillhaven preferred
stock. Although the gain had no effect on net income, diluted earnings per com-
mon and common equivalent share were increased by $0.14.
Recent Accounting Pronouncements
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"), which will become effec-
tive on December 31, 1998 and requires interim disclosures beginning in 1999.
SFAS 131 requires public companies to report certain information about operat-
ing segments, products and services, the geographic areas in which they oper-
ate, and major customers. The operating segments are to be based on the struc-
ture of the enterprise's internal organization whose operating results are reg-
ularly reviewed by senior management. Management has not yet determined the ef-
fect, if any, of SFAS 131 on the consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1997
presentation.
NOTE 2--HILLHAVEN MERGER
On September 27, 1995, the stockholders of both the Company and Hillhaven ap-
proved the Hillhaven Merger, effective September 28, 1995. In connection with
the Hillhaven Merger, the Company issued approximately 31,651,000 shares of
common stock in exchange for all of the outstanding common stock of Hillhaven
(an exchange ratio of 0.935 of a share of Company common stock for each share
of Hillhaven common stock).
F-9
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--HILLHAVEN MERGER (CONTINUED)
The Hillhaven Merger has been accounted for as a pooling of interests, and ac-
cordingly, the consolidated financial statements give retroactive effect to the
Hillhaven Merger and include the combined operations of the Company and
Hillhaven for all periods presented. The following is a summary of the 1995 re-
sults of operations of the separate entities prior to the Hillhaven Merger
(dollars in thousands):
<TABLE>
<CAPTION>
------------------------------------------------------------
NON-RECURRING
VENCOR HILLHAVEN TRANSACTIONS ELIMINATION CONSOLIDATED
-------- ---------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Nine months ended
September 30, 1995
(unaudited):
Revenues.............. $411,233 $1,322,873 $(24,500) $(3,775) $1,705,831
Income (loss) from
operations........... 31,566 41,367 (93,561) - (20,628)
Net income (loss)..... 30,711 20,235 (93,561) - (42,615)
</TABLE>
NOTE 3--NATIONWIDE MERGER
Prior to its merger with the Company, Hillhaven completed the Nationwide Merger
on June 30, 1995. In connection therewith, 4,675,000 shares of common stock
(effected for the Hillhaven Merger exchange ratio) were issued in exchange for
all of the outstanding shares of Nationwide.
The Nationwide Merger has been accounted for as a pooling of interests, and ac-
cordingly, the consolidated financial statements give retroactive effect to the
Nationwide Merger and include the combined operations of Hillhaven and Nation-
wide for all periods presented. The following is a summary of the 1995 results
of operations of the separate entities prior to the Nationwide Merger (dollars
in thousands):
<TABLE>
<CAPTION>
-------------------------------------------------
NON-RECURRING
HILLHAVEN NATIONWIDE TRANSACTIONS CONSOLIDATED
--------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Six months ended June 30,
1995 (unaudited):
Revenues.................. $803,793 $66,800 $ - $870,593
Income from operations.... 23,837 2,147 (3,686) 22,298
Net income (loss)......... 23,459 (266) (3,686) 19,507
</TABLE>
NOTE 4--STOCK OFFERINGS OF ATRIA
In the third quarter of 1996, the Company completed the Atria IPO, the proceeds
from which aggregated approximately $52.2 million. In connection with the Atria
IPO, the Company entered into various agreements with Atria relating to risk-
sharing for prior year income tax issues, registration rights, administrative
services and liabilities and indemnifications. In addition, the Company guaran-
teed up to $75 million of Atria's $200 million bank credit facility (the "Atria
Bank Facility") at December 31, 1997 and lesser amounts each year thereafter
through 2000. At December 31, 1997, there were no outstanding guaranteed
borrowings under the Atria Bank Facility.
In July 1997, Atria completed a secondary equity offering which reduced the
Company's ownership percentage to less than 50%. Accordingly, the Company's in-
vestment in Atria beginning July 1, 1997 has been accounted for under the eq-
uity method. At December 31, 1997, the Company owned 10,000,000 shares, or ap-
proximately 43%, of Atria common stock.
Gains on issuances of Atria common stock have been recorded as adjustments to
common stockholders' equity and have not been credited to earnings.
NOTE 5--THERATX MERGER
On March 21, 1997, the TheraTx Merger was consummated following a cash tender
offer in which the Company paid $17.10 for each outstanding share of TheraTx
common stock. A summary of the TheraTx Merger follows (dollars in thousands):
<TABLE>
<CAPTION>
--------
<S> <C>
Fair value of assets acquired......................................... $633,793
Fair value of liabilities assumed..................................... (259,439)
<CAPTION>
--------
<S> <C>
Net assets acquired................................................. 374,354
Cash received from acquired entity.................................... (14,915)
<CAPTION>
--------
<S> <C>
Net cash paid....................................................... $359,439
<CAPTION>
========
</TABLE>
F-10
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--THERATX MERGER (CONTINUED)
The purchase price paid in excess of the fair value of identifiable net assets
acquired aggregated $307.6 million. In September and October 1997, the Company
completed the sales of certain non-strategic assets acquired in connection with
the TheraTx Merger. Proceeds from the transactions aggregated $54.6 million.
NOTE 6--TRANSITIONAL MERGER
On June 24, 1997, the Company acquired approximately 95% of the outstanding
shares of common stock of Transitional through a cash tender offer in which the
Company paid $16.00 per common share. The Company completed the merger of its
wholly owned subsidiary with and into Transitional on August 26, 1997. A sum-
mary of the Transitional Merger follows (dollars in thousands):
<TABLE>
<CAPTION>
--------
<S> <C>
Fair value of assets acquired......................................... $713,336
Fair value of liabilities assumed..................................... (44,842)
<CAPTION>
--------
<S> <C>
Net assets acquired................................................. 668,494
Cash received from acquired entity.................................... (52,874)
<CAPTION>
--------
<S> <C>
Net cash paid....................................................... $615,620
<CAPTION>
========
</TABLE>
The purchase price paid in excess of the fair value of identifiable net assets
acquired aggregated $349.1 million.
NOTE 7--BUSINESS COMBINATIONS OTHER THAN HILLHAVEN, NATIONWIDE, THERATX AND
TRANSITIONAL
The Company has acquired a number of healthcare facilities (including certain
previously leased facilities) and other related businesses, substantially all
of which have been accounted for by the purchase method. Accordingly, the ag-
gregate purchase price of these transactions has been allocated to tangible and
identifiable intangible assets acquired and liabilities assumed based upon
their respective fair values. The consolidated financial statements include the
operations of acquired entities since the respective acquisition dates. The pro
forma effect of these acquisitions on the Company's results of operations prior
to consummation was not significant.
The following is a summary of acquisitions consummated during the last three
years under the purchase method of accounting (dollars in thousands):
<TABLE>
<CAPTION>
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Fair value of assets acquired..................... $ 71,601 $ 26,621 $ 78,893
Fair value of liabilities assumed................. (34,971) (385) (16,475)
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net assets acquired............................. 36,630 26,236 62,418
Cash received from acquired entities.............. -- -- (804)
Issuance of common stock.......................... -- -- (2,271)
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net cash paid for acquisitions.................. $ 36,630 $ 26,236 $ 59,343
<CAPTION>
======== ======== ========
</TABLE>
The purchase price paid in excess of the fair value of identifiable net assets
of acquired entities aggregated $5.7 million in 1997, $4.8 million in 1996 and
$9.7 million in 1995.
F-11
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--PRO FORMA INFORMATION (UNAUDITED)
The pro forma effect of the TheraTx Merger and Transitional Merger assuming
that the transactions occurred on January 1, 1996 follows (dollars in thou-
sands, except per share amounts):
<TABLE>
<CAPTION>
-----------------------
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues............................................... $ 3,364,274 $ 3,475,217
Income from operations................................. 98,446 14,001
Net income............................................. 94,251 12,867
Earnings per common share:
Basic:
Income from operation.............................. $ 1.43 $ 0.20
Net income......................................... 1.37 0.18
Diluted:
Income from operations............................. $ 1.40 $ 0.20
Net income......................................... 1.34 0.18
</TABLE>
For both periods presented, pro forma financial data have been derived by com-
bining the financial results of the Company and TheraTx (based upon year end
reporting periods ending on December 31) and Transitional (based upon year end
reporting periods ending on November 30).
Pro forma income from operations for 1997 includes costs incurred by both
TheraTx and Transitional in connection with the acquisitions which reduced net
income by $29.7 million. Pro forma income from operations for 1996 includes a
gain on the sale of Transitional's United Kingdom psychiatric hospitals aggre-
gating $33 million and losses of $53 million related primarily to the sale of
Transitional's United States psychiatric hospitals.
NOTE 9--NON-RECURRING TRANSACTIONS
1996
In the fourth quarter of 1996, the Company recorded pretax charges aggregating
$125.2 million primarily to complete the integration of Hillhaven. In November
1996, the Company executed a definitive agreement to sell 34 underperforming or
non-strategic nursing centers in early 1997. A charge of $65.3 million was re-
corded in connection with the disposition. In addition, the Company's previ-
ously independent institutional pharmacy business, acquired as part of the
Hillhaven Merger, was integrated into Vencare, resulting in a charge of $39.6
million related primarily to costs associated with employee severance and bene-
fit costs (approximately 500 employees), facility close-down expenses and the
writeoff of certain deferred costs for services to be discontinued. A provision
for loss totaling $20.3 million related to the planned replacement of one hos-
pital and three nursing centers was also recorded in the fourth quarter.
During 1997, the Company sold 28 of the 34 non-strategic nursing centers
planned for disposition. Proceeds from the transaction aggregated $11.2 mil-
lion. In addition, one facility was sold and one was closed in January 1998,
and two nursing centers are expected to be sold pending regulatory approvals.
In February 1998, the Company was unable to receive the necessary licensure ap-
proval to sell two non-strategic nursing centers for which provisions for loss
had been accrued in 1996. The Company intends to continue to operate these fa-
cilities. Accrued provisions for loss at December 31, 1997 were not signifi-
cant. The reorganization of the institutional pharmacy business was substan-
tially completed in 1997, which included the elimination of duplicative admin-
istrative functions and establishment of the pharmacy operations as an inte-
grated part of the Company's hospital operations. The Company expects that con-
struction activities related to the replacement of one hospital and three nurs-
ing centers will be completed in 1998 and 1999. Accrued provision for loss re-
lated to the facilities to be sold or replaced aggregated $22.2 million at De-
cember 31, 1997.
1995
In the third quarter of 1995, the Company recorded pretax charges aggregating
$128.4 million primarily in connection with the consummation of the Hillhaven
Merger. The charges included (i) $23.2 million of investment advisory and pro-
fessional fees, (ii) $53.8 million of employee benefit plan and severance costs
(approximately 500 employees), (iii) $26.9 million of
F-12
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--NON-RECURRING TRANSACTIONS (CONTINUED)
1995 (Continued)
losses associated with the planned disposition of certain nursing center prop-
erties and (iv) $24.5 million of charges to reflect the Company's change in
estimates of accrued revenues recorded in connection with certain prior-year
nursing center third-party reimbursement issues (recorded as a reduction of
revenues). During 1996 and 1997, these activities were substantially complet-
ed.
Pretax charges aggregating $5.5 million were recorded in the second quarter
primarily in connection with the Nationwide Merger.
NOTE 10--INVESTMENTS IN AFFILIATES
Affiliated companies accounted for on the equity method include Atria (since
July 1, 1997), Behavioral Healthcare Corporation ("BHC"), a non-public opera-
tor of psychiatric and behavioral centers, and various other healthcare re-
lated companies. The Company obtained a 44% voting equity interest in BHC (61%
ownership interest) as part of the Transitional Merger. Summarized financial
data reported by these affiliates and a summary of the amounts recorded in the
Company's consolidated financial statements as of and for the year ended De-
cember 31, 1997 follow (for the six month period ended December 31, 1997 for
Atria and BHC) (dollars in thousands):
<TABLE>
<CAPTION>
----------------------------------
ATRIA BHC OTHER TOTAL
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Financial position:
Current assets............................ $194,761 $ 74,526 $44,107 $313,394
Current liabilities....................... 14,100 32,876 18,359 65,335
Working capital........................... 180,661 41,650 25,748 248,059
Noncurrent assets......................... 280,702 196,394 22,916 500,012
Noncurrent liabilities.................... 268,524 112,190 16,908 397,622
Stockholders' equity...................... 192,839 125,854 31,756 350,449
Results of operations:
Revenues.................................. 37,679 158,597 97,604 293,880
Net income................................ 4,328 788 9,913 15,029
Amounts recorded by the Company:
Investments in affiliates................. 85,886 73,046 19,369 178,301
Equity in earnings........................ 1,870 407 5,904 8,181
</TABLE>
The fair value of the Company's investment in Atria approximated $171.3 mil-
lion at December 31, 1997.
NOTE 11--INCOME TAXES
Provision for income taxes consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
--------------------------
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................... $31,006 $ 59,470 $ 40,008
State............................................. 5,168 10,519 7,563
<CAPTION>
------- -------- --------
<S> <C> <C> <C>
36,174 69,989 47,571
Deferred............................................ 53,164 (34,814) (23,570)
<CAPTION>
------- -------- --------
<S> <C> <C> <C>
$89,338 $ 35,175 $ 24,001
<CAPTION>
======= ======== ========
</TABLE>
F-13
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--INCOME TAXES (CONTINUED)
Reconciliation of federal statutory rate to effective income tax rate follows:
<TABLE>
<CAPTION>
----------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate........................................ 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit......... 3.6 3.6 4.3
Merger and restructuring costs................................ - 3.5 34.6
Goodwill amortization......................................... 1.6 - -
Other items, net.............................................. (0.4) 0.2 0.3
<CAPTION>
---- ---- ----
<S> <C> <C> <C>
Effective income tax rate..................................... 39.8% 42.3% 74.2%
<CAPTION>
==== ==== ====
</TABLE>
A summary of deferred income taxes by source included in the consolidated bal-
ance sheet at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
-----------------------------------------
1997 1996
-------------------- --------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Depreciation........................ $ - $65,018 $ - $47,256
Insurance........................... 17,948 - 12,058 -
Doubtful accounts................... 37,689 - 37,989 -
Property............................ 23,428 - 34,767 -
Compensation........................ 16,154 - 17,030 -
Subsidiary net operating losses
(expiring in 2017)................. 15,864 - - -
Other............................... 26,236 27,170 33,120 19,990
<CAPTION>
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
$137,319 $92,188 $134,964 $67,246
<CAPTION>
======== =========== ======== ===========
</TABLE>
Management believes that the deferred tax assets in the table above will ulti-
mately be realized. Management's conclusion is based primarily on the existence
of sufficient taxable income within the allowable carryback periods to realize
the tax benefits of deductible temporary differences recorded at December 31,
1997.
Deferred income taxes totaling $73.4 million and $62.4 million at December 31,
1997 and 1996, respectively, are included in other current assets. Noncurrent
deferred income taxes, included in other long-term liabilities, totaled $28.3
million at December 31, 1997. Noncurrent deferred income taxes at December 31,
1996 totaling $5.3 million are included in other long-term assets.
NOTE 12--PROFESSIONAL LIABILITY RISKS
The Company insures a substantial portion of its professional liability risks
through a wholly owned insurance subsidiary. Provisions for such risks under-
written by the subsidiary were $10.7 million for 1997, and $10.4 million for
1996, and $11.1 million for 1995.
Amounts funded for the payment of claims and expenses incident thereto, in-
cluded principally in cash and cash equivalents and other assets, aggregated
$26.4 million and $20.7 million at December 31, 1997 and 1996, respectively.
Allowances for professional liability risks, included principally in deferred
credits and other liabilities, were $26.3 million and $21.6 million at December
31, 1997 and 1996, respectively.
F-14
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--LONG-TERM DEBT
Capitalization
A summary of long-term debt at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
--------------------
1997 1996
---------- --------
<S> <C> <C>
Senior collateralized debt, 5% to 10% (rates generally
floating) payable in periodic installments through
2019................................................... $ 55,651 $119,634
Non-interest bearing residential mortgage bonds......... - 33,917
Bank revolving credit agreement due 2002 (floating rates
averaging 6.6%)........................................ 1,129,300 333,100
Bank term loan (floating rates averaging 6.3%).......... - 271,000
8 5/8% Senior Subordinated Notes due 2007............... 750,000 -
Other................................................... 12,141 7,548
<CAPTION>
---------- --------
<S> <C> <C>
Total debt, average life of six years (rates averaging
7.3%)................................................ 1,947,092 765,199
Amounts due within one year............................. (27,468) (54,692)
<CAPTION>
---------- --------
<S> <C> <C>
Long-term debt........................................ $1,919,624 $710,507
<CAPTION>
========== ========
</TABLE>
In connection with the TheraTx Merger, the Company entered into a new five-
year bank credit facility (the "Company Bank Facility") aggregating $1.75 bil-
lion on March 31, 1997, replacing the Company's $1.0 billion bank credit fa-
cility. On June 24, 1997, the Company Bank Facility was amended to increase
the amount of the credit to $2.0 billion. Interest is payable, depending on
certain leverage ratios and the period of borrowing, at rates up to either (i)
the prime rate plus 1/2% or the daily federal funds rate plus 1%, (ii) LIBOR
plus 1 1/8% or (iii) the bank certificate of deposit rate plus 1 1/4%. The
Company Bank Facility is collateralized by the capital stock of certain sub-
sidiaries and intercompany borrowings and contains covenants which require,
among other things, maintenance of certain financial ratios and limit the
amount of additional debt and repurchases of common stock.
In July 1997, the Company completed the private placement of $750 million ag-
gregate principal amount of 8 5/8% Senior Subordinated Notes due 2007 (the
"Company Notes"). The Company Notes were issued at 99.575% of face value and
are not callable by the Company until 2002. The net proceeds of the offering
were used to reduce outstanding borrowings under the Company Bank Facility.
The Company exchanged the Company Notes for publicly registered Company Notes
having identical terms and conditions in November 1997.
Refinancing Activities
In connection with the TheraTx Merger and the Transitional Merger, the Company
refinanced a substantial portion of its long-term debt. These transactions re-
sulted in after-tax losses of $4.2 million in 1997. During 1995, the Company
recorded $23.3 million of after-tax losses from refinancing of long-term debt,
substantially all of which was incurred in connection with the Hillhaven Merg-
er. Amounts refinanced in 1995 included $171 million of 10 1/8% Senior Subor-
dinated Notes due 2001, $112 million of outstanding borrowings under prior re-
volving credit agreements, and $173 million of other senior debt.
In the fourth quarter of 1995, the Company called for the redemption of its 6%
Convertible Subordinated Notes due 2002 aggregating $115 million (the "6%
Notes") and its 7 3/4% Convertible Subordinated Debentures due 2002 aggregat-
ing $75 million (the "7 3/4% Debentures") which were convertible into the
Company's common stock at the rate of $26.00 and $17.96 per share, respective-
ly. Approximately $80.6 million principal amount of the 6% Notes were con-
verted into approximately 3,098,000 shares of common stock and the remainder
were redeemed in exchange for cash equal to 104.2% of face value plus accrued
interest. All outstanding 7 3/4% Debentures were converted into approximately
4,161,000 shares of common stock. These transactions had no material effect on
earnings per common share.
Other Information
At December 31, 1997, the Company was a party to certain interest rate swap
agreements that eliminate the impact of changes in interest rates on $400 mil-
lion of floating rate debt outstanding. One agreement for $100 million expires
in April 1998 and provides for fixed rates at 5.7% plus 3/8% to 1 1/8%. A sec-
ond agreement provides for fixed rates on $300 million
F-15
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--LONG-TERM DEBT (CONTINUED)
Other Information (Continued)
of floating rate debt at 6.4% plus 3/8% to 1 1/8% and expires in $100 million
increments in May 1999, November 1999 and May 2000. The fair value of the swap
agreements (a payable position of $2.9 million and $139,000 at December 31,
1997 and 1996, respectively) has not been recognized in the consolidated finan-
cial statements. The fair value of the swap agreements represents the estimated
amount the Company would pay to terminate the agreements based on current in-
terest rates.
Maturities of long-term debt in years 1999 through 2002 are $25.8 million,
$25.4 million, $27.6 million and $1.0 billion, respectively.
The estimated fair value of the Company's long-term debt was $1.96 billion and
$752 million at December 31, 1997 and 1996, respectively, compared to carrying
amounts aggregating $1.95 billion and $765 million. The estimate of fair value
includes the effect of the interest rate swap agreements and is based upon the
quoted market prices for the same or similar issues of long-term debt, or on
rates available to the Company for debt of the same remaining maturities.
NOTE 14--LEASES
The Company leases real estate and equipment under cancelable and non-cancel-
able arrangements. Future minimum payments and related sublease income under
non-cancelable operating leases are as follows (dollars in thousands):
<TABLE>
<CAPTION>
-----------------
MINIMUM SUBLEASE
PAYMENTS INCOME
-------- --------
<S> <C> <C>
1998.......................................................... $57,728 $7,119
1999.......................................................... 56,879 6,101
2000.......................................................... 46,376 5,886
2001.......................................................... 34,924 4,513
2002.......................................................... 24,020 2,221
Thereafter.................................................... 86,048 13,425
</TABLE>
Sublease income aggregated $8.0 million, $8.8 million and $13.7 million for
1997, 1996 and 1995, respectively.
NOTE 15--CONTINGENCIES
Management continually evaluates contingencies based upon the best available
evidence. In addition, allowances for loss are provided currently for disputed
items that have continuing significance, such as certain third-party reimburse-
ments and deductions that continue to be claimed in current cost reports and
tax returns.
Management believes that allowances for losses have been provided to the extent
necessary and that its assessment of contingencies is reasonable. Management
believes that resolution of contingencies will not materially affect the
Company's liquidity, financial position or results of operations.
Principal contingencies are described below:
Revenues--Certain third-party payments are subject to examination by agen-
cies administering the programs. The Company is contesting certain issues
raised in audits of prior year cost reports.
Professional liability risks--The Company has provided for loss for profes-
sional liability risks based upon actuarially determined estimates. Actual
settlements may differ from the provisions for loss.
Interest rate swap agreements--The Company is a party to certain agreements
which reduce the impact of changes in interest rates on $400 million of its
floating rate long-term debt. In the event of nonperformance by other par-
ties to these agreements, the Company may incur a loss to the extent that
market rates exceed contract rates.
Guarantees of indebtedness--Letters of credit and guarantees of indebted-
ness aggregated $140 million at December 31, 1997, of which $75 million re-
lates to the Atria Bank Facility.
Income taxes--The Company is contesting adjustments proposed by the Inter-
nal Revenue Service for years 1990, 1991 and 1992.
Litigation--Various suits and claims arising in the ordinary course of
business are pending against the Company. See Note 23.
F-16
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--EARNINGS PER COMMON SHARE
A computation of the earnings per common share follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
--------------------------
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Earnings (loss):
Income (loss) available to common stockholders--
basic computation............................... $130,933 $48,005 $ (9,993)
Interest addback on convertible securities, net
of income tax benefit........................... - - 7,380
<CAPTION>
-------- ------- --------
<S> <C> <C> <C>
Income (loss) available to common
stockholders--diluted computation............. $130,933 $48,005 $ (2,613)
<CAPTION>
======== ======= ========
<S> <C> <C> <C>
Shares used in the computation:
Weighted average shares outstanding--basic
computation..................................... 68,938 69,704 61,196
Dilutive effect of employee stock options and
other dilutive securities....................... 1,421 998 10,771
<CAPTION>
-------- ------- --------
<S> <C> <C> <C>
Adjusted weighted average shares outstanding--
diluted computation............................. 70,359 70,702 71,967
<CAPTION>
======== ======= ========
<S> <C> <C> <C>
Earnings (loss) per common share:
Basic:
Income from operations......................... $ 1.96 $ 0.69 $ 0.22
Extraordinary loss on extinguishment of debt... (0.06) - (0.38)
<CAPTION>
-------- ------- --------
<S> <C> <C> <C>
Net income (loss)............................ $ 1.90 $ 0.69 $ (0.16)
<CAPTION>
======== ======= ========
<S> <C> <C> <C>
Diluted:
Income from operations........................... $ 1.92 $ 0.68 $ 0.29
Extraordinary loss on extinguishment of debt..... (0.06) - (0.32)
<CAPTION>
-------- ------- --------
<S> <C> <C> <C>
Net income (loss).............................. $ 1.86 $ 0.68 $ (0.03)
<CAPTION>
======== ======= ========
</TABLE>
NOTE 17--CAPITAL STOCK
Plan Descriptions
The Company has plans under which options to purchase common stock may be
granted to officers, employees and certain non-employee directors. Options have
been granted at not less than market price on the date of grant. Exercise pro-
visions vary, but most options are exercisable in whole or in part beginning
one to four years after grant and ending ten years after grant. Activity in the
plans is summarized below:
<TABLE>
<CAPTION>
-----------------------------------
WEIGHTED
SHARES AVERAGE
UNDER OPTION PRICE EXERCISE
OPTION PER SHARE PRICE
--------- --------------- --------
<S> <C> <C> <C>
Balances, December 31, 1994................ 2,046,650 $0.53 to $24.25 $12.77
Granted.................................. 1,537,820 11.50 to 32.50 27.32
Exercised................................ (593,918) 0.53 to 29.14 11.57
Canceled or expired...................... (51,151) 5.35 to 28.50 21.02
<CAPTION>
---------
<S> <C> <C> <C>
Balances, December 31, 1995................ 2,939,401 0.53 to 32.50 20.48
Granted.................................. 1,467,451 25.50 to 38.38 26.02
Exercised................................ (368,758) 0.53 to 28.50 6.10
Canceled or expired...................... (351,271) 14.17 to 32.63 26.65
<CAPTION>
---------
<S> <C> <C> <C>
Balances, December 31, 1996................ 3,686,823 0.53 to 38.38 23.54
Granted.................................. 1,309,900 25.50 to 43.88 30.47
Assumed in connection with TheraTx
Merger.................................. 475,643 0.20 to 38.83 27.05
Exercised................................ (775,431) 0.53 to 35.46 17.90
Canceled or expired...................... (301,765) 19.92 to 34.25 26.78
<CAPTION>
---------
<S> <C> <C> <C>
Balances, December 31, 1997................ 4,395,170 $0.20 to $43.88 $26.77
<CAPTION>
=========
</TABLE>
F-17
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--CAPITAL STOCK (CONTINUED)
A summary of stock options outstanding at December 31, 1997 follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -------------------------
NUMBER WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
- ------------------------ -------------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
1 to 4
$0.20 to $24.86......... 120,692 years $ 8.30 120,692 $ 8.30
5 to 7
$1.02 to $38.83......... 482,941 years 21.72 419,578 21.40
8 to 10
$23.37 to $43.88........ 3,791,537 years 28.00 991,485 27.00
<CAPTION>
-------------- --------------
<S> <C> <C> <C> <C> <C>
4,395,170 $26.77 1,531,755 $23.99
<CAPTION>
============== ==============
</TABLE>
The weighted average remaining contractual life of options outstanding at De-
cember 31, 1997 approximated eight years. Shares of common stock available for
future grants were 3,980,678, 1,387,396 and 2,740,066 at December 31, 1997,
1996 and 1995, respectively. The number of options exercisable at December 31,
1996 and 1995 were 1,142,688 and 1,021,168, respectively.
In 1995, the Company issued long-term incentive agreements to certain officers
and key employees whereby the Company may annually issue shares of common stock
to such individuals in satisfaction of predetermined performance goals. Share
awards aggregated 74,330 for 1997, 80,913 for 1996 and 92,500 for 1995.
In May 1997, stockholders voted to approve a stock option plan for non-employee
directors and an employee incentive compensation plan. Shares issuable under
the plans aggregated 200,000 and 3,400,000, respectively.
A Shareholder Rights Plan allows common stockholders the right to purchase Se-
ries A Preferred Stock in the event of accumulation of or tender offer for 15%
(reduced to 9.9% in February 1998) or more of the Company's common stock. The
rights will expire in 2003 unless redeemed earlier by the Company.
Statement No. 123 Data
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related interpreta-
tions in accounting for its employee stock options because, as discussed below,
the alternative fair value accounting provided for under FASB Statement No.
123, "Accounting for Stock-Based Compensation" ("Statement No. 123"), requires
use of option valuation models that were not developed for use in valuing em-
ployee stock options. Under APB 25, because the exercise price of the Company's
employee stock options is equal to the market price of the underlying stock on
the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required
by Statement No. 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of that Statement. The fair
value of such options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions: risk-free
interest rate of 5.50% for 1997, 6.33% for 1996 and 1995; no dividend yield;
expected term of seven years and volatility factors of the expected market
price of the Company's common stock of .31 for 1997, .24 for 1996 and .25 for
1995.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because the changes in the subjec-
tive input assumptions can materially affect the fair value estimate, in man-
agement's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the respective vesting period. The weighted aver-
age fair values of options granted during 1997, 1996 and 1995 under the Black-
Scholes
F-18
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--CAPITAL STOCK (CONTINUED)
Statement No. 123 Data (Continued)
model were $13.75, $10.95 and $11.74, respectively. Pro forma information fol-
lows (in thousands except per share amounts):
<TABLE>
<CAPTION>
-------------------------
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Pro forma income (loss) available to common
stockholders...................................... $120,941 $42,530 $(10,842)
Pro forma earnings (loss) per common and common
equivalent share:
Basic............................................ $ 1.75 $ 0.61 $ (0.18)
Diluted.......................................... 1.71 0.61 (0.05)
</TABLE>
Because Statement No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1999.
NOTE 18--EMPLOYEE BENEFIT PLANS
The Company maintains defined contribution retirement plans covering employees
who meet certain minimum eligibility requirements. Benefits are determined as a
percentage of a participant's contributions and are generally vested based upon
length of service. Retirement plan expense was $13.0 million for 1997, $8.8
million for 1996 and $9.7 million for 1995. Amounts equal to retirement plan
expense are funded annually.
NOTE 19--ACCRUED LIABILITIES
A summary of other accrued liabilities at December 31 follows (dollars in thou-
sands):
<TABLE>
<CAPTION>
----------------
1997 1996
-------- -------
<S> <C> <C>
Interest...................................................... $ 30,662 $ 3,502
Taxes other than income....................................... 15,462 20,238
Income taxes payable.......................................... 7,737 -
Patient accounts.............................................. 21,370 17,919
Merger related costs.......................................... 15,338 16,640
Other......................................................... 25,364 13,135
<CAPTION>
-------- -------
<S> <C> <C>
$115,933 $71,434
<CAPTION>
======== =======
</TABLE>
NOTE 20--TRANSACTIONS WITH TENET HEALTHCARE CORPORATION
Hillhaven became an independent public company in January 1990 as a result of a
spin-off transaction with Tenet Healthcare Corporation (formerly National Medi-
cal Enterprises, Inc.) ("Tenet"). The following is a summary of significant
transactions with Tenet:
Debt guarantees--Tenet and the Company are parties to a guarantee agreement
under which the Company pays a fee to Tenet in consideration for Tenet's
guarantee of certain obligations of the Company. Such fees totaled $2.0
million in 1997, $3.0 million in 1996, and $3.8 million in 1995.
Leases--The Company leases certain nursing centers from a joint venture in
which Tenet has a minority interest. Lease payments to the joint venture
aggregated $9.4 million, $10.3 million and $9.9 million for 1997, 1996 and
1995, respectively.
Equity ownership--At December 31, 1997, Tenet owned 8,301,067 shares of the
Company's common stock. Prior to the Hillhaven Merger, Tenet also owned all
of Hillhaven's outstanding Series C and Series D Preferred Stock.
Management agreements--Fees paid by Tenet for management, consulting and
advisory services in connection with the operation of seven nursing centers
owned or leased by Tenet aggregated $2.6 million in 1997 and $2.7 million
in both 1996 and 1995.
F-19
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21--FAIR VALUE DATA
A summary of fair value data at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
---------------------------------------
1997 1996
-------------------- ------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 82,473 $ 82,473 $112,466 $112,466
Long-term debt, including amounts due
within one year...................... 1,947,092 1,955,097 765,199 751,843
</TABLE>
NOTE 22--STOCK REPURCHASES
In the fourth quarter of 1997, the Company repurchased 2,925,000 shares of com-
mon stock at an aggregate cost of $81.7 million. Repurchases of 1,950,000
shares common stock in 1996 totaled $55.3 million. These transactions were fi-
nanced primarily through borrowings under the Company Bank Facility.
NOTE 23--LITIGATION
A class action lawsuit entitled A. Carl Helwig v. Vencor, Inc., et al. was
filed on December 24, 1997 in the United States District Court for the Western
District of Kentucky (Civil Action No. 3-97CV-8354). The class action claims
were brought by an alleged stockholder of the Company against the Company and
certain executive officers and directors of the Company, namely W. Bruce
Lunsford, W. Earl Reed, III, Michael R. Barr, Thomas T. Ladt, Jill L. Force and
James H. Gillenwater, Jr. The complaint alleges that the Company and certain
executive officers of the Company during a specified time frame violated Sec-
tions 10(b) and 20(a) of the Securities Exchange Act of 1934, by, among other
things, issuing to the investing public a series of false and misleading state-
ments concerning the Company's current operations and the inherent value of the
Company's common stock. The complaint further alleges that as a result of these
purported false and misleading statements concerning the Company's revenues and
successful acquisitions, the price of the Company's common stock was artifi-
cially inflated. In particular, the complaint alleges that the Company issued
false and misleading financial statements during the first, second and third
calendar quarters of 1997 which misrepresented and understated the impact that
changes in Medicare reimbursement policies would have on the Company's core
services and profitability. The complaint further alleges that the Company is-
sued a series of materially false statements concerning the purportedly suc-
cessful integration of its recent acquisitions and prospective earnings per
share for 1997 and 1998 which the Company knew lacked any reasonable basis and
were not being achieved. The suit seeks damages in an amount to be proven at
trial, pre-judgment and post-judgment interest, reasonable attorneys' fees, ex-
pert witness fees and other costs, and any extraordinary equitable and/or in-
junctive relief permitted by law or equity to assure that the plaintiff has an
effective remedy. The Company believes that the allegations in the complaint
are without merit and intends to defend vigorously this action.
On June 19, 1997, a class action lawsuit was filed in the United States Dis-
trict Court for the District of Nevada on behalf of a class consisting of all
persons who sold shares of Transitional common stock during the period from
February 26, 1997 through May 4, 1997, inclusive. The complaint alleges that
Transitional purchased shares of its common stock from members of the investing
public after it had received a written offer to acquire all of Transitional's
common stock and without disclosing that such an offer had been made. The com-
plaint further alleges that defendants disclosed that there were "expressions
of interest" in acquiring Transitional when, in fact, at that time, the negoti-
ations had reached an advanced stage with actual firm offers at substantial
premiums to the trading price of Transitional's stock having been made which
were actively being considered by Transitional's Board of Directors. The com-
plaint asserts claims pursuant to Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and common law principles of negligent misrepresentation
and names as defendants Transitional as well as certain senior executives and
directors of Transitional. The plaintiff seeks class certification, unspecified
damages, attorneys' fees and costs. The Company has filed a motion to dismiss
and is awaiting the court's decision. The Company is vigorously defending this
action.
The Company's subsidiary, American X-Rays, Inc. ("AXR"), is the defendant in a
qui tam lawsuit which was filed in the United States District Court for the
Eastern District of Arkansas and served on the Company on July 7, 1997. The
United States Department of Justice intervened in the suit which was brought
under the Federal Civil False Claims Act. AXR provided portable X-ray services
to nursing facilities (including those operated by the Company) and other
healthcare providers. The Company acquired an interest in AXR when Hillhaven
was merged into the Company in September 1995
F-20
<PAGE>
VENCOR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23--LITIGATION (CONTINUED)
and purchased the remaining interest in AXR in February 1996. The suit alleges
that AXR submitted false claims to the Medicare and Medicaid programs. In con-
junction with the qui tam action, the United States Attorney's Office for the
Eastern District of Arkansas also is conducting a criminal investigation into
the allegations contained in the qui tam complaint. The suit seeks damages in
an amount of not less than $1,000,000, treble damages and civil penalties. The
Company is cooperating fully in the investigation.
On June 6, 1997, Transitional announced that it had been advised that it is a
target of a Federal grand jury investigation being conducted by the United
States Attorney's Office for the District of Massachusetts (the "USAO") aris-
ing from activities of Transitional's formerly owned dialysis business. The
investigation involves an alleged illegal arrangement in the form of a part-
nership which existed from June 1987 to June 1992 between Damon Corporation
and Transitional. Transitional spun off its dialysis business, now called
Vivra Incorporated, on September 1, 1989. In January 1998, the Company was in-
formed that no criminal charges would be filed against the Company. The Com-
pany has been informed that the USAO intends to file a civil action against
Transitional relating to the partnership's former business. If such a suit is
filed, the Company will vigorously defend the action.
Management believes that the ultimate resolution of these claims will not have
a material adverse effect on the Company's financial position, results of op-
erations or liquidity. Accordingly, no provisions for loss related to the pre-
viously discussed litigation matters have been recorded in the consolidated
financial statements.
NOTE 24--SUBSEQUENT EVENT
In January 1998, the Board of Directors of the Company authorized management
to proceed with a plan to separate the Company into two publicly held corpora-
tions, one to operate the hospital, nursing center and Vencare businesses
("Operating Company") and the other to own substantially all of the real prop-
erty of the Company ("Realty Company") and to lease such property to Operating
Company (the "Reorganization Transactions"). Realty Company intends to become
a real estate investment trust for Federal income tax purposes beginning Janu-
ary 1, 1999. The Board's action is subject to, among other things, Company
stockholder approval regulatory and other approvals, tax considerations and
the consummation of a capitalization plan for each entity. The Company filed a
preliminary proxy statement concerning the proposed transactions with the Se-
curities and Exchange Commission on January 30, 1998. Management anticipates
that the Reorganization Transactions and Distribution will be completed in the
second quarter of 1998.
A distribution will be effected through the issuance to Company common stock-
holders of all of the outstanding shares of Operating Company (the "Distribu-
tion"). Subsequent to the Distribution, Vencor, Inc. will be the name of the
legal entity that will comprise Operating Company and Ventas, Inc. will be the
name of the legal entity comprising Realty Company.
For accounting purposes the historical consolidated financial statements of
the Company will become the historical consolidated financial statements of
Operating Company at the time of the Distribution. Realty Company will not
have been operated as a real estate investment trust prior to the Distribu-
tion. Accordingly, the consolidated financial statements of Realty Company
will consist solely of its operations after the Distribution. The assets and
liabilities of both Operating Company and Realty Company will be recorded at
their respective historical carrying values at the time of the Distribution.
In connection with the Reorganization Transactions, the Company will be re-
quired to refinance, repurchase or assign substantially all of its long-term
debt, including the Company Bank Facility and the Company Notes. In lieu of
repurchasing the Company Notes, the Company may assign to Operating Company,
and Operating Company would assume, the Company Notes. Management is consider-
ing a capitalization plan for both Operating Company and Realty Company to be
effected on or before the date of the Distribution in which the Company's
long-term debt is expected to be refinanced, repurchased or assumed by either
Operating Company or Realty Company at interest rates and terms which may be
less favorable than those of the Company's current debt arrangements. There
can be no assurance that sufficient financing will be available on terms that
are acceptable to either Operating Company or Realty Company, or that either
entity will have the financial resources necessary to implement its respective
acquisition and development plans following the Distribution.
F-21
<PAGE>
VENCOR, INC.
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
--------------------------------------------
1997
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues...................... $680,696 $778,295 $844,740 $812,273
Net income:
Income from operations...... 33,982 37,010 36,902 27,234
Extraordinary loss on
extinguishment of debt..... (2,259) (1,590) (346) -
Net income.............. 31,723 35,420 36,556 27,234
Per common share:
Basic earnings:
Income from operations.... 0.49 0.53 0.53 0.40
Extraordinary loss on
extinguishment of debt... (0.03) (0.02) - -
Net income.............. 0.46 0.51 0.53 0.40
Diluted earnings:
Income from operations.... 0.48 0.52 0.52 0.40
Extraordinary loss on
extinguishment of debt... (0.03) (0.02) (0.01) -
Net income.............. 0.45 0.50 0.51 0.40
Market prices (a):
High...................... 40 3/8 45 1/8 44 3/8 43 5/16
Low....................... 29 36 5/8 37 3/8 23
<CAPTION>
--------------------------------------------
1996
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues...................... $626,337 $634,554 $650,551 $666,341
Net income (loss) (b)......... 27,610 30,865 33,558 (44,028)
Per common share:
Basic earnings (loss)....... 0.39 0.44 0.48 (0.64)
Diluted earnings (loss)..... 0.39 0.43 0.48 (0.64)
Market prices (a):
High...................... 39 7/8 35 34 1/2 33 1/4
Low....................... 31 1/2 28 1/8 25 1/2 27 1/2
</TABLE>
- -------
Earnings per share amounts for all periods presented have been restated to com-
ply with the provisions of SFAS 128. See Notes 1 and 16 of the Notes to Consol-
idated Financial Statements.
(a) The Company's common stock is traded on the New York Stock Exchange (ticker
symbol--VC).
(b) Fourth quarter results include $79.9 million ($1.16 per share) of costs in
connection with the sale of certain nursing centers, the restructuring of the
pharmacy operations and the planned replacement of certain facilities. See Note
9 of the Notes to Consolidated Financial Statements.
F-22
<PAGE>
VENTAS, INC.
(FORMERLY VENCOR, INC.)
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues.................................................. $823,316 $680,696
<CAPTION>
-------- --------
<S> <C> <C>
Salaries, wages and benefits.............................. 480,364 396,573
Supplies.................................................. 76,052 66,033
Rent...................................................... 24,135 18,948
Other operating expenses.................................. 127,258 109,786
Depreciation and amortization............................. 35,470 24,372
Interest expense.......................................... 37,195 10,660
Investment income......................................... (1,180) (1,567)
Non-recurring transactions................................ 7,664 -
<CAPTION>
-------- --------
<S> <C> <C>
786,958 624,805
<CAPTION>
-------- --------
<S> <C> <C>
Income before income taxes................................ 36,358 55,891
Provision for income taxes................................ 17,477 21,909
<CAPTION>
-------- --------
<S> <C> <C>
Income from operations.................................... 18,881 33,982
Extraordinary loss on extinguishment of debt, net of
income tax benefit....................................... - (2,259)
<CAPTION>
-------- --------
<S> <C> <C>
Net income............................................. $ 18,881 $ 31,723
<CAPTION>
======== ========
<S> <C> <C>
Earnings per common share:
Basic:
Income from operations.................................. $ 0.28 $ 0.49
Extraordinary loss of extinguishment of debt............ - (0.03)
<CAPTION>
-------- --------
<S> <C> <C>
Net income............................................. $ 0.28 $ 0.46
<CAPTION>
======== ========
<S> <C> <C>
Diluted:
Income from operations.................................. $ 0.28 $ 0.48
Extraordinary loss on extinguishment.................... - (0.03)
<CAPTION>
-------- --------
<S> <C> <C>
Net income............................................. $ 0.28 $ 0.45
<CAPTION>
======== ========
<S> <C> <C>
Shares used in computing earnings per common share:
Basic.................................................... 67,448 68,929
Diluted.................................................. 67,857 70,207
</TABLE>
See accompanying notes.
F-23
<PAGE>
VENTAS, INC.
(FORMERLY VENCOR, INC.)
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
------------------------
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 51,165 $ 82,473
Accounts and notes receivable less allowance for
loss of $68,428--March 31 and $63,551--December
31................................................ 633,775 619,068
Inventories........................................ 27,683 27,605
Income taxes....................................... 77,921 73,413
Other.............................................. 45,629 55,589
<CAPTION>
---------- ------------
<S> <C> <C>
836,173 858,148
Property and equipment, at cost...................... 2,089,991 1,996,030
Accumulated depreciation............................. (518,895) (488,212)
<CAPTION>
---------- ------------
<S> <C> <C>
1,571,096 1,507,818
Goodwill less accumulated amortization of $22,744--
March 31 and
$18,886 --December 31............................... 669,327 659,311
Investments in affiliates............................ 181,862 178,301
Other................................................ 129,779 131,161
<CAPTION>
---------- ------------
<S> <C> <C>
$3,388,237 $3,334,739
<CAPTION>
========== ============
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 97,646 $ 106,019
Salaries, wages and other compensation............. 184,252 163,642
Other accrued liabilities.......................... 125,828 115,933
Long-term debt due within one year................. 32,666 27,468
<CAPTION>
---------- ------------
<S> <C> <C>
440,392 413,062
Long-term debt....................................... 1,920,901 1,919,624
Deferred credits and other liabilities............... 93,649 94,653
Minority interests in equity of consolidated
entities............................................ 2,462 2,050
Stockholders' equity:
Common stock, $.25 par value; authorized 180,000
shares; issued 73,551
shares--March 31 and 73,470 shares--December 31... 18,388 18,368
Capital in excess of par value..................... 770,505 766,078
Retained earnings.................................. 300,684 281,803
<CAPTION>
---------- ------------
<S> <C> <C>
1,089,577 1,066,249
Common treasury stock; 5,987 shares--March 31 and
6,159 shares--December 31........................... (158,744) (160,899)
<CAPTION>
---------- ------------
<S> <C> <C>
930,833 905,350
<CAPTION>
---------- ------------
<S> <C> <C>
$3,388,237 $3,334,739
<CAPTION>
========== ============
</TABLE>
See accompanying notes.
F-24
<PAGE>
VENTAS, INC.
(FORMERLY VENCOR, INC.)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------
1998 1997
-------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 18,881 $ 31,723
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 35,470 24,372
Provision for doubtful accounts................ 7,194 3,615
Deferred income taxes.......................... 430 -
Extraordinary loss on extinguishment of debt... - 3,672
Non-recurring transactions..................... 4,221 -
Other.......................................... (952) 150
Changes in operating assets and liabilities:
Accounts and notes receivable................. (22,635) (40,913)
Inventories and other assets.................. 3,866 (6,200)
Accounts payable.............................. (8,090) 16,568
Income taxes.................................. 15,631 19,737
Other accrued liabilities..................... 3,976 7,303
<CAPTION>
-------- ---------
<S> <C> <C> <C> <C>
Net cash provided by operating activities.... 57,992 60,027
<CAPTION>
-------- ---------
<S> <C> <C> <C> <C>
Cash flows from investing activities:
Purchase of property and equipment.............. (78,732) (60,887)
Acquisition of TheraTx, Incorporated............ - (336,458)
Acquisition of other healthcare businesses and
previously leased facilities................... (12,275) (9,652)
Sale of assets.................................. - 10,342
Collection of notes receivable.................. 802 420
Net change in investments....................... (262) (1,234)
Other........................................... (1,526) (749)
<CAPTION>
-------- ---------
<S> <C> <C> <C> <C>
Net cash used in investing activities........ (91,993) (398,218)
<CAPTION>
-------- ---------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net change in borrowings under revolving lines
of credit...................................... 5,600 344,950
Issuance of long-term debt...................... - 868
Repayment of long-term debt..................... (1,895) (5,079)
Payment of deferred financing costs............. (1,115) (4,225)
Issuances of common stock....................... 103 604
Other........................................... - (78)
<CAPTION>
-------- ---------
<S> <C> <C> <C> <C>
Net cash provided by financing activities.... 2,693 337,040
<CAPTION>
-------- ---------
<S> <C> <C> <C> <C>
Change in cash and cash equivalents............... (31,308) (1,151)
Cash and cash equivalents at beginning of period.. 82,473 112,466
<CAPTION>
-------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents at end of period........ $ 51,165 $ 111,315
<CAPTION>
======== =========
<S> <C> <C> <C> <C>
Supplemental information:
Interest payments............................... $ 53,307 $ 12,520
Income tax payments............................. 1,896 1,210
</TABLE>
See accompanying notes.
F-25
<PAGE>
VENTAS, INC.
(FORMERLY VENCOR, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--REPORTING ENTITY
Ventas, Inc., formerly Vencor, Inc. (the "Company"), operates an integrated
network of healthcare services in 45 states primarily focused on the needs of
the elderly. At March 31, 1998, the Company operated 62 long-term acute care
hospitals (5,313 licensed beds), 305 nursing centers (39,960 licensed beds),
and a contract services business ("Vencare") which primarily provides respira-
tory and rehabilitation therapies, medical services and pharmacy management
services under approximately 3,700 contracts to nursing centers and other
healthcare providers.
On April 30, 1998, the Company changed its name to Ventas, Inc. and refinanced
all of its long-term debt in anticipation of spinning off its healthcare oper-
ations through the distribution of the common stock of a new entity named
Vencor, Inc. ("New Vencor") to stockholders of record as of April 27, 1998
(the "Reorganization Transactions"). The distribution was effected on May 1,
1998. For financial reporting periods subsequent to the Reorganization Trans-
actions, the historical financial statements of the Company will be assumed by
New Vencor and the Company will not report any historical financial informa-
tion prior to May 1, 1998. Accordingly, the financial results included herein
will not be reflected in the future financial statements of the Company after
May 1, 1998. See Note 12.
On March 21, 1997, the Company completed the acquisition of TheraTx, Incorpo-
rated ("TheraTx"), a provider of rehabilitation and respiratory therapy man-
agement services and operator of nursing centers (the "TheraTx Merger"), pur-
suant to a cash tender offer. See Note 5.
On June 24, 1997, the Company acquired substantially all of the outstanding
common stock of Transitional Hospitals Corporation ("Transitional"), an opera-
tor of 19 long-term acute care hospitals, pursuant to a cash tender offer. The
Company completed the merger of its wholly owned subsidiary with and into
Transitional on August 26, 1997 (the "Transitional Merger"). See Note 6.
NOTE 2--BASIS OF PRESENTATION
The TheraTx Merger and Transitional Merger have been accounted for by the pur-
chase method, which requires that the accounts and operations of acquired en-
tities be included with those of the Company since the acquisition of a con-
trolling interest. Accordingly, the accompanying condensed consolidated finan-
cial statements include the operations of TheraTx and Transitional since March
21, 1997 and June 24, 1997, respectively.
Beginning July 1, 1997, the accounts of the Company's publicly held assisted
and independent living affiliate, Atria Communities, Inc. ("Atria"), were ac-
counted for under the equity method. Prior thereto, such accounts were consol-
idated with those of the Company and provisions related to minority interests
in the earnings and equity of Atria had been recorded since the consummation
of the initial public offering in 1996.
Beginning in 1998, the Company adopted the provisions of Statement of Finan-
cial Accounting Standards ("SFAS") No. 130 ("SFAS 130"), "Reporting Comprehen-
sive Income", which establishes new rules for the reporting of comprehensive
income and its components. SFAS 130 requires, among other things, unrealized
gains or losses on the Company's available-for-sale securities, which prior to
adoption were reported as changes in common stockholders' equity, to be dis-
closed as other comprehensive income. The adoption of SFAS 130 had no impact
on the Company's net income or common stockholders' equity for the three
months ended March 31, 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Infor-
mation", which will become effective in December 1998 and requires interim
disclosures beginning in 1999. SFAS 131 requires public companies to report
certain information about operating segments, products and services, the geo-
graphic areas in which they operate and major customers. The operating seg-
ments are to be based on the structure of the enterprise's internal organiza-
tion whose operating results are regularly reviewed by senior management. Man-
agement has not yet determined the effect, if any, of SFAS 131 on the consoli-
dated financial statement disclosures.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up Activi-
ties", which requires entities to expense start-up costs, including organiza-
tional costs, as
F-26
<PAGE>
VENTAS, INC.
(FORMERLY VENCOR, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2--BASIS OF PRESENTATION (CONTINUED)
incurred. SOP 98-5 requires most entities to write off as a cumulative effect
of a change in accounting principle any previously capitalized start-up or or-
ganizational costs. SOP 98-5 is effective for most entities for fiscal years
beginning after December 15, 1998. The Company plans to adopt the provisions of
SOP 98-5 in the first quarter of 1999. The amount of such unamortized costs
were $14.4 million at March 31, 1998.
The accompanying condensed consolidated financial statements do not include all
of the disclosures normally required by generally accepted accounting princi-
ples or those normally required in annual reports on Form 10-K. Accordingly,
these statements should be read in conjunction with the audited consolidated
financial statements of Vencor, Inc. for the year ended December 31, 1997 filed
with the Securities and Exchange Commission on Form 10-K.
The accompanying condensed consolidated financial statements have been prepared
in accordance with the Company's customary accounting practices and have not
been audited. Management believes that the financial information included
herein reflects all adjustments necessary for a fair presentation of interim
results and, except for the costs described in Note 8, all such adjustments are
of a normal and recurring nature.
NOTE 3--REVENUES
Revenues are recorded based upon estimated amounts due from patients and third-
party payors for healthcare services provided, including anticipated settle-
ments under reimbursement agreements with Medicare, Medicaid and other third-
party payors.
A summary of first quarter revenues by payor type follows (in thousands):
<TABLE>
<CAPTION>
------------------
1998 1997
-------- --------
<S> <C> <C>
Medicare.................................................... $298,837 $233,133
Medicaid.................................................... 208,406 199,506
Private and other........................................... 343,085 259,777
<CAPTION>
-------- --------
<S> <C> <C>
850,328 692,416
Elimination................................................. (27,012) (11,720)
<CAPTION>
-------- --------
<S> <C> <C>
$823,316 $680,696
<CAPTION>
======== ========
</TABLE>
NOTE 4--EARNINGS PER COMMON SHARE
In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings Per
Share", replacing the calculation of primary and fully diluted earnings per
common share with basic and diluted earnings per common share. The computation
of basic earnings per common share is based upon the weighted average number of
common shares outstanding, while the diluted computation also includes the ef-
fect of common stock equivalents consisting primarily of stock options. Earn-
ings per common share for all prior periods have been restated to conform to
the requirements of SFAS 128. The impact of the restatement was not signifi-
cant.
F-27
<PAGE>
VENTAS, INC.
(FORMERLY VENCOR, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4--EARNINGS PER COMMON SHARE (CONTINUED)
A computation of earnings per common share for the three months ended March 31
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
---------------
1998 1997
------- -------
<S> <C> <C>
Income from operations........................................ $18,881 $33,982
Extraordinary loss on extinguishment of debt.................. - (2,259)
<CAPTION>
------- -------
<S> <C> <C>
Net income................................................. $18,881 $31,723
<CAPTION>
======= =======
<S> <C> <C>
Shares used in the computation:
Weighted average shares outstanding--basic computation....... 67,448 68,929
Dilutive effect of employee stock options and other dilutive
securities.................................................. 409 1,278
<CAPTION>
------- -------
<S> <C> <C>
Adjusted weighted average shares outstanding--diluted
computation................................................ 67,857 70,207
<CAPTION>
======= =======
<S> <C> <C>
Earnings per common share:
Basic:
Income from operations...................................... $ 0.28 $ 0.49
Extraordinary loss on extinguishment of debt................ - (0.03)
<CAPTION>
------- -------
<S> <C> <C>
Net income................................................. $ 0.28 $ 0.46
<CAPTION>
======= =======
<S> <C> <C>
Diluted:
Income from operations...................................... $ 0.28 $ 0.48
Extraordinary loss on extinguishment of debt................ - (0.03)
<CAPTION>
------- -------
<S> <C> <C>
Net income................................................. $ 0.28 $ 0.45
<CAPTION>
======= =======
</TABLE>
NOTE 5--THERATX MERGER
On March 21, 1997, the TheraTx Merger was consummated following a cash tender
offer in which the Company paid $17.10 for each outstanding share of TheraTx
common stock. A summary of the TheraTx Merger as of March 31, 1998 follows (in
thousands):
<TABLE>
<CAPTION>
---------
<S> <C>
Fair value of assets acquired....................................... $ 633,793
Fair value of liabilities assumed................................... (259,439)
<CAPTION>
---------
<S> <C>
Net assets acquired............................................... 374,354
Cash received from acquired entity.................................. (14,915)
<CAPTION>
---------
<S> <C>
Net cash paid..................................................... $ 359,439
<CAPTION>
=========
</TABLE>
The purchase price paid in excess of the fair value of identifiable net assets
acquired (to be amortized over 40 years by the straight-line method) aggregated
$314.7 million.
F-28
<PAGE>
VENTAS, INC.
(FORMERLY VENCOR, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6--TRANSITIONAL MERGER
On June 24, 1997, the Company acquired approximately 95% of the outstanding
shares of common stock of Transitional through a cash tender offer in which the
Company paid $16.00 per common share. The Company completed the merger of its
wholly owned subsidiary with and into Transitional on August 26, 1997. A sum-
mary of the Transitional Merger as of March 31, 1998 follows (in thousands):
<TABLE>
<CAPTION>
---------
<S> <C>
Fair value of assets acquired....................................... $713,336
Fair value of liabilities assumed................................... (44,842)
<CAPTION>
---------
<S> <C>
Net assets acquired............................................... 668,494
Cash received from acquired entity.................................. (52,874)
<CAPTION>
---------
<S> <C>
Net cash paid..................................................... $615,620
<CAPTION>
=========
</TABLE>
The purchase price paid in excess of the fair value of identifiable net assets
acquired (to be amortized over 40 years by the straight-line method) aggregated
$349.1 million.
NOTE 7--PRO FORMA INFORMATION
The pro forma effect of the TheraTx Merger and the Transitional Merger assuming
that the transactions occurred on January 1, 1997 follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
--------------
THREE MONTHS
ENDED
MARCH 31, 1997
--------------
<S> <C>
Revenues......................................................... $850,429
Income from operations........................................... 13,137
Net income....................................................... 10,878
Earnings per common share:
Basic:
Income from operations....................................... $ 0.19
Net income................................................... 0.16
Diluted:
Income from operations....................................... $ 0.19
Net income................................................... 0.16
</TABLE>
Pro forma income from operations includes $29.7 million of costs incurred by
both TheraTx and Transitional in connection with the acquisitions. Pro forma
financial data have been derived by combining the financial results of the Com-
pany and TheraTx (based upon a three month reporting period ending March 31)
and Transitional (based upon a three month reporting period ending February
28).
NOTE 8--NON-RECURRING TRANSACTIONS
During the first quarter of 1998, the Company incurred $7.7 million of profes-
sional fees and administrative expenses related to the Company's Reorganization
Transactions. The Company expects to record additional costs associated with
the consummation of the Reorganization Transactions in the second quarter of
1998.
NOTE 9--LONG-TERM DEBT
In connection with the TheraTx Merger, the Company refinanced a substantial
portion of its long-term debt. These transactions resulted in an after-tax loss
of $2.3 million in the first quarter of 1997.
The Company entered into certain interest rate swap agreements in the fourth
quarter of 1995 to eliminate the impact of changes in interest rates on $400
million of floating rate debt outstanding. The agreements expire in varying
amounts
F-29
<PAGE>
VENTAS, INC.
(FORMERLY VENCOR, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 9--LONG-TERM DEBT (CONTINUED)
through April 1998 and provide for fixed rates at 5.7% plus 3/8% to 1 1/8%. In
addition, the Company entered into interest rate swap agreements in May 1997
on $300 million of floating rate debt. These agreements expire in $100 million
increments in May 1999, November 1999 and May 2000, and provide for fixed
rates at 6.4% plus 3/8% to 1 1/8%. The fair values of the swap agreements are
not recognized in the condensed consolidated financial statements.
NOTE 10--LITIGATION
On April 7, 1998, the Circuit Court of the Thirteenth Judicial Circuit for
Hillsborough County, Florida, issued a temporary injunction order against the
Company's nursing center in Tampa, Florida which ordered the nursing center to
cease notifying and requiring the discharge of any resident. The Company dis-
continued requiring the discharge of any resident from its Tampa nursing cen-
ter on April 7, 1998. Following the conduct of a complaint survey at the fa-
cility, the State of Florida Agency for Health Care Administration ("AHCA")
imposed a fine of $270,000 for related regulatory violations. In addition, the
Health Care Financing Administration ("HCFA") has imposed a fine of $10,000
per day, effective from March 30, 1998 and continuing until April 9, 1998 at
which time the facility was determined to have removed any "immediate jeopar-
dy" to patients. A fine of $50 per day became effective on April 10, 1998 and
will continue until the facility has achieved substantial compliance. If sub-
stantial compliance is not achieved by October 9, 1998, the facility's Medi-
care and Medicaid provider agreements could be terminated. The Company insti-
tuted a plan of correction at the Tampa nursing center to respond to the find-
ings of AHCA and HCFA. AHCA also has changed the rating of the nursing cen-
ter's license to conditional. The Company has appealed these regulatory sanc-
tions. The Company believes that it has submitted an acceptable plan of cor-
rection which will terminate the running of per day fines and avoid the termi-
nation of the Tampa nursing center's provider agreements. The Company is
awaiting decisions from HCFA and AHCA and no assurance can be given that the
plan will be accepted.
The Florida Attorney General's office and the Tampa Prosecuting Attorney's of-
fice have indicated to the Company that they are conducting independent civil
and criminal investigations into the circumstances surrounding the Tampa resi-
dent discharges. The Company is cooperating fully with the ongoing investiga-
tions.
In addition to its action with the nursing center in Tampa, Florida, the HCFA
Administrator of the Medicare and Medicaid programs recently indicated that
the Company's facilities in other states also are being monitored. The Company
has not received notice that any other state has instituted an investigation
into any similar issues at another Company facility. However, there can be no
assurances that HCFA or other regulators in other jurisdictions will not ini-
tiate investigations relating to this matter or other circumstances, and there
can be no assurance that the results of any such investigations would not have
a material adverse effect on the Company.
On April 9, 1998, a class action lawsuit captioned Mongiovi et al. v. Vencor,
Inc., et al., Case No. 98-769-CIV-T24E, was filed in the United States Dis-
trict Court for the Middle District of Florida on behalf of a purported class
consisting of certain residents of the Tampa nursing center and other resi-
dents in the Company's nursing centers nationwide. The complaint alleges vari-
ous breaches of contract, and statutory and regulatory violations including
violations of Federal and state RICO statutes. The plaintiffs seek class cer-
tification, unspecified damages, attorneys' fees and costs. The Company in-
tends to defend vigorously this action.
A class action lawsuit entitled A. Carl Helwig v. Vencor, Inc., et al., was
filed on December 24, 1997 in the United States District Court for the Western
District of Kentucky (Civil Action No. 3-97CV-8354). The class action claims
were brought by an alleged stockholder of the Company against the Company and
certain executive officers and directors of the Company, namely W. Bruce
Lunsford, W. Earl Reed, III, Michael R. Barr, Thomas T. Ladt, Jill L. Force
and James H. Gillenwater, Jr. The complaint alleges that the Company and cer-
tain executive officers of the Company during a specified time frame violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by, among
other things, issuing to the investing public a series of false and misleading
statements concerning the Company's current operations and the inherent value
of the Company's common stock. The complaint further alleges that as a result
of these purported false and misleading statements concerning the Company's
revenues and successful acquisitions, the price of the Company's common stock
was artificially inflated. In particular, the complaint alleges that the Com-
pany issued false and misleading financial state-
F-30
<PAGE>
VENTAS, INC.
(FORMERLY VENCOR, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 10--LITIGATION (CONTINUED)
ments during the first, second and third calendar quarters of 1997 which mis-
represented and understated the impact that changes in Medicare reimbursement
policies would have on the Company's core services and profitability. The com-
plaint further alleges that the Company issued a series of materially false
statements concerning the purportedly successful integration of its recent ac-
quisitions and prospective earnings per share for 1997 and 1998 which the Com-
pany knew lacked any reasonable basis and were not being achieved. The suit
seeks damages in an amount to be proven at trial, pre-judgment and post-judg-
ment interest, reasonable attorneys' fees, expert witness fees and other costs,
and any extraordinary equitable and/or injunctive relief permitted by law or
equity to assure that the plaintiff has an effective remedy. The Company be-
lieves that the allegations in the complaint are without merit and intends to
defend vigorously this action.
On June 19, 1997, a class action lawsuit was filed in the United States Dis-
trict Court for the District of Nevada on behalf of a class consisting of all
persons who sold shares of Transitional common stock during the period from
February 26, 1997 through May 4, 1997, inclusive. The complaint alleges that
Transitional purchased shares of its common stock from members of the investing
public after it had received a written offer to acquire all of Transitional's
common stock and without making the required disclosure that such an offer had
been made. The complaint further alleges that defendants disclosed that there
were "expressions of interest" in acquiring Transitional when, in fact, at that
time, the negotiations had reached an advanced stage with actual firm offers at
substantial premiums to the trading price of Transitional's stock having been
made which were actively being considered by Transitional's Board of Directors.
The complaint asserts claims pursuant to Sections 10(b) and 20(a) of the Secu-
rities Exchange Act of 1934, as amended, and common law principles of negligent
misrepresentation and names as defendants Transitional as well as certain for-
mer senior executives and directors of Transitional. The plaintiff seeks class
certification, unspecified damages, attorneys' fees and costs. The Company has
filed a motion to dismiss and is awaiting the court's decision. The Company is
vigorously defending this action.
The Company's subsidiary, American X-Rays, Inc. ("AXR"), is the defendant in a
qui tam lawsuit which was filed in the United States District Court for the
Eastern District of Arkansas and served on the Company on July 7, 1997. The
United States Department of Justice intervened in the suit which was brought
under the Federal Civil False Claims Act. AXR provided portable X-ray services
to nursing facilities (including those operated by the Company) and other
healthcare providers. The Company acquired an interest in AXR when The
Hillhaven Corporation was merged into the Company in September 1995 and pur-
chased the remaining interest in AXR in February 1996. The suit alleges that
AXR submitted false claims to the Medicare and Medicaid programs. In conjunc-
tion with the qui tam action, the United States Attorney's Office for the East-
ern District of Arkansas also is conducting a criminal investigation into the
allegations contained in the qui tam complaint. The suit seeks damages in an
amount of not less than $1,000,000, treble damages and civil penalties. The
Company is cooperating fully in the investigation.
On June 6, 1997, Transitional announced that it had been advised that it is a
target of a Federal grand jury investigation being conducted by the United
States Attorney's Office for the District of Massachusetts (the "USAO") arising
from activities of Transitional's formerly owned dialysis business. The inves-
tigation involves an alleged illegal arrangement in the form of a partnership
which existed from June 1987 to June 1992 between Damon Corporation and Transi-
tional. Transitional spun off its dialysis business, now called Vivra Incorpo-
rated, on September 1, 1989. In January 1998, the Company was informed that no
criminal charges would be filed against the Company. The Company has been in-
formed that the USAO intends to file a civil action against Transitional relat-
ing to the partnership's former business. If such a suit is filed, the Company
will vigorously defend the action.
NOTE 11--ATRIA MERGER
On April 20, 1998, Atria announced that it entered into a definitive merger
agreement with Kapson Senior Quarters Corp. ("Kapson"), an affiliate of Lazard
Freres Real Estate Investors LLC, under which Kapson will acquire Atria. Under
the terms of the merger agreement, a subsidiary of Kapson will merge into Atria
and the public stockholders of Atria will receive $20.25 per share in cash. The
Company, which currently owns 10 million shares of Atria common stock, will
also receive $20.25 per share in cash for approximately 88% of its Atria common
stock (valued at approximately $177.5 million). The Company will retain its re-
maining shares and will beneficially own 10% of Atria following the merger. In
consideration of its continuing investment, the Company will retain a seat on
Atria's Board of Directors and is entitled to
F-31
<PAGE>
VENTAS, INC.
(FORMERLY VENCOR, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 11--ATRIA MERGER (CONTINUED)
certain registration rights with respect to its retained shares of Atria common
stock. The merger is subject to customary conditions, including approval of
Atria's stockholders and certain regulatory approvals. Proceeds from the trans-
action will be used to reduce long-term debt.
NOTE 12--REORGANIZATION TRANSACTIONS
On April 30, 1998, the Company completed its internal reorganization and the
refinancing of all of its long-term debt necessary to complete the spin-off of
its healthcare operations through the distribution of the common stock of New
Vencor. The previously announced distribution of one share of New Vencor common
stock for each share of the Company's common stock was made on May 1, 1998. The
Company retained substantially all of its real property, buildings and other
improvements (primarily long-term hospitals and nursing centers), and leases
these facilities to New Vencor. In connection with the Reorganization Transac-
tions, the Company was renamed Ventas, Inc.
Following the Reorganization Transactions, the Company will operate as a self-
administered, self-managed realty company. The Company expects that it will be
taxed as a real estate investment trust for Federal income tax purposes com-
mencing on January 1, 1999. The Company's properties include 46 long-term acute
care hospitals and 218 nursing centers in 36 states. The Company's primary
source of revenue will be the annual base rent payments under the leases with
New Vencor.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of Transitional Hospitals Corpora-
tion
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Tran-
sitional Hospitals Corporation (formerly Community Psychiatric Centers) and its
subsidiaries at November 30, 1996 and 1995 and the results of their operations
and their cash flows for the years then ended in conformity with generally ac-
cepted accounting principles. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
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 dis-
closures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall finan-
cial statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
As discussed in Note 4 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standard No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in
1995.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Los Angeles, California
January 24, 1997
F-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Transitional Hospitals Corporation
We have audited the accompanying consolidated statements of operations, stock-
holders' equity, cash flows and related financial statement schedule of Transi-
tional Hospitals Corporation (formerly Community Psychiatric Centers) for the
year ended November 30, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audit provides a reasonable basis for our opin-
ion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of Transitional Hos-
pitals Corporation's (formerly Community Psychiatric Centers) operations and
their cash flows for the year ended November 30, 1994, in conformity with gen-
erally accepted accounting principles. Also, in our opinion, the related finan-
cial statement schedule as it relates to the year ended November 30, 1994, when
considered in relation to the basic financial statements taken as a whole, pre-
sents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Los Angeles, California
January 27, 1995
F-34
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
------------------
NOVEMBER 30,
------------------
1996 1995
(In thousands, except par value data) -------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 84,313 $ 17,263
Short-term investments.................................. 16,777 7,601
Accounts receivable, less allowance for doubtful
accounts (1996--$21,448 and 1995--$24,682)............. 55,557 113,686
Receivable from third parties under reimbursement
contracts.............................................. - 4,550
Prepaid expenses and other current assets............... 14,784 14,756
Property held for sale.................................. 13,393 15,512
Refundable income taxes................................. 15,722 21,028
Deferred income taxes................................... 5,697 951
<CAPTION>
-------- --------
<S> <C> <C>
Total current assets.................................. 206,243 195,347
Property, buildings and equipment, at cost, less
allowances for depreciation.............................. 153,933 354,192
Other assets:
Investment in affiliate................................. 69,859 -
Refundable income taxes................................. 9,275 -
Deferred income taxes................................... 6,691 21,334
Other assets............................................ 19,889 24,862
<CAPTION>
-------- --------
<S> <C> <C>
105,714 46,196
Excess of investment in subsidiaries over net assets
acquired, less accumulated amortization (1996--$62 and
1995--$2,351)............................................ 57 8,890
<CAPTION>
-------- --------
<S> <C> <C>
$465,947 $604,625
<CAPTION>
======== ========
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 9,136 $ 18,194
Accrued payroll and other expenses...................... 15,549 34,949
Income taxes payable.................................... 131 4,425
Payable to third parties under reimbursement contracts.. 13,954 -
Other accrued liabilities............................... 17,796 3,693
Current maturities on long-term debt.................... 8,467 18,764
<CAPTION>
-------- --------
<S> <C> <C>
Total current liabilities............................. 65,033 80,025
Long-term debt, exclusive of current maturities........... 14,858 84,883
Deferred credits:
Deferred income taxes and other liabilities............. 3,857 19,678
Commitments and contingencies
Obligations to be settled in common stock................. - 21,250
Stockholders' equity:
Preferred stock, par value $1 a share; authorized 2,000
shares; none issued.................................... - -
Common stock, par value $1 a share; authorized 100,000
shares; issued 46,856 in 1996 and 1995................. 46,856 46,856
Additional paid-in capital.............................. 56,657 62,096
Unrealized gains on investments in debt securities...... 163 -
Retained earnings....................................... 321,710 327,062
Foreign currency translation adjustment................. - (2,943)
<CAPTION>
-------- --------
<S> <C> <C>
425,386 433,071
Less cost of treasury stock--4,988 shares in 1996 and
3,166 shares in 1995..................................... (43,187) (34,282)
<CAPTION>
-------- --------
<S> <C> <C>
382,199 398,789
<CAPTION>
-------- --------
<S> <C> <C>
$465,947 $604,625
<CAPTION>
======== ========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------
YEAR ENDED NOVEMBER 30,
----------------------------
1996 1995 1994
(In thousands, except per share amounts) -------- -------- --------
<S> <C> <C> <C>
Revenues:
Net operating revenues........................... $503,266 $514,991 $423,955
Investment and other income...................... 3,928 2,513 3,785
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
507,194 517,504 427,740
Costs and expenses:
Operating expense................................ 402,686 393,146 328,508
General and administrative expense............... 33,029 39,444 33,775
Bad debt expense................................. 20,101 28,732 26,966
Depreciation and amortization.................... 22,364 23,344 18,649
Interest expense................................. 3,889 5,256 3,545
Non-recurring transactions, net.................. 33,524 94,116 (875)
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
515,593 584,038 410,568
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Income (loss) before income taxes.................. (8,399) (66,534) 17,172
Income taxes (benefit)............................. (3,047) (24,902) 6,952
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net income (loss).................................. $ (5,352) $(41,632) $ 10,220
<CAPTION>
======== ======== ========
<S> <C> <C> <C>
Net income (loss) per common share................. $ (0.12) $ (0.95) $ 0.24
<CAPTION>
======== ======== ========
<S> <C> <C> <C>
Average number of common shares.................... 43,942 43,642 43,465
<CAPTION>
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
AMOUNTS DUE
FROM FOREIGN
ADDITIONAL EMPLOYEES CURRENCY
COMMON PAID-IN FOR EXERCISE OF UNREALIZED RETAINED TRANSLATION TREASURY STOCK
(In thousands, STOCK CAPITAL STOCK OPTIONS GAINS EARNINGS ADJUSTMENT SHARES AMOUNT
except per share amounts) ------- ----------- ---------------- ----------- --------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30,
1993.................... $46,856 $65,341 $(35) $ - $359,345 $(3,815) (3,763) $(45,200)
Exercise of employees'
stock options.......... (4,052) 498 9,735
Income tax benefits
derived from employee
stock option
transactions........... 68
Net income for the
year................... 10,220
Dividends paid, $.01 per
common share........... (434)
Foreign currency
translation
adjustment............. 2,010
<CAPTION>
------- ----------- ---------------- ----------- --------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30,
1994.................... 46,856 61,357 (35) - 369,131 (1,805) (3,265) (35,465)
Exercise of employees'
stock options.......... (206) 102 1,235
Expiration of employee
stock options.......... 17 35 (3) (52)
Income tax benefits
derived from employee
stock option
transactions........... 928
Net loss for the year... (41,632)
Dividends paid, $.01 per
common share........... (437)
Foreign currency
translation
adjustment............. (1,138)
<CAPTION>
------- ----------- ---------------- ----------- --------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30,
1995.................... 46,856 62,096 - - 327,062 (2,943) (3,166) (34,282)
Exercise of employees'
stock options.......... (36) 16 186
Issuance of shares
related to settlement
of shareholder
litigation............. (5,482) 2,342 26,732
Stock repurchased....... (4,180) (35,823)
Income tax benefits
derived from employee
stock option
transactions........... 79
Net loss for the year... (5,352)
Foreign currency
translation
adjustment............. 2,943
Unrealized gains from
changes in market value
of investments in debt
securities, net of
income taxes........... - - 163
<CAPTION>
------- ----------- ---------------- ----------- --------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30,
1996.................... $46,856 $56,657 $ - $163 $321,710 $ - (4,988) $(43,187)
<CAPTION>
======= =========== ================ =========== ========= ============ ========= ========
</TABLE>
See notes to consolidated financial statements.
F-37
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------
YEAR ENDED NOVEMBER 30,
-----------------------------
1996 1995 1994
(In thousands) --------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ (5,352) $(41,632) $ 10,220
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 22,364 23,344 18,649
Provision for uncollectible accounts........ 20,101 28,732 26,966
Nonrecurring transactions................... 33,378 70,446 (2,845)
Other....................................... (821) (3,033) (1,800)
Changes in assets and liabilities, exclusive
of business acquisitions and disposals:
Accounts receivable......................... (17,570) (39,290) (50,070)
Receivable/payable to third parties under
reimbursement contracts.................... 9,529 (10,352) 812
Prepaid expenses and other current assets... (6,259) 1,615 (1,837)
Accounts payable and accrued expenses....... (1,506) 4,340 10,438
Other accrued liabilities................... (5,626) 154 (942)
Dividends payable........................... - - (111)
Income taxes................................ (3,252) (34,435) 9,709
<CAPTION>
--------- -------- --------
<S> <C> <C> <C>
Net cash provided from (used for)
operations............................... 44,986 (111) 19,189
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities..... - 39,195 41,982
Dividends paid................................ - (437) (434)
Purchase of treasury shares................... (35,823) - -
Payments of deferred compensation............. (162) (634) (162)
Net proceeds from exercise of stock options... 150 1,029 5,683
Payments on long-term debt.................... (80,341) (18,859) (1,402)
<CAPTION>
--------- -------- --------
<S> <C> <C> <C>
Net cash provided from (used for)
financing activities..................... (116,176) 20,294 45,667
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short-term
investments.................................. 7,601 16,884 1,934
Purchases of short-term investments........... (16,614) (10,729) (4,758)
Payment received on notes..................... 2,151 4,591 3,437
Purchase of property, buildings and
equipment.................................... (35,419) (40,139) (48,760)
Investment in pre-opening costs............... (3,177) (2,899) (4,225)
Proceeds from sale of psychiatric hospitals... 186,643 5,289 7,393
Loans made to officers........................ (825) (4,055) (1,242)
Payment for business acquisitions:
Property, buildings and equipment........... (320) (8,604) (4,787)
Excess of purchase price over fair value of
assets acquired............................ (1,800) (521) (1,225)
<CAPTION>
--------- -------- --------
<S> <C> <C> <C>
Net cash provided from (used for)
investing activities..................... 138,240 (40,183) (52,233)
<CAPTION>
--------- -------- --------
<S> <C> <C> <C>
Net increase (decrease) in cash and cash
equivalents.................................... 67,050 (20,000) 12,623
Beginning cash and cash equivalents............. 17,263 37,263 24,640
<CAPTION>
--------- -------- --------
<S> <C> <C> <C>
Ending cash and cash equivalents................ $ 84,313 $ 17,263 $ 37,263
<CAPTION>
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-38
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Transitional Hos-
pitals Corporation (formerly Community Psychiatric Centers) and its subsidiar-
ies (THY or the Company). All material intercompany transactions have been
eliminated in the accompanying consolidated financial statements.
The Company provides long-term acute care services to patients suffering from
long-term complex medical problems in the United States. As of November 30,
1996, THY operated 14 long-term care hospitals and two satellite facilities
with a total of 1,340 beds, located in 12 states. THY also provides respiratory
therapy services to other healthcare providers.
In June of 1996, the Company sold its United Kingdom psychiatric operations
(see Note 2). In November 1996, the company sold its U.S. psychiatric opera-
tions to Behavioral Healthcare Corporation ("BHC") for $60 million in cash and
stock valued at approximately $70 million (see Note 3).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Ac-
tual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Those highly liquid as-
sets with a maturity of more than three months are classified as short-term in-
vestments.
Short-Term Investments
The Company has investments in debt securities which are classified as avail-
able for sale. These investments consist primarily of U.S. corporate securities
and have various maturity dates which do not exceed one year. Securities clas-
sified as available-for-sale are carried at fair value with unrealized gains,
net of tax, reported in a separate component of stockholders' equity. There
were no unrealized losses on any investments held at November 30, 1996. Real-
ized gains and losses are included in investment income and are immaterial for
all years presented.
Property, Buildings and Equipment
Depreciation is computed on the straight-line method based on the estimated
useful lives of fixed assets of 31.5 to 40 years for buildings and three to ten
years for furniture and equipment.
Preopening Costs
Costs incurred prior to the opening of new facilities are deferred and amor-
tized on a straight-line basis over a five-year period.
Capitalization of Interest
Interest incurred in connection with development and construction of hospitals
is capitalized as part of the related property.
Net Operating Revenues
Net operating revenues include amounts for hospital services estimated by man-
agement to be reimbursable by federal and state government programs (Medicare,
Medicaid and CHAMPUS); managed care programs (managed care companies, health
maintenance organizations and preferred provider organizations) and private pay
payors (private sources and insurance companies which base reimbursement on the
Company's price schedule).
F-39
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table summarizes the percent of net operating revenues generated
from all payors.
<TABLE>
<CAPTION>
----------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Medicare...................................................... 47% 37% 28%
Medicaid...................................................... 9 11 13
CHAMPUS....................................................... 3 4 4
<CAPTION>
---- ---- ----
<S> <C> <C> <C>
Total Government............................................ 59 52 45
Managed Care.................................................. 24 27 33
Private pay and other......................................... 17 21 22
<CAPTION>
---- ---- ----
<S> <C> <C> <C>
Total....................................................... 100% 100% 100%
<CAPTION>
==== ==== ====
</TABLE>
Amounts received are generally less than the established billing rates of the
Company and the difference is reported as a contractual allowance and deducted
from operating revenues. Final determination of amounts earned for hospital
services is subject to audit by the payors. In the opinion of management, ade-
quate provision has been made for any adjustments that may result from such au-
dits. Differences between estimated provisions and final settlement are re-
flected as charges and credits to operating revenues in the year the audit re-
ports are finalized. In the current year, the Company received approximately
$5.6 million in excess of recorded amounts related to prior year Medicare set-
tlements. These amounts are included in operating revenues.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant con-
centrations of credit consist principally of cash and short-term investments
and receivables from government programs.
The Company maintains cash equivalents and short-term investments with various
financial institutions. The Company's policy is designed to limit exposure to
any one institution. The Company performs periodic evaluations of the relative
credit standing of those financial institutions that are considered in the
Company's investment strategy. The Company and management do not believe that
there are any significant credit risks associated with receivables from govern-
mental programs. Negotiated and private receivables consist of receivables from
various payors, including individuals involved in diverse activities, subject
to differing economic conditions, and do not represent any concentrated credit
risks to the Company. Furthermore, management continually monitors and adjusts
its reserves and allowances associated with these receivables.
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, except
when shares held in the treasury are issued. The difference between the cost of
the treasury stock and the option price is charged or credited to additional
paid-in capital. No charges or credits are made to earnings with respect to op-
tions granted or exercised. Income tax benefits derived from 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 (Loss) Per Share
Earnings (loss) per share have been computed based upon the weighted average
number of shares of common stock outstanding during the year. Dilutive common
stock equivalents have not been included in the computation of earnings per
share because the aggregate potential dilution resulting therefrom is less than
3%.
Translation of Foreign Currencies
The Company sold its United Kingdom psychiatric hospitals in June of 1996. For
periods prior to the sale, the financial statements of the Company's foreign
subsidiaries have been translated into U.S. dollars in accordance with FASB
Statement No. 52. All balance sheet accounts were translated at year-end ex-
change rates. Statements of earnings amounts have been translated at the aver-
age exchange rate for the applicable years. The resulting currency translation
adjustments were made directly to a separate component of Stockholders' Equity.
The effect on the statement of earnings of translation gains and losses is in-
significant for all years presented.
F-40
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation", which becomes
effective for fiscal years beginning after December 15, 1995. FAS 123 estab-
lishes new financial accounting and reporting standards for stock-based compen-
sation plans. Entities will be allowed to measure compensation expense for
stock-based compensation under FAS 123 or APB Opinion No. 25, "Accounting for
Stock Issued to Employees". Entities electing to remain with the accounting in
APB Opinion No. 25 will be required to make pro forma disclosures of net income
and earnings per share as if the provisions of FAS 123 had been applied. The
Company is in the process of evaluating the Statement. The potential impact on
the Company of adopting the new standard has not been quantified at this time.
This Company must adopt FAS 123 in fiscal year 1997.
Reclassifications
Certain amounts have been reclassified to conform with 1996 presentations.
NOTE 2--NON-RECURRING TRANSACTIONS
On November 30, 1996, the Company sold its U.S. psychiatric operations to BHC
for $60 million in cash and stock valued at approximately $70 million. THY will
have a 44.2% common equity interest in future BHC earnings. BHC is headquar-
tered in Nashville, Tennessee, and is now the second largest psychiatric hospi-
tal network in the country, with 38 hospitals and 4 residential treatment cen-
ters in 18 states and Puerto Rico, comprising approximately 3,500 beds. With
the combination of these hospitals, BHC is a leading provider of
psychiatric/behavioral services for adults, adolescents and children with acute
psychiatric, emotional, substance abuse and behavioral disorders.
The Company also announced the closure of Southwind Hospital, a psychiatric fa-
cility in Oklahoma City, Oklahoma in November of 1996 due to poor financial
performance. Net operating revenue and net operating income or (loss) for
Southwind totaled $4.7 million and $(.8) million for fiscal year 1996, $8.1
million and $(.1) million for fiscal year 1995 and $7.1 million and $.8 million
for fiscal year 1994. The hospital is being held for sale. The Company has
reached an agreement to settle the whistleblower suit related to Southwind with
the United States Government for $750,000 (see Note 14).
The effects on income of the above described transactions are classified as
non-recurring transactions for fiscal year 1996 and include the following: i)
$62.0 million loss on the sale of the psychiatric operations to BHC, ii) $14.4
million of expenses related to the transaction that consist of $6.7 million of
severance costs and payments pursuant to employment contracts, $4.0 million of
transaction costs related primarily to legal and investment banking services,
and $3.7 million related to legal expenses and settlement costs for the
Southwind whistleblower suit (see Note 14) and one other lawsuit related spe-
cifically to the U.S. psychiatric division, iii) $2.1 million for a settlement
of a claim from a former Chairman of Community Psychiatric Centers related to
his contract with the Company (see further discussion in Note 11), iv) impair-
ment charges of $6.7 million to writedown the property value of Southwind and
certain other closed hospitals to their current estimated fair market value,
and v) $1.7 million related to termination benefits and other exit costs re-
lated to the closure of Southwind. Approximately 150 employees were terminated
due to the Southwind closure and approximately 80 corporate employees were ter-
minated due to the sale of the U.S. psychiatric division. As of November 30,
1996, approximately $7.8 million is included in other accrued liabilities for
severance and other exit costs related to the corporate office and Southwind
Hospital.
During the first three quarters of 1996, the Company recorded net restructuring
charges of $2.1 million for termination benefits and other exit costs related
to the closure of four U.S. psychiatric division hospitals. Approximately 280
employees were terminated as a result of the closure of these hospitals. Two of
these properties were sold to BHC and two are being held for sale.
On June 21, 1996, the Company sold its United Kingdom psychiatric hospitals
("Priory Hospitals Group" or "PHG") to Foray 911 Limited ("Foray"), a new cor-
poration formed by Mercury Development Capital, a division of Mercury Asset
Management plc ("Mercury"). PHG operates 15 freestanding acute psychiatric hos-
pitals and chemical dependency facilities, including one 42 bed hospital that
was 50% owned by PHG. Based on the number of licensed hospital beds, PHG is the
leading commercial provider of psychiatric services in the United Kingdom where
psychiatric services are generally
F-41
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--NON-RECURRING TRANSACTIONS (CONTINUED)
available to residents without charge from government-owned NHS hospitals. The
total purchase price for the PHG facilities was approximately $135 million,
which includes a $4.6 million subordinated note due in 2009 issued by Foray.
Included in non-recurring transactions is the net gain on the sale of these fa-
cilities of $55.5 million. Transaction expenses related to legal, investment
banking and severance costs totaled approximately $4.8 million and are re-
flected in the $55.5 million gain.
During fiscal year 1995, the Company recorded impairment charges related to the
adoption of FASB Statement 121 (see Note 4) and settlement costs related to
shareholder lawsuits filed in 1991 (See Note 14). Each matter resulted in
charges of $46.0 million, for a total of $92.0 million.
Effective November 30, 1995, the Company recorded a restructuring charge total-
ing $4.6 million ($2.8 million after tax), determined in accordance with the
provisions of the January 1995 Financial Accounting Standards Board Emerging
Issues Task Force Consensus No. 94-3 "Liability Recognition for Certain Em-
ployee Termination Benefits and Other Costs to Exit an Activity (including Cer-
tain Costs incurred in a Restructuring)", ("EITF 94-3"), in connection with the
decision to close six psychiatric facilities and three regional offices. EITF
94-3 requires the accrual of certain employee termination costs and costs re-
sulting from a plan to exit an activity that are not associated with or that do
not benefit activities that will continue and prohibits accrual of expected fu-
ture operating losses of the activity exited. The charge comprised $3.4 million
for employee termination benefits related to hospital operations and overhead
personnel and $1.2 million for non-cancelable operating leases and other exit
costs. Approximately 314 hospital employees and 65 corporate and regional em-
ployees were terminated. Amounts charged against the reserve approximated
amounts accrued. Of the six closed hospitals, three have been sold, two were
fully converted to THY hospitals, and one was exchanged for a similar building
held by another healthcare provider and was converted into a satellite hospital
of a THY facility in October 1996.
Effective May 31, 1995, the Company recorded a restructuring credit totaling
$2.5 million ($1.5 million after tax) from the resolution of previously re-
structured psychiatric assets. The restructuring credit resulted from divesting
two restructured properties at higher prices than the 1993 writedown of the fa-
cilities anticipated and the Company's success in collecting accounts receiv-
able balances that were reserved for as part of the February 28, 1994 restruc-
turing charge.
NOTE 3--INVESTMENT IN AFFILIATE
On November 30, 1996, THY consummated the sale of effectively all of its psy-
chiatric operations in the U.S. and Puerto Rico (with certain limited excep-
tions set forth below) to BHC. Prior to such sale, BHC owned 17 psychiatric
hospitals. At the November 30 closing, the Company transferred title to 22
freestanding psychiatric hospitals, a joint venture interest in another psychi-
atric operation, an outpatient psychiatric center, two closed hospitals and va-
cant land located at three sites in California. Two other operating hospitals
and a joint venture interest (the "Escrowed Assets") are to be transferred to
BHC upon receipt of necessary regulatory approvals, which management believes
are perfunctory. Additionally, effective November 30, 1996, BHC and the Company
entered into a management agreement which grants BHC, with limited protective
rights retained by THY, exclusive and complete responsibility and discretion in
the management and control of the Escrowed Assets as well as the economic bene-
fit thereof. Accordingly, for accounting purposes, the sale of the Escrowed As-
sets has been recorded with an effective date of November 30, 1996. At the ini-
tial closing, the Company received $60,000,000 in cash, 2,214,400 shares of BHC
Common Stock, 5,072,579 shares of BHC Series A Preferred Stock and 46,902
shares of BHC Series B Preferred Stock. In general, the Series A Preferred
Stock converts into BHC Common Stock on a share for share basis upon sales and
dispositions of the Series A Preferred Stock by the Company and under certain
other limited circumstances. Upon receipt of the necessary regulatory approvals
related to the Escrowed Assets, the Company will receive an additional
3,785,600 shares of BHC Common Stock, an additional 578,844 shares of BHC Se-
ries A Preferred Stock and 3,350 additional shares of BHC Series B Preferred
Stock. Upon distribution of all shares, the Company will have a common equity
interest amounting to 44.2% of BHC's Common Stock outstanding. An agreement has
been entered into between BHC and the Company requiring THY to vote all shares
in excess of 20% of BHC's outstanding Common Stock as instructed by a majority
of BHC's Board of Directors which includes three members of THY's Board of Di-
rectors. THY's Chairman of the Board and Chief Executive Officer, Richard
Conte, will serve as BHC's Chairman of the Board. THY's common equity interest
in future BHC earnings will be recorded on the equity method of accounting. In
determining the amount of the consideration to be paid to the Company, the par-
ties compared their respective EBITDAs (Earnings before interest, taxes, depre-
ciation, and amortization) and used multiples generally accorded to publicly-
traded psychiatric hospitals. Based on this analysis, the total value of the
equity interest in BHC was determined to be approximately $70 million.
F-42
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--IMPAIRMENT OF ASSETS
In the fourth quarter of fiscal year 1995, the Company adopted the provisions
of FASB Statement 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" ("FAS 121"). The statement requires
impairment losses to be recognized for long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows are
not sufficient to recover the assets' carrying amount. The impairment loss is
measured by comparing the fair value of the asset to its carrying amount. FAS
121 also requires that assets to be disposed of be written down to fair value
less selling costs. Based on a comparison of the recorded values of long-lived
assets (defined as land, buildings, fixed assets and goodwill) to the expected
future cash flows to be generated by the assets of three U.S. Psychiatric fa-
cilities that were closed in November 1995 as well as three U.S. Psychiatric
facilities which experienced declines in operating performance in fiscal 1995,
and after applying the principles of measurement contained in FAS 121, the Com-
pany recorded an asset impairment charge of approximately $26.5 million in fis-
cal 1995.
Using the same principles as described above, the Company recorded an asset im-
pairment charge of approximately $5.3 million on land that was being held for
sale. The closed facilities as well as the land held for sale were classified
as assets held for sale with a carrying value of $13.7 million after the im-
pairment writedown as of November 30, 1995. All assets held for sale pertain to
the U.S. Psychiatric Division. All of these assets, with the exception of three
closed hospitals, were sold in fiscal 1996.
The Company completed an installation of a new computer system in the first
quarter of 1995. As several of the promised applications did not function as
specified, an impairment loss of approximately $8.1 million ($6.8 million re-
lated to the U.S. Psychiatric Division and $1.3 million related to THY) was re-
corded in the fourth quarter of 1995 to write down a portion of the total cost
of the system. The Company also shortened the estimated useful life of the sys-
tem to two years in anticipation of implementing an alternative system.
In November of 1995, the Company closed Harvard Medical Limited, a patient li-
aison business in West Germany due to declines in operating performance in fis-
cal 1995. Based on these factors, the Company recorded an impairment loss of
$4.1 million to write off the goodwill related to this Company.
In the fourth quarter of 1996, the Company recorded impairment charges totaling
$6.7 million related to the writedown of Southwind psychiatric hospital, which
was closed in December 1996 and two other closed hospitals, one of which was
sold in November 1996.
NOTE 5--ACQUISITIONS
During 1996, the Company exchanged a closed psychiatric hospital with a book
value of $7.3 million for a closed acute care hospital and $.9 million. The
hospital acquired was converted into a THY satellite hospital which opened in
October 1996. No gain or loss was recorded on the exchange.
During 1995, the Company purchased for $5.8 million, the land, building, and
fixed assets for a THY facility that had been managed by THY since May of 1994.
All other acquisitions in 1994 to 1996 consisted of psychiatric entities which
were sold in fiscal year 1996.
NOTE 6--PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment are summarized as follows:
<TABLE>
<CAPTION>
-------------------
NOVEMBER 30,
-------------------
1996 1995
(In thousands) -------- ---------
<S> <C> <C>
Land..................................................... $ 18,585 $ 51,598
Buildings and improvements............................... 102,092 300,388
Furniture, fixtures and equipment........................ 61,914 92,933
Construction in progress (estimated additional cost to
complete at November 30, 1996--$12.0 million)........... 2,496 12,599
<CAPTION>
-------- ---------
<S> <C> <C>
185,087 457,518
Less accumulated depreciation............................ (31,154) (103,326)
<CAPTION>
-------- ---------
<S> <C> <C>
$153,933 $ 354,192
<CAPTION>
======== =========
</TABLE>
F-43
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--PROPERTY, BUILDINGS AND EQUIPMENT (CONTINUED)
The Company incurred interest expense of $4.9 million, $7.2 million, and $4.8
million in 1996, 1995, and 1994, respectively, including $1.0 million, $1.9
million, and $1.3 million which was capitalized in 1996, 1995, and 1994, re-
spectively.
Interest paid was $5.8 million, $7.3 million and $4.1 million during 1996,
1995, and 1994, respectively.
NOTE 7--INCOME TAXES
The Company accounts for income taxes under the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes". Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of November 30, 1996 and November 30,
1995, are as follows (in thousands):
<TABLE>
<CAPTION>
----------------
1996 1995
------- -------
<S> <C> <C>
Deferred tax liabilities:
Excess tax depreciation..................................... $ 5,389 $23,425
Disposition of subsidiary................................... 4,337 -
Other....................................................... 1,543 2,018
Sale of hospitals........................................... (4,612) -
Restructuring charge........................................ (3,059) (7,784)
<CAPTION>
------- -------
<S> <C> <C>
Total deferred tax liabilities.......................... $ 3,598 $17,659
<CAPTION>
======= =======
<S> <C> <C>
Deferred tax assets:
Current:
Excess of book over tax bad debt provision................ $ 3,485 $ 701
Insurance................................................. 2,057 -
Other..................................................... 155 250
<CAPTION>
------- -------
<S> <C> <C>
Total current deferred tax assets....................... $ 5,697 $ 951
<CAPTION>
======= =======
<S> <C> <C>
Non-current:
Impairment loss........................................... $ 2,996 $18,108
Net operating loss........................................ 9,833 5,952
Sale of hospitals......................................... 701 -
Restructuring charge...................................... 452 1,094
Disposition of subsidiary................................. (487) -
Excess tax depreciation................................... (522) (1,649)
Other..................................................... 19 (9)
Net operating loss valuation reserve...................... (6,301) (2,162)
<CAPTION>
------- -------
<S> <C> <C>
Total non-current deferred tax assets................... $ 6,691 $21,334
<CAPTION>
======= =======
</TABLE>
Deferred tax liabilities and assets by tax jurisdictions are as follows as of
November 30, 1996 (in thousands):
<TABLE>
<CAPTION>
-------------------------------
DEFERRED DEFERRED TAX
TAX ASSETS LIABILITIES
--------------- ---------------
NON- NON-
CURRENT CURRENT CURRENT CURRENT
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Federal Income Taxes (consolidated)....... $4,932 $2,533 $ - $3,598
State.......................................... 765 4,158 - -
<CAPTION>
------- ------- ------- -------
<S> <C> <C> <C> <C>
$5,697 $6,691 $ - $3,598
<CAPTION>
======= ======= ======= =======
</TABLE>
F-44
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--INCOME TAXES (CONTINUED)
Income before income taxes includes the following components:
<TABLE>
<CAPTION>
---------------------------
1996 1995 1994
(In thousands) -------- -------- -------
<S> <C> <C> <C> <C>
Pretax income (loss):
United States................................ $(15,100) $(79,772) $ 7,846
Foreign...................................... 6,701 13,238 9,326
<CAPTION>
-------- -------- -------
<S> <C> <C> <C> <C>
$ (8,399) $(66,534) $17,172
<CAPTION>
======== ======== =======
Provision for income taxes consists of the following:
--------------------------------
1996 1995 1994
(In thousands) -------- -------- -------
<S> <C> <C> <C> <C>
Current:
Federal...................................... $ (3,409) $(14,931) $ 1,497
Foreign...................................... 2,418 4,580 1,996
State........................................ (223) (1,507) 1,614
<CAPTION>
-------- -------- -------
<S> <C> <C> <C> <C>
Total current.............................. $ (1,214) $(11,858) $ 5,107
Deferred:
Federal...................................... $ (2,558) $ (9,992) $ 1,295
Foreign...................................... 4 331 1,364
State........................................ 721 (3,383) (814)
<CAPTION>
-------- -------- -------
<S> <C> <C> <C> <C>
Total deferred............................. (1,833) (13,044) 1,845
<CAPTION>
-------- -------- -------
<S> <C> <C> <C> <C>
$ (3,047) $(24,902) $ 6,952
<CAPTION>
======== ======== =======
</TABLE>
Reconciliation of federal statutory rate to effective income tax rate follows:
<TABLE>
<CAPTION>
-----------------------------------------------------
1996 1995 1994
---------------- ----------------- --------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(Amount in thousands) ------- ------- -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory
rates.................. $(2,855) (34)% $(22,622) (34)% $5,838 34%
State income taxes, net
of federal taxes
benefit (charge)....... 329 4 (3,227) (5) 528 3
Goodwill................ (2,428) (29) - - - -
Non-deductible
expenses............... 1,170 14 - - - -
Other................... 737 9 947 2 586 4
<CAPTION>
------- ------- -------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
$(3,047) (36)% $(24,902) (37)% $6,952 41%
<CAPTION>
======= ======= ======== ======= ====== =======
</TABLE>
The Company received income tax refunds (net of income taxes paid of $5.7 mil-
lion) of $1.3 million in 1996. The Company made income tax payments of $8.0
million in 1995. The Company received income tax refunds (net of income taxes
paid of $4.5 million) of $2.3 million in 1994.
At November 30, 1996, the Company has deferred tax assets totalling $9.8 mil-
lion related to State net operating loss carryforwards which expire in 1997
through 2012. Deferred tax assets related to State net operating loss
carryforwards increased $3.9 million in the current year primarily due to the
loss recorded on the sale of the U.S. psychiatric hospitals. The valuation re-
serve was increased in fiscal 1996 to reserve for these losses as it is likely,
at this time, that the Company will not receive future tax benefits therefrom.
In fiscal year 1995, the Company decreased the valuation reserve by $.2 million
for THY State net operating loss carryforwards that were realized in fiscal
1995 and for those that are expected to be realized in future years.
F-45
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LONG-TERM DEBT
Long term debt is summarized as follows:
<TABLE>
<CAPTION>
----------------
1996 1995
(In thousands) ------- --------
<S> <C> <C>
Borrowings under revolving credit agreements.................. $16,800 $ 90,326
5 3/4% Convertible Subordinated Debentures due 2012,
convertible into Common Stock of the Company at $35.89 per
share, may be redeemed at 103.75% of face value as of
October 15, 1992 declining annually to 100% of face value on
or after October 15, 1999.................................... 6,511 6,885
8 3/4% Subordinated Guaranteed Debentures due 1996............ - 4,980
Other......................................................... 14 1,456
<CAPTION>
------- --------
<S> <C> <C>
23,325 103,647
Less current portion.......................................... 8,467 18,764
<CAPTION>
------- --------
<S> <C> <C>
$14,858 $ 84,883
<CAPTION>
======= ========
</TABLE>
During May 1994, the Company and Bank of America National Trust and Savings As-
sociation entered into a credit agreement whereby THY was able to borrow, repay
and reborrow up to $50 million through February 28, 1997. The Company repaid
$50 million which was outstanding through June 21, 1996 under this agreement.
During September 1993, the Company entered into a credit agreement with Bank of
America National Trust and Savings Association whereby the Company was able to
borrow up to $25 million through November 30, 1995 (the revolving loan period),
at which time the amount outstanding was converted into a term loan payable in
equal quarterly installments through November 30, 1998. As of November 30,
1996, interest was payable at LIBOR plus 1.0%. As of November 30, 1996, $16.8
million was outstanding under this agreement.
The credit agreement contains provisions which, among other things, place re-
strictions on borrowing, capital expenditures and the payment of dividends, and
requires the maintenance of certain financial ratios including tangible net
worth, fixed charge coverage and funded debt. The Company is currently in com-
pliance with or has received a waiver for all material covenants and restric-
tions contained in the agreement. Borrowings are unsecured and are guaranteed
by the Company's domestic subsidiaries.
The conversion price of the convertible debentures is subject to antidilutive
provisions.
The annual maturities of debt for five years ending November 30, 2001 and
thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
------
<S> <C>
1997..................................................................... $8,467
1998..................................................................... 8,347
1999..................................................................... -
2000..................................................................... -
2001..................................................................... -
Thereafter............................................................... 6,511
</TABLE>
NOTE 9--CAPITAL STOCK AND STOCK OPTIONS
The Company has stock option plans whereby options may be granted at not less
than 100% of fair market value at the date of grant and are exercisable at any
time thereafter for a period of ten years, or five years for options granted
prior to November 8, 1990. Options granted on and after November 8, 1990, are
exercisable 20% at date of grant with the remaining 80% becoming exercisable at
the rate of 20% each December 1 thereafter. At the time of exercise, at least
one-third is payable in cash and the balance, if any, with a five-year note
bearing interest at 8%. Stock options may also be exercised by the return of
previously acquired shares of common stock. Shares obtained by such exercises
are included in treasury stock and valued at the market value at date of exer-
cise.
F-46
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--CAPITAL STOCK AND STOCK OPTIONS (CONTINUED)
On May 20, 1993, the Company issued 860,000 of non-qualified options to sev-
eral key executives. The option price was $20 above the closing price of the
Company's stock on the date of grant, or $29.50 per share. During fiscal year
1994, 146,000 shares of converging options were issued at an option price of
$24.50 per share. For each year during which the Company meets specified per-
formance targets, the option price will decrease by $5.00 until the option
price and market price converge. The option price will be fixed at the market
price on the date of convergence and the options will vest.
If convergence does not occur during the first five years after grant of the
options, the options will be canceled and the shares will revert to the 1989
Stock Incentive Plan and be available for reissuance. The Company met these
targets for fiscal 1993. The Company did not meet these targets in fiscal
years 1994-1996.
A summary of activity under the plans during 1996, 1995 and 1994 is as fol-
lows:
<TABLE>
<CAPTION>
-------------------------------------
NUMBER OF PRICE AGGREGATE
SHARES PER SHARE OPTION PRICE
---------- ------------ ------------
<S> <C> <C> <C>
Options outstanding at November 30,
1993.................................. 3,578,000 $ 9.50-33.00 $ 61,399
Options granted...................... 1,264,000 12.38-24.50 18,591
Options cancelled and expired........ (498,000) 9.50-33.00 (5,673)
Treasury stock issued on exercise.... (355,000) 9.50-33.00 (5,295)
Options converged.................... - 24.50 (4,300)
<CAPTION>
---------- ------------ ------------
<S> <C> <C> <C>
Options outstanding at November 30,
1994.................................. 3,989,000 9.50-28.88 64,722
Options granted...................... 1,676,000 9.88-12.88 18,243
Options cancelled and expired........ (758,000) 9.50-24.50 (10,839)
Treasury stock issued on exercise.... (102,000) 9.50-12.88 (1,029)
<CAPTION>
---------- ------------ ------------
<S> <C> <C> <C>
Options outstanding at November 30,
1995.................................. 4,805,000 9.50-28.88 71,097
Options granted...................... 1,311,000 8.00-12.00 12,721
Treasury stock issued on exercise.... (16,000) 9.50-9.875 (150)
Options cancelled and expired........ (1,735,000) 8.00-28.88 (29,016)
<CAPTION>
---------- ------------ ------------
<S> <C> <C> <C>
Options outstanding at November 30,
1996.................................. 4,365,000 $8.00-28.875 $ 54,652
<CAPTION>
========== ============ ============
</TABLE>
The market value of the Company's common stock at the date the options were
exercised was $10.875-$12.00, $10.88-$13.63, $11.88-$18.75 for 1996, 1995 and
1994, respectively.
At November 30, 1996, 2.4 million options were exercisable and 1.2 million (.7
million and 1.7 million at November 30, 1995 and 1994) were available for
grant under the plans.
NOTE 10--PROFIT SHARING PLAN
The Company has a noncontributory, trusteed profit sharing plan which is qual-
ified under Section 401 of the Internal Revenue Code. 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 year-end are eligible for partic-
ipation in the plan after one year of employment. The Company's contribution
to the plan for any fiscal year, as determined by the Board of Directors, is
discretionary, but is limited to an amount which is deductible for federal in-
come tax purposes. Contributions to the plan are allocated among eligible par-
ticipants in the proportion of their Transitional Hospitals Corporation sala-
ries to the total salaries of all participants. There were no contributions
made by the Company in 1996, 1995 and 1994. During 1993, a 401(k) segment was
added to the plan which allows employees to defer a portion of their salary on
a pre-tax basis. The Company may match a portion of the amount deferred. The
Company's matching contribution is determined by the Board of Directors each
year. During 1996, 1995, and 1994 no matching contribution was made.
F-47
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--DEFERRED COMPENSATION
Effective November 30, 1989, a former Chairman of the Board of Directors of
Community Psychiatric Centers terminated his employment with the Company and
began receiving deferred compensation benefits. Approximately $162,000 of the
annual payment of $323,000 was charged to expense as consideration for services
rendered over the term of the consulting and noncompetition agreements which
was to extend to November 30, 2000. In 1995, such former Chairman notified the
Company of his position that certain provisions in the contract that accelerate
the payment of certain deferred compensation were triggered and that up to $4.5
million was due from the Company thereunder.
In January 1997, the Company settled this claim for $3.9 million. Of the amount
to be paid, $1.8 million had been previously accrued and, as described in Note
2, $2.1 million of the settlement was accrued in November 1996. The settlement
amount was paid in February 1997.
NOTE 12--BUSINESS SEGMENT INFORMATION
With the sales of the Company's U.S., Puerto Rico and United Kingdom psychiat-
ric divisions in fiscal 1996, the Company is now primarily a provider of long-
term acute care services in the United States. The following tables have been
prepared in accordance with the requirements of FASB Statement No. 14. This in-
formation has been derived from the Company's accounting records.
<TABLE>
<CAPTION>
----------------------------
YEAR ENDED NOVEMBER 30,
----------------------------
1996 1995 1994
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Net operating revenues:
U.S. psychiatric division..................... $202,069 $248,408 $276,698
U.K. psychiatric division..................... 37,190 63,319 46,226
Long-term acute care division................. 264,007 203,264 101,031
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
$503,266 $514,991 $423,955
Operating profit:
U.S. psychiatric division..................... $ 7,584 $ 14,345 $ 29,778
U.K. psychiatric division..................... 9,442 17,880 12,558
Long-term acute care division................. 30,424 21,444 (7,630)
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
$ 47,450 $ 53,669 $ 34,706
Other income and expense:
Other income.................................. $ 3,928 $ 2,513 $ 3,785
Depreciation and amortization................. (22,364) (23,344) (18,649)
Interest expense.............................. (3,889) (5,256) (3,545)
Non-recurring transaction, net................ (33,524) (94,116) 875
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Earnings (loss) before income taxes......... $ (8,399) $(66,534) $ 17,172
Identifiable assets:
U.S. psychiatric division(1).................. $ 69,859 $343,082 $396,377
U.K. psychiatric division..................... - 78,248 68,640
Long-term acute care division................. 396,088 183,295 134,987
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
$465,947 $604,625 $600,004
Depreciation and amortization expense:
U.S. psychiatric division..................... $ 10,267 $ 12,318 $ 11,197
U.K. psychiatric division..................... 1,954 3,214 2,514
Long-term acute care division................. 10,143 7,812 4,938
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
$ 22,364 $ 23,344 $ 18,649
Capitalized expenditures for property, building,
and equipment:(2)
U.S. psychiatric division..................... $ 10,096 $ 13,276 $ 11,194
U.K. psychiatric division..................... 5,973 7,962 6,209
Long-term acute care division................. 19,350 18,901 31,357
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
$ 35,419 $ 40,139 $ 48,760
</TABLE>
- -------
(1) The U.S. psychiatric division was sold to Behavioral Healthcare Corporation
on November 30, 1996. Amount represents the equity interest received as partial
compensation for the sale of the division.
(2) Excludes assets acquired in business acquisitions of $2.1 million, $8.6
million and $4.8 million in 1996, 1995 and 1994, respectively.
F-48
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Short-Term Investments: The fair values for investment in debt securities
are based on quoted market prices with unrealized gains, or losses, net of
tax, reported in a separate component of stockholders' equity.
Long-Term and Short-Term Debt: The carrying amounts of the Company's long-
term and short-term debt approximates its fair value.
NOTE 14--COMMITMENTS AND CONTINGENCIES
On September 28, 1995, the Company reached an agreement to settle certain con-
solidated securities class action lawsuits and a related shareholder deriva-
tive action. Although management of the Company believed that the claims as-
serted in such suits lacked merit, the Company believed that it was prudent to
settle these cases due to the continuing substantial costs of defense, the
distraction of management's attention and the risks associated with litiga-
tion. During the third and fourth quarters of 1995, the Company recorded
charges totaling $46.0 million ($28.9 million after tax) relating to settle-
ment of the lawsuits and associated legal fees and expenses. The suits, filed
in late 1991, alleged violations of the federal securities laws by the Company
and certain individuals between September 1990 and November 1991 arising from
the activities of the U.S. Psychiatric Division. The principal terms of the
agreement called for a settlement amount of $42.5 million consisting of a cash
settlement fund of $21.25 million and shares of the Company's common stock
with a value of $21.25 million. The cash amount, plus interest, was paid in
November 1995. The shares issued to the plaintiff class were previously repur-
chased by the Company pursuant to a stock buyback program during late 1991
through early 1993. On March 4, 1996 the Company issued 689,189 of common
shares to the plaintiffs' attorney which represented a portion of the settle-
ment to be made in common stock. The remaining portion of the settlement in
common stock totaled 1,652,778 shares which were issued on August 21, 1996.
Upon issuance, these shares had a dilutive effect on the Company's earnings
per share. As a result of the stock issued upon the settlement of this law-
suit, a large number of shareholders became holders of less than 100 shares of
the Company's stock. To reduce administrative costs related to servicing these
small shareholders, on January 21, 1997, the Company implemented a small
shareholder selling program offering shareholders who own less than 100 shares
a convenient method for selling their shares.
In July 1995, the Government served a whistleblower suit against the Company's
Subsidiary, CPC Oklahoma, Inc., under the Federal False Claims Act. CPC Okla-
homa, Inc. operated Southwind Hospital, a psychiatric hospital located in
Oklahoma City, Oklahoma. The suit was originally filed by a former employee
and a relative of another employee under the qui tam provisions of the Act.
Invoking its rights under the Act, the United States took over the case. In
November 1996, Southwind and the Government reached an agreement in principle
under which Southwind would pay $750,000 to the Government in exchange for a
release of the Government's civil and administrative claims. The settlement
was paid in February 1997. In a related action, on August 4, 1995, federal and
state authorities executed a search warrant at Southwind and seized various
records. In December 1996, the Government notified Southwind that it had de-
cided to discontinue any further criminal investigation of this matter.
The Company is subject to ordinary and routine litigation incidental to its
business, including those arising from patient treatment, injuries or death
for which it is covered by liability insurance, and those arising from actions
involving employees. Management believes that the ultimate resolution of such
proceedings will not have a material adverse effect on the Company.
F-49
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly data for the two years
ended November 30, 1996:
<TABLE>
<CAPTION>
---------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------------
(In thousands, except per FEBRUARY 28 MAY 31 AUGUST 31 NOVEMBER 30
share data) ----------- -------- --------- -----------
<S> <C> <C> <C> <C>
1996
Total revenues........... $127,975 $142,282 $120,001 $116,936
Net income (loss)........ 3,723 6,226 39,108 (54,409)
Earnings (loss) per
common share*........... 0.09 0.14 0.88 (1.26)
Per common share:
Dividend declared...... - - - -
Stock prices:
High................... 12 1/4 10 9 3/4 9 1/2
Low.................... 8 5/8 8 7 3/4 8
1995
Total revenues........... $121,609 $138,479 $130,909 $126,507
Net income (loss)........ 5,930 9,178 (24,332) (32,408)
Earnings (loss) per
common share**.......... 0.14 0.21 (0.56) (0.74)
Per common share:
Dividend declared...... - 0.01 - -
Stock prices:
High................... 12 1/2 13 3/4 13 1/2 12 1/2
Low.................... 9 5/8 11 1/2 10 1/2 10 1/4
</TABLE>
- -------
* Included in earnings per share for the first, second and third quarter of
1996 are restructuring charges of $.01, $.01 and $.01 per share, respectively,
related to employee termination benefits and other exit costs resulting from
the closure of four psychiatric hospitals in fiscal year 1996. Included in
earnings per share for the third quarter of 1996 is a net gain of $.81 per
share on the sale of the Company's United Kingdom psychiatric hospitals. In-
cluded in earnings per share for the fourth quarter is a loss of $(1.28) per
share related primarily to the sale of the Company's U.S. psychiatric hospi-
tals.
** Included in earnings per share for the second quarter of 1995 is a restruc-
turing credit $(.03) totaling $2.5 million ($1.5 million after tax) from the
resolution of previously restructured psychiatric assets. Earnings per share in
the third quarter of 1995 include $(.65) for a pre-tax charge of $45.0 million
($28.4 million after tax) relating to the settlement of shareholder litigation.
Earnings per share in the fourth quarter of 1995 include a charge of $(.01) re-
lated to legal expenses associated with the legal settlement and $(.65) for a
pre-tax charge of $46.0 million ($28.4 million after tax) related to impairment
of assets. Also included in the fourth quarter of 1995 is a pre-tax restructur-
ing charge of $4.6 million ($2.8 million after tax) or $.07 per share related
to employee termination benefits and other costs in connection with the deci-
sion to close six psychiatric hospitals and three regional offices.
NOTE 16--PREFERRED STOCK PURCHASE RIGHTS AND PREFERRED STOCK
On June 21, 1996 the Board of Directors of the Company declared a dividend of
one preferred stock purchase right (the "Rights") on each outstanding share of
common stock, payable to stockholders of record on July 16, 1996. Each Right
will entitle the holder thereof after the Rights become exercisable and until
June 20, 2006 (or the earlier redemption, exchange or termination of the
Rights), to buy one one-hundredth of a share of Series B Junior Participating
Preferred Stock (the "Preferred Stock") at an exercise price of $45.00, subject
to certain antidilution adjustments (the "Purchase Price"). The Rights will be
represented by the Common Stock certificates and will not be exercisable or
transferable apart from the Common Stock until the earlier of (i) the tenth day
after the public announcement that a Person or group has become an Acquiring
Person (a Person who has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the Common Stock), or (ii) the tenth day after a
person or group commences, or announces an intention to commence, a tender or
exchange offer, the consummation of which would result in the beneficial owner-
ship by a Person or group of 15% or more of the Common Stock (the earlier of
(i) and (ii) being called herein the "Distribution Date"). Prior to the Distri-
bution Date, the Board of Directors has the power, under certain circumstances,
to postpone the Distribution Date. The Rights will first become exercisable on
the Distribution Date, unless earlier redeemed or exchanged, and may then begin
trading separately from the Common Stock. The Rights will at no time have any
voting rights.
F-50
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--PREFERRED STOCK PURCHASE RIGHTS AND PREFERRED STOCK (CONTINUED)
With certain exceptions, in the event that (i) the Company were acquired in a
merger or other business combination transaction in which the Company is not
the surviving corporation or its Common Stock is changed or exchanged (other
than a merger which follows certain cash offers for all outstanding Common
Stock approved by the board) or (ii) more than 50% of the Company's assets or
earning power were sold, proper provision shall be made so that each holder of
a Right (except Rights which previously have been voided as set forth above)
shall thereafter have the right to receive, upon exercise thereof, that number
of share of common stock of the acquiring company which at the time of such
transaction would have a market value of two times the then-current exercise
price of one Right.
At any time after a Person has become an Acquiring Person and prior to the ac-
quisition of 50% or more of the then-outstanding Common Stock by such Acquiring
Person, the Board of Directors may cause the Company to acquire the Rights
(other than Rights owned by an Acquiring person which have become void), in
whole or in part, in exchange for that number of shares of Common Stock having
an aggregate value equal to the excess of the value of the Common Stock issua-
ble upon exercise of a Right after a Person becomes an Acquiring Person over
the Purchase Price.
The Rights are redeemable at $0.01 per Right prior to the first date of public
announcement that a Person or group has become an Acquiring Person. Prior to
the expiration of the period during which the Rights may be redeemed, the Board
of Directors has the power, under certain circumstances, to extend the redemp-
tion period. The Rights will expire on June 20, 2006 (unless earlier redeemed
or exchanged).
The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution.
NOTE 17--SUBSEQUENT EVENTS (UNAUDITED)
On June 18, 1997, THY entered into an agreement and plan of merger with Vencor,
Inc. (the "Vencor Merger Agreement") under which Vencor would acquire all of
the Company's outstanding stock at $16.00 per share (the "Acquisition"). The
Acquisition is structured as a cash tender offer to be followed by a second-
step merger pursuant to which a wholly-owned subsidiary of Vencor will acquire
all remaining shares which have not been tendered. Vencor's wholly-owned sub-
sidiary acquired 37,247,234 shares (approximately 95.5% of the outstanding THY
shares) in the tender offer which expired on June 19, 1997. THY and Vencor are
in the process of completing the merger of Vencor's wholly-owned subsidiary
with and into THY. Upon consummation of the merger, each share not purchased
through the tender offer will be converted into the right to receive $16.00 in
cash. The closing of the Acquisition is subject to customary conditions. The
merger is expected to be completed within 60 to 75 days of the expiration of
the tender offer.
Prior to entering into the Vencor Merger Agreement, THY had entered into an
agreement and plan of merger with Select Medical Corporation ("Select") whereby
Select would acquire all of the outstanding shares of THY for $14.55 per share
(the "Select Merger Agreement"). The Select Merger Agreement was terminated
prior to the execution of the Agreement with Vencor. Pursuant to the terms of
the Select Merger Agreement, THY paid Select a break-up fee of approximately
$19.4 million in June 1997.
On June 6, 1997, THY announced that it had been advised that it was a target of
a grand jury investigation arising from activities of THY's formerly owned di-
alysis business. The investigation involves purported Medicare fraud involving
certain laboratory tests performed by a partnership which existed from June
1987 to June 1992 between Damon Corporation and THY. THY spun off its dialysis
business, now called Vivra Incorporated, on September 1, 1989. Based on the
current status of this matter, management is not able to determine what impact,
if any, the resolution of this matter will have on the Company's financial po-
sition or results of operations.
F-51
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------
SIX MONTHS ENDED THREE MONTHS ENDED
MAY 31, MAY 31,
----------------- -------------------
1997 1996 1997 1996
(000s omitted except per share data) -------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Net operating revenues................... $156,543 $269,223 $ 81,627 $ 141,734
Investment and other income.............. 5,872 1,240 3,344 754
<CAPTION>
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
162,415 270,463 84,971 142,488
COSTS AND EXPENSES:
Operating expenses....................... 126,178 210,760 67,186 109,483
General and administrative expenses...... 11,536 16,631 6,227 8,696
Bad debt expense......................... 3,821 10,379 2,242 5,480
Depreciation and amortization............ 6,969 11,776 3,470 6,133
Interest expense......................... 606 3,228 248 1,855
Non-recurring transactions............... 6,606 1,643 6,606 800
<CAPTION>
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
155,716 254,417 85,979 132,447
<CAPTION>
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME TAXES.......... 6,699 16,046 (1,008) 10,041
Income Taxes............................. 5,189 6,097 2,183 3,815
<CAPTION>
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
NET INCOME (LOSS).......................... $ 1,510 $ 9,949 $ (3,191) $ 6,226
<CAPTION>
======== ======== ========= =========
<S> <C> <C> <C> <C>
NET INCOME (LOSS) PER COMMON SHARE......... $ 0.04 $ 0.23 $ (0.08) $ 0.14
<CAPTION>
======== ======== ========= =========
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE COMMON SHARES............. 39,768 44,051 38,860 44,396
<CAPTION>
======== ======== ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
F-52
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-------------------------
MAY 31, NOVEMBER 30,
1997 1996
(000s omitted except per share data) ----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents............................. $ 60,359 $ 84,313
Short-term investments................................ 5,888 16,777
Accounts receivable, less allowances for doubtful
accounts 1997--$12,728/1996--$21,448................. 59,098 55,557
Prepaid expenses and other current assets............. 12,669 14,784
Property held for sale................................ 8,533 13,393
Refundable and deferred income taxes.................. 16,881 21,419
<CAPTION>
----------- ------------
<S> <C> <C>
TOTAL CURRENT ASSETS................................ 163,428 206,243
PROPERTY, BUILDINGS & EQUIPMENT--at cost less allowances
for depreciation....................................... 164,466 153,933
INVESTMENT IN AFFILIATE................................. 72,480 69,859
REFUNDABLE AND DEFERRED INCOME TAXES.................... 6,099 15,966
OTHER ASSETS............................................ 23,390 19,946
<CAPTION>
----------- ------------
<S> <C> <C>
$429,863 $465,947
<CAPTION>
=========== ============
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable...................................... $ 9,387 $ 9,136
Accrued payroll and other expenses.................... 15,920 15,680
Income taxes payable.................................. 451 -
Payable to third parties under reimbursement
contracts............................................ 15,840 13,954
Other accrued liabilities............................. 8,921 17,796
Current maturities on long-term debt.................. 8,371 8,467
<CAPTION>
----------- ------------
<S> <C> <C>
TOTAL CURRENT LIABILITIES........................... 58,890 65,033
LONG-TERM DEBT, EXCLUSIVE OF CURRENT MATURITIES......... 10,442 14,858
DEFERRED INCOME TAXES AND OTHER LIABILITIES............. 3,505 3,857
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1.00, authorized 2,000
shares; none issued.................................. - -
Common stock, par value $1.00, authorized 100,000
shares; issued 1997--46,856 shares and 1996--46,856
shares............................................... 46,856 46,856
Additional paid-in capital............................ 57,173 56,657
Unrealized gains on investments in debt securities.... 34 163
Retained earnings..................................... 323,220 321,710
Less treasury stock-at cost 1997--7,862 shares and
1996--4,988 shares................................... (70,257) (43,187)
<CAPTION>
----------- ------------
<S> <C> <C>
357,026 382,199
<CAPTION>
----------- ------------
<S> <C> <C>
$429,863 $465,947
<CAPTION>
=========== ============
</TABLE>
See notes to condensed consolidated financial statements.
F-53
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
------------------
SIX MONTHS ENDED
MAY 31,
------------------
1997 1996
-------- --------
(000s omitted)
<S> <C> <C>
CASH FROM OPERATING ACTIVITIES:
Net income............................................... $ 1,510 $ 9,949
Adjustments to reconcile net income to cash used for
operating activities:
Depreciation and amortization........................ 6,969 11,776
Provision for bad debts.............................. 3,821 10,379
Non-recurring transactions........................... 6,100 1,643
Gain on the sale of property......................... - (103)
Other................................................ (1,785) 1,038
Changes in assets and liabilities, exclusive of
business acquisitions and disposals:
Accounts receivable.................................. (7,362) (12,882)
Payable to third parties under reimbursement
contracts........................................... 1,886 9,304
Prepaid expenses and other current assets............ (1,015) (4,901)
Accounts payable and accrued expenses................ 491 (9,020)
Other accrued liabilities............................ (14,975) (5,199)
Income taxes......................................... 14,762 11,445
<CAPTION>
-------- --------
<S> <C> <C>
Net cash provided from operations.................. 10,402 23,429
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares.............................. (28,531) -
Payment of deferred compensation......................... (545) -
Net proceeds from exercise of stock options.............. 1,975 150
Payments on long-term debt............................... (4,512) (11,939)
<CAPTION>
-------- --------
<S> <C> <C>
Net cash used for financing activities............. (31,613) (11,789)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short-term investments............ 20,516 5,601
Purchases of short-term investments...................... (9,756) -
Payments received on notes............................... 3,358 1,145
Loans made to officers................................... (300) (750)
Purchase of property, buildings and equipment............ (9,414) (18,917)
Proceeds from the sale of property, buildings and
equipment............................................... 4,534 1,632
Investment in joint venture.............................. (4,009) -
Investment in pre-opening costs.......................... (1,435) (831)
Payments for business acquisitions:
Property, buildings and equipment...................... (6,057) -
Excess of purchase price over value of assets
acquired.............................................. (180) -
<CAPTION>
-------- --------
<S> <C> <C>
Net cash used for investing activities............. (2,743) (12,120)
<CAPTION>
-------- --------
<S> <C> <C>
Net decrease in cash and cash equivalents.................. (23,954) (480)
Beginning cash and cash equivalents........................ 84,313 17,263
<CAPTION>
-------- --------
<S> <C> <C>
Ending cash and cash equivalents........................... $ 60,359 $ 16,783
<CAPTION>
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-54
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MAY 31, 1997
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the informa-
tion and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair pre-
sentation have been included. For further information, refer to the consoli-
dated financial statements and footnotes thereto included in the Transitional
Hospitals Corporation (the "Company") Annual Report on Form 10-K for the year
ended November 30, 1996.
NOTE B: MERGER WITH VENCOR, INC.
On June 18, 1997, the Company entered into an agreement and plan of merger with
Vencor, Inc. (the "Vencor Merger Agreement") under which Vencor, Inc.
("Vencor") would acquire all of the Company's outstanding common stock at
$16.00 per share (the "Acquisition"). The Acquisition is structured as a cash
tender offer to be followed by a second-step merger pursuant to which a wholly-
owned subsidiary of Vencor will acquire all shares which were not acquired in
the tender offer. Vencor's wholly-owned subsidiary acquired 37.2 million shares
(approximately 95.5% of the outstanding shares of the Company) in the tender
offer which expired on June 19, 1997. On June 24, 1997, the Company completed
the tender offer, after which time operations of the Company will be consoli-
dated with those of Vencor. The Company and Vencor are in the process of com-
pleting the merger of Vencor's wholly-owned subsidiary with and into the Compa-
ny. Upon consummation of the merger, each share not purchased through the ten-
der offer will be converted into the right to receive $16.00 in cash. The clos-
ing of the Acquisition is subject to customary conditions. The merger is ex-
pected to be completed within 45 to 60 days of the expiration of the tender of-
fer.
Prior to entering into the Vencor Merger Agreement, the Company had entered
into an agreement and plan of merger with Select Medical Corporation ("Select")
whereby Select would acquire all of the outstanding common stock of the Company
for $14.55 per share (the "Select Merger Agreement"). The Select Merger Agree-
ment was terminated prior to the execution of the Vencor Merger Agreement. Pur-
suant to the terms of the Select Merger Agreement, the Company paid Select a
break-up fee of approximately $19.4 million in June 1997. This payment is not
included in the statement of operations for the six months ended May 31, 1997.
NOTE C: TRANSACTION EXPENSES (NON-RECURRING TRANSACTIONS)
As of May 31, 1997, $6.6 million had been expensed for investment banking and
legal fees related to the sale of the Company. These transaction expenses are
considered to be permanent differences for income tax purposes, and thus are
not tax effected for purposes of calculating the fiscal year 1997 tax provi-
sion.
For the six months and quarter ended May 31, 1996, non-recurring transaction
costs totaling $1.6 million and $.8 million, respectively, for termination ben-
efits and other exit costs were incurred in connection with the decision to
close three psychiatric hospitals.
NOTE D: DISPOSALS OF PSYCHIATRIC HOSPITALS
As more fully described in the Company's 1996 Annual Report to Stockholders and
Annual Report on Form 10-K, the Company sold its United Kingdom psychiatric op-
erations on June 21, 1996 and substantially all of its U.S. psychiatric opera-
tions on November 30, 1996. The U.S. psychiatric operations were sold to Behav-
ioral Healthcare Corporation ("BHC") for $60 million in cash and a 61% (44.2%
voting equity interest) ownership interest in BHC. Following is a summary of
unaudited summary financial information for the above described entities in-
cluded in the Company's historical statement of operations.
F-55
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
MAY 31, 1997
NOTE D: DISPOSALS OF PSYCHIATRIC HOSPITALS (CONTINUED)
<TABLE>
<CAPTION>
--------------------------------
SIX MONTHS ENDED THREE MONTHS
MAY 31, ENDED MAY 31,
----------------- --------------
1997 1996 1997 1996
(000s omitted except per share data) ----------------- --------------
<S> <C> <C> <C> <C>
U.K. psychiatric operations:
Total revenues............................ - $ 33,094 - $ 17,840
Income before taxes....................... - 6,496 - 4,397
Net income................................ - 4,222 - 2,858
Earnings per share........................ - 0.10 - 0.06
U.S. psychiatric operations:
Total revenues............................ - $ 109,479 - $ 56,823
Income before taxes*...................... - 1,568 - 1,373
Net income................................ - 810 - 737
Earnings per share........................ - 0.02 - 0.02
</TABLE>
* Included in the statements of operations for the six months and quarter ended
May 31, 1996 are operating losses and restructuring charges related to nine
U.S. psychiatric hospitals that were closed between November 1995 and April
1996. Total operating losses for these facilities were $4.2 million and $2.4
million, respectively, for the six months and quarter ended May 31, 1996. Total
restructuring charges for the closure of these facilities were $1.6 million and
$0.8 million for the six months and quarter ended May 31, 1996.
NOTE E: INVESTMENT IN AFFILIATE
As described in Note D, the Company retained a 61% (44.2% voting equity inter-
est) ownership interest in BHC. The investment is accounted for under the eq-
uity method of accounting and thus only the Company's share of BHC's net income
is included in the statement of operations for both the six months and quarter
ended May 31, 1997. A summary of unaudited BHC statement of operations informa-
tion is described below:
<TABLE>
<CAPTION>
-------------------------
SIX MONTHS THREE MONTHS
ENDED ENDED
MAY 31, 1997 MAY 31, 1997
(000s omitted except per share data) ------------ ------------
<S> <C> <C>
Total revenues....................................... $159,254 $83,496
Income before taxes.................................. 10,872 7,961
Net income........................................... 6,558 4,774
Company's share of BHC net income.................... 2,901 2,112
Earnings per share................................... 0.04 0.03
</TABLE>
NOTE F: CONTINGENCIES
On June 20, 1997, the Company was made aware of a lawsuit that was filed
against the Company and certain senior executives and directors of the Company
alleging that the Company failed to make timely disclosure to stockholders that
it had received a written offer to acquire all of the Company's common stock.
The complaint asserts claims pursuant to Sections 10(b) and 20(a) of the Secu-
rities Exchange Act of 1934, as amended, and common law principles of negligent
misrepresentation. The plaintiffs in the suit are persons who sold the
Company's common stock between February 26, 1997 and May 4, 1997. The Company
has not been served with this lawsuit nor is the Company able to determine what
impact, if any, the lawsuit would have on the Company's financial position or
results of operations.
On June 6, 1997, the Company announced that it had been advised that it was a
target of a grand jury investigation arising from activities of the Company's
formerly owned dialysis business. The investigation involves purported Medicare
fraud involving certain laboratory tests performed by a partnership which ex-
isted from June 1987 to June 1992 between Damon Corporation and the Company.
The Company spun off its dialysis business, now called Vivra Incorporated, on
September 1,
F-56
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
MAY 31, 1997
NOTE F: CONTINGENCIES (CONTINUED)
1989. Based on the current status of this matter, management is not able to de-
termine what impact, if any, the resolution of this matter will have on the
Company's financial position or results of operations.
On May 14, 1997, Charles Miller and Kenneth Steiner, former stockholders of the
Company, filed a purported class action lawsuit against the Company and each of
its directors in the District Court for Clark County, Nevada. The complaint al-
leges that the Board breached its fiduciary duty by entering into the Select
Merger Agreement, and seeks, among other things, (i) injunctive relief barring
the Company from consummating the transactions contemplated by the Select
Merger Agreement, (ii) declaratory relief to invalidate the provisions of the
Select Merger Agreement providing for the termination fee of $19.4 million pay-
able to Select under certain circumstances, and (iii) damages against the
Company's directors for breaching their fiduciary duties in connection with the
negotiation and execution of the Select Merger Agreement. The Company believes
that the allegations in the complaint are without merit.
On May 7, 1997, Vencor, Jill L. Force and Patrick Mattingly (the "Vencor Com-
plaint") filed a complaint in the United States District Court of Nevada
against the Company, each of the directors of the Company and SM Acquisition
Co. (a wholly owned subsidiary of Select). The issues raised in the Vencor Com-
plaint were similar to those raised in the Miller/Steiner complaint noted
above. The Vencor Complaint was dismissed without prejudice in June 1997.
The Company is subject to ordinary and routine litigation incidental to its
business, including those arising from patient treatment, injuries or death for
which it is covered by liability insurance, and those arising from actions in-
volving employees. Management believes that the ultimate resolution of such
proceedings will not have a material adverse effect on the Company's financial
position or results of operations.
F-57
<PAGE>
VENCOR, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------
ADDITIONS
--------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
OF PERIOD EXPENSES ACQUISITIONS OR PAYMENTS OF PERIOD
---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Allowances for loss on
accounts and notes
receivable:
Year ended December
31, 1995............. $28,265 $ 7,851 $ - $ (4,026) $32,090
Year ended December
31, 1996............. 32,090 15,001 - (23,176) 23,915
Year ended December
31, 1997............. 23,915 31,176 26,144 (17,684) 63,551
Allowances for loss on
assets held for
disposition:
Year ended December
31, 1995............. $ - $26,900(a) $ - $ - $26,900
Year ended December
31, 1996............. 26,900 64,000(b) - (22,812) 68,088
Year ended December
31, 1997............. 68,088 - 7,225 (43,891) 31,422
</TABLE>
- -------
(a) Reflects provision for loss associated with the planned disposition of cer-
tain nursing center properties recorded in connection with the Hillhaven Merg-
er.
(b) Reflects provision for loss associated with the sale of certain nursing
centers and the planned replacement of one hospital and three nursing centers.
S-1
<PAGE>
TRANSITIONAL HOSPITALS CORPORATION AND SUBSIDIARIES
(FORMERLY COMMUNITY PSYCHIATRIC CENTERS)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ------------ -------------------------- ----------- -------------
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS BALANCE AT
DESCRIPTION PERIOD EXPENSES --DESCRIBE --DESCRIBE END OF PERIOD
- ----------- ------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended November 30,
1994................... $22,658,000 $26,966,000 $(20,325,000) (1) $29,381,000
82,000 (2)
Year ended November 30,
1995................... 29,381,000 28,732,000 (33,383,000) (1) 24,682,000
(48,000) (2)
Year ended November 30,
1996................... 24,682,000 20,101,000 (3,586,000) (1) 21,448,000
(17,317,000) (3)
(2,432,000) (4)
</TABLE>
(1) Write-offs, net of recoveries.
(2) Foreign currency translation adjustment.
(3) Represent allowance for bad debts for the U.S. psychiatric hospitals that
were sold on November 30, 1996.
(4) Represent allowance for bad debts for the U.K. psychiatric hospitals that
were sold on June 21, 1996.
S-2
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("GCL") permits a Delaware
corporation to indemnify any person who was or is, or is threatened to be made,
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of such corporation) by reason of the fact that such person
is or was a director, officer, employee or agent of such corporation, or is or
was serving at the request of such corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other en-
terprise. The indemnity may include expenses (including attorneys' fees), judg-
ments, fines and amounts paid in settlement actually and reasonably incurred by
such person in connection with such action, suit or proceeding, provided that
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with re-
spect to any criminal action or proceeding, such person had no reasonable cause
to believe the person's conduct was unlawful. A Delaware corporation may indem-
nify such persons in actions brought by or in the right of the corporation to
procure a judgment in its favor under the same conditions except that no indem-
nification is permitted in respect of any claim, issue or matter as to which
such person has been adjudged to be liable to the corporation unless and to the
extent the Court of Chancery of the State of Delaware or the court in which
such action was brought determines upon application that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to in-
demnify for such expenses as the Court of Chancery or other such court deems
proper. To the extent that a present or former director or officer has been
successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation
must indemnify such person against expenses (including attorneys' fees) actu-
ally or reasonably incurred by such person in connection therewith. Corpora-
tions, under certain circumstances, may pay expenses incurred by an officer or
director in advance of the final disposition of an action for which indemnifi-
cation may be permitted or required. The indemnification and advancement of ex-
penses provided for or granted pursuant to Section 145 are not exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, agreement, vote of stockholders or disinter-
ested directors or otherwise. Section 145 further provides that a corporation
may maintain insurance against liabilities for which indemnification is not ex-
pressly provided by statute.
The Guarantor's Restated Certificate of Incorporation, as amended, eliminates
certain liability of the Guarantor's directors for breach of their fiduciary
duty of care. Article IX of the Certificate of Incorporation provides that nei-
ther of the Guarantor nor its stockholders may recover monetary damages from
the Guarantor's directors for breach of their fiduciary duty as directors of
the Guarantor, except to the extent that such exemption from liability or limi-
tation thereof is not permitted under the GCL as currently in effect or as the
same may hereafter be amended.
The Guarantor may purchase and maintain insurance on behalf of any director,
employee or agent of the Guarantor, whether or not the Guarantor would have the
power or the obligation to indemnify such person under the Certificate of In-
corporation, as amended, or the GCL. The Guarantor currently has in effect an
officers and directors liability insurance policy. The policy covers any negli-
gent act, error or omission of a director or officer, subject to certain exclu-
sions. The limit of liability under the policy is $40 million in the aggregate
annually for coverages in excess of deductibles.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
3.1 Restated Certificate of Incorporation of the Guarantor. Exhibit 3.1 to
the Guarantor's Form 10, as amended, dated April 27, 1998 (Comm. File
No. 001-14057) is hereby incorporated by reference.
3.2 Amended and Restated Bylaws of the Guarantor. Exhibit 3.2 to the
Guarantor's Form 10, as amended, dated April 27, 1998 (Comm. File No.
001-14057) is hereby incorporated by reference.
4.1 Indenture dated April 30, 1998, among the Company, the Guarantor and
PNC Bank, National Association, as Trustee.
4.2 Form of Exchange Note (included in Exhibit 4.1).
4.3 Registration Rights Agreement dated April 30, 1998, by and among the
Company, the Guarantor and the Initial Purchasers.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
4.4 Form of the Guarantor's 8 5/8% Senior Subordinated Notes due 2007.
Exhibit 4.1 to the Vencor, Inc. Current Report on Form 8-K dated July
21, 1997 (Comm. File No. 1-10989) is hereby incorporated by reference.
4.5 Indenture dated as of July 21, 1997, between the Guarantor and The Bank
of New York, as Trustee. Exhibit 4.2 to the Vencor, Inc. Current
Report on Form 8-K dated July 21, 1997 (Comm. File No. 1-10989) is
hereby incorporated by reference.
5 Opinion of Sullivan & Cromwell.
8 Opinion of Sullivan & Cromwell regarding tax matters.
10.1 Credit Agreement dated as of April 29, 1998, among the Company, the
Guarantor, the Lenders party thereto, the Swingline Bank party
thereto, the LC Issuing Bank party thereto, the Senior Managing
Agents, Managing Agents and Co-Agents party thereto, Morgan Guaranty
Trust Company of New York and NationsBank N.A.
10.2 Vencor Retirement Savings Plan Amended and Restated as of January 1,
1997. Exhibit 10.2 to the Vencor, Inc. Form 10-K for the year ended
December 31, 1997 (Comm. File No. 1-10989) is hereby incorporated by
reference.
10.3 Amendment No. 1 to the Vencor Retirement Savings Plan Amended and
Restated dated July 1, 1997. Exhibit 10.3 to the Vencor, Inc. Form 10-
K for the year ended December 31, 1997 (Comm. File No. 1-10989) is
hereby incorporated by reference.
10.4 Amendment No. 2 to the Vencor Retirement Savings Plan Amended and
Restated dated December 31, 1997. Exhibit 10.4 to the Vencor, Inc.
Form 10-K for the year ended December 31, 1997 (Comm. File No. 1-
10989) is hereby incorporated by reference.
10.5 Amendment No. 3 to the Vencor Retirement Savings Plan Amended and
Restated dated December 31, 1997. Exhibit 10.5 to the Vencor, Inc.
Form 10-K for the year ended December 31, 1997 (Comm. File No. 1-
10989) is hereby incorporated by reference.
10.6 Vencor, Inc. 401(k) Master Trust Agreement dated January 1, 1997 by and
between the Guarantor and Wachovia Bank of North Carolina, N.A.
Exhibit 10.6 to the Vencor, Inc. Form 10-K for the year ended December
31, 1997 (Comm. File No. 1-10989) is hereby incorporated by reference.
10.7 Amendment No. 1 to Vencor, Inc. 401(k) Master Trust Agreement by and
between the Guarantor and Wachovia Bank of North Carolina, N.A.
Exhibit 10.7 to the Vencor, Inc. Form 10-K for the year ended December
31, 1997 (Comm. File No. 1-10989) is hereby incorporated by reference.
10.8 Retirement Savings Plan for Certain Employees of Vencor and its
Affiliates Amended and Restated as of January 1, 1997. Exhibit 10.8 to
the Vencor, Inc. Form 10-K for the year ended December 31, 1997 (Comm.
File No. 1-10989) is hereby incorporated by reference.
10.9 Vencor, Inc. Deferred Compensation Plan dated January 1, 1996. Exhibit
10.24 to the Vencor, Inc. Form 10-K for the year ended December 31,
1996 (Comm. File No. 1-10989) is hereby incorporated by reference.
10.10 Form of Indemnification Agreement between Vencor, Inc. and certain of
its officers and employees. Exhibit 10.31 to the Vencor, Inc. Form 10-
K for the year ended December 31, 1995 (Comm. File No. 1-10989) is
hereby incorporated by reference.
10.11 Forbearance Agreement among First Healthcare Corporation, Medisave
Pharmacies, Inc. and Certain Limited Partnerships, dated as of August
25, 1995. Exhibit 10.52 to the Vencor, Inc. Form 10-K for the year
ended December 31, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.12 Strategic Alliance Agreement dated as of June 10, 1997 by and between
the Guarantor, Continental Casualty Company and Valley Forge Life
Insurance Company. Exhibit 10.1 to the Vencor, Inc. Form 10-Q for the
quarterly period ended June 30, 1997 (Comm. File No. 1-10989) is
hereby incorporated by reference.
10.13 Amended and Restated Agreement and Plan of Merger. Appendix A to
Amendment No. 2 to the Vencor, Inc. Registration Statement on Form S-4
(Reg. No. 33-59345) is hereby incorporated by reference.
10.14 Agreement and Plan of Merger dated as of February 9, 1997 among
TheraTx, the Company and Peach Acquisition Corp. ("Peach"). Exhibit
(c)(1) to the Statement on Schedule 14D-1 of Vencor, Inc. and Peach,
dated February 14, 1997 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.15 Amendment No. 1 to Agreement and Plan of Merger dated as of February
28, 1997 among TheraTx, Vencor, Inc. and Peach. Exhibit (c)(3) of
Amendment No. 2 to the Statement on Schedule 14D-1 of Vencor, Inc. and
Peach, dated March 3, 1997 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.16 Agreement and Plan of Merger dated June 18, 1997 by and among Vencor,
Inc., LV Acquisition Corp. and Transitional Hospitals Corporation.
Exhibit 2.1 to the Vencor, Inc. Current Report on Form 8-K dated July
3, 1997 (Comm. File No. 1-10989) is hereby incorporated by reference.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.17 Agreement and Plan of Merger, dated May 2, 1997, among Select Medical
Corporation, SM Acquisition Co. and Transitional Hospitals
Corporation. Exhibit 99.1 to the Current Report on Form 8-K of
Transitional dated May 2, 1997 (Comm. File No. 1-7008) is hereby
incorporated by reference.
10.18 Asset Purchase Agreement between Transitional Hospitals Corporation and
Behavioral Healthcare Corporation, dated October 22, 1996. Exhibit
99.1 to the Current Report on Form 8-K of Transitional dated October
22, 1996 (Comm. File No. 1-7008) is hereby incorporated by reference.
10.19 Agreement and Plan of Merger between Transitional Hospitals Corporation
and Behavorial Healthcare Corporation, dated October 22, 1996. Exhibit
99.2 to the Current Report on Form 8-K of Transitional dated October
22, 1996 (Comm. File No. 1-7008) is hereby incorporated by reference.
10.20 First Amendment to Asset Purchase Agreement between Transitional
Hospitals Corporation and Behavorial Healthcare Corporation, dated
November 30, 1996. Exhibit 99.1 to the Current Report on Form 8-K of
Transitional dated December 16, 1996 (Comm. File No. 1-7008) is hereby
incorporated by reference.
10.21 Amendment to Agreement and Plan of Merger between Transitional
Hospitals Corporation and Behavorial Healthcare Corporation, dated
November 30, 1996. Exhibit 99.2 to the Current Report on Form 8-K of
Transitional dated December 16, 1996 (Comm. File No. 1-7008) is hereby
incorporated by reference.
10.22 Other Debt Instruments--Copies of debt instruments for which the
related debt is less than 10% of total assets will be furnished to the
Commission upon request.
10.23 Vencor, Inc. 1998 Incentive Compensation Plan.
10.24 Vencor, Inc. 1998 Stock Option Plan for Non-employee Directors.
10.25 Vencor, Inc. Deferred Compensation Plan dated April 30, 1998.
10.26 Vencor, Inc. Non-Employee Directors Deferred Compensation Plan.
10.27 Vencor, Inc. Supplemental Executive Retirement Plan dated January 1,
1998, as amended.
10.28 Form of Vencor Operating, Inc. Change-in-Control Severance Agreement.
10.29 Form of Vencor, Inc. Promissory Note.
10.30 Form of Distribution Agreement between the Guarantor and Ventas, Inc.
Exhibit 10.2 to the Guarantor's Form 10, as amended, dated April 27,
1998 (Comm. File No. 001-14057) is hereby incorporated by reference.
10.31 Form of Master Lease Agreement between the Guarantor and Ventas, Inc.
Exhibit 10.3 to the Guarantors Form 10, as amended, dated April 27,
1998 (Comm. File No. 001-14057) is hereby incorporated by reference.
10.32 Form of Development Agreement between the Guarantor and Ventas, Inc.
Exhibit 10.4 to the Guarantor's Form 10, as amended, dated April 27,
1998 (Comm. file No. 001-14057) is hereby incorporated by reference.
10.33 Form of Participation Agreement between the Guarantor and Ventas, Inc.
Exhibit 10.5 to the Guarantor's Form 10, as amended, dated April 27,
1998 (Comm. File No. 001-14057) is hereby incorporated by reference.
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Sullivan & Cromwell (included in Exhibit 5).
24 Power of Attorney (included in Signature Page to Registration
Statement).
25 Statement of Eligibility of Trustee.
27 Financial Data Schedule (included only in filings submitted under the
Electronic Data Gathering, Analysis and Retrieval system).
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Instructions to Registered Holders.
99.4 Form of Letter to Registered Holders and Depository Trust Company
Participants.
99.5 Form of Letter to Clients.
99.6 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
</TABLE>
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
*1. Vencor, Inc. for the years ended December 31, 1997, 1996 and 1995.
*2. Transitional Hospitals Corporation for the years ended November 30, 1996,
1995 and 1994.
*All other schedules have been omitted because they are not applicable, not
required, or the information is included in the financial statements or notes
and schedules thereto.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of determin-
ing any liability under the Securities Act of 1933 (the "Act"), each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Securi-
ties Exchange Act of 1934) that is incorporated by reference in the registra-
tion statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the same
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be permit-
ted to directors, officers, and controlling persons of the registrant pursuant
to the foregoing provisions described under Item 20, or otherwise, the regis-
trant has been advised that in the opinion of the Securities Exchange Commis-
sion such indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the regis-
trant in the successful defense of any action, suit or proceeding) as asserted
by such director, officer, or controlling person in connection with the securi-
ties being registered, the registrant will, unless in the opinion of its coun-
sel the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for infor-
mation that is incorporated by reference into the prospectus pursuant to Items
4, 10(b), 11, or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-ef-
fective amendment all information concerning a transaction, and the Company be-
ing acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDER-
SIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOUISVILLE, COMMONWEALTH OF
KENTUCKY, ON JUNE 29, 1998.
Vencor, Inc.
/s/ W. Bruce Lunsford
By: ____________________________________
W. BRUCE LUNSFORD CHAIRMAN OF
THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE AP-
PEARS BELOW CONSTITUTES AND APPOINTS W. EARL REED, III, JILL L. FORCE AND RICH-
ARD A. LECHLEITER AND EACH OF THEM AS INDIVIDUAL'S TRUE AND LAWFUL ATTORNEYS-
IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR
SUCH INDIVIDUAL AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACI-
TIES, TO SIGN ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REG-
ISTRATION STATEMENT AND ANY REGISTRATION STATEMENT RELATED TO THE OFFERING CON-
TEMPLATED BY THIS REGISTRATION STATEMENT THAT IS TO BE EFFECTIVE UPON FILING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF 1933, AND TO FILE THE SAME,
WITH ALL EXHIBITS THERETO, AND ALL DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION AND ANY STATE OR OTHER REGULATORY AUTHORITY,
GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER
AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NEC-
ESSARY TO BE DONE IN AND ABOUT THE PREMISES AS FULLY TO ALL INTENTS AND PUR-
POSES AS HE OR SHE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR ANY OF THEM, OR THEIR SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
SIGNATURE TITLE DATE
/s/ W. Bruce Lunsford Chairman of the June 29, 1998
- ----------------------------------- Board, President
W. BRUCE LUNSFORD and Chief
Executive Officer
/s/ Michael R. Barr Executive Vice June 29, 1998
- ----------------------------------- President, Chief
MICHAEL R. BARR Operating Officer
and Director
/s/ W. Earl Reed, III Executive Vice June 29, 1998
- ----------------------------------- President, Chief
W. EARL REED, III Financial Officer
(Principal
Financial
Officer) and
Director
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ Richard A. Lechleiter Vice President, June 29, 1998
- ----------------------------------- Finance and
RICHARD A. LECHLEITER Corporate
Controller
(Principal
Accounting
Officer)
/s/ Ulysses L. Bridgeman, Jr. Director June 29, 1998
- -----------------------------------
ULYSSES L. BRIDGEMAN, JR.
/s/ Elaine L. Chao Director June 29, 1998
- -----------------------------------
ELAINE L. CHAO
/s/ Donna R. Ecton Director June 29, 1998
- -----------------------------------
DONNA R. ECTON
/s/ William H. Lomicka Director June 29, 1998
- -----------------------------------
WILLIAM H. LOMICKA
/s/ R. Gene Smith Vice Chairman of June 29, 1998
- ----------------------------------- the Board and
R. GENE SMITH Director
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of the Guarantor.
Exhibit 3.1 to the Guarantor's Form 10, as amended,
dated April 27, 1998 (Comm. File No. 001-14057) is
hereby incorporated by reference.
3.2 Amended and Restated Bylaws of the Guarantor. Exhibit 3.2
to the Guarantor's Form 10, as amended, dated April 27,
1998 (Comm. File No. 001-14057) is hereby incorporated
by reference.
4.1 Indenture dated April 30, 1998, among the Company, the
Guarantor and PNC Bank, National Association, as
Trustee.
4.2 Form of Exchange Note (included in Exhibit 4.1).
4.3 Registration Rights Agreement dated April 30, 1998, by
and among the Company, the Guarantor and the Initial
Purchasers.
4.4 Form of the Guarantor's 8 5/8% Senior Subordinated Notes
due 2007. Exhibit 4.1 to the Vencor, Inc. Current Report
on Form 8-K dated July 21, 1997 (Comm. File No. 1-10989)
is hereby incorporated by reference.
4.5 Indenture dated as of July 21, 1997, between the
Guarantor and The Bank of New York, as Trustee. Exhibit
4.2 to the Vencor, Inc. Current Report on Form 8-K dated
July 21, 1997 (Comm. File No.
1-10989) is hereby incorporated by reference.
5 Opinion of Sullivan & Cromwell.
6. The Consent of Trustee, PNC Bank, National Association.
8 Opinion of Sullivan & Cromwell regarding tax matters.
10.1 Credit Agreement dated as of April 29, 1998, among the
Company, the Guarantor, the Lenders party thereto, the
Swingline Bank party thereto, the LC Issuing Bank party
thereto, the Senior Managing Agents, Managing Agents and
Co-Agents party thereto, Morgan Guaranty Trust Company
of New York and NationsBank N.A.
10.2 Vencor Retirement Savings Plan Amended and Restated as of
January 1, 1997. Exhibit 10.2 to the Vencor, Inc. Form
10-K for the year ended December 31, 1997 (Comm. File
No.
1-10989) is hereby incorporated by reference.
10.3 Amendment No. 1 to the Vencor Retirement Savings Plan
Amended and Restated dated July 1, 1997. Exhibit 10.3 to
the Vencor, Inc. Form 10-K for the year ended December
31, 1997 (Comm. File No. 1-10989) is hereby incorporated
by reference.
10.4 Amendment No. 2 to the Vencor Retirement Savings Plan
Amended and Restated dated December 31, 1997. Exhibit
10.4 to the Vencor, Inc. Form 10-K for the year ended
December 31, 1997 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.5 Amendment No. 3 to the Vencor Retirement Savings Plan
Amended and Restated dated December 31, 1997. Exhibit
10.5 to the Vencor, Inc. Form 10-K for the year ended
December 31, 1997 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.6 Vencor, Inc. 401(k) Master Trust Agreement dated January
1, 1997 by and between the Guarantor and Wachovia Bank
of North Carolina, N.A. Exhibit 10.6 to the Vencor, Inc.
Form 10-K for the year ended December 31, 1997 (Comm.
File No. 1-10989) is hereby incorporated by reference.
10.7 Amendment No. 1 to Vencor, Inc. 401(k) Master Trust
Agreement by and between the Guarantor and Wachovia Bank
of North Carolina, N.A. Exhibit 10.7 to the Vencor, Inc.
Form 10-K for the year ended December 31, 1997 (Comm.
File No. 1-10989) is hereby incorporated by reference.
10.8 Retirement Savings Plan for Certain Employees of Vencor
and its Affiliates Amended and Restated as of January 1,
1997. Exhibit 10.8 to the Vencor, Inc. Form 10-K for the
year ended December 31, 1997 (Comm. File No. 1-10989) is
hereby incorporated by reference.
10.9 Vencor, Inc. Deferred Compensation Plan dated January 1,
1996. Exhibit 10.24 to the Vencor, Inc. Form 10-K for
the year ended December 31, 1996 (Comm. File No. 1-
10989) is hereby incorporated by reference.
10.10 Form of Indemnification Agreement between Vencor, Inc.
and certain of its officers and employees. Exhibit 10.31
to the Vencor, Inc. Form 10-K for the year ended
December 31, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.11 Forbearance Agreement among First Healthcare Corporation,
Medisave Pharmacies, Inc. and Certain Limited
Partnerships, dated as of August 25, 1995. Exhibit 10.52
to the Vencor, Inc. Form 10-K for the year ended
December 31, 1995 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.12 Strategic Alliance Agreement dated as of June 10, 1997 by
and between the Guarantor, Continental Casualty Company
and Valley Forge Life Insurance Company. Exhibit 10.1 to
the Vencor, Inc. Form 10-Q for the quarterly period
ended June 30, 1997 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.13 Amended and Restated Agreement and Plan of Merger.
Appendix A to Amendment No. 2 to the Vencor, Inc.
Registration Statement on Form S-4 (Reg. No. 33-59345)
is hereby incorporated by reference.
10.14 Agreement and Plan of Merger dated as of February 9, 1997
among TheraTx, the Company and Peach Acquisition Corp.
("Peach"). Exhibit (c)(1) to the Statement on Schedule
14D-1 of Vencor, Inc. and Peach, dated February 14, 1997
(Comm. File No. 1-10989) is hereby incorporated by
reference.
10.15 Amendment No. 1 to Agreement and Plan of Merger dated as
of February 28, 1997 among TheraTx, Vencor, Inc. and
Peach. Exhibit (c)(3) of Amendment No. 2 to the
Statement on Schedule 14D-1 of Vencor, Inc. and Peach,
dated March 3, 1997 (Comm. File No. 1-10989) is hereby
incorporated by reference.
10.16 Agreement and Plan of Merger dated June 18, 1997 by and
among Vencor, Inc., LV Acquisition Corp. and
Transitional Hospitals Corporation. Exhibit 2.1 to the
Vencor, Inc. Current Report on Form 8-K dated July 3,
1997 (Comm. File No. 1-10989) is hereby incorporated by
reference.
10.17 Agreement and Plan of Merger, dated May 2, 1997, among
Select Medical Corporation, SM Acquisition Co. and
Transitional Hospitals Corporation. Exhibit 99.1 to the
Current Report on Form 8-K of Transitional dated May 2,
1997 (Comm. File No. 1-7008) is hereby incorporated by
reference.
10.18 Asset Purchase Agreement between Transitional Hospitals
Corporation and Behavioral Healthcare Corporation, dated
October 22, 1996. Exhibit 99.1 to the Current Report on
Form 8-K of Transitional dated October 22, 1996 (Comm.
File No. 1-7008) is hereby incorporated by reference.
10.19 Agreement and Plan of Merger between Transitional
Hospitals Corporation and Behavioral Healthcare
Corporation, dated October 22, 1996. Exhibit 99.2 to the
Current Report on Form 8-K of Transitional dated October
22, 1996 (Comm. File No. 1-7008) is hereby incorporated
by reference.
10.20 First Amendment to Asset Purchase Agreement between
Transitional Hospitals Corporation and Behavioral
Healthcare Corporation, dated November 30, 1996. Exhibit
99.1 to the Current Report on Form 8-K of Transitional
dated December 16, 1996 (Comm. File No. 1-7008) is
hereby incorporated by reference.
10.21 Amendment to Agreement and Plan of Merger between
Transitional Hospitals Corporation and Behavorial
Healthcare Corporation, dated November 30, 1996. Exhibit
99.2 to the Current Report on Form 8-K of Transitional
dated December 16, 1996 (Comm. File No. 1-7008) is
hereby incorporated by reference.
10.22 Other Debt Instruments--Copies of debt instruments for
which the related debt is less than 10% of total assets
will be furnished to the Commission upon request.
10.23 Vencor, Inc. 1998 Incentive Compensation Plan.
10.24 Vencor, Inc. 1998 Stock Option Plan for Non-employee
Directors.
10.25 Vencor, Inc. Deferred Compensation Plan dated April 30,
1998.
10.26 Vencor, Inc. Non-Employee Directors Deferred Compensation
Plan.
10.27 Vencor, Inc. Supplemental Executive Retirement Plan dated
January 1, 1998, as amended.
10.28 Form of Vencor Operating, Inc. Change-in-Control
Severance Agreement.
10.29 Form of Vencor, Inc. Promissory Note.
10.30 Form of Distribution Agreement between the Guarantor and
Ventas, Inc. Exhibit 10.2 to the Guarantor's Form 10,
as amended, dated April 27, 1998 (Comm. File No. 001-
14057) is hereby incorporated by reference.
10.31 Form of Master Lease Agreement between the Guarantor and
Ventas, Inc. Exhibit 10.3 to the Guarantor's Form 10,
as amended, dated April 27, 1998 (Comm. File No. 001-
14057) is hereby incorporated by reference.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.32 Form of Development Agreement between the Guarantor and
Ventas, Inc. Exhibit 10.4 to the Guarantor's Form 10,
as amended, dated April 27, 1998 (Comm. File No. 001-
14057) is hereby incorporated by reference.
10.33 Form of Participation Agreement between the Guarantor and
Ventas, Inc. Exhibit 10.5 to the Guarantor's Form 10,
as amended, dated April 27, 1998 (Comm. File No. 001-
14057) is hereby incorporated by reference.
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Ernst & Young LLP.
23.4 Consent of Sullivan & Cromwell (included in Exhibit 5).
24 Power of Attorney (included in Signature Page to
Registration Statement).
25 Statement of Eligibility of Trustee.
27 Financial Data Schedule (included only in filings
submitted under the Electronic Data Gathering,
Analysis and Retrieval system).
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Instructions to Registered Holders.
99.4 Form of Letter to Registered Holders and Depository Trust
Company Participants.
99.5 Form of Letter to Clients.
99.6 Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
</TABLE>
3
<PAGE>
EXHIBIT 4.1
================================================================================
VENCOR OPERATING INC., as Company
VENCOR, INC., as Guarantor
AND
PNC BANK, NATIONAL ASSOCIATION, as Trustee
Indenture
Dated as of April 30, 1998
__________
$300,000,000
9 7/8% Guaranteed Senior Subordinated Notes due 2005
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
Definitions
Section 1.01. Certain Terms Defined...................................... 15
Section 1.02. Other Definitions.......................................... 35
ARTICLE 2
Issue, Execution, Form and Registration of Securities
Section 2.01. Authentication and Delivery of Securities.................. 36
Section 2.02. Execution of Securities and Guarantee...................... 36
Section 2.03. Certificate of Authentication.............................. 37
Section 2.04. Form, Denomination and Date of Securities; Payments of
Interest............................................................. 37
Section 2.05. Restrictive Legends........................................ 39
Section 2.06. Registration, Transfer and Exchange........................ 40
Section 2.07. Book-Entry Provisions for Global Securities................ 42
Section 2.08. Special Transfer Provisions................................ 44
Section 2.09. Mutilated, Defaced, Destroyed, Lost and Stolen Securities.. 48
Section 2.10. Cancellation of Securities................................. 49
Section 2.11. Temporary Securities....................................... 49
Section 2.12. CUSIP and CINS Numbers..................................... 50
ARTICLE 3
Covenants of the Company, the Guarantor and the Trustee.
Section 3.01. Payment of Principal and Interest.......................... 50
Section 3.02. Offices for Payments, etc.................................. 50
Section 3.03. Appointment to Fill a Vacancy in Office of Trustee......... 51
Section 3.04. Paying Agents.............................................. 51
Section 3.05. Certificates to Trustee.................................... 52
Section 3.06. Securityholders' Lists..................................... 52
Section 3.07. Reports by the Trustee..................................... 52
Section 3.08. Limitation on Restricted Payments.......................... 53
Section 3.09. Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock................................................... 55
Section 3.10. Disposition of Proceeds of Asset Sales..................... 57
</TABLE>
<PAGE>
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Section 3.11. Limitation on Liens........................................ 61
Section 3.12. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.................................... 61
Section 3.13. Limitation on Line of Business............................. 62
Section 3.14. Limitation on Senior Subordinated Debt..................... 62
Section 3.15. Limitation on Transactions with Affiliates................. 62
Section 3.16. Limitation on Issuance of Guarantees of Indebtedness by
Restricted Subsidiaries.............................................. 63
Section 3.17. Change of Control.......................................... 64
Section 3.18. Termination of Certain Covenants if Securities Rated
Investment Grade..................................................... 66
Section 3.19. Reports.................................................... 66
Section 3.20. Waiver of Stay, Extension or Usury Laws.................... 68
ARTICLE 4
Remedies of the Trustee and Holders on Event of Default
Section 4.01. Events of Default.......................................... 68
Section 4.02. Acceleration............................................... 70
Section 4.03. Other Remedies............................................. 71
Section 4.04. Waiver of Past Defaults.................................... 71
Section 4.05. Control by Majority........................................ 71
Section 4.06. Limitation on Suits........................................ 71
Section 4.07. Rights of Holders to Receive Payment....................... 72
Section 4.08. Collection Suit by Trustee................................. 72
Section 4.09. Trustee May File Proofs of Claim........................... 72
Section 4.10. Priorities................................................. 73
Section 4.11. Undertaking for Costs...................................... 73
ARTICLE 5
Concerning the Trustee
Section 5.01. Duties and Responsibilities of the Trustee; During
Default; Prior to Default............................................ 74
Section 5.02. Certain Rights of the Trustee.............................. 75
Section 5.03. Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof........................ 76
Section 5.04. Trustee and Agents May Hold Securities; Collections, etc... 77
Section 5.05. Moneys Held by Trustee..................................... 77
Section 5.06. Notice of Default.......................................... 77
</TABLE>
ii
<PAGE>
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Section 5.07. Compensation and Indemnification of Trustee and Its
Prior Claim.......................................................... 77
Section 5.08. Right of Trustee to Rely on Officer's Certificate, etc..... 78
Section 5.09. Persons Eligible for Appointment as Trustee................ 78
Section 5.10. Resignation and Removal; Appointment of Successor
Trustee.............................................................. 79
Section 5.11. Acceptance of Appointment by Successor Trustee............. 80
Section 5.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee.................................................. 81
Section 5.13. Preferential Collection of Claims.......................... 81
ARTICLE 6
Concerning the Holders
Section 6.01. Evidence of Action Taken by Holders........................ 82
Section 6.02. Proof of Execution of Instruments and of Holding of
Securities; Record Date.............................................. 82
Section 6.03. Securities Owned by Company or Guarantor Deemed Not
Outstanding......................................................... 83
Section 6.04. Right of Revocation of Action Taken........................ 83
ARTICLE 7
Supplemental Indentures
Section 7.01. Supplemental Indentures Without Consent of Holders......... 84
Section 7.02. With Consent of Holders.................................... 84
Section 7.03. Effect of Supplemental Indenture........................... 86
Section 7.04. Documents to Be Given to Trustee; Compliance with TIA...... 86
Section 7.05. Notation on Securities in Respect of Supplemental
Indentures........................................................... 86
ARTICLE 8
Consolidation, Merger or Sale of Assets
Section 8.01. When the Company or the Guarantor May Merge, Etc........... 87
Section 8.02. Successor Corporation Substituted.......................... 87
Section 8.03. Opinion of Counsel to Trustee.............................. 88
</TABLE>
iii
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ARTICLE 9
Subordination
Section 9.01. Agreement to Subordinate................................... 88
Section 9.02. Liquidation; Dissolution; Bankruptcy....................... 88
Section 9.03. Default on Designated Senior Debt.......................... 90
Section 9.04. When Distributions Must Be Paid Over....................... 90
Section 9.05. Notice..................................................... 91
Section 9.06. Subrogation................................................ 91
Section 9.07. Relative Rights............................................ 92
Section 9.08. The Company, the Guarantor and Holders May Not Impair
Subordination........................................................ 92
Section 9.09. Distribution or Notice to Representative................... 93
Section 9.10. Rights of Trustee and Paying Agent......................... 93
Section 9.11. Authorization to Effect Subordination...................... 94
Section 9.12. Payment.................................................... 94
ARTICLE 10
Guarantee
Section 10.01. Guarantee................................................. 94
Section 10.02. Subrogation............................................... 96
ARTICLE 11
Redemption of Securities
Section 11.01. Right of Optional Redemption; Prices...................... 96
Section 11.02. Notice of Redemption; Partial Redemptions................. 96
Section 11.03. Payment of Securities Called for Redemption............... 97
Section 11.04. Exclusion of Certain Securities from Eligibility for
Selection for Redemption............................................. 98
ARTICLE 12
Defeasance and Covenant Defeasance
Section 12.01. Company's and Guarantor's Option to Effect Defeasance
or Covenant Defeasance............................................... 98
Section 12.02. Legal Defeasance and Discharge............................ 98
Section 12.03. Covenant Defeasance....................................... 99
Section 12.04. Conditions to Legal or Covenant Defeasance................ 100
</TABLE>
iv
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Section 12.05. Deposited Money and Government Securities to be Held
in Trust; Other Miscellaneous Provisions............................. 101
Section 12.06. Repayment to the Company or the Guarantor.................. 102
Section 12.07. Reinstatement.............................................. 102
ARTICLE 13
Miscellaneous Provisions
Section 13.01. Incorporators, Stockholders, Officers and Directors of
Company and the Guarantor Exempt from Individual Liability........... 103
Section 13.02. Provisions of Indenture for the Sole Benefit of Parties
and Holders.......................................................... 103
Section 13.03. Successors and Assigns of Company and Guarantor
Bound by Indenture................................................... 103
Section 13.04. Notices and Demands on Company, Guarantor, Trustee
and Holders.......................................................... 104
Section 13.05. Officer's Certificates and Opinions of Counsel;
Statements to Be Contained Therein................................... 104
Section 13.06. Payments Due on Saturdays, Sundays and Holidays............ 105
Section 13.07. Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939................................................ 106
Section 13.08. New York Law to Govern..................................... 106
Section 13.09. Third Party Beneficiaries.................................. 106
Section 13.10. Counterparts............................................... 106
Section 13.11. Effect of Headings......................................... 106
</TABLE>
EXHIBIT A. Form of Certificate to be Delivered in
Connection with Transfers Pursuant to
Regulation S......................................................... A-1
v
<PAGE>
THIS INDENTURE, dated as of April 30, 1998 among Vencor Operating, Inc., a
Delaware corporation (the "COMPANY"), Vencor, Inc., a Delaware corporation (the
"GUARANTOR"), and PNC Bank, National Association (the "TRUSTEE"),
W I T N E S S E T H :
WHEREAS, the Company has duly authorized the issue of its 9 7/8% Guaranteed
Senior Subordinated Notes due 2005 (the "SECURITIES") and, to provide, among
other things, for the authentication, delivery and administration thereof, the
Company has duly authorized the execution and delivery of this Indenture;
WHEREAS, the Guarantor has duly authorized the execution and delivery of
this Indenture to provide for its Guarantee of such Securities; and
WHEREAS, the Securities, the Guarantee and the Trustee's certificate of
authentication shall be in substantially the following form:
[FORM OF FACE OF SECURITY]
No. $
[CUSIP][CINS]
Vencor Operating, Inc.
9 7/8% Guaranteed Senior Subordinated Note Due 2005
Vencor Operating, Inc., a Delaware corporation (the "COMPANY"), for value
received hereby promises to pay to or registered assigns the
principal sum of Dollars at the Company's office or agency for
said purpose in the City of New York, on May 1, 2005, in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts, and to pay interest, semi-annually
on May 1 and November 1 (each an "INTEREST PAYMENT DATE") of each year,
commencing with November 1, 1998, on said principal sum in like coin or currency
at the rate per annum set forth above at said office or agency from the most
recent Interest Payment Date to which interest on the Securities has been paid
or duly provided for, unless the date hereof is a date to which interest on the
Securities has been paid or duly provided for, in which case from the date of
this Security, or, if no interest on the Securities [or on the Securities for
which these Securities were exchanged pursuant to the Exchange Offer]/1/ has
been paid or duly provided for, from April 30, 1998. Notwithstanding the
foregoing, if the date hereof is after April 15 or October 15 (each an "INTEREST
RECORD DATE"), as the
_______________________
/1/To be included in Exchange Securities.
<PAGE>
case may be, and before the immediately following Interest Payment Date, this
Security shall bear interest from such Interest Payment Date; provided, that if
the Company shall default in the payment of interest due on such Interest
Payment Date then this Security shall bear interest from the next preceding
Interest Payment Date to which interest on the Securities has been paid or duly
provided for. The interest so payable on any Interest Payment Date will, except
as otherwise provided in the Indenture referred to on the reverse hereof, be
paid to the person in whose name this Security is registered at the close of
business on the Interest Record Date preceding such Interest Payment Date
whether or not such day is a business day; provided that interest may be paid,
at the option of the Company, by mailing a check therefor payable to the
registered holder entitled thereto at such holder's last address as it appears
on the Security register or by wire transfer, in immediately available funds, to
such bank or other entity in the continental United States as shall be
designated in writing by such holder prior to the relevant Interest Record Date
and shall have appropriate facilities for such purpose.
Interest, other than default interest, on the Securities will be computed
on the basis of a 360-day year consisting of twelve 30-day months.
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Security shall not be valid or obligatory until the certificate of
authentication hereon shall have been duly signed by the Trustee acting under
the Indenture.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
VENCOR OPERATING, INC.
By:___________________________________
Name:
Title:
3
<PAGE>
[FORM OF REVERSE OF SECURITY]
Vencor Operating, Inc.
9 7/8% Guaranteed Senior Subordinated Note Due 2005
This Security is one of a duly authorized issue of debt securities of the
Company, limited to the aggregate principal amount of $300,000,000 (except as
otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an indenture dated as of April 30, 1998 (the "INDENTURE"), duly
executed and delivered by the Company to PNC Bank, National Association as
Trustee (herein called the "TRUSTEE"). Reference is hereby made to the Indenture
and all indentures supplemental thereto for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the holders (the words "HOLDERS" or "HOLDER" meaning
the registered holders or registered holder) of the Securities.
This Security will bear interest until final maturity at a rate per annum
shown above, except as provided in the next paragraph. The Company will pay
interest on overdue principal of, premium, if any, and to the extent lawful,
interest on overdue installments of interest, at a 9 7/8% rate per annum based
on a year of 360 days and actual days elapsed.
[In the event that (i) the Exchange Offer Registration Statement (as
defined in the Indenture) relating to the Exchange Offer (as defined in the
Indenture) is not filed with the Commission (as defined in the Indenture) on or
prior to the date that is 60 days after the Closing Date (as defined in the
Indenture), (ii) the Exchange Offer Registration Statement is not declared
effective on or prior to the date that is 120 days after the Closing Date, or
(iii) the Exchange Offer is not consummated or a Shelf Registration Statement
(as defined in the Indenture) with respect to resale of this Security is not
declared effective on or prior to the date that is 150 days after the Closing
Date (each such event referred to in clauses (i) through (iii), a "REGISTRATION
DEFAULT"), then the Company will pay additional interest (in addition to the
interest otherwise due hereon) ("ADDITIONAL INTEREST") to the holder during the
first 90-day period immediately following the occurrence of each such
Registration Default in an amount equal to 0.25% per annum. The amount of
interest will increase by an additional 0.25% per annum for each subsequent 90-
day period until such Registration Default is cured, up to a maximum amount of
additional interest of 1.00% per annum. Such additional interest will cease
accruing with respect to any Registration Default when such Registration Default
has been cured. The Company shall pay amounts due in respect of Additional
Interest on each Interest Payment Date (or, if the Company shall default in the
payment of interest on any Interest
4
<PAGE>
Payment Date, on the date such interest is otherwise paid as provided in the
Indenture).]/2/
[There shall also be payable in respect of this Security all Additional
Interest that may have accrued on the Security for which this Security was
exchanged (as defined in such Security) pursuant to the Exchange Offer, such
Additional Interest to be calculated in accordance with the terms of such
Security and payable at the same time and in the same manner as periodic
interest on this Security.]/3/
The Securities are unconditionally and irrevocably guaranteed as to the due
and punctual payment of the principal, premium, if any, and interest and all
other amounts payable in respect thereof by the Guarantor as evidenced by the
guarantee (the "GUARANTEE") set forth hereon.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all the Securities may be declared
due and payable, in the manner and with the effect, and subject to the
conditions, provided in the Indenture. The Indenture provides that in certain
events such declaration and its consequences may be waived by the holders of a
majority in aggregate principal amount of the Securities then outstanding and
that, prior to any such declaration, such holders may waive any past default
under the Indenture and its consequences except a default in the payment of
principal of, premium, if any, or interest on any of the Securities. Any such
consent or waiver by the holder of this Security (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such holder and upon all
future holders and owners of this Security and any Security which may be issued
in exchange or substitution herefor, whether or not any notation thereof is made
upon this Security or such other Securities.
The Indenture permits the Company and the Trustee, with the consent of the
holders of at least a majority in aggregate principal amount of the Securities
at the time outstanding, evidenced as in the Indenture provided, to execute
supplemental indentures adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of any supplemental
indenture or modifying in any manner the rights of the holders of the
Securities; provided that without the consent of each holder affected, no such
supplemental indenture shall (i) reduce the principal amount of Securities whose
holders must consent to an amendment, supplement or waiver, (ii) reduce the
principal of or change the fixed maturity of any Security or alter the
provisions with respect to the redemption of the Securities (other
_________________________
/2/To be included in Securities not Exchange Securities.
/3/To be included in Exchange Securities.
5
<PAGE>
than provisions relating to the covenants described in Sections 310 and 317 in
the Indenture), (iii) reduce the rate of or change the time for payment of
interest on any Security, (iv) waive a Default or Event of Default in the
payment of principal of, premium, if any, or interest on, the Securities (except
a rescission of acceleration of the Securities by the holders of at least a
majority in aggregate principal amount thereof and a waiver of the payment
default that resulted from such acceleration), (v) make any Security payable in
money other than that stated in the Securities, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of holders of Securities to receive payments of principal of, premium, if any,
or interest on the Securities, (vii) waive a redemption payment with respect to
any Security (other than a payment required by one of the covenants described in
Sections 310 and 317 in the Indenture), (viii) modify the ranking or priority of
the Securities or modify the definition of Senior Debt or Designated Senior Debt
or amend or modify the subordination provisions of the Indenture in any manner
adverse to the holders or (ix) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Securities, the Company, the Guarantor and the Trustee may amend or supplement
the Indenture or the Securities (including the Guarantee) to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Securities in addition to
or in place of certificated Securities, to provide for the assumption of the
Company's or the Guarantor's obligations to holders of Securities in the case of
a transaction described in Section 801, to make any change that would provide
any additional rights or benefits to the holders of Securities or that does not
adversely affect the legal rights under the Indenture of any such holder, or to
comply with requirements of the Commission (as defined in the Indenture) in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act (as defined in the Indenture).
No reference herein to the Indenture and no provision of this Security or
the Guarantee or of the Indenture shall alter or impair the obligation of the
Company and of the Guarantor, which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on this Security and the Guarantee
at the place, times, and rate, and in the currency, herein prescribed.
The Securities are issuable only as registered Securities without coupons
in denominations of $1,000 and any multiple of $1,000.
At the office or agency of the Company referred to on the face hereof and
in the manner and subject to the limitations provided in the Indenture,
Securities may be exchanged for a like aggregate principal amount of Securities
of other authorized denominations.
6
<PAGE>
Upon due presentment for registration of transfer of this Security at the
above-mentioned office or agency of the Company, a new Security or Securities of
authorized denominations, for a like aggregate principal amount, will be issued
to the transferee as provided in the Indenture. No service charge shall be made
for any such transfer, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto.
The Securities may be redeemed at the option of the Company as a whole, or
from time to time in part, on any date on or after May 1, 2002, upon mailing a
notice of such redemption not less than 30 nor more than 60 days prior to the
date fixed for redemption to the holders of Securities to be redeemed, all as
provided in the Indenture, at the following redemption prices (expressed in
percentages of the principal amount) together in each case with accrued interest
to the date fixed for redemption:
If redeemed during the twelve-month period beginning May 1,
<TABLE>
<CAPTION>
Year Percentage
<S> <C>
2002.................................... 104.9375%
2003.................................... 102.4688%
2004 and thereafter..................... 100.0000%
</TABLE>
provided that if the date fixed for redemption is an Interest Payment Date, then
the interest payable on such date shall be paid to the holder of record on the
next preceding Interest Record Date.
Subject to payment by the Company or the Guarantor of a sum sufficient to
pay the amount due on redemption, interest on this Security (or portion hereof
if this Security is redeemed in part) shall cease to accrue upon the date duly
fixed for redemption of this Security (or portion hereof if this Security is
redeemed in part).
Upon a Change of Control (as defined in the Indenture), any holder of
Securities will have the right to cause the Company to purchase the Securities
of such holder, in whole or in part in integral multiples of aggregate principal
amount of $1,000, at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to any Change of
Control Payment Date, as provided in, and subject to the terms of the Indenture.
All amounts owed under and in respect of this Security (including the
Guarantee) are subordinated in right of payment, to the extent and in the manner
provided in Article 9 of the Indenture, to the prior payment in full in cash of
all amounts owed under and in respect of all Senior Debt, and the subordination
of the
7
<PAGE>
Securities and the Guarantee is for the benefit of all holders of all Senior
Debt, whether outstanding on the Closing Date or incurred thereafter. The
Company and the Guarantor agree, and each holder by accepting a Security
(including the Guarantee) agree, to the subordination.
The Company, the Guarantor, the Trustee, and any authorized agent of the
Company, the Guarantor or the Trustee, may deem and treat the registered holder
hereof as the absolute owner of this Security (whether or not this Security
shall be overdue and notwithstanding any notation of ownership or other writing
hereon made by anyone other than the Company, the Guarantor or the Trustee or
any authorized agent of the Company, the Guarantor or the Trustee), for the
purpose of receiving payment of, or on account of, the principal hereof and
premium, if any, and, subject to the provisions on the face hereof, interest
hereon and for all other purposes, and none of the Company, the Guarantor, the
Trustee nor any authorized agent of the Company, the Guarantor or the Trustee
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of, premium, if
any, or the interest on this Security, for any claim based hereon, or otherwise
in respect hereof, or based on or in respect of the Indenture or any indenture
supplemental thereto, against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Company or the Guarantor or
of any successor corporation, either directly or through the Company or the
Guarantor or any successor corporation, whether by virtue of any constitution,
statute or rule of law or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
The Indenture is hereby incorporated by the reference and to the extent of
any variance between the provisions hereof and the Indenture, the Indenture
shall control.
This Security (including the Guarantee) shall be deemed to be a contract
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State, except as may otherwise be required
by mandatory provisions of law.
8
<PAGE>
GUARANTEE
Vencor, Inc. (the "GUARANTOR") hereby irrevocably and unconditionally
guarantees to the holder of this Security upon which the Guarantee is endorsed
and to the Trustee on behalf of each Securityholder the due and punctual payment
of principal of, premium, if any and interest on, and all other amounts payable
under, each Security provided for pursuant to the Indenture and the terms of
such Security when and as the same shall become due and payable, whether at the
stated maturity, upon acceleration, by call for redemption, upon repurchase or
purchase following a Change of Control Offer (as defined in the Indenture) or an
Asset Sale Offer (as defined in the Indenture) or otherwise, in accordance with
the terms of such Security and of the Indenture. The Guarantor hereby expressly
waives (i) any right to which it may be entitled to require the Trustee or any
Securityholder to pursue or exhaust their respective legal or equitable remedies
against the Company prior to exercising their respective rights under the
Guarantee of the Guarantor and (ii) any right to which it may be entitled to
have the assets of the Company first be used as payment of the Company's or the
Guarantor's obligations prior to any amounts being claimed from or paid by the
Guarantor hereunder. The Guarantor will not be discharged with respect to any
Security except by payment in full of the principal thereof, premium, if any,
and interest thereon and all other amounts payable thereunder. In case of the
failure of the Company punctually to pay any such principal or interest, the
Guarantor hereby agrees to cause any such payment to be made punctually when and
as the same shall become due and payable, whether at the stated maturity, upon
acceleration, by call for redemption upon repurchase or purchase following a
Change of Control Offer or an Asset Sale Offer or otherwise, and as if such
payment were made by the Company.
If at any time payment of principal of and interest on this Security is
rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of the Company, the Guarantor's obligations
hereunder with respect to such payment shall be reinstated as of the date of
such rescission, restoration or return as though such payment had become due,
but had not been made at such time.
The obligations of the Guarantor to the holder of this Security and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth in
Article 10 of the Indenture, and reference is hereby made to such Article and
Indenture for the precise terms of the Guarantee.
The Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication of the Security upon which the Guarantee is
endorsed shall have been executed by the Trustee acting under the Indenture by
the manual signature of one of its authorized officers.
9
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be duly
executed under its corporate seal.
Dated:
VENCOR, INC.
By: _________________________________
Name:
Title:
10
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
Dated: ______________________________
This is one of the Securities described in the within-mentioned
Indenture.
PNC BANK, NATIONAL ASSOCIATION,
as Trustee
By:________________________________
Authorized Signatory
11
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
________________________________________________________________________________
Please print or typewrite name and address including zip code of assignee
________________________________________________________________________________
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing ____________________ attorney to transfer said Security on the
books of the Company with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL SECURITIES OTHER THAN EXCHANGE SECURITIES,
PERMANENT OFFSHORE GLOBAL SECURITIES AND
OFFSHORE PHYSICAL SECURITIES]
In connection with any transfer of this Security occurring prior to the
date which is the earlier of (i) the date of an effective Registration or (ii)
two years after the later of the original issuance of this Security or the last
date on which this Security was held by the Company, the Guarantor or an
Affiliate of the Company or the Guarantor, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
12
<PAGE>
[Check One]
[_](a) this Security is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
or
[_](b) this Security is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the
Indenture.
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Security in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer or
registration set forth herein and in Section 208 of the Indenture shall have
been satisfied.
Date: _____________ _____________________________________________
NOTICE: The signature to this assignment
must correspond with the name as written upon
the face of the within-mentioned instrument
in every particular, without alteration or
any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "QUALIFIED
INSTITUTIONAL BUYER" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: ___________ _____________________________________________
NOTICE: To be executed by an executive
officer
13
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 310 or Section 317 of the Indenture, check the Box: [_]
If you wish to have a portion of this Security purchased by the Company
pursuant to Section 310 or Section 317 of the Indenture, state the amount:
maturity):
$_______________.
Date: _______________
Your Signature: ______________________________________________
(Sign exactly as your name appears on
the other side of this Security)
Signature Guarantee: _________________________
14
<PAGE>
AND WHEREAS, all things necessary to make the Securities and the Guarantee,
when executed by the Company and the Guarantor and authenticated and delivered
by the Trustee as in the Indenture provided, the valid, binding and legal
obligations of the Company and the Guarantor, as the case may be, and to
constitute these presents a valid indenture and agreement according to its
terms, have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases of the Securities and
the Guarantee by the Holders thereof, the Company, the Guarantor and the Trustee
mutually covenant and agree for the equal and proportionate benefit of the
respective Holders from time to time of the Securities as follows:
ARTICLE 1
Definitions
Section 1.01. Certain Terms Defined. The following terms (except as
otherwise expressly provided or unless the context otherwise clearly requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section. All other terms
used in this Indenture which are defined in the Trust Indenture Act of 1939 or
the definitions of which in the Securities Act of 1933 are referred to in the
Trust Indenture Act of 1939 (except as herein otherwise expressly provided or
unless the context otherwise clearly requires), shall have the meanings assigned
to such terms in said Trust Indenture Act and in said Securities Act as in force
at the date of this Indenture. All accounting terms used herein and not
expressly defined shall have the meanings given to them in accordance with GAAP
(whether or not such is indicated herein). The words "HEREIN", "HEREOF" and
"HEREUNDER" and other words of similar import refer to this Indenture as a whole
and not to any particular Article, Section or other subdivision. The terms
defined in this Article include the plural as well as the singular.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
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"ACQUIRED SUBSIDIARY DEBT" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person,
except to the extent such Indebtedness was incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person, and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person, except to the
extent such Lien was created or incurred in connection with, or in contemplation
of, such acquisition.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLING," "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"AFFILIATE TRANSACTION" has the meaning provided in Section 315.
"AGENT MEMBERS" has the meaning provided in Section 207.
"ASSET SALE" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback);
provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company or of the Guarantor will be
governed by Section 317 and/or Article 8 and not by the provisions of Section
310, and (ii) the issuance or sale by the Guarantor or any of its Restricted
Subsidiaries of Equity Interests of any of the Guarantor's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $15 million or (b) for net proceeds in excess of $15 million.
Notwithstanding the foregoing: (a) a transfer of assets by the Guarantor to a
Restricted Subsidiary or by a Restricted Subsidiary to the Guarantor or to
another Restricted Subsidiary, (b) an issuance of Equity Interests by a
Restricted Subsidiary to the Guarantor or to another Restricted Subsidiary, (c)
sales of assets of Behavioral Healthcare Corp., (d) sales of Development
Properties consummated in accordance with the terms set forth in the Development
Agreement and (e) transfers or dispositions of assets in accordance with the
Licensing Arrangements, in each case, will not be deemed to be an Asset Sale.
"ASSET SALE OFFER PRICE" has the meaning provided in Section 310.
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"ATRIA" means Atria Communities, Inc., a Delaware corporation, and its
successors.
"BOARD OF DIRECTORS" means, with respect to any Person, the Board of
Directors of such Person, or any authorized committee of the Board of Directors
of such Person.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CASH EQUIVALENTS" means, at any time, (i) any evidence of Indebtedness
with a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof), (ii) repurchase obligations for investments of the
type described in clause (i) for which delivery of the investment is made
against payment, (iii) demand or time deposits, bankers' acceptances and
certificates of deposit or acceptances with a maturity of 180 days or less of
any financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than
$300,000,000, and (iv) commercial paper with a maturity of 180 days or less
issued by a corporation (except any Affiliate of the Guarantor or Subsidiary of
the Guarantor) organized under the laws of any state of the United States or the
District of Columbia and rated at least A-1 by S&P and at least P-1 by Moody's.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of the Company
or of the Guarantor to any Person or group (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), (ii) the acquisition by any Person
or group (as defined above) of a direct or indirect interest in more than 50% of
the voting power of the voting stock of the Company or of the Guarantor, by way
of merger or consolidation or otherwise, or (iii) the first day on which a
majority of the members of the Board
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of Directors of the Company or the Guarantor are not Continuing Directors;
provided that a merger or consolidation of the Company with or into the
- -------- ----
Guarantor shall not be deemed a Change of Control.
"CLOSING DATE" means April 30, 1998.
"COMMISSION" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act.
"COMPANY CREDIT AGREEMENT" means that certain Credit Agreement, dated as of
April 29, 1998, by and among the Company, the Guarantor, Morgan Guaranty Trust
Company of New York, as Documentation Agent and Collateral Agent, NationsBank
N.A., as Administrative Agent, the lenders party thereto, the Swingline Bank
party thereto, the LC Issuing Bank party thereto and the Senior Managing Agents,
Managing Agents and Co-Agents party thereto, including any related notes,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as further amended, modified, extended, renewed,
refunded, replaced or refinanced in whole or in part, from time to time
(including amendments, modifications, extensions, renewals, refundings,
replacements or refinancings which increase the principal amount of Indebtedness
permitted thereunder; provided that any such increase will not increase the
amount of Indebtedness which may be incurred at the time of such increase
pursuant to clause (i) of Section 309).
"CONSOLIDATED EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (i) an amount equal
to any extraordinary loss plus any net loss realized in connection with an asset
sale (to the extent such losses were deducted in computing such Consolidated Net
Income), plus (ii) any non-cash charges (to the extent such charges were
deducted in computing such Consolidated Net Income), except for any non-cash
charges that represent accruals of, or reserves for, cash disbursements to be
made in any future accounting period, plus (iii) provision for taxes based on
income or profits of such Person and its Restricted Subsidiaries for such
period, to the extent such provision for taxes was included in computing such
Consolidated Net Income, plus (iv) the Fixed Charges of such Person and its
Restricted Subsidiaries for such period, to the extent that such Fixed Charges
were deducted in computing such Consolidated Net Income, plus (v) depreciation
and amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation and amortization were deducted in computing such
Consolidated Net Income, in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the amounts referred to in
clauses (i) through (v) above as they relate to a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated
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EBITDA only to the extent (and in same proportion) that the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income of
such Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company or the Guarantor by such
Restricted Subsidiary or by a Restricted Subsidiary which is the parent of such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Restricted Subsidiary thereof, (ii) the Net
Income of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income is not at the date of determination permitted to
be dividended to the Company or the Guarantor by such Restricted Subsidiary or
by a Restricted Subsidiary which is the parent of such Restricted Subsidiary
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
solely for the purpose of calculating the amount of Restricted Payments that may
be made pursuant to clause (c) of Section 308, the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded and (iv) the cumulative effect of a change
in accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock), less
all write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made in accordance
with GAAP as a result of the acquisition of such business) subsequent to the
date of the Indenture in the book value of any asset owned by such Person or a
consolidated Restricted Subsidiary of such Person, and excluding the cumulative
effect of a change in accounting principles, all as determined in accordance
with GAAP.
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"CONTINUING DIRECTOR" means, as of any date of determination, any member of
the Board of Directors of the Company or the Guarantor who (i) was a member of
such Board of Directors on the date of the Indenture, (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election or (iii) was nominated for election or elected to such
Board of Directors by the Guarantor.
"CORPORATE TRUST OFFICE" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date as of which this
Indenture is dated, located at 500 W. Jefferson St., Louisville, Kentucky 40202.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DEPOSITARY" means The Depository Trust Company, its nominees, and their
respective successors.
"DESIGNATED SENIOR DEBT" means (i) so long as the Company Credit Agreement
is outstanding, all Indebtedness under the Company Credit Agreement and (ii)
thereafter, any other Senior Debt permitted under the Indenture the principal
amount of which is $25 million or more and that has been designated by the
Company or the Guarantor as "Designated Senior Debt".
"DEVELOPMENT AGREEMENT" means the development agreement relating to the
Development Properties identified in the Proxy Statement.
"DEVELOPMENT PROPERTIES" means the properties under development or proposed
to be developed by the Guarantor or its Subsidiaries and that will, at the
option of Ventas, Inc., be sold to Ventas, Inc. or any of its subsidiaries upon
completion of the development thereof and leased back from Ventas, Inc. or such
subsidiary by the Guarantor or its Subsidiaries, all as described in the Proxy
Statement.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Securities mature.
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"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EVENT OF DEFAULT" means any event or condition specified as such in
Section 401 which shall have continued for the period of time, if any, therein
designated.
"EXCESS PROCEEDS" has the meaning provided in Section 310.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE OFFER" means the exchange offer by the Company and the Guarantor
of Exchange Securities for Securities pursuant to the Registration Rights
Agreement.
"EXCHANGE OFFER REGISTRATION STATEMENT" means a registration statement
relating to an Exchange Offer on an appropriate form and all amendments and
supplements to such registration statement, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"EXCHANGE SECURITIES" means any securities of the Company to be offered to
Securityholders in exchange for Securities pursuant to the Exchange Offer or
otherwise pursuant to a Registration of Exchange Securities containing terms
identical to the Securities (which Exchange Securities will be Guaranteed by the
Guarantor pursuant to a guarantee containing terms identical to the Guarantee)
for which they are exchanged (except that (i) interest thereon shall accrue from
the last date on which interest was paid on the Securities or, if no such
interest has been paid, from the date of issuance of the Securities and (ii) the
Exchange Securities will contain the alternative third paragraph appearing on
the reverse of the Securities in the form recited above and will not contain
terms with respect to transfer restrictions).
"EXISTING AFFILIATE AGREEMENTS" means the agreements listed in Schedule 6
to the Company Credit Agreement on the date of the Indenture.
"EXISTING INDEBTEDNESS" means Indebtedness of the Guarantor and its
Restricted Subsidiaries (other than Indebtedness under the Company Credit
Agreement) in existence on the date of the Indenture, until such amounts are
repaid, including all reimbursement obligations with respect to letters of
credit outstanding as of the date of the Indenture (other than letters of credit
issued pursuant to the Company Credit Agreement).
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"EXISTING PREFERRED STOCK" means the Series A Convertible Preferred Stock
of the Guarantor with an aggregate liquidation preference of $17.7 million to be
issued in connection with the Reorganization Transactions.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for any
period, the ratio of (i) the sum of (x) the Consolidated EBITDA of such Person
for such period and (y) one-third of all rental expense of such Person and its
Restricted Subsidiaries for such period attributable to operating leases with an
initial term, including any renewals at the option of either party, in excess of
one year, to (ii) the Fixed Charges of such Person for such period. In the event
that the Guarantor or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues preferred stock subsequent to the commencement of the four-quarter
reference period for which the Fixed Charge Coverage Ratio is being calculated
but on or prior to the date on which the event for which the calculation of the
Fixed Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Guarantor or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four quarter reference period and (ii) the
Consolidated EBITDA, rental expense and Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded.
"FIXED CHARGES" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letters
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period
and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
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is a Restricted Subsidiary) on any series of preferred stock of such Person,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined Federal, state and local statutory tax
rate of such Person, expressed as a decimal and (v) one-third of all rental
expense of such Person and its Restricted Subsidiaries for such period
attributable to operating leases with an initial term, including any renewals at
the option of either party, in excess of one year, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entities as have been approved by a significant segment of the accounting
profession, as in effect from time to time.
"GLOBAL SECURITIES" has the meaning provided in Section 204.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEALTHCARE FACILITY" means (i) a hospital, outpatient clinic, nursing
center, assisted or independent living community, long-term care facility or any
other facility that is used or useful in the provision of healthcare or
custodial care services, (ii) any healthcare business affiliated or associated
with a Healthcare Facility or (iii) any business related or ancillary to the
provision of healthcare services or the operation of a Healthcare Facility,
including, but not limited to, contract therapy services such as rehabilitation,
respiratory, speech and occupational therapy services, as well as hospice and
home care services.
"HEALTHCARE FACILITY SWAP" means an exchange of assets by the Company, the
Guarantor or a Restricted Subsidiary of the Guarantor for one or more Healthcare
Facilities or for the Capital Stock of any Person owning one or more Healthcare
Facilities.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange contracts
or currency swap
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agreements and (iii) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates or currency values.
"HOLDER", "HOLDER OF SECURITIES", "SECURITYHOLDER" or other similar terms
means the registered holder of any Security.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"INDENTURE" means this instrument as originally executed and delivered or,
if amended or supplemented as herein provided, as so amended or supplemented.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means, with respect to any Person,
(i) any insolvency or bankruptcy or similar case or proceeding, or any
reorganization, receivership, liquidation, dissolution or winding up of such
Person, whether voluntary or involuntary, or (ii) any assignment for the benefit
of creditors or any other marshalling of assets and liabilities of such Person.
"INTEREST PAYMENT DATE" means each semiannual interest payment date on May
1 and November 1 of each year, commencing November 1, 1998.
"INTEREST RECORD DATE" for the Interest payable on any Interest Payment
Date (except a date for payment of defaulted interest) means the April 15 or
October 15 (whether or not a Business Day) as the case may be, next preceding
such Interest Payment Date.
"INVESTMENT GRADE RATED" means, with respect to the Securities, both a
rating of the Securities by S&P of BBB- or higher and a rating of the Securities
by Moody's of Baa3 or higher.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans
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(including Guarantees of Indebtedness or other obligations), advances or capital
contributions, purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP. For purposes of the definition of "Unrestricted Subsidiary" and
Section 308, (i) "Investment" shall include the fair market value of the assets
(net of liabilities) of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude
the fair market value of the assets (net of liabilities) of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) any property transferred to or from any Person
shall be valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors of the Guarantor.
"ISSUE DATE" means the original issue date of the Securities.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
given to secure Indebtedness, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction with respect to any such lien, pledge, charge or
security interest).
"LICENSING ARRANGEMENTS" means the licensing arrangements for the
properties listed in Schedule 3 to the Company Credit Agreement.
"MASTER LEASE AGREEMENTS" means the master lease agreements that set forth
the material terms governing the lease of certain properties owned by Ventas,
Inc. to the Guarantor and its Subsidiaries substantially as described in the
Proxy Statement.
"MOODY'S" means Moody's Investors Services, Inc. and its successors.
"NET INCOME" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP, excluding, however, (i) any gain (but not loss), together with any related
provision for taxes on such gain (but not loss), realized in connection with (a)
any Asset Sale (including, without limitation, dispositions pursuant to sale and
leaseback transactions) or (b) the disposition of any securities by such Person
or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary
or nonrecurring gain (but
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not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the Guarantor
or any of its Restricted Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and sales commissions) and any other
expenses incurred or to be incurred by the Guarantor or a Restricted Subsidiary
as a direct result of the sale of such assets (including, without limitation,
severance, relocation, lease termination and other similar expenses), taxes
actually paid or payable as a result thereof, payments made to retire
Indebtedness where payment of such Indebtedness is required in connection with
such Asset Sale and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness of a Subsidiary (i) as to which
neither the Guarantor nor any of its Restricted Subsidiaries (a) provides credit
support of any kind (including any undertaking, agreement or instrument that
would constitute Indebtedness of the Guarantor or any of its Restricted
Subsidiaries), or (b) is directly or indirectly liable (as a guarantor or
otherwise) and (ii) no default with respect to which would permit (upon notice,
lapse of time or both) any holder of any other Indebtedness of the Guarantor or
any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"NON-U.S. PERSON" means a person who is not a U.S. person, as defined in
Regulation S.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICER'S CERTIFICATE" means a certificate signed by the Chairman of the
Board of Directors or the President or any Vice President (whether or not
designated by a number or numbers or a word or words added before or after the
title "Vice President") of the Company or the Guarantor and delivered to the
Trustee. Each such certificate shall comply with Section 314 of the Trust
Indenture Act of 1939 and include the statements provided for in Section 1305.
"OFFSHORE GLOBAL SECURITIES" has the meaning provided in Section 204.
"OFFSHORE PHYSICAL SECURITIES" means Securities issued pursuant to Section
201 in exchange for interests in the Offshore Global Security following the
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Offshore Securities Exchange Date or pursuant to Section 207, in each case in
registered form substantially in the form hereinabove recited.
"OFFSHORE SECURITIES EXCHANGE DATE" has the meaning provided in Section
204.
"OPINION OF COUNSEL" means an opinion in writing signed by legal counsel
who may be an employee of or counsel to the Company or the Guarantor or who may
be other counsel satisfactory to the Trustee. Each such opinion shall comply
with Section 314 of the Trust Indenture Act and include the statements provided
for in Section 1305, and such others as may reasonably be requested by the
Trustee, if and to the extent required hereby.
"OUTSTANDING", when used with reference to Securities, subject to the
provisions of Article 12, means, as of any particular time, all Securities
authenticated and delivered by the Trustee under this Indenture, except
(a) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or redemption of
which moneys in the necessary amount shall have been deposited in trust
with the Trustee or with any paying agent (other than the Company or the
Guarantor) or shall have been set aside, segregated and held in trust by
the Company (if the Company shall act as its own paying agent), provided
that if such Securities are to be redeemed prior to the maturity thereof,
notice of such redemption shall have been given as herein provided, or
provision satisfactory to the Trustee shall have been made for giving such
notice; and
(c) Securities in substitution for which other Securities shall have
been authenticated and delivered, or which shall have been paid, pursuant
to the terms of Section 209 (unless proof satisfactory to the Trustee and
the Company is presented that any of such Securities is held by a person in
whose hands such Security is a legal, valid and binding obligation of the
Company).
"PAYMENT DEFAULT" means any failure to pay any scheduled installment of
principal of, premium, if any, or interest on any Indebtedness within the grace
period provided for such payment in the documentation governing such
Indebtedness.
"PERMANENT OFFSHORE GLOBAL SECURITY" has the meaning provided in Section
204.
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<PAGE>
"PERMITTED LIENS" means (i) Liens securing Senior Debt under the Company
Credit Agreement or Guarantees thereof; (ii) Liens in favor of the Company or
the Guarantor; (iii) Liens on assets of a Person existing at the time such
Person is merged into or consolidated with the Guarantor or any Restricted
Subsidiary of the Guarantor or becomes a Restricted Subsidiary of the Guarantor;
provided that such Liens were in existence prior to the contemplation of such
merger, consolidation or acquisition and do not extend to any assets other than
those of the Person merged into or consolidated with the Guarantor or that
becomes a Restricted Subsidiary of the Guarantor; (iv) Liens on property
existing at the time of acquisition thereof by the Guarantor or any Restricted
Subsidiary of the Guarantor, provided that such Liens were in existence prior to
the contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens existing on the date of the Indenture; (vii) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(viii) Liens on any asset securing Indebtedness incurred or assumed for the
purpose of financing all or any part of the cost of acquiring or constructing
such asset, provided that such Lien attaches to such asset concurrently with or
within 180 days after the acquisition or completion of construction thereof and
attaches to no asset other than such asset so financed; (ix) Liens arising in
the ordinary course of business which (a) do not secure Indebtedness, (b) do not
secure any single obligation (or series of related obligations) in an amount
exceeding $5 million, provided that the limitation in this clause (b) shall not
apply to Liens securing worker's compensation, unemployment insurance and other
types of social security, and (c) do not in the aggregate materially detract
from the value of the assets of the Guarantor and its Restricted Subsidiaries,
taken as a whole, or materially impair the use thereof in the operation of their
business; (x) Liens on cash (not exceeding $20 million in aggregate amount) of
Cornerstone Insurance Company to secure its reimbursement obligations under
letters of credit issued for its account; (xi) other Liens or title defects
(including matters which an accurate survey might disclose) which (a) do not
secure Indebtedness and (b) do not materially detract from the value of real
property or materially impair the use thereof by the Guarantor or any of its
Restricted Subsidiaries in the operation of its business; (xii) Liens securing
Hedging Obligations permitted by clause (vi) of the covenant described in
Section 309; (xiii) other Liens on assets of the Guarantor or any Restricted
Subsidiary of the Guarantor securing Indebtedness that is permitted by the terms
of the Indenture to be outstanding having an aggregate principal amount at any
one time outstanding not to exceed 5% of the Stockholders' Equity of the
Guarantor; and (xiv) Liens to secure Permitted Refinancing Indebtedness incurred
to refinance Indebtedness that was secured by a Lien permitted under the
Indenture and that was incurred in accordance with the provisions of the
Indenture; provided that such Liens
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<PAGE>
do not extend to or cover any property or assets of the Guarantor or any
Restricted Subsidiary other than assets or property securing the Indebtedness so
refinanced.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the
Guarantor or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used solely to extend, refinance, renew, replace,
defease or refund, other Indebtedness of the Guarantor or any of its Restricted
Subsidiaries (other than Indebtedness constituting revolving credit loans under
the Company Credit Agreement permitted to be incurred under clause (i) of the
second paragraph of Section 309); provided that (i) the principal amount of such
Permitted Refinancing Indebtedness does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of any premiums paid and reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Securities, such Permitted Refinancing Indebtedness is subordinated in right of
payment to the Securities on terms at least as favorable to the Holders of
Securities as those contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and (iv)
such Indebtedness is incurred either by the Guarantor or by the Restricted
Subsidiary which is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"PERSON" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"POST-PETITION INTEREST" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the rate specified in such Indebtedness, whether or not
such interest is an allowed claim enforceable against such Person in a
bankruptcy case under Title 11 of the United States Code.
"PRINCIPAL" wherever used with reference to the Securities or any Security
or any portion thereof, shall be deemed to include "AND PREMIUM, IF ANY".
"PRIVATE PLACEMENT LEGEND" means the legend initially set forth on the
Securities in the form set forth in Section 205.(a)
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<PAGE>
"PROXY STATEMENT" means the Proxy Statement dated March 25, 1998 and
distributed by Vencor, Inc. (the predecessor company to the Guarantor) to its
stockholders.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"QUALIFIED EQUITY INTERESTS" means all Equity Interests of the Guarantor
other than Disqualified Stock of the Guarantor.
"REGISTRAR" has the meaning provided in Section 206.
"REGISTRATION" means a registered exchange offer for the Securities by the
Company and the Guarantor or other registration of the Securities under the
Securities Act pursuant to and in accordance with the terms of the Registration
Rights Agreement.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of April 27, 1998, among the Company, the Guarantor and the Initial
Purchasers and certain permitted assigns specified therein.
"REGISTRATION STATEMENT" means the Registration Statement pursuant to and
as defined in the Registration Rights Agreement.
"REGULATION S" means Regulation S under the Securities Act.
"REORGANIZATION AGREEMENTS" means the agreements listed in Schedule 2 to
the Company Credit Agreement on the date of the Indenture.
"REORGANIZATION SECURITIES" means, with respect to any Insolvency or
Liquidation Proceeding involving the Company or the Guarantor, Capital Stock or
any other securities of the Company or the Guarantor as reorganized or
readjusted (or Capital Stock or any other securities of any other Person
provided for by a plan of reorganization or readjustment) that are subordinated,
at least to the same extent as the Securities, to the payment of all outstanding
Senior Debt after giving effect to such plan of reorganization or readjustment;
provided, however, that (i) the Securities shall not be treated in any case or
proceeding or other event described above as part of the same class of claims as
the Senior Debt or any class of claim on a parity with or senior to the Senior
Debt for any payment or distribution, (ii) such securities are subordinated at
least to the same extent as the Securities to Senior Debt of the Company and the
Guarantor and any securities issued in exchange for such Senior Debt and (iii)
such securities are authorized by an order or decree of a court of competent
jurisdiction in a reorganization proceeding under any applicable bankruptcy,
insolvency or similar law which gives effect to the subordination of the
30
<PAGE>
Securities to Senior Debt in a manner and with an effect which would be required
if this proviso were not included in this paragraph; provided further that the
Senior Debt is assumed by the new corporation, if any, resulting from any such
reorganization or readjustment and issuing such securities.
"RESPONSIBLE OFFICER" when used with respect to the Trustee means any vice
president (whether or not designated by numbers or words added before or after
the title "vice president"), any trust officer, any assistant trust officer, any
assistant vice president, any assistant secretary, any assistant treasurer, or
any other officer or assistant officer of the Trustee customarily performing
functions similar to those performed by the persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"RESTRICTED INVESTMENT" means any Investment by the Guarantor or any
Restricted Subsidiary in any Person other than (i) an Investment in the
Guarantor or a Restricted Subsidiary or in any Person that, as a result of such
Investment, becomes a Restricted Subsidiary or will be merged or consolidated
with or into or will transfer or convey all or substantially all of its assets
to, the Guarantor or a Restricted Subsidiary, (ii) with respect to Restricted
Subsidiaries that are insurance companies, an investment permitted by applicable
insurance laws, (iii) an Investment in any person that engages primarily in the
ownership, operation or management of Healthcare Facilities or is a supplier to
Healthcare Facilities, (iv) Temporary Cash Investments and (v) loans to certain
individuals in connection with their purchase of Existing Preferred Stock on the
Issue Date.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Guarantor other than an
Unrestricted Subsidiary and any Subsidiary of an Unrestricted Subsidiary.
"RULE 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-
Hill Companies, Inc.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY" or "SECURITIES" means any Security or Securities, as the case
may be, authenticated and delivered under this Indenture. For all purposes of
this Indenture, the term "Securities" shall include any Exchange Securities to
be issued and exchanged for any Securities pursuant to the Registration Rights
Agreement and this Indenture and, for purposes of this Indenture, all Securities
and Exchange Securities shall vote together as one series of Securities under
this Indenture.
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<PAGE>
"SECURITY REGISTER" has the meaning provided in Section 206.
"SENIOR DEBT" means (i) all Indebtedness of the Company and the Guarantor
under the Company Credit Agreement, including principal of, premium, if any, and
interest on such Indebtedness and all other amounts due on or in connection with
such Indebtedness including all charges, fees and expenses, (ii) all other
Indebtedness of the Company and the Guarantor, including principal of, premium,
if any, and interest on such Indebtedness, unless the instrument under which
such Indebtedness is created, incurred, assumed or Guaranteed expressly provides
that such Indebtedness is not senior or superior in right of payment to the
Securities and the Guarantee, and all renewals, extensions modifications,
amendments or refinancings thereof and (iii) all interest on any Indebtedness
referred to in clause (i) and (ii) accruing during the pendency of any
bankruptcy or insolvency proceeding whether or not allowed thereunder.
Notwithstanding the foregoing, Senior Debt shall not include (a) Subordinated
Debt of Company or the Guarantor; provided, however, that no Indebtedness shall
be deemed to be Subordinated Debt of the Company or the Guarantor solely by
reason of such other Indebtedness being secured and such Indebtedness not being
secured, (b) the Securities, (c) the Guarantee, (d) any Indebtedness of the
Company to any of its Restricted Subsidiaries, (e) any Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of the
Bankruptcy Code, is without recourse to the Company or the Guarantor, (f) any
Indebtedness of the Company or the Guarantor, to the extent not permitted by
Section 309, (g) any 8 5/8% Senior Subordinated Notes due 2007 of Predecessor
Company assumed by the Guarantor in connection with the Reorganization
Transactions, (h) any Indebtedness to any employee of the Guarantor or any of
its Restricted Subsidiaries, (i) any liability for taxes owed or owing by the
Company or the Guarantor and (j) Trade Payables.
"SHELF REGISTRATION STATEMENT" means a Shelf Registration Statement of the
Company pursuant to and as defined in the Registration Rights Agreement.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, any
Subsidiary that, together with its Subsidiaries, (i) accounted for more than 10%
of the consolidated revenues of the Guarantor and its consolidated Subsidiaries
or (ii) was the owner of more than 10% of the consolidated assets of the
Guarantor and its consolidated Subsidiaries, all as set forth on the most
recently available audited financial statements of the Guarantor.
"STOCKHOLDERS' EQUITY" means, with respect to any Person as of any date,
the stockholders' equity of such Person determined in accordance with GAAP as of
the date of the most recent available internal financial statements of such
Person, and calculated on a pro forma basis to give effect to any acquisition or
disposition by
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<PAGE>
such Person consummated or to be consummated since the date of such financial
statements and on or prior to the date of such calculation.
"SUBORDINATED DEBT" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) which is by its terms
expressly subordinate or junior in right of payment to the Securities and any
Guarantee or Indebtedness of the Guarantor (whether outstanding on the Issue
Date or thereafter incurred) which is by its terms expressly subordinate or
junior in right of payment to the Guarantee.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof). Unrestricted Subsidiaries shall not
be included in the definition of Subsidiary for any purposes of the Indenture
(except, as the context may otherwise require, for purposes of the definition of
"Unrestricted Subsidiary").
"TEMPORARY CASH INVESTMENT" means any of the following: (i) securities
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof; provided that the full faith
and credit of the United States of America is pledged in support thereof, (ii)
time deposit accounts, bankers' acceptances, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by any office located in the United States of America of a bank or trust
company which is organized or licensed under the laws of the United States of
America or any state thereof and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $500 million and has
outstanding debt which is rated "P-1" (or higher) by Moody's or "A-1" (or
higher) by S&P or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with an office located in the United States of America of a
bank or trust company meeting the qualifications described in clause (ii) above,
(iv) commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than Ventas, Inc. or any of its
Affiliates or an Affiliate of the Company or the Guarantor) organized under the
laws of the United States of America or any state thereof with a rating, at the
date of acquisition, of "P-1" (or higher) by Moody's or "A-1" (or higher) by
S&P, (v) securities with maturities of six
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<PAGE>
months or less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "P-1" (or higher) by Moody's or "A-1" (or higher) by S&P and (vi) money
market funds which invest substantially all of their assets in securities
described in the preceding clauses (i) through (v).
"TEMPORARY OFFSHORE GLOBAL SECURITY" has the meaning provided in Section
204.
"TRADE PAYABLES" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"TRUST INDENTURE ACT OF 1939" means the Trust Indenture Act of 1939, as
amended, as in force at the date as of which this Indenture was originally
executed, and "TIA", when used in respect of an indenture supplemental hereto,
means such Act as in force at the time such indenture supplemental hereto
becomes effective.
"TRUSTEE" means the entity identified as "Trustee" in the first paragraph
hereof and, subject to the provisions of Article Five, shall also include any
successor trustee.
"U.S. GLOBAL SECURITY" has the meaning provided in Section 204.
"U.S. PERSON" has the meaning provided in Regulation S.
"U.S. PHYSICAL SECURITIES" means Securities issued in the form of permanent
certificated Securities in registered form in substantially the form hereinabove
recited.
"UNRESTRICTED SUBSIDIARY" means any other Subsidiary that is designated by
the Board of Directors of the Guarantor as an Unrestricted Subsidiary pursuant
to a Board Resolution, but only to the extent that such Subsidiary (i) has no
Indebtedness other than Non-Recourse Debt, (ii) is not party to any agreement,
contract, arrangement or understanding with the Guarantor or any Restricted
Subsidiary of the Guarantor unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Guarantor or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Guarantor, (iii) is a Person with respect to which
neither the Guarantor nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial
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<PAGE>
condition or to cause such Person to achieve any specified levels of operating
results and (iv) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Guarantor or any of its Restricted
Subsidiaries.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not cease
to qualify as an Unrestricted Subsidiary if the Company or the Guarantor
Guarantees Indebtedness of such Unrestricted Subsidiary and such Guarantee is a
Restricted Investment which is permitted by the provisions in Section 308.
Any such designation by the Board of Directors of the Guarantor shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officer's Certificate
certifying that such designation complied with the foregoing conditions and was
permitted under the covenant described in Section 308. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Guarantor as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under this Indenture, the Company and the Guarantor
shall be in Default under this Indenture). The Board of Directors of the
Guarantor may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Guarantor of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the
Indenture, and (ii) no Default or Event of Default would be in existence
following such designation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Bankruptcy Law".............................. 4.01
"Change of Control Offer"..................... 3.17
"Change of Control Payment"................... 3.17
"Change of Control Payment Date".............. 3.17
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Commencement Date"........................... 3.10
"Covenant Defeasance"......................... 12.03
"Custodian"................................... 4.01
"incur"....................................... 3.09
"Legal Defeasance"............................ 12.02
"Offer Amount"................................ 3.10
"Offer Period"................................ 3.10
"Purchase Date"............................... 3.10
"Restricted Payments"......................... 3.08
</TABLE>
ARTICLE 2
Issue, Execution, Form and Registration of Securities
Section 2.01. Authentication and Delivery of Securities. Upon the
execution and delivery of this Indenture, or from time to time thereafter,
Securities (including Exchange Securities) in an aggregate principal amount not
in excess of the amount specified in the form of Security hereinabove recited
(except as otherwise provided in Section 209) may be executed by the Company,
with the Guarantee endorsed thereon, and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate and make available
for delivery said Securities to or upon the written order of the Company, signed
by its Chairman of the Board of Directors, or any Vice Chairman of the Board of
Directors, or its President or any Vice President (whether or not designated by
a number or numbers or a word or words added before or after the title "Vice
President") without any further action by the Company.
Section 2.02. Execution of Securities and Guarantee. The Securities and
the Guarantee shall be signed on behalf of the Company and Guarantor by their
respective Chairman of the Board of Directors or any Vice Chairman of the Board
of Directors or their respective President or any Vice President (whether or not
designated by a number or numbers or a word or words added before or after the
title "Vice President"). Such signatures may be the manual or facsimile
signatures of the present or any future such officers.
In case any officer of the Company or the Guarantor who shall have signed
any of the Securities or the related Guarantee shall cease to be such officer
before the Security or such Guarantee so signed shall be authenticated and
delivered by the Trustee or disposed of by the Company or the Guarantor, such
Security or Guarantee nevertheless may be authenticated and delivered or
disposed of as though the person
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<PAGE>
who signed such Security or Guarantee had not ceased to be such officer of the
Company or the Guarantor, as the case may be; and any Security or Guarantee may
be signed on behalf of the Company or the Guarantor by such persons as, at the
actual date of the execution of such Security or Guarantee shall be the proper
officers of the Company or the Guarantor, as the case may be, although at the
date of the execution and delivery of this Indenture any such person was not
such officer.
Section 2.03. Certificate of Authentication. Only such Securities
(including the Guarantee) as shall bear thereon a certificate of authentication
substantially in the form hereinabove recited, executed by the Trustee by manual
signature of one of its authorized signatories, shall be entitled to the
benefits of this Indenture or be valid or obligatory for any purpose. Such
certificate by the Trustee upon any Security (including the Guarantee) executed
by the Company and the Guarantor shall be conclusive evidence that the Security
(including the Guarantee) so authenticated has been duly authenticated and
delivered hereunder and that the Holder is entitled to the benefits of this
Indenture.
Section 2.04. Form, Denomination and Date of Securities; Payments of
Interest. The Securities, including the notations thereon relating to the
Guarantee, and the Trustee's certificates of authentication shall be
substantially in the form recited above; provided that Exchange Securities (i)
shall contain the alternative third paragraph appearing on the reverse of the
Securities in the form recited above and (ii shall not contain terms with
respect to transfer restrictions. The Securities shall be issuable in
denominations provided for in the form of Security recited above. The Securities
shall be numbered, lettered, or otherwise distinguished in such manner or in
accordance with such plans as the officers of the Company executing the same may
determine with the approval of the Trustee.
Any of the Securities (including the Guarantee) may be issued with
appropriate insertions, omissions, substitutions and variations, and may have
imprinted or otherwise reproduced thereon such legend or legends, not
inconsistent with the provisions of this Indenture, as may be required to comply
with any law or with any rules or regulations pursuant thereto, including those
required by Section 205, or with the rules of any securities market in which the
Securities are admitted to trading, or to conform to general usage.
Each Security (including the Guarantee) shall be dated the date of its
authentication, shall bear interest from the applicable date and shall be
payable on the dates specified on the face of the form of Security recited
above.
Securities (including Guarantees) offered and sold in reliance on Section
4(2) and Rule 144A shall be issued initially in the form of one or more
permanent global Security and Guarantee in registered form, substantially in the
form hereinabove
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<PAGE>
recited (the "U.S. GLOBAL SECURITY"), deposited with the Trustee, as custodian
for the Depositary, duly executed by the Company, with the Guarantee of the
Guarantor endorsed thereon, and authenticated by the Trustee as herein provided.
The aggregate principal amount of the U.S. Global Security may from time to time
be increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, as hereinafter provided.
Securities (including Guarantees) offered and sold in offshore transactions
in reliance on Regulation S shall be issued initially in the form of a single
temporary global Security and Guarantee in registered form substantially in the
form hereinabove recited (the "TEMPORARY OFFSHORE GLOBAL SECURITY") deposited
with the Trustee, as custodian for the Depositary, duly executed by the Company,
with the Guarantee of the Guarantor endorsed thereon, and authenticated by the
Trustee as provided herein. At any time on and after June 9, 1998 (the "OFFSHORE
SECURITIES EXCHANGE DATE"), a single permanent global Security and Guarantee in
registered form substantially in the form hereinabove recited without the
Private Placement Legend (the "PERMANENT OFFSHORE GLOBAL SECURITY"; and together
with the Temporary Offshore Global Security, the "OFFSHORE GLOBAL SECURITIES")
duly executed by the Company, with the Guarantee of the Guarantor endorsed
thereon, and authenticated by the Trustee as provided herein shall be deposited
with the Trustee, as custodian for the Depositary, and the Registrar shall
reflect on its books and records the date and a decrease in the principal amount
of the Temporary Offshore Global Security in an amount equal to the principal
amount of the beneficial interest in the Temporary Offshore Global Security
transferred.
The Offshore Physical Securities and U.S. Physical Securities are sometimes
collectively herein referred to as the "PHYSICAL SECURITIES". The U.S. Global
Security and the Offshore Global Security are sometimes referred to herein as
the "GLOBAL SECURITIES".
The person in whose name any Security (including the Guarantee) is
registered at the close of business on any Interest Record Date with respect to
any Interest Payment Date shall be entitled to receive the interest, if any,
payable on such Interest Payment Date notwithstanding any transfer or exchange
of such Security (including the Guarantee) subsequent to the Interest Record
Date and prior to such Interest Payment Date, except if and to the extent the
Company shall default in the payment of the interest due on such Interest
Payment Date, in which case such defaulted interest, plus (to the extent lawful)
any interest payable on the defaulted interest, shall be paid to the persons in
whose names outstanding Securities (including Guarantees) are registered at the
close of business on a subsequent record date (which shall be not less than five
Business Days prior to the date of such payment) established by notice given by
mail by or on behalf of the Company to the
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holders of Securities (including Guarantees) not less than 15 days preceding
such subsequent record date.
Section 2.05. Restrictive Legends. (a) Unless and until a Security
(including the Guarantee) is exchanged for an Exchange Security in connection
with an effective Registration pursuant to the Registration Rights Agreement,
the U.S. Global Security, Temporary Offshore Global Security, each U.S. Physical
Security and each Offshore Physical Security issued pursuant to Section 207,
shall bear the following legend on the face thereof:
THIS SECURITY AND THE RELATED GUARANTEE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY
THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X)
PRIOR TO THE SECOND ANNIVERSARY OF THE LATER OF THE DATE OF ORIGINAL
ISSUANCE HEREOF OR THE SALE HEREOF BY THE COMPANY, THE GUARANTOR OR ANY OF
THEIR RESPECTIVE AFFILIATES OR (Y) BY AN AFFILIATE OF THE COMPANY, THE
GUARANTOR OR BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY OR THE
GUARANTOR AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH
TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY OR THE GUARANTOR,
(2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION
IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE
REVERSE OF THIS SECURITY), AND, IF SUCH TRANSFER IS BEING EFFECTED BY
CERTAIN TRANSFERORS PRIOR TO THE EXPIRATION OF THE "DISTRIBUTION COMPLIANCE
PERIOD" (WITHIN THE MEANING OF RULE 903(b)(2) OF REGULATION S UNDER THE
SECURITIES ACT), A CERTIFICATE THAT MAY BE OBTAINED FROM THE TRUSTEE IS
DELIVERED BY THE TRANSFEREE, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE
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SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES
ACT, OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES. THE HOLDER HEREOF, BY PURCHASING
THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY AND THE
GUARANTOR THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A OR (2) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH
(k)(2)(i) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT.
(b) Each Global Security, whether or not an Exchange Security, shall also
bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, TO THE COMPANY, THE GUARANTOR OR THEIR AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET
FORTH IN SECTION 208 OF THE INDENTURE.
Section 2.06. Registration, Transfer and Exchange. The Securities
(including the Guarantee) are issuable only in registered form. The Company will
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keep at each office or agency to be maintained for the purpose as provided in
Section 3.02 (the "REGISTRAR") a register or registers (the "SECURITY
REGISTER(S)") in which, subject to such reasonable regulations as it may
prescribe, it will register, and will register the transfer of, Securities as in
this Article provided. Such Security Register shall be in written form in the
English language or in any other form capable of being converted into such form
within a reasonable time. At all reasonable times such Security Register or
Security Registers shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of any Security
(including the Guarantee) at each such office or agency, the Company and the
Guarantor shall execute and the Trustee shall authenticate and make available
for delivery in the name of the transferee or transferees a new Security or
Securities, in each case, with the Guarantee of the Guarantor endorsed thereon
in authorized denominations for a like aggregate principal amount.
A Holder may transfer a Security (including the Guarantee) only by written
application to the Registrar stating the name of the proposed transferee and
otherwise complying with the terms of this Indenture. No such transfer shall be
effected until, and such transferee shall succeed to the rights of a Holder only
upon, final acceptance and registration of the transfer by the Registrar in the
Security Register. Prior to the registration of any transfer by a Holder as
provided herein, the Company, the Guarantor, the Trustee, and any agent of the
Company and the Guarantor shall treat the person in whose name the Security
(including the Guarantee) is registered as the owner thereof for all purposes
whether or not the Security (including the Guarantee) shall be overdue, and
neither the Company, the Guarantor, the Trustee, nor any such agent shall be
affected by notice to the contrary. Furthermore, any Holder of a Global Security
shall, by acceptance of such Global Security, agree that transfers of beneficial
interests in such Global Security may be effected only through a book entry
system maintained by the Holder of such Global Security (or its agent) and that
ownership of a beneficial interest in the Security (including the Guarantee)
shall be required to be reflected in a book entry. When Securities (including
the Guarantee) are presented to the Registrar or a co-Registrar with a request
to register the transfer or to exchange them for an equal principal amount of
Securities (including the Guarantee) of other authorized denominations
(including an exchange of Securities for Exchange Securities), the Registrar
shall register the transfer or make the exchange as requested if the
requirements for such transactions set forth herein are met; provided that no
exchanges of Securities for Exchange Securities shall occur until a Registration
Statement shall have been declared effective by the Commission and that any
Securities that are exchanged for Exchange Securities shall be cancelled by the
Trustee. To permit registrations of transfers and exchanges, the Company and the
Guarantor shall execute and the Trustee shall authenticate Securities with the
Guarantee of the Guarantor endorsed thereon at the Registrar's request.
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The Company may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any exchange or
registration of transfer of Securities (including Guarantees) (other than any
such transfer taxes or other similar governmental charge payable upon exchanges
pursuant to Section 2.11, 7.05 or 11.03). No service charge to any Holder shall
be made for any such transaction.
The Company and the Guarantor shall not be required to exchange or register
a transfer of (a) any Securities (including Guarantees) for a period of 15 days
next preceding the first mailing of notice of redemption of Securities
(including Guarantees) to be redeemed, or (b) any Securities (including
Guarantees) selected, called or being called for redemption except, in the case
of any Security (including any Guarantee) where public notice has been given
that such Security (including the Guarantee) is to be redeemed in part, the
portion thereof not so to be redeemed.
All Securities and Guarantees issued upon any transfer or exchange of
Securities and Guarantees shall be valid obligations of the Company and the
Guarantor, evidencing the same debt, and entitled to the same benefits under
this Indenture, as the Securities and Guarantees surrendered upon such transfer
or exchange.
Section 2.07. Book-Entry Provisions for Global Securities. (a) The U.S.
Global Security and Offshore Global Security initially shall (i) be registered
in the name of the Depositary for such Global Securities or the nominee of such
Depositary, (ii be delivered to the Trustee as custodian for such Depositary and
(ii bear legends as set forth in Section 2.05.
Members of, or participants in, the Depositary ("AGENT MEMBERS") shall have
no rights under this Indenture with respect to any Global Security held on their
behalf by the Depositary, or the Trustee as its custodian, or under the Global
Security, and the Depositary may be treated by the Company, the Guarantor, the
Trustee and any agent of the Company, the Guarantor or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Guarantor, the Trustee or any agent of the Company, the Guarantor or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Security (including the Guarantee).
(b) Transfers of a Global Security shall be limited to transfers of such
Global Security in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Security
may be
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transferred in accordance with the rules and procedures of the Depositary and
the provisions of Section 2.08. In addition, U.S. Physical Securities and
Offshore Physical Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in the U.S. Global Security or the
Offshore Global Security, respectively, if (i) the Depositary notifies the
Company that it is unwilling or unable to continue as Depositary for the U.S.
Global Security or the Offshore Global Security, as the case may be, and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii an Event of Default of which the Trustee has actual notice has
occurred and is continuing and the Registrar has received a request from the
Depositary to issue such Physical Securities.
(c) Any beneficial interest in one of the Global Securities that is
transferred to a person who takes delivery in the form of an interest in the
other Global Security will, upon transfer, cease to be an interest in such
Global Security and become an interest in the other Global Security and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interests in such other Global
Security for as long as it remains such an interest.
(d) In connection with any transfer of a portion of the beneficial
interests in the U.S. Global Security to beneficial owners pursuant to paragraph
(b) of this Section 2.07, the Registrar shall reflect on its books and records
the date and a decrease in the principal amount of the U.S. Global Security in
an amount equal to the principal amount of the beneficial interest in the U.S.
Global Security to be transferred, and the Company and the Guarantor shall
execute, and the Trustee shall authenticate and make available for delivery, one
or more U.S. Physical Securities of like tenor and amount.
(e) In connection with the transfer of the entire U.S. Global Security or
Offshore Global Security to beneficial owners pursuant to paragraph (b) of this
Section, the U.S. Global Security or Offshore Global Security, as the case may
be, shall be deemed to be surrendered to the Trustee for cancellation, and the
Company and the Guarantor shall execute, and the Trustee shall authenticate and
deliver, to each beneficial owner identified by the Depositary in exchange for
its beneficial interest in the U.S. Global Security or Offshore Global Security,
as the case may be, an equal aggregate principal amount of U.S. Physical
Securities or Offshore Physical Securities, as the case may be, of authorized
denominations.
(f) Any U.S. Physical Security delivered in exchange for an interest in
the U.S. Global Security pursuant to paragraph (b) or (d) of this Section shall,
except as otherwise provided by paragraph 2.08(e), bear the legend regarding
transfer restrictions applicable to the U.S. Physical Security set forth in
Section 2.05.
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(g) Any Offshore Physical Security delivered in exchange for an interest
in the Offshore Global Security pursuant to paragraph (b) of this Section shall,
except as otherwise provided by paragraph 2.08(e), bear the legend regarding
transfer restrictions applicable to the Offshore Physical Security set forth in
Section 2.05.
(h) The registered holder of a Global Security may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities (including the
Guarantee).
Section 2.08. Special Transfer Provisions. Unless and until a Security
(including the Guarantee) is exchanged for an Exchange Security in connection
with an effective Registration pursuant to the Registration Rights Agreement,
the following provisions shall apply:
(a) Transfers to QIBs. The following provisions shall apply with respect
to the registration of any proposed transfer of a U.S. Physical Security or an
interest in the U.S. Global Security to a QIB (excluding Non-U.S. Persons):
(i) If the Security (including the Guarantee) to be transferred
consists of (x) U.S. Physical Securities, the Registrar shall register the
transfer if such transfer is being made by a proposed transferor who has
checked the box provided for on the form of Security stating, or has
otherwise advised the Company, the Guarantor and the Registrar in writing,
that the sale has been made in compliance with the provisions of Rule 144A
to a transferee who has signed the certification provided for on the form
of Security stating, or has otherwise advised the Company, the Guarantor
and the Registrar in writing, that it is purchasing the Security for its
own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company and the Guarantor as it has requested
pursuant to Rule 144A or has determined not to request such information and
that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration provided
by Rule 144A or (y) an interest in the U.S. Global Security, the transfer
of such interest may be effected only through the book entry system
maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the
Security to be transferred consists of U.S. Physical Securities, upon
receipt by the Registrar of the documents referred to in clause (i) and
instructions given in accordance with the Depositary's and the Registrar's
procedures, the
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Registrar shall reflect on its books and records the date and an increase
in the principal amount of the U.S. Global Security in an amount equal to
the principal amount of the U.S. Physical Securities to be transferred and
the Trustee shall cancel the U.S. Physical Security so transferred.
(b) Transfers of Interests in the Temporary Offshore Global Security. The
following provisions shall apply with respect to registration of any proposed
transfer of interests in the Temporary Offshore Global Security:
(i) The Registrar shall register the transfer of any Security
(including the Guarantee) (x) if the proposed transferee is a Non-U.S.
Person and the proposed transferor has delivered to the Registrar a
certificate substantially in the form of Exhibit A hereto or (y) if the
proposed transferee is a QIB and the proposed transferor has checked the
box provided for on the form of Security stating, or has otherwise advised
the Company, the Guarantor and the Registrar in writing, that the sale has
been made in compliance with the provisions of Rule 144A to a transferee
who has signed the certification provided for on the form of Security
stating, or has otherwise advised the Company, the Guarantor and the
Registrar in writing, that it is purchasing the Security (including the
Guarantee) for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
QIB within the meaning of Rule 144A, and is aware that the sale to it is
being made in reliance of Rule 144A and acknowledges that it has received
such information regarding the Company as it has requested pursuant to Rule
144A or has determined not to request such information and that it is aware
that the transferor is relying upon its foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon receipt
by the Registrar of the documents referred to in clause (i)(y) above and
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and an increase in the principal amount of the U.S. Global Security, in an
amount equal to the principal amount of the Temporary Offshore Global
Security to be transferred, and the Trustee shall decrease the amount of
the Temporary Offshore Global Security in a like amount.
(c) Transfers of Interests in the Permanent Offshore Global Security or
Offshore Physical Securities to U.S. Persons. The following provisions shall
apply with respect to any transfer of interests in the Permanent Offshore Global
Security or Offshore Physical Securities to U.S. Persons: The Registrar shall
register the transfer of any such Security without requiring any additional
certification.
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(d) Transfers to Non-U.S. Persons at Any Time. The following provisions
shall apply with respect to any transfer of a Security (including the Guarantee)
to a Non-U.S. Person:
(i) Prior to June 9, 1998, the Registrar shall register any
proposed transfer of a Security (including the Guarantee) to a Non-U.S.
Person upon receipt of a certificate substantially in the form of Exhibit A
hereto from the proposed transferor.
(ii) On and after June 9, 1998, the Registrar shall register any
proposed transfer to any Non-U.S. Person (x) if the Security to be
transferred is a U.S. Physical Security or an interest in the U.S. Global
Security, upon receipt of a certificate substantially in the form of
Exhibit A from the proposed transferor or (y) if the Security to be
transferred is an Offshore Physical Security or an interest in the
Permanent Offshore Global Security, without requiring any additional
certification.
(iii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Security, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (ii) and (y)
instructions in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the U.S. Global Security in an
amount equal to the principal amount of the beneficial interest in the U.S.
Global Security to be transferred, and (b) if the proposed transferee is an
Agent Member, upon receipt by the Registrar of instructions given in
accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the Offshore Global Security in an amount equal
to the principal amount of the U.S. Physical Securities or the U.S. Global
Security, as the case may be, to be transferred, and the Trustee shall
cancel the Physical Security, if any, so transferred or decrease the amount
of the U.S. Global Security, as the case may be.
(e) Private Placement Legend. Upon the transfer, exchange or replacement
of Securities (including the Guarantee) not bearing the Private Placement
Legend, the Registrar shall deliver Securities (including the Guarantee) that do
not bear the Private Placement Legend. Upon the transfer, exchange or
replacement of Securities (including the Guarantee) bearing the Private
Placement Legend, the Registrar shall deliver only Securities (including the
Guarantee) that bear the Private Placement Legend unless the requested transfer
is after the time period referred to in Rule 144(k) under the Securities Act (or
any successor provision thereto) as in effect with respect
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to such transfer, or either (i) the circumstances contemplated by the fifth
paragraph of Section 204 or paragraph (d)(ii) of this Section 2.08 exists or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company, the Guarantor and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act.
(f) General. By its acceptance of any Security (including the Guarantee)
bearing the Private Placement Legend, each Holder of such a Security (including
the Guarantee) acknowledges the restrictions on transfer of such Security
(including the Guarantee) set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security (including the
Guarantee) only as provided in this Indenture. The Registrar shall not register
a transfer of any Security (including the Guarantee) unless such transfer
complies with the restrictions on transfer of such Security (including the
Guarantee) set forth in this Indenture. In connection with any transfer of
Securities (including the Guarantee), each Holder agrees by its acceptance of
the Securities (including the Guarantee) to furnish the Registrar, the Company
or the Guarantor such certifications, legal opinions or other information as
either of them may reasonably require to confirm that such transfer is being
made pursuant to an exemption from, or a transaction not subject to, the
registration requirements of the Securities Act; provided that the Registrar
shall not be required to determine (but may rely on a determination made by the
Company or the Guarantor with respect to) the sufficiency of any such
certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other written
communications received pursuant to Section 2.07(a) or this Section 2.08(a). The
Company and the Guarantor shall have the right to inspect and make copies of all
such letters, notices or other written communications at any reasonable time
upon the giving of reasonable written notice to the Registrar.
Each Holder of a Security (including the Guarantee) agrees to indemnify the
Company, the Guarantor and the Trustee against any liability that may result
from the transfer, exchange or assignment of such Holder's Security (including
the Guarantee) in violation of any provision of this Indenture and/or applicable
United States Federal or state securities law.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security (including any transfers between or among Agent Members or
beneficial owners of interests in any Global Security) other than to require
delivery of such certificates and other documentation or evidence as are
expressly required by, and to do so if and
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when expressly required by the terms of, this Indenture, and to examine the same
to determine substantial compliance as to form with the express requirements
hereof.
Section 2.09. Mutilated, Defaced, Destroyed, Lost and Stolen Securities.
In case any temporary or definitive Security (including the Guarantee) shall
become mutilated, defaced or be apparently destroyed, lost or stolen, the
Company and the Guarantor in their discretion may execute, and upon the written
request of any officer of the Company or the Guarantor, the Trustee shall
authenticate and make available for delivery, a new Security (with the Guarantee
endorsed thereon), bearing a number not contemporaneously outstanding, in
exchange and substitution for the mutilated or defaced Security, or in lieu of
and substitution for the Security (including the Guarantee) so apparently
destroyed, lost or stolen. In every case the applicant for a substitute Security
shall furnish to the Company, the Guarantor and the Trustee and any agent of the
Company, the Guarantor or the Trustee such security or indemnity as may be
required by each of them to indemnify and defend and to save each of them
harmless and, in every case of destruction, loss or theft evidence to their
satisfaction of the apparent destruction, loss or theft of such Security and of
the ownership thereof.
Upon the issuance of any substitute Security (including the Guarantee), the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
In case any Security which has matured or is about to mature, or has been called
for redemption in full, shall become mutilated or defaced or be apparently
destroyed, lost or stolen, the Company may, instead of issuing a substitute
Security, pay or authorize the payment of the same (without surrender thereof
except in the case of a mutilated or defaced Security), if the applicant for
such payment shall furnish to the Company, the Guarantor and to the Trustee and
any agent of the Company, the Guarantor or the Trustee such security or
indemnity as any of them may require to save each of them harmless from all
risks, however remote, and, in every case of apparent destruction, loss or
theft, the applicant shall also furnish to the Company, the Guarantor and the
Trustee and any agent of the Company, the Guarantor or the Trustee evidence to
their satisfaction of the apparent destruction, loss or theft of such Security
and of the ownership thereof.
Every substitute Security issued pursuant to the provisions of this Section
by virtue of the fact that any Security is apparently destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company and the
Guarantor, whether or not the apparently destroyed, lost or stolen Security
shall be at any time enforceable by anyone and shall be entitled to all the
benefits of (but shall be subject to all the limitations of rights set forth in)
this Indenture equally and proportionately with any and all other Securities
duly authenticated and delivered hereunder. All Securities shall be held and
owned upon the express condition that, to the extent
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permitted by law, the foregoing provisions are exclusive with respect to the
replacement or payment of mutilated, defaced, or apparently destroyed, lost or
stolen Securities and shall preclude any and all other rights or remedies
notwithstanding any law or statute existing or hereafter enacted to the contrary
with respect to the replacement or payment of negotiable instruments or other
securities without their surrender.
Section 2.10. Cancellation of Securities. All Securities surrendered for
payment, redemption, registration of transfer or exchange, if surrendered to the
Company or any agent of the Company or the Trustee, shall be delivered to the
Trustee for cancellation or, if surrendered to the Trustee, shall be cancelled
by it; and no Securities shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Indenture. The Trustee shall deliver
cancelled Securities to the Company. If the Company shall acquire any of the
Securities, such acquisition shall not operate as a redemption or satisfaction
of the indebtedness represented by such Securities unless and until the same are
delivered to the Trustee for cancellation.
Section 2.11. Temporary Securities. Pending the preparation of definitive
Securities, the Company and the Guarantor may execute and the Trustee shall
authenticate and make available for delivery temporary Securities with the
Guarantee endorsed thereon, (printed, lithographed, typewritten or otherwise
reproduced, in each case in form satisfactory to the Trustee). Temporary
Securities (including the Guarantee) shall be issuable as registered Securities
without coupons, of any authorized denomination, and substantially in the form
of the definitive Securities (including the Guarantee) but with such omissions,
insertions and variations as may be appropriate for temporary Securities, all as
may be determined by the Company and the Guarantor with the concurrence of the
Trustee. Temporary Securities may contain such reference to any provisions of
this Indenture as may be appropriate. Every temporary Security (including the
Guarantee) shall be executed by the Company and the Guarantor and be
authenticated by the Trustee upon the same conditions and in substantially the
same manner, and with like effect, as the definitive Securities. Without
unreasonable delay the Company and the Guarantor shall execute and shall furnish
definitive Securities (with the Guarantee endorsed thereon) and thereupon
temporary Securities (including the Guarantee) may be surrendered in exchange
therefor without charge at each office or agency to be maintained by the Company
for the purpose pursuant to Section 3.02, and the Trustee shall authenticate and
make available for delivery in exchange for such temporary Securities (including
the Guarantee) a like aggregate principal amount of definitive Securities
(including the Guarantee) of authorized denominations. Until so exchanged the
temporary Securities (including the Guarantee) shall be entitled to the same
benefits under this Indenture as definitive Securities (including the
Guarantee).
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Section 2.12. CUSIP and CINS Numbers. The Company in issuing the
Securities may use "CUSIP" and "CINS" numbers (if then generally in use), and
the Trustee shall use CUSIP numbers or CINS numbers, as the case may be, in
notices of redemption or exchange as a convenience to Holders; provided that any
such notice shall state that no representation is made as the correctness of
such numbers either as printed on the Securities or as contained in any notice
of redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Securities. The Company shall promptly
notify the Trustee of any change in the CUSIP numbers or CINS numbers.
ARTICLE 3
Covenants of the Company, the Guarantor and the Trustee.
Section 3.01. Payment of Principal and Interest. The Company covenants
and agrees that it will duly and punctually pay or cause to be paid the
principal of, and interest on, each of the Securities at the place or places, at
the respective times and in the manner provided in the Securities. Each
installment of interest on the Securities may be paid by mailing checks for such
interest payable to or upon the written order of the holders of Securities
entitled thereto as they shall appear on the registry books of the Company, or
by wire transfer to such holders in immediately available funds, to such bank or
other entity in the continental United States as shall be designated by such
holders and shall have appropriate facilities for such purpose, or in accordance
with the standard operating procedures of the Depositary.
Section 3.02. Offices for Payments, etc. So long as any of the Securities
remain outstanding, the Company and Guarantor will maintain in the City of New
York, the following: (a) an office or agency where the Securities (including the
Guarantee) may be presented for payment, (b) an office or agency where the
Securities (including the Guarantee) may be presented for registration of
transfer and for exchange as in this Indenture provided and (c) an office or
agency where notices and demands to or upon the Company and Guarantor in respect
of the Securities, the Guarantee or of this Indenture may be served. The Company
and Guarantor will give to the Trustee written notice of the location of any
such office or agency and of any change of location thereof. The Company and
Guarantor hereby initially designate the Corporate Trust Office of the Trustee
as the office or agency for each such purpose. In case the Company or Guarantor
shall fail to maintain any such office or agency or shall fail to give such
notice of the location or of any change in the location thereof, presentations
and demands may be made and notices may be served at the Corporate Trust Office.
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Section 3.03. Appointment to Fill a Vacancy in Office of Trustee. The
Company or the Guarantor, whenever necessary to avoid or fill a vacancy in the
office of Trustee, will appoint, in the manner provided in Section 510, a
Trustee, so that there shall at all times be a Trustee hereunder.
Section 3.04. Paying Agents. Whenever the Company or the Guarantor shall
appoint a paying agent other than the Trustee, it will cause such paying agent
to execute and deliver to the Trustee an instrument in which such agent shall
agree with the Trustee, subject to the provisions of this Section,
(a) that it will hold all sums received by it as such agent for the
payment of the principal of or interest on the Securities (whether such sums
have been paid to it by the Company, the Guarantor or by any other obligor on
the Securities) in trust for the benefit of the holders of the Securities or of
the Trustee,
(b) that it will give the Trustee notice of any failure by the Company or
the Guarantor (or any other obligor on the Securities) to make any payment of
the principal of or interest on the Securities when the same shall be due and
payable, and
(c) pay any such sums so held in trust by it to the Trustee upon the
Trustee's written request at any time during the continuance of the failure
referred to in clause (b) above.
The Company will, prior to each due date of the principal of or interest on
the Securities, deposit with the paying agent a sum sufficient to pay such
principal or interest, and (unless such paying agent is the Trustee) the Company
will promptly notify the Trustee of any failure to take such action.
If the Company or the Guarantor shall act as paying agent, it will, on or
before each due date of the principal of or interest on the Securities, set
aside, segregate and hold in trust for the benefit of the holders of the
Securities a sum sufficient to pay such principal or interest so becoming due.
The Company or the Guarantor, as the case may be, will promptly notify the
Trustee of any failure to take such action.
Anything in this Section to the contrary notwithstanding, the Company or
the Guarantor may at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by the Company, the Guarantor or any paying
agent hereunder, as required by this Section, such sums to be held by the
Trustee upon the trusts herein contained.
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Anything in this Section to the contrary notwithstanding, the agreement to
hold sums in trust as provided in this Section are subject to the provisions of
Sections 1205 and 1206.
Section 3.05. Certificates to Trustee. (a) The Company and the Guarantor
will deliver to the Trustee within 90 days after the end of each fiscal year of
the Company and the Guarantor a certificate from the principal executive,
financial or accounting officer of the Company and the Guarantor as to his or
her knowledge of the Company's and the Guarantor's compliance with all
conditions and covenants under this Indenture (such compliance to be determined
without regard to any period of grace or requirement of notice provided under
this Indenture).
(b) The Company or the Guarantor will deliver to the Trustee, as soon as
possible and in any event within 10 days after the Company or the Guarantor
becomes aware or should reasonably become aware of the occurrence of an Event of
Default or a Default, an Officer's Certificate setting forth the details of such
Event of Default or Default, and the action which the Company or the Guarantor
proposes to take with respect thereto.
(c) The Guarantor will deliver to the Trustee within 90 days after the end
of each fiscal year of the Guarantor a written statement by the Guarantor's
independent public accountants stating (i) that their audit examination has
included a review of the terms of this Indenture and the Securities (including
the Guarantee) as they relate to accounting matters, and (ii whether, in
connection with their audit examination, any Default has come to their attention
and, if such a Default has come to their attention, specifying the nature and
period of the existence thereof.
Section 3.06. Securityholders' Lists. If and so long as the Trustee shall
not be the Registrar, the Company will furnish or cause to be furnished to the
Trustee a list in such form as the Trustee may reasonably require of the names
and addresses of the holders of the Securities pursuant to Section 312 of the
Trust Indenture Act (a) semi-annually not more than 15 days after each Interest
Record Date as of such Interest Record Date, and (b) at such other times as the
Trustee may request in writing, within thirty days after receipt by the Company
of any such request as of a date not more than 15 days prior to the time such
information is furnished.
Section 3.07. Reports by the Trustee. (a) The Trustee shall transmit to
Holders such reports concerning the Trustee and its actions under this Indenture
as may be required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant thereto. If required by Section 313(a) of the Trust
Indenture Act, the Trustee shall, within sixty days after each May 15 following
the date of this Indenture deliver to Holders a brief report, dated as of such
May 15, which complies with the provisions of such Section 313(a).
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(b) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange, if any, upon which
the Securities are listed, with the Commission and with the Company. The
Company will promptly notify the Trustee when the Securities are listed on any
stock exchange.
Section 3.08. Limitation on Restricted Payments. The Guarantor will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on account
of the Guarantor's or any Restricted Subsidiary's Equity Interests (other than
(x) dividends or distributions payable in Qualified Equity Interests of the
Guarantor and (y) dividends or distributions payable to the Guarantor or any
Restricted Subsidiary of the Guarantor); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Guarantor or any of its
Restricted Subsidiaries; (iii) make any voluntary or optional principal payment
on, or voluntary or optional purchase, redemption, defeasance, or other
acquisition or retirement for value of, any Subordinated Debt; or (iv) make any
Investment that is a Restricted Investment (all such payments and other actions
set forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment (the amount of any such Restricted Payment, if other than
cash, shall be the fair market value (as conclusively evidenced by a resolution
of the Board of Directors of the Guarantor set forth in an Officer's Certificate
delivered to the Trustee within 60 days prior to the date of such Restricted
Payment) of the asset(s) proposed to be transferred by the Guarantor or such
Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment):
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Guarantor would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the most recently ended four full fiscal
quarter period for which internal financial statements are available
immediately preceding the date of such Restricted Payment, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 309; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Guarantor and its Restricted Subsidiaries
after March 31, 1998 (excluding Restricted Payments permitted by clauses
(B), (D) and (E) of the next succeeding paragraph), is less than the sum of
(i) 50% of the Consolidated Net Income of the Guarantor for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after March 31, 1998 to the end of the Guarantor's most
recently ended fiscal
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quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Guarantor from
the issue or sale (other than to a Restricted Subsidiary of the Guarantor)
since March 31, 1998 of Qualified Equity Interests of the Guarantor or of
debt securities of the Guarantor or any of its Restricted Subsidiaries that
have been converted into or exchanged for such Qualified Equity Interests
of the Guarantor, plus (iii) $25 million.
If no Default or Event of Default has occurred and is continuing, or
would occur as a consequence thereof, the foregoing provisions will not prohibit
the following Restricted Payments: (A) the payment of any dividend within 60
days after the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of the Indenture; (B) the
payment of cash dividends on any series of Disqualified Stock issued after the
date of the Indenture in an aggregate amount not to exceed the cash received by
the Guarantor since the date of the Indenture upon issuance of such Disqualified
Stock; (C) the payment of dividends on Existing Preferred Stock at an annual
rate of 6%; (D) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Guarantor or any Restricted Subsidiary in exchange
for, or out of the net cash proceeds of, the substantially concurrent sale
(other than to a Restricted Subsidiary of the Guarantor) of Qualified Equity
Interests of the Guarantor; provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (E) the defeasance, redemption or repurchase of Subordinated Debt
(including any Subordinated Debt that constitutes Acquired Debt) with the net
cash proceeds from an incurrence of Permitted Refinancing Indebtedness or in
exchange for or out of the net cash proceeds from the substantially concurrent
sale (other than to a Restricted Subsidiary) of Qualified Equity Interests of
the Guarantor; provided, that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c)(ii) of the preceding paragraph; (F) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Guarantor or any Restricted Subsidiary held by any
member of the Guarantor's (or any of its Restricted Subsidiary's) management
pursuant to any management equity subscription agreement or stock option
agreement; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $5 million in
any twelve-month period; and (G) the repurchase of any Indebtedness that is pari
passu with the Securities or any Subordinated Debt at a purchase price not
greater than 101% of the principal amount of such Indebtedness or Subordinated
Debt, as the case may be, in the event of a Change of Control pursuant to a
provision similar to the provision described in Section 317; provided that prior
to such repurchase the Guarantor has made a Change of Control Offer as provided
in Section 317 and has repurchased all
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Securities validly tendered for payment in connection with such Change of
Control Offer.
Not later than the date of making any Restricted Payment, the Guarantor
shall deliver to the Trustee an Officer's Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this covenant were computed.
Section 3.09. Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock. The Guarantor will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, Guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") after the
date of the Indenture any Indebtedness (including Acquired Debt) and neither the
Company nor the Guarantor will issue any Disqualified Stock and the Guarantor
will not permit any of its Restricted Subsidiaries (other than the Company) to
issue any shares of preferred stock; provided, however, that the Company and the
Guarantor may incur Indebtedness (including Acquired Debt) and the Company and
the Guarantor may issue shares of Disqualified Stock if (i) no Default or Event
of Default will have occurred and be continuing or would occur as a consequence
thereof and (ii) the Fixed Charge Coverage Ratio for the Guarantor's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least (x) 1.50 to 1 if such incurrence or issuance occurs on or before April 30,
1999, (y) 1.75 to 1 if such incurrence or issuance occurs after April 30, 1999
and on or before April 30, 2000 and (z) 2.00 to 1 if such incurrence or issuance
occurs after April 30, 2000, in each case, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom) as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
Indebtedness consisting of reimbursement obligations in respect of a letter of
credit will be deemed to be incurred when the letter of credit is first issued.
Neither the Company nor the Guarantor will permit any of their respective
Unrestricted Subsidiaries to incur any Indebtedness other than Non-Recourse
Debt.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and the Guarantor of Senior Debt
under the Company Credit Agreement in an aggregate principal amount at any
time outstanding not to exceed an amount equal to $1.0 billion less the
aggregate amount of all mandatory payments applied to repay loans (other
than revolving credit loans) outstanding thereunder or permanently reduce
the revolving credit commitments thereunder; provided that the Company and
the Guarantor may incur Senior Debt in an aggregate principal amount at any
time
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outstanding not to exceed $300 million under the revolving credit facility
under the Company Credit Agreement;
(ii) the incurrence by the Company and the Guarantor of Indebtedness
represented by the Securities and the Guarantee;
(iii) Existing Indebtedness;
(iv) the incurrence by the Guarantor or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the Indenture to be
incurred (including, without limitation, Existing Indebtedness);
(v) the incurrence by the Guarantor or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Guarantor
and any of its Restricted Subsidiaries; provided that upon either (a) the
transfer or other disposition by the Guarantor or a Restricted Subsidiary
of any Indebtedness so permitted under this clause (v) to a Person other
than the Guarantor or a Restricted Subsidiary or (b) the issuance, sale,
transfer or other disposition of Equity Interests (including by
consolidation or merger) in a Restricted Subsidiary to a Person other than
the Guarantor or a Restricted Subsidiary which results in such Restricted
Subsidiary ceasing to be a Restricted Subsidiary, the provisions of this
clause (v) shall no longer be applicable to such Indebtedness and such
Indebtedness shall be deemed to have been incurred at the time of any such
issuance, sale, transfer or other disposition, as the case may be;
(vi) the incurrence by the Guarantor or any of its Restricted
Subsidiaries of Hedging Obligations or Guarantees thereof, provided that
such Hedging Obligations are incurred for the purpose of fixing or hedging
interest rate or currency risk with respect to any fixed or floating rate
Indebtedness that is permitted by the Indenture to be outstanding or any
receivable or liability, the payment of which is determined by reference to
a foreign currency; provided that the notional principal amount of any such
Hedging Obligation does not exceed the principal amount of the Indebtedness
to which such Hedging Obligation relates;
(vii) the incurrence by the Guarantor or any of its Restricted
Subsidiaries of Indebtedness represented by performance bonds, standby
letters of credit or appeal bonds, in each case to the extent incurred in
the ordinary course of business of the Guarantor or such Restricted
Subsidiary;
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(viii) the incurrence by any Restricted Subsidiary (other than the
Company) of Indebtedness, the aggregate principal amount of which, together
with all other Indebtedness of the Guarantor's Restricted Subsidiaries
(other than the Company) at the time outstanding (excluding Existing
Indebtedness until repaid or refinanced), does not exceed the greater of
(1) 10% of the Guarantor's Stockholders' Equity as of the date of
incurrence or (2) $10 million; provided that, in the case of clause (1)
only, the Fixed Charge Coverage Ratio for the Guarantor's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such Indebtedness
(including Acquired Subsidiary Debt) is incurred would have been at least
(x) 1.50 to 1 if such incurrence occurs on or before April 30, 1999, (y)
1.75 to 1 if such incurrence occurs after April 30, 1999 and on or before
April 30, 2000 and (z) 2.00 to 1 if such incurrence occurs after April 30,
2000, in each case, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if such Indebtedness had
been incurred at the beginning of such four-quarter period; provided
further, that solely for the purpose of determining whether the aggregate
principal amount of Indebtedness of the Guarantor's Restricted Subsidiaries
(other than the Company) at any time outstanding exceeds 10% of the
Guarantor's Stockholders' Equity, Acquired Subsidiary Debt shall be
excluded; and
(ix) the incurrence by the Company and the Guarantor of Indebtedness
(in addition to Indebtedness permitted by any other clause of this
paragraph) in an aggregate principal amount at any time outstanding not to
exceed $25 million.
Section 3.10. Disposition of Proceeds of Asset Sales. The Guarantor will
not, and will not permit any of its Restricted Subsidiaries to, consummate an
Asset Sale unless (i) the Guarantor (or the Restricted Subsidiary, as the case
may be) receives consideration at the time of such Asset Sale at least equal to
the fair market value (as conclusively determined by a resolution of the Board
of Directors of the Guarantor set forth in an Officer's Certificate delivered to
the Trustee) of the assets or Equity Interests issued or sold or otherwise
disposed of and (ii) at least 75% of the consideration therefor received by the
Guarantor or such Restricted Subsidiary is in the form of cash; provided that
for purposes of this provision, the amount of (A) any liabilities (as shown on
the Guarantor's or such Restricted Subsidiary's most recent balance sheet or in
the notes thereto), of the Guarantor or any Restricted Subsidiary (other than,
in the case of an Asset Sale by the Company or the Guarantor, liabilities that
are by their terms subordinated to the Securities or the Guarantee, as the case
may be) that are assumed by the transferee of any such assets and (B) any
securities or other obligations received by the Guarantor or any such Restricted
Subsidiary from such transferee that are immediately converted by the Guarantor
or such Restricted
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Subsidiary into cash (or as to which the Guarantor or such Restricted Subsidiary
has received at or prior to the consummation of the Asset Sale a commitment
(which may be subject to customary conditions) from a nationally recognized
investment, merchant or commercial bank to convert into cash within 90 days of
the consummation of such Asset Sale and which are thereafter actually converted
into cash within such 90-day period) will be deemed to be cash (but shall not be
deemed to be Net Proceeds for purposes of the following provisions until reduced
to cash). Notwithstanding the foregoing, it will not be a violation of the
foregoing provisions if the Guarantor or a Restricted Subsidiary receives
Investments as all or part of the consideration for an Asset Sale (which
consideration is not otherwise permitted), if such Investments constitute
Restricted Investments permitted by Section 308.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Guarantor or the Restricted Subsidiary, as the case may be, may apply such
Net Proceeds (i) to purchase one or more Healthcare Facilities and/or a
controlling interest in the Capital Stock of a Person owning one or more
Healthcare Facilities, (ii) to make a capital expenditure or to acquire other
tangible assets, in each case, that are used or useful in any business in which
the Guarantor or any of its Restricted Subsidiaries is permitted to be engaged
pursuant to Section 313, (iii) to permanently reduce Existing Indebtedness of a
Restricted Subsidiary (other than the Company), or (iv) to permanently reduce
Senior Debt (and, in the case of revolving credit loans, to correspondingly
reduce commitments with respect thereto). Any Net Proceeds from Asset Sales that
are not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "EXCESS PROCEEDS."
When the aggregate amount of Excess Proceeds exceeds $15 million, the
Company will be required to make an offer to all Holders of Securities and
holders of any other Indebtedness of the Company ranking on a parity with the
Securities from time to time outstanding with similar provisions requiring the
Company to make an offer to purchase or to redeem such Indebtedness with the
proceeds from any asset sales, pro rata in proportion to the respective
principal amounts of Securities and such other Indebtedness then outstanding (an
"ASSET SALE OFFER") to purchase the maximum principal amount of the Securities
and such other Indebtedness that may be purchased out of the Excess Proceeds, at
an offer price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon to the date of purchase, in accordance with
the procedures set forth below. To the extent that the aggregate amount of
Securities and such other Indebtedness tendered pursuant to an Asset Sale Offer
is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Securities and such other Indebtedness surrendered by holders thereof exceeds
the amount of Excess Proceeds, the Securities and such other Indebtedness will
be purchased on a pro rata basis. Upon completion of an Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
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No later than the date on which the aggregate amount of Excess Proceeds
exceeds $15.0 million, the Company shall notify the Trustee of such Asset Sale
Offer and provide the Trustee with an Officer's Certificate setting forth the
calculations used in determining the amount of Net Proceeds to be applied to the
purchase of Securities. The Company shall commence or cause to be commenced the
Asset Sale Offer on a date no later than 10 Business Days after such notice (the
"COMMENCEMENT DATE").
The Asset Sale Offer shall remain open for at least 20 Business Days after
the Commencement Date relating to such Asset Sale Offer and shall remain open
for no more than such 20 Business Days, except to the extent required by
applicable law (as so extended, the "OFFER PERIOD"). No later than two Business
Days after the termina tion of the Offer Period (the "PURCHASE DATE"), the
Company shall purchase the principal amount (the "OFFER AMOUNT") of Securities
required to be purchased in such Asset Sale Offer pursuant to this Section or,
if less than the Offer Amount has been tendered, all Securities tendered in
response to the Asset Sale Offer, in each case for an amount in cash equal to
the Purchase Price.
If the Purchase Date is on or after an interest payment record date and on
or before the related interest payment date, any accrued interest shall be paid
to the Person in whose name a Security is registered at the close of business on
such record date, and no additional interest shall be payable to Holders who
tender Securities pursuant to the Asset Sale Offer.
On the Commencement Date of any Asset Sale Offer, the Company shall send,
or at the Company's request the Trustee shall send, by first class mail, a
notice to each of the Holders at their last registered address, with a copy to
the Trustee and the paying agent, offering to repurchase the Securities held by
such Holder pursuant to the procedure specified in such notice. Such notice,
which shall govern the terms of the Asset Sale Offer, shall contain all
instructions and materials necessary to enable the Holders to tender Securities
pursuant to the Asset Sale Offer and shall state:
(1) that the Asset Sale Offer is being made pursuant to this
Section and the length of time the Asset Sale Offer shall remain
open;
(2) the Offer Amount, the Purchase Price and the Purchase
Date;
(3) that any Security not tendered or accepted for payment
shall continue to accrue interest;
(4) that, unless the Company defaults in the payment of the
Purchase Price, any Security accepted for payment
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pursuant to the Asset Sale Offer shall cease to accrue interest
after the Purchase Date;
(5) that Holders electing to have a Security purchased
pursuant to any Asset Sale Offer shall be required to surrender
the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the
Company, a depositary, if appointed by the Company, or a paying
agent at the address specified in the notice prior to the close
of business on the Business Day next preceding the Purchase Date;
(6) that Holders shall be entitled to withdraw their
election if the Company, depositary or paying agent, as the case
may be, receives, not later than the close of business on the
Business Day next preceding the termination of the Offer Period,
a facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security the Holder delivered
for purchase and a statement that such Holder is withdrawing his
election to have such Security purchased;
(7) that, if the aggregate principal amount of Securities
surrendered by Holders exceeds the Offer Amount, the Trustee
shall select the Securities to be purchased on a pro rata basis
(with such adjustments as may be deemed appropriate by the
Trustee so that only Securities in denominations of $1,000, or
integral multiples thereof, shall be purchased);
(8) that Holders whose Securities were purchased only in
part shall be issued new Securities equal in principal amount to
the unpurchased portion of the Securities surrendered; and
(9) the circumstances and relevant facts regarding such
Asset Sale and any other information that would be material to a
decision as to whether to tender a Security pursuant to the Asset
Sale Offer.
On the Purchase Date, the Company shall, to the extent lawful, (i) accept
for payment, on a pro rata basis to the extent necessary, an aggregate principal
amount equal to the Offer Amount of Securities tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Securities
or portion thereof so
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tendered, (ii) deposit with the paying agent an amount equal to the Purchase
Price in respect of all Securities or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee the Securities so accepted
together with an Officer's Certificate stating the aggregate principal amount of
Securities or portions thereof being purchased by the Company. The paying agent
shall promptly mail to each Holder of Securities so tendered payment in an
amount equal to the Purchase Price for such Securities and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) a new
Security to such Holder equal in principal amount to any unpurchased portion of
the Securities surrendered, if any; provided that each such new Security shall
be in a principal amount of $1,000 or an integral multiple thereof.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Securities as a result of the Asset Sale Offer.
Section 3.11. Limitation on Liens. The Guarantor will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien (except Permitted Liens) on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom unless all Obligations under the
Indenture, the Securities and the Guarantee are secured on an equal and ratable
basis (or on a senior basis, in case of Subordinated Debt) with the Obligations
so secured until such time as such Obligations are no longer secured by a Lien.
Section 3.12. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries. The Guarantor will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)(a)
pay dividends or make any other distributions to the Guarantor or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay any
Indebtedness owed to the Guarantor or any of its Restricted Subsidiaries, (ii)
make loans or advances to the Guarantor or any of its Restricted Subsidiaries or
(iii) transfer any of its properties or assets to the Guarantor or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the Indenture, (c) applicable law or state insurance regulations,
(d) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Guarantor or any of its Restricted Subsidiaries as in effect at the time
of such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition or in violation of the
covenant described in Section 3.09), which
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encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person (including its Subsidiaries), or the
property or assets of the Person (including its Subsidiaries), so acquired,
provided that the Consolidated EBITDA of such Person is not taken into account
in determining whether such acquisition was permitted by the terms of the
Indenture except to the extent that such Consolidated EBITDA would be permitted
to be dividended to the Company or the Guarantor by such Person or by a
Restricted Subsidiary which is the parent of such Person without the prior
consent or approval of any third party, (e) any operating lease or capital
lease, insofar as the provisions thereof limit grants of a security interest in,
or other assignments of, the related leasehold interest to any other Person, (f)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, (g) Permitted Refinancing Indebtedness, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, or (h) the Company
Credit Agreement and related documentation as the same is in effect on the date
of the Indenture and as amended or replaced from time to time, provided that no
such amendment or replacement is more restrictive as to the matters enumerated
above than the Company Credit Agreement and related documentation as in effect
on the date of the Indenture. Nothing contained in this paragraph shall prevent
the Guarantor or any Restricted Subsidiary from entering into any agreement
resulting in the incurrence of Liens otherwise permitted under the provisions of
Section 311.
Section 3.13. Limitation on Line of Business. The Guarantor will not, and
will not permit any of its Restricted Subsidiaries to, engage to any material
extent in any business other than the ownership, operation or management of
Healthcare Facilities, including the acceptance of risk for the provision of
long-term care.
Section 3.14. Limitation on Senior Subordinated Debt. Neither the Company
nor the Guarantor will incur, create, issue, assume, Guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt and senior in any respect in right of payment to the
Securities or the Guarantee.
Section 3.15. Limitation on Transactions with Affiliates. The Guarantor
will not, and will not permit any of its Restricted Subsidiaries to, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make any contract,
agreement, understanding, loan, advance or Guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION"), unless
(I) in the case of an Affiliate Transaction in excess of $1.0 million involving
Ventas, Inc. or any of its subsidiaries, the Guarantor delivers to the Trustee a
resolution of the Board of Directors of the Guarantor set forth
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in an Officer's Certificate certifying that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors of
the Guarantor and (II) in all other cases (i) such Affiliate Transaction is on
terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that could have been obtained in a comparable transaction
by the Guarantor or such Restricted Subsidiary with an unrelated Person and (ii)
the Guarantor delivers to the Trustee (a) with respect to any Affiliate
Transaction involving aggregate consideration in excess of $5.0 million, a
resolution of the Board of Directors of the Guarantor set forth in an Officer's
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors of the Guarantor and (b) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $15.0 million, an opinion as to the fairness to the Guarantor or such
Restricted Subsidiary of such Affiliate Transaction from a financial point of
view issued by an investment banking firm of national standing; provided that
(u) transactions or payments pursuant to any employment arrangements, employee
relocations or employee or director benefit plans entered into by the Guarantor
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Guarantor or such Restricted
Subsidiary, (v) transactions between or among the Guarantor and/or its
Restricted Subsidiaries, (w) transactions pursuant to or performance of the
Existing Affiliate Agreements and the Reorganization Agreements on the terms in
effect on the date of the Indenture, (x) transactions between a Person and an
Affiliate existing at the time such Person is merged with or into or becomes a
Restricted Subsidiary, except to the extent such transaction was entered into in
connection with, or in contemplation of, such Person merging with or into or
becoming a Restricted Subsidiary (y) the payment of dividends on and redemption
of Existing Preferred Stock and (z) transactions between the Guarantor or any
Restricted Subsidiary and Atria in accordance with agreements in existence on
the date of the Indenture, in each case, shall not be deemed to be Affiliate
Transactions.
Notwithstanding the foregoing, any Investment in Affiliates permitted by
the provisions of Section 308 shall not be prohibited by the foregoing
limitations on Affiliate Transactions.
Section 3.16. Limitation on Issuance of Guarantees of Indebtedness by
Restricted Subsidiaries. The Guarantor will not permit any Restricted
Subsidiary (other than the Company), directly or indirectly, to Guarantee or
secure the payment of any other Indebtedness of the Guarantor or any of its
Restricted Subsidiaries (except Indebtedness of a Restricted Subsidiary of such
Restricted Subsidiary) unless such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for the
Guarantee of the payment of the Securities by such Restricted Subsidiary, which
Guarantee shall be senior to or pari passu with such Restricted Subsidiary's
Guarantee of or pledge to secure such other
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Indebtedness. Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Securities shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon a sale or other
disposition, by way of merger or otherwise, to any Person not an Affiliate of
the Guarantor, of the Guarantor's stock in, or the assets of, such Restricted
Subsidiary, which sale or other disposition results in such Restricted
Subsidiary ceasing to be a Restricted Subsidiary and such sale or other
disposition is made in compliance with, and the Net Proceeds therefrom are
applied in accordance with, the applicable provisions of the Indenture. The form
of such supplemental indenture will be attached as an exhibit to the Indenture.
The foregoing provisions will not be applicable to (i) Guarantees by Restricted
Subsidiaries of the Company's Indebtedness under the Company Credit Agreement
and with respect to Hedging Obligations related to the Company Credit Agreement,
(ii) Guarantees of Indebtedness of a Person by its subsidiaries in effect prior
to the time such Person is merged with or into or became a Restricted
Subsidiary, provided that such Guarantees do not extend to any other
Indebtedness of such Person or any other Person and (iii) any one or more
Guarantees of up to $10 million in aggregate principal amount of Indebtedness of
the Guarantor or any Restricted Subsidiary at any time outstanding.
Section 3.17. Change of Control. Upon the occurrence of a Change of
Control, each Holder of Securities will have the right to require the Company to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such Holder's Securities pursuant to the offer described below (the "CHANGE OF
CONTROL OFFER") at an offer price in cash equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest thereon to the date of
purchase (the "CHANGE OF CONTROL PAYMENT") on a date that is not more than 90
days after the occurrence of such Change of Control (the "CHANGE OF CONTROL
PAYMENT DATE"). Prior to the mailing of notice to Holders provided for in the
succeeding paragraph, but in any event within 30 days following any Change of
Control, the Company covenants to (i) repay in full all Senior Debt that would
prohibit the repurchase of the Securities as provided for in the succeeding
paragraph or (ii) obtain any requisite consents under instruments governing any
such Senior Debt to permit the repurchase of the Securities as provided for in
the succeeding paragraph. The Company shall first comply with the covenant in
the preceding sentence before it shall be required to repurchase Securities
pursuant to this Section 3.17.
Within 30 days following any Change of Control, the Company will mail, or
at the Company's request the Trustee will mail, a notice of a Change of Control
to each Holder (at its last registered address with a copy to the Trustee and
the paying agent) offering to repurchase the Securities held by such Holder
pursuant to the procedure specified in such notice. The Change of Control Offer
shall remain open from the time of mailing until the close of business on the
Business Day next preceding the Change of Control Payment Date. The notice,
which shall govern the
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terms of the Change of Control Offer, shall contain all instructions and
materials necessary to enable the Holders to tender Securities pursuant to the
Change of Control Offer and shall state:
(1) that the Change of Control Offer is being made
pursuant to this Section 3.17 and that all Securities
tendered will be accepted for payment;
(2) the Change of Control Payment and the Change of
Control Payment Date, which date shall be no earlier than 30
days nor later than 60 days from the date such notice is
mailed;
(3) that any Security not tendered will continue to
accrue interest in accordance with the terms of this
Indenture;
(4) that, unless the Company defaults in the payment of
the Change of Control Payment, all Securities accepted for
payment pursuant to the Change of Control Offer will cease
to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased
pursuant to any Change of Control Offer will be required to
surrender the Security, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Security
completed, to the Company, a depositary, if appointed by the
Company, or a paying agent at the address specified in the
notice prior to the close of business on the Business Day
next preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their
election if the Company, depositary or paying agent, as the
case may be, receives, not later than the close of business
on the Business Day next preceding the Change of Control
Payment Date, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the
Security the Holder delivered for purchase, and a statement
that such Holder is withdrawing his election to have such
Security purchased;
(7) that Holders whose Securities are being purchased
only in part will be issued new Securities equal in
principal amount to the unpurchased portion of the
Securities
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surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple thereof;
and
(8) the circumstances and relevant facts regarding such
Change of Control (including, but not limited to,
information with respect to pro forma historical financial
information after giving effect to such Change of Control,
information regarding the Person or Persons acquiring
control and such Person's or Persons' business plans going
forward) and any other information that would be material to
a decision as to whether to tender a Security pursuant to
the Change of Control Offer.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Securities or portions thereof properly
tendered and not withdrawn pursuant to the Change of Control Offer, (ii) deposit
with the paying agent an amount equal to the Change of Control Payment in
respect of all Securities or portions thereof so tendered and (iii) deliver or
cause to be delivered to the Trustee the Securities so accepted together with an
Officer's Certificate stating the aggregate principal amount of Securities or
portions thereof being purchased by the Company. The paying agent will promptly
mail to each Holder of Securities so tendered the Change of Control Payment for
such Securities, and the Trustee will promptly authenticate and mail (or cause
to be transferred by book entry) to each Holder a new Security equal in
principal amount to any unpurchased portion of the Securities surrendered, if
any; provided that each such new Security will be in a principal amount of
$1,000 or an integral multiple thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities as a result of a Change of Control.
Section 3.18. Termination of Certain Covenants if Securities Rated Invest
ment Grade. Notwithstanding the foregoing, the Company's and the Guarantor's
obligation to comply with the provisions of Sections 3.08, 3.09, 3.10, 3.12,
3.13, 3.14, 3.15 and 3.16 will terminate if and when the Securities become
Investment Grade Rated.
Section 3.19. Reports. (i) So long as any of the Securities remain
outstanding, the Guarantor will furnish to the Holders of Securities within 15
days after the filing thereof with the Commission copies of the annual reports
and of the
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information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) that the
Guarantor is required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act. All obligors on the Securities shall comply with the
provisions of the Trust Indenture Act Section 314(a). Notwithstanding that the
Guarantor may not be subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act or otherwise report on an annual and quarterly basis
on forms provided for such annual and quarterly reporting pursuant to rules and
regulations promulgated by the Commission, the Guarantor shall file with the
Commission and provide to the Trustee (a) within 90 days after the end of each
fiscal year, annual reports on Form 10-K (or any successor or comparable form)
containing the information required to be contained therein (or required in such
successor or comparable form), including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and a report thereon by the
Guarantor's certified public accountants; (b) within 45 days after the end of
each of the first three fiscal quarters of each fiscal year, reports on Form 10-
Q (or any successor or comparable form) containing the information required to
be contained therein (or required in any successor or comparable form),
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations"; and (c) promptly from time to time after the occurrence
of an event required to be therein reported, such other reports on Form 8-K (or
any successor or comparable form) containing the information required to be
contained therein (or required in any successor or comparable form); provided,
however, that the Guarantor shall not be in default of the provisions of this
Section 3.19) for any failure to file reports with the Commission solely by the
refusal of the Commission to accept the same for filing. Each of the financial
statements contained in such reports shall be prepared in accordance with GAAP.
(ii) The Trustee, at the Guarantor's expense, shall promptly mail
copies of all such annual reports, information, documents and other reports
provided to the Trustee pursuant to Section 3.19(a)(i) hereof to the
Holders at their addresses appearing in the register of Securities
maintained by the Registrar.
(iii) Whether or not required by the rules and regulations of the
Commission, the Guarantor shall file a copy of all such information and
reports with the Commission for public availability and make such
information available to securities analysts and prospective investors upon
request.
(iv) The Guarantor shall provide the Trustee with a sufficient number
of copies of all reports and other documents and information that the
Trustee may be required to deliver to the Holders under this Section 3.19.
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(v) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of
such shall not constitute constructive notice of any information contained
therein or determinable from information contained therein, including the
Guarantor's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officer's Certificates).
Section 3.20. Waiver of Stay, Extension or Usury Laws. The Company and the
Guarantor covenant (to the extent that it may lawfully do so) that they will not
(i) at any time insist upon, or plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay or extension law or any usury law or other
law that would prohibit or forgive the Company or the Guarantor from paying all
or any portion of the principal of or interest on the Securities as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture and the Company and
the Guarantor will expressly waive all benefit or advantage of any such law and
(ii) hinder, delay or impede the execution of any power granted to the Trustee
under this Indenture and will suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE 4
Remedies of the Trustee and Holders on Event of Default
Section 4.01. Events of Default. Each of the following constitutes an
"EVENT OF DEFAULT":
(i) default for 30 days in the payment when due of interest on the
Securities (whether or not prohibited by the provisions described in
Article 9);
(ii) default in payment when due of the principal of or premium, if
any, on the Securities (whether or not prohibited by the provisions
described in Article 9);
(iii) failure by the Company or the Guarantor to comply with the
provisions of Sections 3.08, 3.09, 3.10, or 3.17 hereof;
(iv) failure by the Company or the Guarantor for 30 days after notice
to comply with any other covenant or agreement in the Indenture, the
Securities or the Guarantee;
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(v) any default that occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Company, the
Guarantor or any Significant Subsidiary of the Guarantor (or the payment of
which is Guaranteed by the Company, the Guarantor or any Significant
Subsidiary of the Guarantor), whether such Indebtedness or Guarantee exists
on the date hereof or is created after the date hereof, which default (a)
constitutes a Payment Default or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or
that has been so accelerated, aggregates $25.0 million or more;
(vi) the termination of any Master Lease Agreement upon an Event of
Default (as defined in such Master Lease Agreement) or the surrender or
repossession of all of the Leased Property (as defined in each Master Lease
Agreement) upon an Event of Default under such Master Lease Agreement;
(vii) failure by the Company, the Guarantor or any Significant
Subsidiary of the Guarantor to pay a final judgment or final judgments
entered by a court or courts of competent jurisdiction against the Company,
the Guarantor or any Significant Subsidiary of the Guarantor aggregating in
excess of $25.0 million if such final judgment or judgments remain unpaid
or undischarged for a period (during which execution shall not be
effectively stayed) of 60 days after their entry;
(viii) the Company, the Guarantor or any Significant Subsidiary of the
Guarantor thereof pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it
in an involuntary case in which it is the debtor,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) admits in writing its inability generally to pay its
debts as the same become due; and
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(ix) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company, the Guarantor or any
Significant Subsidiary of the Guarantor in an involuntary case in
which it is the debtor,
(B) appoints a Custodian of the Company, the Guarantor or any
Significant Subsidiary of the Guarantor or for all or substantially
all of the property of the Company, the Guarantor or any Significant
Subsidiary of the Guarantor, or
(C) orders the liquidation of the Company, the Guarantor or any
Significant Subsidiary of the Guarantor,
and the order or decree remains unstayed and in effect for 60 days.
The term "BANKRUPTCY LAW" means title 11, U.S. Code or any similar federal
or state law for the relief of debtors. The term "CUSTODIAN" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
A Default under clause (iv) is not an Event of Default until the Trustee
notifies the Company and the Guarantor in writing, or the Holders of at least
25% in aggregate principal amount of the then outstanding Securities notify the
Company, the Guarantor and the Trustee in writing, of the Default and the
Company and the Guarantor do not cure the Default within 30 days after receipt
of such notice. The written notice must specify the Default, demand that it be
remedied and state that the notice is a "NOTICE OF DEFAULT."
Section 4.02. Acceleration. If any Event of Default (other than an Event of
Default specified in clause (viii) or (ix) of Section 4.01 hereof) occurs and is
continuing, the Trustee by notice to the Company and the Guarantor, or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Securities by written notice to the Company, the Guarantor and the Trustee, may
declare the unpaid principal of, premium, if any, and any accrued and unpaid
interest on all the Securities to be due and payable immediately; provided that
for so long as the Company Credit Agreement is in effect, such declaration shall
not become effective until the earlier of (i) five Business Days after receipt
of the written notice declaring the Securities to be due and payable immediately
by the Administrative Agent and the Documentation Agent under the Company Credit
Agreement or (ii) acceleration of the Indebtedness under the Company Credit
Agreement. Except as set forth above, upon such declaration the principal of,
premium, if any, and interest shall be due and payable immediately. If an Event
of Default specified in clause (viii) or (ix) of Section 4.01
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hereof occurs with respect to the Company, the Guarantor or any Significant
Subsidiary of the Guarantor, the unpaid principal of, premium, if any, and any
accrued and unpaid interest on all the Securities shall ipso facto become and be
immediately due and payable without further action or notice on the part of the
Trustee or any Holder.
Section 4.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal or interest on the Securities or to enforce the performance of any
provision of the Securities (including the Guarantee) or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquies cence in the Event of Default. All remedies are cumulative
to the extent permitted by law.
Section 4.04. Waiver of Past Defaults. The Holders of not less than a
majority in aggregate principal amount of the Securities then outstanding by
written notice to the Trustee may on behalf of the Holders of all of the
Securities waive any existing Default or Event of Default and its consequences
under this Indenture except a continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest on any Security. Upon
any such waiver, such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default or
impair any right consequent thereon.
Section 4.05. Control by Majority. Holders of a majority in aggregate
principal amount of the then outstanding Securities may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on it. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture that
the Trustee determines may be unduly prejudicial to the rights of other Holders
or that may involve the Trustee in personal liability. The Trustee may take any
other action which it deems proper which is not inconsistent with any such
direction.
Section 4.06. Limitation on Suits. A Holder may pursue a remedy with
respect to this Indenture or the Securities (including the Guarantee) only if:
(i) the Holder gives to the Trustee written notice of a continuing
Event of Default;
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(ii) the Holders of at least 25% in aggregate principal amount of
the then outstanding Securities make a written request to the Trustee to
pursue the remedy;
(iii) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(v) during such 60-day period the Holders of a majority in
aggregate principal amount of the then outstanding Securities do not give
the Trustee a direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another Holder
or to obtain a preference or priority over another Holder.
Section 4.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
principal, premium, if any, and interest on the Security (including the
Guarantee), on or after the respective due dates expressed in the Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.
Section 4.08. Collection Suit by Trustee. If an Event of Default specified
in Section 401(i) or (ii) hereof occurs and is continuing, the Trustee is
authorized to recover judgment in its own name and as trustee of an express
trust against the Company or the Guarantor or any other obligor for the whole
amount of principal, premium, if any, and interest remaining unpaid on the
Securities (including the Guarantee) and interest on overdue principal and, to
the extent lawful, interest and such further amount as shall be sufficient to
cover amounts due the Trustee under Section 507 hereof, including the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
Section 4.09. Trustee May File Proofs of Claim. The Trustee is authorized
to file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and the Holders allowed in any judicial
proceedings relative to the Company or the Guarantor (or any other obligor upon
the Securities), its creditors
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or its property and shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on any such claims
and any custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 507 hereof. To the extent that the payment
of any such compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section 507
hereof out of the estate in any such proceeding, shall be denied for any reason,
payment of the same shall be secured by a Lien on, and shall be paid out of, any
and all distributions, dividends, money, securities and other properties which
the Holders may be entitled to receive in such proceeding whether in liquidation
or under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
Section 4.10. Priorities. If the Trustee collects any money pursuant to
this Article, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 507, including payment of all compensation, expense and liabilities
incurred, and all advances made, by the Trustee and the costs and expenses of
collection;
Second: to Holders for amounts due and unpaid on the Securities for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Securities
for principal, premium, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent jurisdiction
shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 410 upon five Business Days prior notice to the
Company and the Guarantor.
Section 4.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as a Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the
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court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 407 hereof, or a suit by Holders of more than 10% in
aggregate principal amount of the then outstanding Securities.
ARTICLE 5
Concerning the Trustee
Section 5.01. Duties and Responsibilities of the Trustee; During Default;
Prior to Default. The Trustee, prior to the occurrence of an Event of Default
and after the curing or waiving of all Events of Default which may have
occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture. In case an Event of Default has
occurred (which has not been cured or waived) the Trustee shall exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own wilful misconduct, except that
(a) prior to the occurrence of an Event of Default of which the Trustee has
actual notice and after the curing or waiving of all such Events of Default
which may have occurred:
(i) the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Indenture, and the Trustee shall
not be liable except for the performance of such duties and obligations as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such statements,
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the
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Trustee shall be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer or Responsible Officers of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(c) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of the
holders of not less than a majority in principal amount of the Securities at the
time outstanding relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.
This Section 501 is in furtherance of and subject to Sections 315 and 316
of the Trust Indenture Act of 1939.
Section 5.02. Certain Rights of the Trustee. In furtherance of and subject
to the Trust Indenture Act of 1939, and subject to Section 501:
(a) the Trustee may conclusively rely and shall be protected in acting or
refraining from acting upon any resolution, Officer's Certificate or any other
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture, note, coupon, security or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties;
(b) any request, direction, order or demand of the Company or the
Guarantor mentioned herein shall be sufficiently evidenced by an Officer's
Certificate (unless other evidence in respect thereof be herein specifically
prescribed); and any resolution of the Board of Directors may be evidenced to
the Trustee by a copy thereof certified by the secretary or an assistant
secretary of the Company or Guarantor, as the case may be;
(c) the Trustee may consult with counsel of its selection and any advice
or Opinion of Counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted to be taken by it hereunder in
good faith and in accordance with such advice or Opinion of Counsel;
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(d) the Trustee shall be under no obligation to exercise any of the trusts
or powers vested in it by this Indenture at the request, order or direction of
any of the Securityholders pursuant to the provisions of this Indenture, unless
such Securityholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be incurred
therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted by it
in good faith and believed by it to be authorized or within the discretion,
rights or powers conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of Default hereunder, of which the
Trustee has actual notice, and after the curing or waiving of all Events of
Default, the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, appraisal, bond,
debenture, note, coupon, security, or other paper or document unless requested
in writing so to do by the holders of not less than a majority in aggregate
principal amount of the Securities then outstanding; provided that, if the
payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expenses or liabilities as a condition to
proceeding; the reasonable expenses of every such examination shall be paid by
the Company or, if paid by the Trustee or any predecessor trustee, shall be
repaid by the Company upon demand;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys not regularly in its employ and the Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder; and
(h) The Trustee shall not be deemed to have notice of any Default or Event
of Default unless a Responsible Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a default is
received by the Trustee at the Corporate Trust Office of the Trustee, and such
notice references the Securities and this Indenture.
Section 5.03. Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof. The recitals contained herein and
in the Securities (including the Guarantee), except the Trustee's certificates
of authentication, shall be taken as the statements of the Company and the
Guarantor, and the Trustee assumes no responsibility for the correctness of the
same. The Trustee
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makes no representation as to the validity or sufficiency of this Indenture or
of the Securities or the Guarantee. The Trustee shall not be accountable for the
use or application by the Company or Guarantor of any of the Securities or of
the proceeds thereof.
Section 5.04. Trustee and Agents May Hold Securities; Collections, etc.
The Trustee or any agent of the Company, the Guarantor or the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Securities
with the same rights it would have if it were not the Trustee or such agent and
may otherwise deal with the Company or the Guarantor and receive, collect, hold
and retain collections from the Company with the same rights it would have if it
were not the Trustee or such agent.
Section 5.05. Moneys Held by Trustee. Subject to the provisions of Section
1206 hereof, all moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required by
mandatory provisions of law. Neither the Trustee nor any agent of the Company or
the Trustee shall be under any liability for interest on any moneys received by
it hereunder.
Section 5.06. Notice of Default. If any Default or any Event of Default
occurs and is continuing and if such Default or Event of Default is actually
known to a responsible officer of the Trustee, the Trustee shall mail to each
Holder in the manner and to the extent provided in Trust Indenture Act Section
313(c) notice of the Default or Event of Default within 45 days after it occurs,
unless such Default or Event of Default has been cured; provided, however, that,
except in the case of a default in the payment of the principal of, premium, if
any, or interest on any Security, the Trustee shall be protected in withholding
such notice if and so long as the board of directors, the executive committee or
a trust committee of directors and/or Responsible Officers of the Trustee in
good faith determine that the withholding of such notice is in the interest of
the Holders.
Section 5.07. Compensation and Indemnification of Trustee and Its Prior
Claim. The Company and the Guarantor, jointly and severally, covenant and agree
to pay to the Trustee from time to time, and the Trustee shall be entitled to,
such compensation as shall be agreed in writing among the Company, the Guarantor
and the Trustee (which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust) and the Company and the
Guarantor, jointly and severally, covenant and agree to pay or reimburse the
Trustee and each predecessor Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by or on behalf of it in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all agents and other persons not regularly in
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its employ) except any such expense, disbursement or advance as may arise from
its negligence or bad faith. The Company and the Guarantor, jointly and
severally, also covenant to indemnify the Trustee and each predecessor Trustee
for, and to hold it harmless against, any and all loss, liability, damage, claim
or expense, including taxes (other than taxes based on the income of the
Trustee) incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of this Indenture or the
trusts hereunder and its duties hereunder, including the costs and expenses of
defending itself against or investigating any claim of liability in the
premises. The obligations of the Company and the Guarantor, under this Section
to compensate and indemnify the Trustee and each predecessor Trustee and to pay
or reimburse the Trustee and each predecessor Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder
and shall survive the satisfaction and discharge of this Indenture. Such
additional indebtedness shall be a senior claim to that of the Securities and
the Guarantee upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the benefit of the holders of particular
Securities, and the Securities and the Guarantee are hereby subordinated to such
senior claim.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 401 or Section 401, the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
Section 5.08. Right of Trustee to Rely on Officer's Certificate, etc.
Subject to Sections 501 and 502, whenever in the administration of the trusts of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officer's Certificate delivered to the Trustee, and such certificate, in the
absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it under the
provisions of this Indenture upon the faith thereof.
Section 5.09. Persons Eligible for Appointment as Trustee. The Trustee
hereunder shall at all times be a corporation having a combined capital and
surplus of at least $100,000,000, and which is eligible in accordance with the
provisions of Section 310(a) of the Trust Indenture Act of 1939. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of a Federal, State or District of Columbia supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall
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be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published.
Section 5.10. Resignation and Removal; Appointment of Successor Trustee.
(a) The Trustee may at any time resign by giving written notice of resignation
to the Company and the Guarantor. Upon receiving such notice of resignation, the
Company or the Guarantor shall promptly appoint a successor trustee by written
instrument in duplicate, executed by authority of the Board of Directors, one
copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee. If no successor trustee shall have been so
appointed and have accepted appointment within 30 days after the mailing of such
notice of resignation, the resigning trustee may petition, at the expense of the
Company and the Guarantor, any court of competent jurisdiction for the
appointment of a successor trustee, or any Securityholder who has been a bona
fide holder of a Security or Securities for at least six months may, on behalf
of himself and all others similarly situated, petition any such court for the
appointment of a successor trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of
Section 310(b) of the Trust Indenture Act of 1939, after written request
therefor by the Company, the Guarantor or by any Securityholder who has
been a bona fide holder of a Security or Securities for at least six
months; or
(ii) the Trustee shall cease to be eligible in accordance with
the provisions of Section 509 and shall fail to resign after written
request therefor by the Company, the Guarantor or by any such
Securityholder; or
(iii) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver or liquidator of the
Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation;
then, in any such case, the Company or the Guarantor may remove the Trustee and
appoint a successor trustee by written instrument, in duplicate, executed by
order of the Board of Directors of the Company or the Guarantor, one copy of
which instrument shall be delivered to the Trustee so removed and one copy to
the successor trustee, or, subject to Section 315(e) of the Trust Indenture Act
of 1939, any Securityholder who has been a bona fide holder of a Security or
Securities for at least six months may on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of
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a successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, remove the Trustee and appoint a successor
trustee.
(c) The holders of a majority in aggregate principal amount of the
Securities at the time outstanding may at any time remove the Trustee and
appoint a successor trustee by delivering to the Trustee so removed, to the
successor trustee so appointed and to the Company and the Guarantor the evidence
provided for in Section 601 of the action in that regard taken by the
Securityholders.
If no successor trustee shall have been so appointed and have accepted
appointment 30 days after the mailing of such notice of removal, the trustee
being removed may petition, at the expense of the Company and the Guarantor, any
court of competent jurisdiction for the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.
(d) Any resignation or removal of the Trustee and any appointment of a
successor trustee pursuant to any of the provisions of this Section 510 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 511.
Section 5.11 Acceptance of Appointment by Successor Trustee. Any successor
trustee appointed as provided in Section 510 shall execute and deliver to the
Company and the Guarantor and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company and the Guarantor or of the successor trustee, upon payment of
its charges then unpaid, the trustee ceasing to act shall, subject to Section
1206, pay over to the successor trustee all moneys at the time held by it
hereunder and shall execute and deliver an instrument transferring to such
successor trustee all such rights, powers, duties and obligations. Upon request
of any such successor trustee, the Company and the Guarantor shall execute any
and all instruments in writing for more fully and certainly vesting in and
confirming to such successor trustee all such rights and powers. Any trustee
ceasing to act shall, nevertheless, retain a prior claim upon all property or
funds held or collected by such trustee to secure any amounts then due it
pursuant to the provisions of Section 507.
Upon acceptance of appointment by a successor trustee as provided in this
Section 511, the Company shall mail notice thereof by first-class mail to the
holders of Securities at their last addresses as they shall appear in the
Security register. If the
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acceptance of appointment is substantially contemporaneous with the resignation,
then the notice called for by the preceding sentence may be combined with the
notice called for by Section 510. If the Company fails to mail such notice
within 10 days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Company.
Section 5.12. Merger, Conversion, Consolidation or Succession to Business
of Trustee. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or to which the Trustee's assets may be sold,
or any corporation resulting from any merger, conversion, consolidation or sale
to which the Trustee shall be a party or by which the Trustee's property may be
bound, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be eligible under the provisions of Section
509, without the execution or filing of any paper or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities (including the Guarantee)
shall have been authenticated but not delivered, any such successor to the
Trustee may adopt the certificate of authentication of any predecessor Trustee
and deliver such Securities (including the Guarantee) so authenticated; and, in
case at that time any of the Securities (including the Guarantee) shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities (including the Guarantee) either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in all such cases such
certificate shall have the full force which it is anywhere in the Securities
(including the Guarantee) or in this Indenture provided that the certificate of
the Trustee shall have; provided, that the right to adopt the certificate of
authentication of any predecessor Trustee or to authenticate Securities
(including the Guarantee) in the name of any predecessor Trustee shall apply
only to its successor or successors by merger, conversion or consolidation.
Section 5.13. Preferential Collection of Claims. Reference is made to
Section 311 of the Trust Indenture Act. For purposes of Section 311(b) (4) and
(6) of such Act, the following terms shall mean:
(a) "CASH TRANSACTION" means any transaction in which full payment for
goods or securities sold is made within seven days after delivery of the goods
or securities in currency or in checks or other orders drawn upon banks or
bankers and payable upon demand; and
(b) "SELF-LIQUIDATING PAPER" means any draft, bill of exchange, acceptance
or obligation which is made, drawn, negotiated or incurred by the Company or the
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Guarantor for the purpose of financing the purchase, processing, manufacturing,
shipment, storage or sale of goods, wares or merchandise and which is secured by
documents evidencing title to, possession of, or a lien upon, the goods, wares
or merchandise or the receivables or proceeds arising from the sale of the
goods, wares or merchandise previously constituting the security, provided the
security is received by the Trustee simultaneously with the creation of the
creditor relationship with the Company or the Guarantor, as the case may be,
arising from the making, drawing, negotiating or incurring of the draft, bill of
exchange, acceptance or obligation.
ARTICLE 6
Concerning the Holders
Section 6.01. Evidence of Action Taken by Holders. Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Securityholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Securityholders in person or by agent duly appointed in writing; and,
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee.
Proof of execution of any instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Sections
501 and 502) conclusive in favor of the Trustee, the Company and the Guarantor,
if made in the manner provided in this Article.
Section 6.02. Proof of Execution of Instruments and of Holding of Securities;
Record Date. Subject to Sections 501 and 502, the execution of any instrument
by a Securityholder or his agent or proxy may be proved in accordance with such
reasonable rules and regulations as may be prescribed by the Trustee or in such
manner as shall be satisfactory to the Trustee. The holding of Securities shall
be proved by the Security register or by a certificate of the Registrar thereof.
The Company may set a record date for purposes of determining the identity of
holders of Securities entitled to vote or consent to any action referred to in
Section 601, which record date may be set at any time or from time to time by
notice to the Trustee, for any date or dates (in the case of any adjournment or
resolicitation) not more than 60 days nor less than five days prior to the
proposed date of such vote or consent, and thereafter, notwithstanding any other
provisions hereof, only holders of Securities of record on such record date
shall be entitled to so vote or give such consent or to withdraw such vote or
consent.
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Section 6.03. Securities Owned by Company or Guarantor Deemed Not
Outstanding. In determining whether the holders of the requisite aggregate
principal amount of Securities have concurred in any direction, consent or
waiver under this Indenture, Securities which are owned by the Company, the
Guarantor or any other obligor on the Securities or by any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company, the Guarantor or any other obligor on the Securities
shall be disregarded and deemed not to be outstanding for the purpose of any
such determination, except that for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, consent or waiver
only Securities which the Trustee actually knows are so owned shall be so
disregarded. Securities so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company, the Guarantor or any other obligor upon the
Securities or any person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, the Guarantor or any
other obligor on the Securities. In case of a dispute as to such right, the
advice of counsel shall be full protection in respect of any decision made by
the Trustee in accordance with such advice. Upon request of the Trustee, the
Company shall furnish to the Trustee promptly an Officer's Certificate listing
and identifying all Securities, if any, known by the Company or the Guarantor to
be owned or held by or for the account of any of the above-described persons;
and, subject to Sections 501 and 502, the Trustee shall be entitled to accept
such Officer's Certificate as conclusive evidence of the facts therein set forth
and of the fact that all Securities not listed therein are outstanding for the
purpose of any such determination.
Section 6.04. Right of Revocation of Action Taken. At any time prior to (but
not after) the evidencing to the Trustee, as provided in Section 601, of the
taking of any action by the holders of the percentage in aggregate principal
amount of the Securities specified in this Indenture in connection with such
action, any holder of a Security the serial number of which is shown by the
evidence to be included among the serial numbers of the Securities the Holders
of which have consented to such action may, by filing written notice at the
Corporate Trust Office and upon proof of holding as provided in this Article,
revoke such action so far as concerns such Security. Except as aforesaid any
such action taken by the holder of any Security shall be conclusive and binding
upon such holder and upon all future holders and owners of such Security
(including the Guarantee) and of any Securities (including the Guarantee) issued
in exchange or substitution therefor, irrespective of whether or not any
notation in regard thereto is made upon any such Security (including the
Guarantee). Any action taken by the holders of the percentage in aggregate
principal amount of the Securities specified in this Indenture in connection
with such action shall be conclusively binding upon the Company, the Guarantor,
the Trustee and the holders of all the Securities.
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ARTICLE 7
Supplemental Indentures
Section 7.01. Supplemental Indentures Without Consent of Holders. The
Company, the Guarantor and the Trustee may amend or supplement this Indenture or
the Securities and the Guarantee without the consent of any Holder:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(iii) to provide for any supplemental indenture required pursuant to
Section 316 hereof;
(iv) to provide for the assumption of the Company's or the
Guarantor's obligations to the Holders of the Securities in the case of any
transaction pursuant to Article 8 hereof;
(v) to make any change that would provide any additional rights or
benefits to the Holders of the Securities or that does not adversely affect
the legal rights hereunder of any such Holder; or
(vi) to comply with requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the Trust Indenture
Act.
Upon the request of the Company and the Guarantor accompanied by a
resolution of their respective Board of Directors authorizing the execution of
any such supplemental indenture, and upon receipt by the Trustee of the
documents described in Section 704 hereof, the Trustee shall join with the
Company and the Guarantor in the execution of any supplemental indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations which may be therein contained, but the
Trustee shall not be obligated to enter into such supplemental indenture which
affects its own rights, duties or immunities under this Indenture or otherwise.
Section 7.02. With Consent of Holders. Except as provided in the next
succeeding paragraphs, this Indenture or the Securities (including the
Guarantee) may be amended or supplemented with the consent of the Holders of at
least a majority in aggregate principal amount of the Securities then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for such Securities), and any existing default or compliance with
any provision of this Indenture or the
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Securities (including the Guarantee) may be waived with the consent of the
Holders of a majority in aggregate principal amount of the then outstanding
Securities (including consents obtained in connection with a tender offer or
exchange offer for such Securities).
Upon the request of the Company and the Guarantor accompanied by a
resolution of their respective Board of Directors authorizing the execution of
any such supplemental indenture, and upon the filing with the Trustee of
evidence satisfactory to the Trustee of the consent of the Holders as aforesaid,
and upon receipt by the Trustee of the documents described in Section 704
hereof, the Trustee shall join with the Company and the Guarantor in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Holders under this Section
702 to approve the particular form of any proposed amendment or waiver, but it
shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
Subject to Sections 404 and 407 hereof, the Holders of a majority in aggregate
principal amount of the Securities then outstanding may waive compliance in a
particular instance by the Company or the Guarantor with any provision of this
Indenture or the Securities. Without the consent of each Holder affected,
however, an amendment or waiver may not (with respect to any Security held by a
non-consenting Holder):
(i) reduce the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the principal of or change the fixed maturity of any
Security (other than provisions relating to the covenants described under
310 and 317);
(iii) reduce the rate of or change the time for payment of interest
on any Security;
(iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Securities (except a rescission
of acceleration of the Securities by the Holders of at least a majority in
aggregate
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principal amount thereof and a waiver of the payment default that resulted
from such acceleration);
(v) make any Security payable in money other than that stated in
the Securities;
(vi) make any change in Section 404 or 407 hereof;
(vii) waive a redemption payment with respect to any Security (other
than a payment described by Section 310 or 317);
(viii) modify the ranking or priority of the Securities or the
Guarantee or modify the definition of Senior Debt or Designated Senior Debt
or amend or modify Article 9 in any manner adverse to the Holders; or
(ix) make any change in this sentence of this Section 702.
Section 7.03. Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith and the
respective rights, limitations of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Company, the Guarantor and the holders
of Securities (including the Guarantee) shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
Section 7.04. Documents to Be Given to Trustee; Compliance with TIA. The
Trustee, subject to the provisions of Sections 501 and 502, may receive an
Officer's Certificate and an Opinion of Counsel as conclusive evidence that any
such supplemental indenture complies with the applicable provisions of this
Indenture. Every such supplemental indenture shall comply with the TIA.
Section 7.05. Notation on Securities in Respect of Supplemental Indentures.
Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to the provisions of this Article may bear a notation
approved by the Trustee as to form (but not as to substance) as to any matter
provided for by such supplemental indenture or as to any action taken at any
such meeting. If the Company, the Guarantor or the Trustee shall so determine,
new Securities (including the Guarantee) so modified as to conform, in the
opinion of the Trustee and the Board of Directors of the Company and the
Guarantor, to any modification of this Indenture contained in any such
supplemental indenture may be prepared by the Company or the
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Guarantor, authenticated by the Trustee and delivered in exchange for the
Securities then outstanding.
ARTICLE 8
Consolidation, Merger or Sale of Assets
Section 8.01. When the Company or the Guarantor May Merge, Etc. Neither the
Company nor the Guarantor will consolidate or merge with or into (whether or not
the Company or the Guarantor is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company or of the Guarantor in one or more related
transactions, to another corporation, Person or entity unless (i) the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company or the Guarantor, as
applicable) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (the "SURVIVING ENTITY") is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Surviving Entity assumes all the obligations
of the Company or the Guarantor, as the case may be, under the Securities or the
Guarantee, as applicable, and the Indenture pursuant to a supplemental Indenture
in form reasonably satisfactory to the Trustee; (iii) immediately before and
after giving effect to such transaction and treating any Indebtedness which
becomes an obligation of the Company or the Guarantor, as applicable, as a
result of such transaction as having been incurred by the Company or the
Guarantor, as applicable, at the time of the transaction, no Default or Event of
Default shall have occurred and be continuing; and (iv) the Company or the
Guarantor, as applicable, or the Surviving Entity (A) will have Consolidated Net
Worth immediately after the transaction and prior to any purchase accounting
adjustments equal to or greater than the Consolidated Net Worth of the Company
or the Guarantor, as applicable, immediately preceding the transaction and (B)
will, at the time of such transaction and after giving pro forma effect thereto
as if such transaction had occurred at the beginning of the applicable four-
quarter period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 309.
Section 8.02. Successor Corporation Substituted. Upon any consolidation or
merger, or any sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the assets of the Company or the
Guarantor, as applicable, in accordance with Section 801 hereof, the successor
corporation formed by such consolidation or into or with which the Company or
the Guarantor, as applicable, is merged or to which such sale, assignment,
transfer, lease, conveyance or other
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disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition, the provisions of this Indenture referring to
the "COMPANY" or the "GUARANTOR," as applicable, shall refer instead to the
successor corporation), and may exercise every right and power of, the Company
or the Guarantor, as applicable, under this Indenture with the same effect as if
such successor Person had been named as the Company herein.
Notwithstanding the foregoing, (i) a consolidation or merger by the Company
or the Guarantor with or into, or (ii) the sale, assignment, transfer, lease,
conveyance or other disposition by the Company or the Guarantor of all or
substantially all of their respective property or assets to, one or more of
their Subsidiaries shall not relieve either the Company or the Guarantor from
their respective obligations under this Indenture, the Securities and the
Guarantee.
Section 8.03. Opinion of Counsel to Trustee. The Trustee, subject to the
provisions of Sections 501 and 502, may receive an Opinion of Counsel as
conclusive evidence that any such consolidation, merger, conveyance, sale,
transfer, lease, exchange or other disposition complies with the applicable
provisions of this Indenture.
ARTICLE 9
Subordination
Section 9.01. Agreement to Subordinate. The Company and the Guarantor
agree, and each Holder by accepting a Security and Guarantee agrees, any
provision of this Indenture, the Securities or the Guarantee to the contrary
notwithstanding, that all Obligations owed under and in respect of the
Securities and the Guarantee are subordinated in right of payment, to the extent
and in the manner provided in this Article 9, to the prior payment in full in
cash of all Obligations owed under and in respect of all Senior Debt of the
Company and the Guarantor, and that the subordination of the Securities and the
Guarantee pursuant to this Article 9 is for the benefit of all holders of all
Senior Debt of the Company and the Guarantor, whether outstanding on the Closing
Date or incurred thereafter.
Section 9.02. Liquidation; Dissolution; Bankruptcy. (a) Upon any
distribution of cash, securities or other property of the Company or the
Guarantor to creditors upon any Insolvency or Liquidation Proceeding with
respect to the Company or the Guarantor, the holders of any Senior Debt of the
Company or the Guarantor, as the case may be, will be entitled to receive
payment in full, in cash or Cash
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Equivalents, of all Obligations due in respect of such Senior Debt (including
Post-Petition Interest and, in the case of all Designated Senior Debt, all
Obligations with respect thereto) before the Holders will be entitled to receive
any payment or distribution with respect to the Securities and the Guarantee
(including payment for the repurchase of Securities upon a Change of Control),
and until all Obligations with respect to such Senior Debt of the Company or the
Guarantor, as the case may be, are paid in full, in cash or Cash Equivalents,
any payment or distribution to which the Holders would be entitled shall be made
to the holders of the Company's or the Guarantor's Senior Debt on a pro rata
basis (except payments made from the trust described in Section 1204 and except
that Holders of the Securities may receive Reorganization Securities).
Upon any Insolvency or Liquidation Proceeding with respect to the Company
or the Guarantor, any payment or distribution of assets of the Company or the
Guarantor of any kind or character, whether in cash, securities or other
property, to which the Holders or the Trustee would be entitled except for the
provisions of this Indenture shall be paid by the Company or the Guarantor, any
paying agent or other Person making such payment or distribution, or by the
Holders or by the Trustee if received by them, directly to the holders of the
Company's or the Guarantor's Senior Debt (pro rata to such holders on the basis
of the amounts of the Obligations due in respect of the Senior Debt held by
them) or their representatives, as their interests may appear, for application
to the payment of all Obligations due in respect of such Senior Debt (including
Post-Petition Interest and, in the case of all Designated Senior Debt, all
Obligations with respect thereto) until all such Obligations have been paid in
full in cash, after giving effect to all other payments or distributions to, or
provisions made for, holders of the Company's or the Guarantor's Senior Debt.
(b) A distribution may consist of cash, securities or other property, by
set-off or otherwise. For purposes of this Article 9, the words "cash,
securities or other property" shall not include any distribution of securities
of the Company or the Guarantor or any other corporation provided for in any
reorganization proceeding under any Bankruptcy Law if (i) such securities
constitute Reorganization Securities, (ii) such distribution was authorized by
an order or decree of a court of competent jurisdiction, and (iii) such order
gives effect to (and states in such order or decree that effect has been given
to) the subordination of such securities to all Senior Debt of the Company or
the Guarantor not paid in full in connection with such reorganization; provided
that (a) all such Senior Debt is assumed by the reorganized corporation, and (b)
the rights of the holders of any such Senior Debt are not, without the consent
of such holders, altered by such reorganization, which consent shall be deemed
to have been given if the holders of such Senior Debt (or their representative),
individually or as a class, shall have approved such reorganization.
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(c) Notwithstanding anything to the contrary in Section 902, Holders of
Securities may continue to receive payments from the trust established pursuant
to Section 1204.
Section 9.03. Default on Designated Senior Debt. Neither the Company nor
the Guarantor may make any payment upon or in respect of the Securities or the
Guarantee (except in such subordinated securities as described in Section 902 or
from the trust established pursuant to Section 1204) if (i) a Payment Default on
Designated Senior Debt occurs and is continuing beyond any applicable period of
grace or (ii) any other default occurs and is continuing with respect to
Designated Senior Debt that permits holders of the Designated Senior Debt as to
which such default relates to accelerate its maturity and the Trustee receives a
notice of such default (a "PAYMENT BLOCKAGE NOTICE") from the Company, the
Guarantor or any Representative of any Designated Senior Debt. Payments on the
Securities or the Guarantee may be resumed and all past due amounts on the
Securities shall be paid (a) in the case of a Payment Default, upon the date on
which such default is cured or waived and (b) in case of a nonpayment default,
upon the earlier of (1) the date on which such nonpayment default is cured or
waived or (2) 179 days after the date on which the applicable Payment Blockage
Notice is received, in each case, unless the maturity of any Designated Senior
Debt has been accelerated and the Company or the Guarantor has defaulted with
respect to the payment of such Designated Senior Debt. No new period of payment
blockage may be commenced unless and until 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice. No nonpayment
default that existed or was continuing on the date any Payment Blockage Notice
was given shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
Section 9.04. When Distributions Must Be Paid Over. If the Company or the
Guarantor shall make any payment to the Trustee on account of the principal of,
or premium, if any, or interest on, the Securities, or any other Obligation in
respect of the Securities or the Guarantee, or the Holders shall receive from
any source any payment on account of the principal of, premium, if any, or
interest on, the Securities, the Guarantee or any Obligation in respect of the
Securities or the Guarantee, at a time when such payment is prohibited by this
Article 9, the Trustee or such Holders shall hold such payment in trust for the
benefit of, and shall pay over and deliver to, the holders of the Company's or
the Guarantor's Senior Debt (pro rata as to each of such holders on the basis of
the respective amounts of such Senior Debt held by them) or their
representative, as their respective interests may appear, for application to the
payment of all outstanding Senior Debt of the Company or the Guarantor until all
such Senior Debt has been paid in full in cash, after giving effect to all other
payments or distributions to, or provisions made for, the holders of the
Company's Senior Debt.
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With respect to the holders of Senior Debt of the Company or the Guarantor,
the Trustee undertakes to perform only such obligations on its part as are
specifically set forth in this Article 9, and no implied covenants or
obligations with respect to any holders of the Company's or the Guarantor's
Senior Debt shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of the Company's or
the Guarantor's Senior Debt, and shall not be liable to any holders of such
Senior Debt if the Trustee shall pay over or distribute to, or on behalf of,
Holders or the Company, the Guarantor or any other Person, money or assets to
which any holders of such Senior Debt are entitled pursuant to this Article 9,
except if such payment is made at a time when a Trust Officer has actual
knowledge that the terms of this Article 9 prohibit such payment.
Section 9.05. Notice. Neither the Trustee nor the paying agent shall at any
time be charged with the knowledge of the existence of any facts that would
prohibit the making of any payment to or by the Trustee or paying agent under
this Article 9 unless and until the Trustee or paying agent shall have received
written notice thereof from the Company or the Guarantor or one or more holders
of the Company's or the Guarantor's Senior Debt or a Representative of any
holders of such Senior Debt; and, prior to the receipt of any such written
notice, the Trustee or paying agent shall be entitled to assume conclusively
that no such facts exist. The Trustee shall be entitled to rely on the delivery
to it of written notice by a Person representing itself to be a holder of the
Company's or the Guarantor's Senior Debt (or a Representative thereof) to
establish that such notice has been given.
The Company and the Guarantor shall promptly notify the Trustee and the
paying agent in writing of any facts it knows that would cause a payment of
principal of, premium, if any, or interest on, the Securities, the Guarantee or
any other Obligation in respect of the Securities to violate this Article 9, but
failure to give such notice shall not affect the subordination of the Securities
or the Guarantee to the Senior Debt of the Company and the Guarantor provided in
this Article 9 or the rights of holders of such Senior Debt under this Article
9.
Section 9.06. Subrogation. After all Senior Debt of the Company and the
Guarantor has been paid in full in cash and until the Securities are paid in
full, Holders shall be subrogated (equally and ratably with all other
Indebtedness pari-passu with the Securities) to the rights of holders of such
Senior Debt to receive distributions applicable to such Senior Debt to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of such Senior Debt. A distribution made under this Article 9 to
holders of the Company's or the Guarantor's Senior Debt that otherwise would
have been made to Holders is not, as between the Company or the Guarantor, as
the case may be, and Holders, a payment by the Company or the Guarantor on its
Senior Debt.
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Section 9.07. Relative Rights. This Article 9 defines the relative rights
of Holders and holders of the Company's or the Guarantor's Senior Debt. Nothing
in this Indenture shall: (1) impair, as between the Company, the Guarantor and
Holders, the Company's or the Guarantor's Obligations, which are absolute and
unconditional, to pay principal of, premium, if any, and interest on the
Securities (including the Guarantee) in accordance with their terms; (2) affect
the relative rights of Holders and the Company's or the Guarantor's creditors
other than their rights in relation to holders of the Company's or the
Guarantor's Senior Debt; or (3) prevent the Trustee or any Holder from
exercising its available remedies upon a Default or Event of Default, subject to
the rights of holders of the Company's or the Guarantor's Senior Debt to receive
distributions and payments otherwise payable to Holders.
The failure to make a payment on account of principal of or interest on the
Securities or the Guarantee by reason of any provision of this Article 9 shall
not be construed as preventing the occurrence of an Event of Default under
Section 401.
Section 9.08. The Company, the Guarantor and Holders May Not Impair
Subordination. (a) No right of any holder of the Company's or the Guarantor's
Senior Debt to enforce the subordination as provided in this Article 9 shall at
any time or in any way be prejudiced or impaired by any act or failure to act by
the Company, the Guarantor or by any noncompliance by the Company or the
Guarantor with the terms, provisions and covenants of this Indenture, the
Securities, the Guarantee or any other agreement regardless of any knowledge
thereof with which any such holder may have or be otherwise charged.
(b) Without in any way limiting Section 908, the holders of any Senior
Debt of the Company or the Guarantor may, at any time and from time to time to
the extent not otherwise prohibited by this Indenture, without the consent of or
notice to any Holders, without incurring any liabilities to any Holder and
without impairing or releasing the subordination and other benefits provided in
this Indenture or the Holders' obligations to the holders of such Senior Debt,
even if any Holder's right of reimbursement or subrogation or other right or
remedy is affected, impaired or extinguished thereby, do any one or more of the
following: (i) amend, renew, exchange, extend, modify, increase or supplement in
any manner such Senior Debt or any instrument evidencing or guaranteeing or
securing such Senior Debt or any agreement under which such Senior Debt is
outstanding (including, but not limited to, changing the manner, place or terms
of payment or changing or extending the time of payment of, or renewing,
exchanging, amending, increasing or altering, (1) the terms of such Senior Debt,
(2) any security for, or any Guarantee of, such Senior Debt, (3) any liability
of any obligor on such Senior Debt (including any guarantor) or any liability
incurred in respect of such Senior Debt) (ii) sell, exchange, release,
surrender, realize upon, enforce or otherwise deal with in any manner and in any
order any property pledged, mortgaged or otherwise securing such Senior Debt or
any liability
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of any obligor thereon, to such holder, or any liability incurred in respect
thereof; (iii) settle or compromise any such Senior Debt or any other liability
of any obligor of such Senior Debt to such holder or any security therefor or
any liability incurred in respect thereof and apply any sums by whomsoever paid
and however realized to any liability (including, without limitation, payment of
any of the Company's or the Guarantor's Senior Debt) in any manner or order; and
(iv) fail to take or to record or otherwise perfect, for any reason or for no
reason, any lien or security interest securing such Senior Debt by whomsoever
granted, exercise or delay in or refrain from exercising any right or remedy
against any obligor or any guarantor or any other Person, elect any remedy and
otherwise deal freely with any obligor and any security for such Senior Debt or
any liability of any obligor to the holders of such Senior Debt or any liability
incurred in respect of such Senior Debt.
(c) Each Holder by accepting a Security (including the Guarantee) agrees
not to compromise, release, forgive or otherwise discharge the Company's or the
Guarantor's Obligations with respect to such Holder's Security (including the
Guarantee) unless holders of a majority of the outstanding amount of each class
of Senior Debt consent to such compromise, release, forgiveness or discharge.
Section 9.09. Distribution or Notice to Representative. Whenever a
distribution is to be made, or a notice given, to holders of Senior Debt of the
Company or the Guarantor, the distribution may be made and the notice given to
their Representative, if any. If any payment or distribution of the Company's
or the Guarantor's assets is required to be made to holders of any of the
Company's or the Guarantor's Senior Debt pursuant to this Article 9, the Trustee
and the Holders shall be entitled to rely upon any order or decree of any court
of competent jurisdiction, or upon any certificate of a Representative of such
Senior Debt or a Custodian, in ascertaining the holders of such Senior Debt
entitled to participate in any such payment or distribution, the amount to be
paid or distributed to holders of such Senior Debt and all other facts pertinent
to such payment or distribution or to this Article 9.
Section 9.10. Rights of Trustee and Paying Agent. The Trustee or paying
agent may continue to make payments on the Securities unless prior to any
payment date it has received written notice of facts that would cause a payment
of principal of, or premium, if any, or interest on, the Securities to violate
this Article 9. Only the Company, the Guarantor, a representative of Senior
Debt, or a holder of Senior Debt that has no representative may give such
notice.
To the extent permitted by the TIA, the Trustee in its individual or any
other capacity may hold Indebtedness of the Company or the Guarantor (including
Senior Debt) with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
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Nothing in this Article 9 shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 507.
Section 9.11. Authorization to Effect Subordination. Each Holder of a
Security (including the Guarantee) by its acceptance thereof authorizes and
directs the Trustee on its behalf to take such action as may be necessary or
appropriate to effectuate the subordination as provided in this Article 9, and
appoints the Trustee as such Holder's attorney-in-fact for any and all such
purposes (including, without limitation, the timely filing of a claim for the
unpaid balance of the Security that such Holder holds in the form required in
any Insolvency or Liquidation Proceeding and causing such claim to be approved).
If a proper claim or proof of debt in the form required in such proceeding
is not filed by or on behalf of all Holders prior to 30 days before the
expiration of the time to file such claims or proofs, then the holders or a
representative of any Senior Debt of the Company or the Guarantor are hereby
authorized, and shall have the right (without any duty), to file an appropriate
claim for and on behalf of the Holders.
Section 9.12. Payment. A payment on account of or with respect to any
Security (including the Guarantee) shall include, without limitation, any
Additional Interest or, in the case of any payment after May 15, 2002,
principal, premium or interest with respect to or in connection with any
optional redemption or purchase provisions, any direct or indirect payment
payable by reason of any other Indebtedness or Obligation being subordinated to
the Securities or the Guarantee, and any direct or indirect payment or recovery
on any claim as a Holder relating to or arising out of this Indenture or any
Security (including the Guarantee), or the issuance of any Security (including
the Guarantee), or the transactions contemplated by this Indenture or referred
to herein.
ARTICLE 10
Guarantee
Section 10.01. Guarantee. (a) The Guarantor hereby irrevocably and
unconditionally guarantees to each Securityholder and to the Trustee on behalf
of each Securityholder the due and punctual payment of the principal of,
premium, if any and interest on, and all other amounts payable under, each
Security provided for pursuant to this Indenture and the terms of such Security
when and as the same shall become due and payable, whether on the stated
maturity, upon acceleration, by call for redemption, upon repurchase or purchase
following a Change of Control Offer or an Asset Sale Offer or otherwise, in
accordance with the terms of such Security and of this Indenture. The Guarantor
hereby expressly waives (i) any right to which it may be entitled to require the
Trustee or any Securityholder to pursue or exhaust their
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respective legal or equitable remedies against the Company prior to exercising
their respective rights under the Guarantee of the Guarantor and (ii) any right
to which it may be entitled to have the assets of the Company first be used as
payment of the Company's or the Guarantor's obligations prior to any amounts
being claimed from or paid by the Guarantor hereunder. The Guarantee will not be
discharged with respect to any Security except by payment in full of the
principal thereof, premium, if any, and interest thereon and all other amounts
payable thereunder. In case of the failure of the Company punctually to pay any
such principal, premium, interest or other amounts payable, the Guarantor hereby
agrees to cause any such payment to be made punctually when and as the same
shall become due and payable, whether on the stated maturity, by acceleration,
call for redemption, upon a repurchase or purchase following a Change of Control
Offer or an Asset Sale Offer or otherwise, and as if such payment were made by
the Company.
(b) The Guarantor hereby agrees that its obligations hereunder shall be as
if it were principal obligor and not merely surety, and shall be absolute and
unconditional and enforceable, irrespective of, and unaffected by, any
invalidity, irregularity or unenforceability of any Security or this Indenture,
any failure to enforce the provisions of any Security or this Indenture, any
waiver, modification or indulgence granted to the Company with respect thereto
by the Securityholders or the Trustee, or any other circumstance which may
otherwise constitute a legal or equitable discharge of a surety or guarantor;
provided that, notwithstanding the foregoing, no such waiver, modification,
indulgence or circumstance shall without the written consent of the Guarantor
increase the principal amount of a Security or the interest rate thereon or
change the currency of payment with respect to any Security, or alter the stated
maturity thereof. The Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of merger or bankruptcy of
the Company, any right to require a proceeding first against the Company
(including, for the avoidance of doubt, any right which the Guarantor may have
to require the seizure and sale of the assets of the Company to satisfy the
outstanding principal of, interest on or any other amounts payable under each
Security prior to recourse against the Guarantor or its assets), protest or
notice with respect to any Security or the Indebtedness evidenced thereby and
all demands whatsoever, and covenants that the Guarantee of the Guarantor will
not be discharged with respect to any Security except by payment in full of the
principal thereof and interest thereon. If at any time any payment of principal
of and interest on such Security is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization of the Company, the
Guarantor's obligations hereunder with respect to such payment shall be
reinstated as of the date of such rescission, restoration or return as though
such payment had become due but had not been made at such time.
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(c) All Obligations owed under and in respect of the Guarantee are
subordinated in right of payment, to the extent and in the manner provided in
Article 9.
Section 10.02. Subrogation. The Guarantor shall be subrogated to all rights
of the Securityholder against the Company in respect of any amounts paid to such
Securityholder by the Guarantor pursuant to the provisions of the Guarantee.
ARTICLE 11
Redemption of Securities
Section 11.01. Right of Optional Redemption; Prices. On or after May 1,
2002, the Company at its option may, at any time, redeem all, or from time to
time any part of, the Securities upon payment of the optional redemption prices
set forth in the form of Security hereinabove recited, together with accrued and
unpaid interest to the date fixed for redemption.
Section 11.02. Notice of Redemption; Partial Redemptions. Notice of
redemption to the holders of Securities to be redeemed as a whole or in part
shall be given by mailing notice of such redemption by first class mail, postage
prepaid, at least 30 days and not more than 60 days prior to the date fixed for
redemption to such holders of Securities at their last addresses as they shall
appear upon the registry books. Any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the Holder receives the notice. Failure to give notice by mail, or any defect in
the notice to the holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
The notice of redemption to each such Holder shall identify the Securities
to be redeemed (including CUSIP numbers) and shall specify the principal amount
of each Security held by such Holder to be redeemed, the date fixed for
redemption, the redemption price, the place or places of payment, that payment
will be made upon presentation and surrender of such Securities, that interest
accrued to the date fixed for redemption will be paid as specified in said
notice and that on and after said date interest thereon or on the portions
thereof to be redeemed will cease to accrue. In case any Security is to be
redeemed in part only the notice of redemption shall state the portion of the
principal amount thereof to be redeemed and shall state that on and after the
date fixed for redemption, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion thereof will be
issued.
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The notice of redemption of Securities to be redeemed at the option of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
No later than 10:00 a.m. on the redemption date specified in the notice of
redemption given as provided in this Section, the Company will deposit with the
Trustee or with one or more paying agents (or, if the Company is acting as its
own paying agent, set aside, segregate and hold in trust as provided in Section
304) an amount of money sufficient to redeem on the redemption date all the
Securities so called for redemption at the appropriate redemption price,
together with accrued interest to the date fixed for redemption. The Company
will deliver to the Trustee at least 70 days prior to the date fixed for
redemption an Officer's Certificate stating the aggregate principal amount of
Securities to be redeemed.
If less than all the Securities are to be redeemed, the Trustee shall
select, either pro rata, by lot or by any other method it shall deem fair and
reasonable, Securities to be redeemed in whole or in part. Securities may be
redeemed in part in multiples of $1,000 only. The Trustee shall promptly notify
the Company in writing of the Securities selected for redemption and, in the
case of any Securities selected for partial redemption, the principal amount
thereof to be redeemed. For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Security redeemed or to be redeemed only in
part, to the portion of the principal amount of such Security which has been or
is to be redeemed.
Section 11.03. Payment of Securities Called for Redemption. If notice of
redemption has been given as above provided, the Securities or portions of
Securities specified in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable redemption price, together
with interest accrued to the date fixed for redemption, and on and after said
date (unless the Company or the Guarantor shall default in the payment of such
Securities at the redemption price, together with interest accrued to said date)
interest on the Securities or portions of Securities so called for redemption
shall cease to accrue and, except as provided in Sections 505 and 1206, such
Securities shall cease from and after the date fixed for redemption to be
entitled to any benefit or security under this Indenture, and the Holders
thereof shall have no right in respect of such Securities except the right to
receive the redemption price thereof and unpaid interest to the date fixed for
redemption. On presentation and surrender of such Securities at a place of
payment specified in said notice, said Securities or the specified portions
thereof shall be paid and redeemed by the Company at the applicable redemption
price, together with interest accrued thereon to the date fixed for redemption;
provided that any semi-annual payment of interest becoming due on the date fixed
for redemption shall
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be payable to the holders of such Securities registered as such on the relevant
Interest Record Date subject to the terms and provisions of Section 204 hereof.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal shall, until paid or duly provided for,
bear interest from the date fixed for redemption at the rate borne by the
Security.
Upon presentation of any Security redeemed in part only, the Company and
the Guarantor shall execute and the Trustee shall authenticate and make
available for delivery to or on the order of the Holder thereof, at the expense
of the Company and the Guarantor, a new Security or Securities, with the
Guarantee endorsed thereon, of authorized denominations, in principal amount
equal to the unredeemed portion of the Security so presented.
Section 11.04. Exclusion of Certain Securities from Eligibility for
Selection for Redemption. Securities shall be excluded from eligibility for
selection for redemption if they are identified by registration and certificate
number in a written statement signed by an authorized officer of the Company and
delivered to the Trustee at least 40 days prior to the last date on which notice
of redemption may be given as being owned of record and beneficially by, and not
pledged or hypothecated by either (a) the Company or the Guarantor or (b) an
entity specifically identified in such written statement as directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or the Guarantor.
ARTICLE 12
Defeasance and Covenant Defeasance
Section 12.01. Company's and Guarantor's Option to Effect Defeasance or
Covenant Defeasance. The Company and the Guarantor may, at their option, by
resolution of the Board of Directors, at any time, elect to have either Section
1202 or Section 1203 applied to the outstanding Securities and the Guarantee
upon compliance with the conditions set forth below in this Article 12.
Section 12.02. Legal Defeasance and Discharge. Upon the Company's and the
Guarantor's exercise under Section 1201 hereof of the option applicable to this
Section 1202, the Company and the Guarantor shall be deemed to have been
discharged from their Obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "LEGAL
DEFEASANCE"). For this purpose, such Legal Defeasance means that the Company and
the Guarantor shall be deemed to have paid and discharged the entire
Indebtedness represented by the
98
<PAGE>
outstanding Securities (including the Guarantee), which shall thereafter be
deemed to be "outstanding" only for the purposes of Section 1205 hereof and the
other Sections of this Indenture referred to in clauses (i) and (ii) of this
Section 1202, and to have satisfied all its other obligations under such
Securities (including the Guarantee) and this Indenture (and the Trustee, on
demand of and at the expense of the Company and the Guarantor, shall execute
proper instruments acknowledging the same), except for the following provisions
which shall survive until otherwise terminated or discharged hereunder: (i) the
rights of Holders of outstanding Securities to receive solely from the trust
fund described in Section 1204 hereof, and as more fully set forth in such
Section, payments in respect of the principal of, premium, if any, and interest
on such Securities when such payments are due, (ii) the Company's and the
Guarantor's obligations with respect to such Securities under Sections 201, 202,
205, 206, 207, 208, 209, 211, 301, 304 and 1205 hereof, (iii) the rights,
powers, trusts, duties and immunities of the Trustee hereunder, including,
without limitation, the Trustee's rights under Section 507 hereof, and the
Company's and the Guarantor's obligations in connection therewith and with this
Article 12. Subject to compliance with this Article 12, the Company and the
Guarantor may exercise their option under this Section 1202 notwithstanding the
prior exercise of its option under Section 1203 hereof with respect to the
Securities.
Section 12.03. Covenant Defeasance. Upon the Company's and the Guarantor's
exercise under Section 1201 hereof of the option applicable to this Section
1203, the Company and the Guarantor shall be released from their obligations
under the covenants contained in Sections 308 through 317 and clause (iv) of
Section 801 hereof with respect to the outstanding Securities on and after the
date the conditions set forth below are satisfied (hereinafter, "COVENANT
DEFEASANCE"), and the Securities and the Guarantee shall thereafter be deemed
not outstanding for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed outstanding for
all other purposes hereunder. For this purpose, such Covenant Defeasance means
that, with respect to the outstanding Securities, the Company and the Guarantor
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 401(iii) or (iv) hereof, but, except as
specified above, the remainder of this Indenture, such Securities and such
Guarantee shall be unaffected thereby. In addition, upon the Company's and the
Guarantor's exercise under Section 1201 hereof of the option applicable to this
Section 1203, Sections 401(v) and 401(vii) hereof shall not constitute Events of
Default.
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<PAGE>
Section 12.04. Conditions to Legal or Covenant Defeasance. The following
shall be the conditions to application of either Section 1202 or Section 1203
hereof to the outstanding Securities:
(i) The Company or the Guarantor shall irrevocably have deposited
or caused to be deposited with the Trustee (or another trustee satisfying
the requirements of Section 510 who shall agree to comply with the
provisions of this Article 12 applicable to it) as trust funds in trust for
the purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of such
Securities, (a) cash in U.S. Dollars in an amount, or (b) non-callable
Government Securities that through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide,
not later than one day before the due date of any payment, cash in U.S.
Dollars in an amount, or (c) a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge and which shall be applied
by the Trustee (or other qualifying trustee) to pay and discharge the
principal of, premium, if any, and interest on such outstanding Securities
on the stated maturity date of such principal or installment of principal,
premium, if any, or interest.
(ii) In the case of an election under Section 1202 hereof, the
Company or the Guarantor shall have delivered to the Trustee an Opinion of
Counsel confirming that (a) the Company or the Guarantor has received from,
or there has been published by, the Internal Revenue Service a ruling or
(b) since the date hereof, there has been a change in the applicable
Federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Securities will not recognize income, gain or loss for Federal
income tax purposes as a result of such Legal Defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred.
(iii) In the case of an election under Section 1203 hereof, the
Company or the Guarantor shall have delivered to the Trustee an Opinion of
Counsel confirming that the Holders of the outstanding Securities will not
recognize income, gain or loss for Federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred.
100
<PAGE>
(iv) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or,
insofar as Section 401(viii) or 401(ix) hereof is concerned, at any time in
the period ending on the 91st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period).
(v) Such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Guarantor
or any of its Restricted Subsidiaries is a party or by which the Guarantor
or any of its Restricted Subsidiaries is bound (other than a breach,
violation or default resulting from the borrowing of funds to be applied to
such deposit).
(vi) The Company or the Guarantor shall have delivered to the
Trustee an Opinion of Counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally.
(vii) The Company or the Guarantor shall have delivered to the
Trustee an Officer's Certificate stating that the deposit made by the
Company or the Guarantor pursuant to its election under Section 1202 or
1203 hereof was not made by the Company or the Guarantor with the intent of
preferring the Holders of the Securities over the other creditors of the
Company or the Guarantor with the intent of defeating, hindering, delaying
or defrauding creditors of the Company, the Guarantor or others.
(viii) The Company or the Guarantor shall have delivered to the
Trustee an Officer's Certificate and an Opinion of Counsel, each stating
that all conditions precedent provided for relating to either the Legal
Defeasance under Section 1202 hereof or the Covenant Defeasance under
Section 1203 hereof (as the case may be) have been complied with as
contemplated by this Section 1204.
Section 12.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions. Subject to Section 1206 hereof, all money
and non-callable Government Securities (including the proceeds thereof)
deposited with the Trustee pursuant to Section 1204 hereof in respect of the
outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any paying agent (including the Company or
the Guarantor acting as paying agent) as the Trustee may determine, to the
Holders of such Securities of all sums due
101
<PAGE>
and to become due thereon in respect of principal of, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company or the Guarantor shall pay and indemnify the Trustee against
any tax, fee or other charge imposed on or assessed against the cash or non-
callable Government Securities deposited pursuant to Section 1204 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Securities.
Anything in this Article 12 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company or the Guarantor from time to time upon the
Company's or the Guarantor's request any money or non-callable Government
Securities held by it as provided in Section 1204 hereof which, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 1204(i) hereof), are in excess of the amount thereof
which would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
Section 12.06. Repayment to the Company or the Guarantor. Any money
deposited with the Trustee or any paying agent, or then held by the Company or
the Guarantor, in trust for the payment of the principal of, premium, if any, or
interest on any Security and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company or the Guarantor on its written request or (if then held by the
Company or the Guarantor) shall be discharged from such trust; and the Holder of
such Security shall thereafter, as an unsecured general creditor, look only to
the Company or the Guarantor for payment thereof, and all liability of the
Trustee or such paying agent with respect to such trust money, and all liability
of the Company or the Guarantor as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such paying agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in The New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company or the Guarantor.
Section 12.07. Reinstatement. If the Trustee or paying agent is unable to
apply any U.S. Dollars or non-callable Government Securities in accordance with
Section 1202 or 1203 hereof, as the case may be, by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Company's or the Guarantor's
obligations under this
102
<PAGE>
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 1202 or 1203 hereof until such time as
the Trustee or paying agent is permitted to apply all such money in accordance
with Section 1202 or 1203 hereof, as the case may be; provided, however, that,
if the Company or the Guarantor makes any payment of principal of, premium, if
any, or interest on any Security following the reinstatement of its obligations,
the Company or the Guarantor shall be subrogated to the rights of the Holders of
such Security to receive such payment from the money held by the Trustee or
paying agent.
ARTICLE 13
Miscellaneous Provisions
Section 13.01. Incorporators, Stockholders, Officers and Directors of
Company and the Guarantor Exempt from Individual Liability. No recourse under or
upon any obligation, covenant or agreement contained in this Indenture, or in
any Security or Guarantee, or because of any indebtedness evidenced thereby,
shall be had against any incorporator, as such or against any past, present or
future stockholder, officer or director, as such, of the Company or the
Guarantor or of any successor, either directly or through the Company or the
Guarantor or any successor, under any rule of law, statute or constitutional
provision or by the enforcement of any assessment or by any legal or equitable
proceeding or otherwise, all such liability being expressly waived and released
by the acceptance of the Securities and the Guarantee by the holders thereof and
as part of the consideration for the issue of the Securities and the Guarantee.
Section 13.02. Provisions of Indenture for the Sole Benefit of Parties and
Holders. Except as set forth in Section 1309, nothing in this Indenture or in
the Securities or the Guarantee, expressed or implied, shall give or be
construed to give to any person, firm or corporation, other than the parties
hereto and their successors and the holders of the Securities and the Guarantee,
any legal or equitable right, remedy or claim under this Indenture or under any
covenant or provision herein contained, all such covenants and provisions being
for the sole benefit of the parties hereto and their successors and of the
holders of the Securities.
Section 13.03. Successors and Assigns of Company and Guarantor Bound by
Indenture. All the covenants, stipulations, promises and agreements in this
Indenture contained by or in behalf of the Company or the Guarantor shall bind
their successors and assigns, whether so expressed or not.
103
<PAGE>
Section 13.04. Notices and Demands on Company, Guarantor, Trustee and
Holders. Any notice or demand which by any provision of this Indenture is
required or permitted to be given or served by the Trustee or by the holders of
Securities and the Guarantee to or on the Company or the Guarantor may be given
or served by being deposited postage prepaid, first-class mail (except as
otherwise specifically provided herein) addressed (until another address of the
Company or the Guarantor is filed by the Company or the Guarantor with the
Trustee) to Vencor, Inc., 3300 Providian Center, 400 West Market Street,
Louisville, Kentucky 40202, Attention: Secretary, with a copy to the Director of
Finance. Any notice, direction, request or demand by the Company, the Guarantor
or any Securityholder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or made at the Corporate
Trust Office.
Where this Indenture provides for notice to Holders, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each Holder entitled thereto, at his
last address as it appears in the Security register. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. The Trustee may waive notice
to it of any provision herein, and such waiver shall be deemed to be for its
convenience and discretion. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular mail
service, it shall be impracticable to mail notice to the Company, the Guarantor
and Securityholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
Section 13.05. Officer's Certificates and Opinions of Counsel; Statements
to Be Contained Therein. Upon any application or demand by the Company or the
Guarantor to the Trustee to take any action under any of the provisions of this
Indenture, the Company or the Guarantor, as the case may be, shall furnish to
the Trustee an Officer's Certificate stating that all conditions precedent
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent have been complied with, except that in
the case of any such application or demand as to which the furnishing of such
documents is specifically required by any provision
104
<PAGE>
of this Indenture relating to such particular application or demand, no
additional certificate or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and delivered to
the Trustee with respect to compliance with a condition or covenant provided for
in this Indenture shall include (a) a statement that the person making such
certificate or opinion has read such covenant or condition, (b) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Company or the
Guarantor may be based, insofar as it relates to legal matters, upon a
certificate or opinion of or representations by counsel, unless such officer
knows that the certificate or opinion or representations with respect to the
matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous. Any certificate, statement or Opinion of Counsel may be
based, insofar as it relates to factual matters or information which is in the
possession of the Company or the Guarantor, upon the certificate, statement or
opinion of or representations by an officer or officers of the Company or the
Guarantor, as the case may be, unless such counsel knows that the certificate,
statement or opinion or representations with respect to the matters upon which
his certificate, statement or opinion may be based as aforesaid are erroneous,
or in the exercise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of an officer of the Company or the
Guarantor, as the case may be, or of counsel may be based, insofar as it relates
to accounting matters, upon a certificate or opinion of or representations by an
accountant or firm of accountants in the employ of the Company or the Guarantor,
as the case may be, unless such officer or counsel knows that the certificate or
opinion or representations with respect to the accounting matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or in
the exercise of reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public accountants
filed with the Trustee shall contain a statement that such firm is independent.
Section 13.06. Payments Due on Saturdays, Sundays and Holidays. If the date
of maturity of interest on or principal of the Securities or the date fixed for
redemption of any Security shall not be a Business Day, then payment of interest
or
105
<PAGE>
principal need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the date of maturity
or the date fixed for redemption, and no interest shall accrue for the period
after such date.
Section 13.07. Conflict of Any Provision of Indenture with Trust Indenture
Act of 1939. If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with another provision included in this Indenture by
operation of Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939
(an "INCORPORATED PROVISION"), such incorporated provision shall control.
Section 13.08. New York Law to Govern. This Indenture and each Security
(including the Guarantee) shall be deemed to be a contract under the laws of the
State of New York, and for all purposes shall be construed in accordance with
the laws of said State, except as may otherwise be required by mandatory
provisions of law.
Section 13.09. Third Party Beneficiaries. Holders of Senior Debt of the
Company and the Guarantor are third party beneficiaries of this Indenture, and
any of them (or their representative) shall have the right to enforce the
provisions of this Indenture that benefit such holders.
Section 13.10. Counterparts. This Indenture may be executed in any number
of counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
Section 13.11. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
106
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of April 30, 1998.
VENCOR OPERATING, INC.,
as Company
By_________________________________
Title:
VENCOR, INC.,
as Guarantor
By_________________________________
Title:
PNC BANK, NATIONAL
ASSOCIATION, as Trustee
By_________________________________
Title:
<PAGE>
EXHIBIT A
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
______, ____
PNC BANK, NATIONAL ASSOCIATION
500 West Jefferson Street
Louisville, Kentucky 40202
Attention: Corporate Trust Department
Re: Vencor Operating, Inc. (the "Company")
9 7/8% Guaranteed Senior Subordinated Notes due 2005 (the "Securities")
-----------------------------------------------------------------------
Dear Sirs:
In connection with our proposed sale of U.S.$________ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the Securities Act of 1933, as
amended, and, accordingly, we represent that:
(1) the offer of the Securities and the Guarantee was not made to a person
in the United States;
(2) at the time the buy order was originated, the transferee was outside
the United States or we and any person acting on our behalf reasonably believed
that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
<PAGE>
You, the Company and the Guarantor are entitled to rely upon this letter
and are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:________________________________
Authorized Signature
A-2
<PAGE>
CROSS-REFERENCE TARGET LIST
===========================
NOTE: DUE TO THE NUMBER OF TARGETS SOME TARGET NAMES MAY NOT APPEAR IN THE
TARGET PULL-DOWN LIST.
(This list is for the use of the wordprocessor only, is not a part of this
document and may be discarded.)
<TABLE>
<CAPTION>
ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION
=============== =========== =============== =========== =============== =========== ===============
<S> <C> <C> <C> <C>
1............................ definitions 6.01....... evid. action, securityholders
1.01............... certain terms defined 6.02...... proof of execution instruments
6.03..... securities deemed not outstandg
2......... issue, execution of securities 6.04....... right of revocation of action
2.01........ authentication of securities
2.02............. Execution of Securities 7................ supplemental indentures
2.03....... Certificate of Authentication 7.01..... sup.inden. w/o consent sec.hold
2.04.... form, denomination, date secure. 7.02........................ with.con.hol
2.05................. Restrictive Legends 7.03........... effect of supp. indenture
2.06..... registration transfer, exchange 7.04..... docs. given trustee; comply TIA
2.07.......................... book.entry 7.05...... not. on securities, respect SI
2.07(a).. bookentry provis. global secur.
2.07(b)................. transfers.global 8........ consol., merger sale conveyance
2.08......... special transfer provisions 8.01............... when issuer may merge
2.08(e).................. pvt.placemt.leg 8.02......... successor corp. substituted
2.08(f).......................... general 8.03....... opinion of counsel to trustee
2.09........ mutilated, stolen securities
2.10.......... Cancellation of Securities 9.................. article-subordination
2.11................ temporary securities 9.08........................ c&h.no.right
2.12.............. CUSIP and CINS Numbers
10............................. guarantee
3......... covenants of company & trustee
3.01..... payment of principal & interest 11.04....................... excl.cer.sec
3.02.......... offices for payments, etc.
3.03...... appt. to fill vacancy, trustee 12......................... def.&.cov.def
3.04....................... paying agents 12.01............. comp.option.defeasance
3.05............. certificates to trustee 12.02............... defeasance;discharge
3.06............... Securityholders Lists 12.03............................ cov.def
3.07.............. Reports by the Trustee 12.04.................... con.leg.cov.def
3.08..... limitation, restricted payments 12.05................... depo.mon.gov.sec
3.08(b)................ such.Rest.Payment 12.06....................... repay.to.com
3.09.......... Limitation on Indebtedness
3.09(a)(vi)................. incur.by.Com 13.............. miscellaneous provisions
3.10....... disp. proceeds of asset sales 13.01..... individual liability exemption
3.11..... limit liens secur. indebtedness 13.02............ provisions of Indenture
3.12..... limit. on div. restric. subsids 13.03...... successors bound by indenture
3.13....... limit. on conduct of business 13.04................ notices and demands
3.14........ provision of financial info. 13.05..... officers cert. & opin. counsel
3.15..... limit., transactions affiliates 13.06...................... payments due,
3.16............ limitation on guarantees 13.07...... conflict w Inden. Act of 1939
3.17................... change in control 13.08............. New York Law to govern
3.19............................. reports 13.10....................... counterparts
3.19(a)(i)............... reports.so.long 13.11.................. effect of heading
3.20.......... waiver of stay, usury laws
4........ remedies trustee, event default
4.01............ event of default defined
4.01(a)(viii)...... com.guarant.sign.bank
4.01(a)(ix)...... court.comp.juris.enters
4.04............. waiver of past defaults
4.07...................... rights.rec.pay
4.10.......................... priorities
5................. concerning the trustee
5.01.......... duties of trustee, default
5.02....... certain rights of the trustee
5.03....... trustee not respons. recitals
5.04..... trustee, agents may hold secur.
5.05.............. moneys held by trustee
5.06................... notice of default
5.07..... comp. indem. trustee,priorclaim
5.08...... right trustee rely ofcrs. cert
5.09..... person eligible appoint trustee
5.10.......... appoint. successor trustee
5.11....... acceptance appt. suc. trustee
5.12..... succession to business, trustee
5.13..... preferential collection, claims
6......... concerning the securityholders
<CAPTION>
TARGET NAME
===========
<C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME
=============== =========== =============== =========== =============== =========== =============== ===========
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
A-2
<PAGE>
EXHIBIT 4.2
[FORM OF FACE OF SECURITY]
No. $
[CUSIP][CINS]
Vencor Operating, Inc.
9 7/8% Guaranteed Senior Subordinated Note Due 2005
Vencor Operating, Inc., a Delaware corporation (the "COMPANY"), for value
received hereby promises to pay to or registered assigns the
principal sum of Dollars at the Company's office or agency for
said purpose in the City of New York, on May 1, 2005, in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts, and to pay interest, semi-annually
on May 1 and November 1 (each an "INTEREST PAYMENT DATE") of each year,
commencing with November 1, 1998, on said principal sum in like coin or currency
at the rate per annum set forth above at said office or agency from the most
recent Interest Payment Date to which interest on the Securities has been paid
or duly provided for, unless the date hereof is a date to which interest on the
Securities has been paid or duly provided for, in which case from the date of
this Security, or, if no interest on the Securities [or on the Securities for
which these Securities were exchanged pursuant to the Exchange Offer]/1/ has
been paid or duly provided for, from April 30, 1998. Notwithstanding the
foregoing, if the date hereof is after April 15 or October 15 (each an "INTEREST
RECORD DATE"), as the case may be, and before the immediately following Interest
Payment Date, this Security shall bear interest from such Interest Payment Date;
provided, that if the Company shall default in the payment of interest due on
such Interest Payment Date then this Security shall bear interest from the next
preceding Interest Payment Date to which interest on the Securities has been
paid or duly provided for. The interest so payable on any Interest Payment Date
will, except as otherwise provided in the Indenture referred to on the reverse
hereof, be paid to the person in whose name this Security is registered at the
close of business on the Interest Record Date preceding such Interest Payment
Date whether or not such day is a business day; provided that interest may be
paid, at the option of the Company, by mailing a check therefor payable to the
registered holder entitled thereto at such holder's last address as it appears
on the Security register or by wire transfer, in immediately available funds, to
such bank or other entity in the continental United States as shall be
designated in writing by such holder prior to the relevant Interest Record Date
and shall have appropriate facilities for such purpose.
____________________
/1/ To be included in Exchange Securities.
<PAGE>
Interest, other than default interest, on the Securities will be computed
on the basis of a 360-day year consisting of twelve 30-day months.
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Security shall not be valid or obligatory until the certificate of
authentication hereon shall have been duly signed by the Trustee acting under
the Indenture.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
VENCOR OPERATING, INC.
By:________________________________________
Name:
Title:
3
<PAGE>
[FORM OF REVERSE OF SECURITY]
Vencor Operating, Inc.
9 7/8% Guaranteed Senior Subordinated Note Due 2005
This Security is one of a duly authorized issue of debt securities of the
Company, limited to the aggregate principal amount of $300,000,000 (except as
otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an indenture dated as of April 30, 1998 (the "INDENTURE"), duly
executed and delivered by the Company to PNC Bank, National Association as
Trustee (herein called the "TRUSTEE"). Reference is hereby made to the Indenture
and all indentures supplemental thereto for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Company and the holders (the words "HOLDERS" or "HOLDER" meaning
the registered holders or registered holder) of the Securities.
This Security will bear interest until final maturity at a rate per annum
shown above, except as provided in the next paragraph. The Company will pay
interest on overdue principal of, premium, if any, and to the extent lawful,
interest on overdue installments of interest, at a 9 7/8% rate per annum based
on a year of 360 days and actual days elapsed.
[In the event that (i) the Exchange Offer Registration Statement (as
defined in the Indenture) relating to the Exchange Offer (as defined in the
Indenture) is not filed with the Commission (as defined in the Indenture) on or
prior to the date that is 60 days after the Closing Date (as defined in the
Indenture), (ii) the Exchange Offer Registration Statement is not declared
effective on or prior to the date that is 120 days after the Closing Date, or
(iii) the Exchange Offer is not consummated or a Shelf Registration Statement
(as defined in the Indenture) with respect to resale of this Security is not
declared effective on or prior to the date that is 150 days after the Closing
Date (each such event referred to in clauses (i) through (iii), a "REGISTRATION
DEFAULT"), then the Company will pay additional interest (in addition to the
interest otherwise due hereon) ("ADDITIONAL INTEREST") to the holder during the
first 90-day period immediately following the occurrence of each such
Registration Default in an amount equal to 0.25% per annum. The amount of
interest will increase by an additional 0.25% per annum for each subsequent 90-
day period until such Registration Default is cured, up to a maximum amount of
additional interest of 1.00% per annum. Such additional interest will cease
accruing with respect to any Registration Default when such Registration Default
has been cured. The Company shall pay amounts due in respect of Additional
Interest on each Interest Payment Date (or, if the Company shall default in the
payment of interest on any
4
<PAGE>
Interest Payment Date, on the date such interest is otherwise paid as provided
in the Indenture).]/2/
[There shall also be payable in respect of this Security all Additional
Interest that may have accrued on the Security for which this Security was
exchanged (as defined in such Security) pursuant to the Exchange Offer, such
Additional Interest to be calculated in accordance with the terms of such
Security and payable at the same time and in the same manner as periodic
interest on this Security.]/3/
The Securities are unconditionally and irrevocably guaranteed as to the due
and punctual payment of the principal, premium, if any, and interest and all
other amounts payable in respect thereof by the Guarantor as evidenced by the
guarantee (the "GUARANTEE") set forth hereon.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all the Securities may be declared
due and payable, in the manner and with the effect, and subject to the
conditions, provided in the Indenture. The Indenture provides that in certain
events such declaration and its consequences may be waived by the holders of a
majority in aggregate principal amount of the Securities then outstanding and
that, prior to any such declaration, such holders may waive any past default
under the Indenture and its consequences except a default in the payment of
principal of, premium, if any, or interest on any of the Securities. Any such
consent or waiver by the holder of this Security (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such holder and upon all
future holders and owners of this Security and any Security which may be issued
in exchange or substitution herefor, whether or not any notation thereof is made
upon this Security or such other Securities.
The Indenture permits the Company and the Trustee, with the consent of the
holders of at least a majority in aggregate principal amount of the Securities
at the time outstanding, evidenced as in the Indenture provided, to execute
supplemental indentures adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of any supplemental
indenture or modifying in any manner the rights of the holders of the
Securities; provided that without the consent of each holder affected, no such
supplemental indenture shall (i) reduce the principal amount of Securities whose
holders must consent to an amendment, supplement or waiver, (ii) reduce the
principal of or
_______________________
/2/ To be included in Securities not Exchange Securities.
/3/ To be included in Exchange Securities.
5
<PAGE>
change the fixed maturity of any Security or alter the provisions with respect
to the redemption of the Securities (other than provisions relating to the
covenants described in Sections 310 and 317 in the Indenture), (iii) reduce the
rate of or change the time for payment of interest on any Security, (iv) waive a
Default or Event of Default in the payment of principal of, premium, if any, or
interest on, the Securities (except a rescission of acceleration of the
Securities by the holders of at least a majority in aggregate principal amount
thereof and a waiver of the payment default that resulted from such
acceleration), (v) make any Security payable in money other than that stated in
the Securities, (vi) make any change in the provisions of the Indenture relating
to waivers of past Defaults or the rights of holders of Securities to receive
payments of principal of, premium, if any, or interest on the Securities, (vii)
waive a redemption payment with respect to any Security (other than a payment
required by one of the covenants described in Sections 310 and 317 in the
Indenture), (viii) modify the ranking or priority of the Securities or modify
the definition of Senior Debt or Designated Senior Debt or amend or modify the
subordination provisions of the Indenture in any manner adverse to the holders
or (ix) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Securities, the Company, the Guarantor and the Trustee may amend or supplement
the Indenture or the Securities (including the Guarantee) to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Securities in addition to
or in place of certificated Securities, to provide for the assumption of the
Company's or the Guarantor's obligations to holders of Securities in the case of
a transaction described in Section 801, to make any change that would provide
any additional rights or benefits to the holders of Securities or that does not
adversely affect the legal rights under the Indenture of any such holder, or to
comply with requirements of the Commission (as defined in the Indenture) in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act (as defined in the Indenture).
No reference herein to the Indenture and no provision of this Security or
the Guarantee or of the Indenture shall alter or impair the obligation of the
Company and of the Guarantor, which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on this Security and the Guarantee
at the place, times, and rate, and in the currency, herein prescribed.
The Securities are issuable only as registered Securities without coupons
in denominations of $1,000 and any multiple of $1,000.
At the office or agency of the Company referred to on the face hereof and
in the manner and subject to the limitations provided in the Indenture,
Securities
6
<PAGE>
may be exchanged for a like aggregate principal amount of Securities of other
authorized denominations.
Upon due presentment for registration of transfer of this Security at the
above-mentioned office or agency of the Company, a new Security or Securities of
authorized denominations, for a like aggregate principal amount, will be issued
to the transferee as provided in the Indenture. No service charge shall be made
for any such transfer, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto.
The Securities may be redeemed at the option of the Company as a whole, or
from time to time in part, on any date on or after May 1, 2002, upon mailing a
notice of such redemption not less than 30 nor more than 60 days prior to the
date fixed for redemption to the holders of Securities to be redeemed, all as
provided in the Indenture, at the following redemption prices (expressed in
percentages of the principal amount) together in each case with accrued interest
to the date fixed for redemption:
If redeemed during the twelve-month period beginning May 1,
Year Percentage
2002.........................................104.9375%
2003.........................................102.4688%
2004 and thereafter..........................100.0000%
provided that if the date fixed for redemption is an Interest Payment Date, then
the interest payable on such date shall be paid to the holder of record on the
next preceding Interest Record Date.
Subject to payment by the Company or the Guarantor of a sum sufficient to
pay the amount due on redemption, interest on this Security (or portion hereof
if this Security is redeemed in part) shall cease to accrue upon the date duly
fixed for redemption of this Security (or portion hereof if this Security is
redeemed in part).
Upon a Change of Control (as defined in the Indenture), any holder of
Securities will have the right to cause the Company to purchase the Securities
of such holder, in whole or in part in integral multiples of aggregate principal
amount of $1,000, at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to any Change of
Control Payment Date, as provided in, and subject to the terms of the Indenture.
7
<PAGE>
All amounts owed under and in respect of this Security (including the
Guarantee) are subordinated in right of payment, to the extent and in the manner
provided in Article 9 of the Indenture, to the prior payment in full in cash of
all amounts owed under and in respect of all Senior Debt, and the subordination
of the Securities and the Guarantee is for the benefit of all holders of all
Senior Debt, whether outstanding on the Closing Date or incurred thereafter. The
Company and the Guarantor agree, and each holder by accepting a Security
(including the Guarantee) agree, to the subordination.
The Company, the Guarantor, the Trustee, and any authorized agent of the
Company, the Guarantor or the Trustee, may deem and treat the registered holder
hereof as the absolute owner of this Security (whether or not this Security
shall be overdue and notwithstanding any notation of ownership or other writing
hereon made by anyone other than the Company, the Guarantor or the Trustee or
any authorized agent of the Company, the Guarantor or the Trustee), for the
purpose of receiving payment of, or on account of, the principal hereof and
premium, if any, and, subject to the provisions on the face hereof, interest
hereon and for all other purposes, and none of the Company, the Guarantor, the
Trustee nor any authorized agent of the Company, the Guarantor or the Trustee
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of, premium, if
any, or the interest on this Security, for any claim based hereon, or otherwise
in respect hereof, or based on or in respect of the Indenture or any indenture
supplemental thereto, against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Company or the Guarantor or
of any successor corporation, either directly or through the Company or the
Guarantor or any successor corporation, whether by virtue of any constitution,
statute or rule of law or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.
The Indenture is hereby incorporated by the reference and to the extent of
any variance between the provisions hereof and the Indenture, the Indenture
shall control.
This Security (including the Guarantee) shall be deemed to be a contract
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of said State, except as may otherwise be required
by mandatory provisions of law.
8
<PAGE>
GUARANTEE
Vencor, Inc. (the "GUARANTOR") hereby irrevocably and unconditionally
guarantees to the holder of this Security upon which the Guarantee is endorsed
and to the Trustee on behalf of each Securityholder the due and punctual payment
of principal of, premium, if any and interest on, and all other amounts payable
under, each Security provided for pursuant to the Indenture and the terms of
such Security when and as the same shall become due and payable, whether at the
stated maturity, upon acceleration, by call for redemption, upon repurchase or
purchase following a Change of Control Offer (as defined in the Indenture) or an
Asset Sale Offer (as defined in the Indenture) or otherwise, in accordance with
the terms of such Security and of the Indenture. The Guarantor hereby expressly
waives (i) any right to which it may be entitled to require the Trustee or any
Securityholder to pursue or exhaust their respective legal or equitable remedies
against the Company prior to exercising their respective rights under the
Guarantee of the Guarantor and (ii) any right to which it may be entitled to
have the assets of the Company first be used as payment of the Company's or the
Guarantor's obligations prior to any amounts being claimed from or paid by the
Guarantor hereunder. The Guarantor will not be discharged with respect to any
Security except by payment in full of the principal thereof, premium, if any,
and interest thereon and all other amounts payable thereunder. In case of the
failure of the Company punctually to pay any such principal or interest, the
Guarantor hereby agrees to cause any such payment to be made punctually when and
as the same shall become due and payable, whether at the stated maturity, upon
acceleration, by call for redemption upon repurchase or purchase following a
Change of Control Offer or an Asset Sale Offer or otherwise, and as if such
payment were made by the Company.
If at any time payment of principal of and interest on this Security is
rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of the Company, the Guarantor's obligations
hereunder with respect to such payment shall be reinstated as of the date of
such rescission, restoration or return as though such payment had become due,
but had not been made at such time.
The obligations of the Guarantor to the holder of this Security and to the
Trustee pursuant to the Guarantee and the Indenture are expressly set forth in
Article 10 of the Indenture, and reference is hereby made to such Article and
Indenture for the precise terms of the Guarantee.
The Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication of the Security upon which the Guarantee is
endorsed shall have been executed by the Trustee acting under the Indenture by
the manual signature of one of its authorized officers.
9
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this instrument to be duly
executed under its corporate seal.
Dated:
VENCOR, INC.
By: _____________________________
Name:
Title:
10
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
Dated: _____________________
This is one of the Securities described in the within-mentioned Indenture.
PNC BANK, NATIONAL ASSOCIATION,
as Trustee
By:________________________________
Authorized Signatory
11
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
________________________________________________________________________________
Please print or typewrite name and address including zip code of assignee
________________________________________________________________________________
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing ____________________ attorney to transfer said Security on the
books of the Company with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL SECURITIES OTHER THAN EXCHANGE SECURITIES,
PERMANENT OFFSHORE GLOBAL SECURITIES AND
OFFSHORE PHYSICAL SECURITIES]
In connection with any transfer of this Security occurring prior to the
date which is the earlier of (i) the date of an effective Registration or (ii)
two years after the later of the original issuance of this Security or the last
date on which this Security was held by the Company, the Guarantor or an
Affiliate of the Company or the Guarantor, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
12
<PAGE>
[Check One]
[_] (a) this Security is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
or
[_] (b) this Security is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the
Indenture.
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Security in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer or
registration set forth herein and in Section 208 of the Indenture shall have
been satisfied.
Date: ___________ _______________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "QUALIFIED
INSTITUTIONAL BUYER" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: ___________ _______________________________________________________
NOTICE: To be executed by an executive
officer
13
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 310 or Section 317 of the Indenture, check the Box: [_]
If you wish to have a portion of this Security purchased by the Company
pursuant to Section 310 or Section 317 of the Indenture, state the amount:
maturity):
$_______________.
Date: _______________
Your Signature: ______________________________________________
(Sign exactly as your name appears on
the other side of this Security)
Signature Guarantee: _________________________
14
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is made and entered
into as of April 27, 1998 among Vencor Operating, Inc., a Delaware corporation
(the "COMPANY"), Vencor, Inc., a Delaware corporation (the "GUARANTOR"), and
J.P. Morgan Securities Inc. and Goldman, Sachs & Co. (the "INITIAL PURCHASERS").
This Agreement is made pursuant to the Purchase Agreement dated April 27,
1998, among the Company, the Guarantor and the Initial Purchasers (the "PURCHASE
AGREEMENT"), which provides for the sale by the Company to the Initial
Purchasers of $300,000,000 aggregate principal amount of its 9 7/8% Guaranteed
Senior Subordinated Notes due 2005 (the "SECURITIES"). The Securities will be
unconditionally and irrevocably guaranteed (the "GUARANTEE") as to payment of
principal, premium, if any, and interest by the Guarantor. The Securities will
be issued pursuant to the provisions of an Indenture to be dated as of April 30,
1998 (as amended, supplemented or otherwise modified from time to time, the
"INDENTURE") among the Company, the Guarantor and PNC Bank, National Association
as trustee (the "TRUSTEE").
In order to induce the Initial Purchasers to enter into the Purchase
Agreement, each of the Company and the Guarantor has agreed to provide to the
Initial Purchasers and their direct and indirect transferees the registration
rights with respect to the Securities set forth in this Agreement. The execution
of this Agreement is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended from time to
time.
<PAGE>
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended from
time to time.
"CLOSING DATE" shall mean the Closing Date as defined in the Purchase
Agreement.
"COMPANY" shall have the meaning set forth in the preamble and shall also
include the Company's successors.
"EXCHANGE DATE" shall have the meaning set forth in Section 2.
"EXCHANGE OFFER" shall mean the exchange offer by the Company and the
Guarantor of Exchange Securities for all Securities that are Registrable
Securities pursuant to Section 2 hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933 Act
effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on an appropriate form and all amendments and supplements
to such registration statement, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"EXCHANGE SECURITIES" shall mean any securities (including the related
guarantee) of the Company issued under the Indenture and containing terms
identical to the Securities (except that (i) interest thereon shall accrue from
the last date on which interest was paid on the Securities or, if no such
interest has been paid, from April 27, 1998 and (ii) the Exchange Securities
will not provide for additional interest accruing thereon following a failure to
register such Exchange Securities under the 1933 Act and will not contain terms
with respect to transfer restrictions) and to be offered to Holders of
Securities in exchange for Securities pursuant to the Exchange Offer.
"GUARANTOR" shall have the meaning set forth in the preamble and shall also
include the Guarantor's successors.
"HOLDERS" shall mean the Initial Purchasers, for so long as they own any
Registrable Securities, and each of their respective successors, assigns and
direct and indirect transferees who become registered owners of Registrable
Securities under the Indenture; provided that for purposes of Sections 4 and 5
of this Agreement, the term "HOLDERS" shall include Participating Broker-
Dealers.
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<PAGE>
"INDENTURE" shall have the meaning set forth in the preamble.
"INITIAL PURCHASERS" shall have the meaning set forth in the preamble.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the aggregate
principal amount of outstanding Registrable Securities; provided that, for
purposes of Section 6, whenever the consent or approval of Holders of a
specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company, the Guarantor or any of their
respective affiliates (as such term is defined in Rule 405 under the 1933 Act)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage or amount.
"OFFER TERMINATION DATE" shall have the meaning set forth in Section 2
hereof.
"PARTICIPATING BROKER-DEALER" shall have the meaning set forth in Section 4
hereof.
"PERSON" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"PURCHASE AGREEMENT" shall have the meaning set forth in the preamble.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to such prospectus, and in each case including
all material incorporated by reference therein.
"REGISTRABLE SECURITIES" shall mean the Securities; provided, however, that
the Securities shall cease to be Registrable Securities when (i) a Registration
Statement with respect to such Securities shall have been declared effective
under the 1933 Act and such Securities shall have been disposed of pursuant to
such Registration Statement, (ii) such Securities have been sold pursuant to
Rule 144(k) (or any similar provision then in force, but not Rule 144A) under
the 1933 Act, (iii) such Securities shall have ceased to be outstanding or (iv)
such Securities have been exchanged for Exchange Securities upon consummation of
the Exchange Offer.
3
<PAGE>
"REGISTRATION EXPENSES" shall mean any and all expense incident to
performance of or compliance by the Company and the Guarantor with this
Agreement, including without limitation: (i) all SEC, stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees, (ii) all
fees and expenses incurred in connection with compliance with state securities
or blue sky laws, (iii) all expenses of any Person in preparing or assisting in
preparing, word processing, printing and distributing, at the request of the
Company and the Guarantor, any Registration Statement, any Prospectus, any
amendments or supplements thereto, any underwriting agreements, securities sales
agreements and other documents relating to the performance of and compliance
with this Agreement, (iv) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (v) the fees
and disbursements of the Trustee and its counsel, (vi) the fees and
disbursements of counsel for the Company and the Guarantor and for the Initial
Purchasers and, in the case of a Shelf Registration Statement, the fees and
disbursements of one counsel for the Holders incurred on or before the initial
effectiveness of the Shelf Registration Statement, which counsel shall be
counsel for the Initial Purchasers or other counsel selected by the Majority
Holders and satisfactory to the Company and the Guarantor ("counsel for the
Holders"), (vii) the fees and disbursements of the independent public
accountants of the Company and the Guarantor, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, but excluding underwriting discounts, if any, and
commissions and transfer taxes, if any, relating to the sale or disposition of
Registrable Securities by the Holders and (viii) the fees and expenses of
listing the Registrable Securities on any securities exchange or quotation
system in accordance with Section 3 hereof.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company and the Guarantor that covers any of the Exchange Securities or the
Registrable Securities pursuant to the provisions of this Agreement and all
amendments and supplements to any such Registration Statement, including post-
effective amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected pursuant to Section
2 hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration statement
of the Company and the Guarantor pursuant to the provisions of Section 2 of this
Agreement which covers all of the Registrable Securities (except Registrable
Securities that the Holders have elected not to include in such Shelf
4
<PAGE>
Registration Statement) or Securities that represent an unsold allotment for the
original offering thereof on an appropriate form under Rule 415 under the 1933
Act, or any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"TIA" shall have the meaning set forth in Section 3 hereof.
"TRUSTEE" shall have the meaning set forth in the preamble.
"UNDERWRITERS" shall have the meaning set forth in Section 3 hereof.
"UNDERWRITTEN OFFERING" shall mean a registration in which Registrable
Securities are sold to an Underwriter for reoffering to the public.
2. Registration under the 1933 Act.
-------------------------------
(a) To the extent not prohibited by any applicable law or
applicable interpretation of the Staff of the SEC, each of the Company and
the Guarantor shall use its best efforts to cause to be filed an Exchange
Offer Registration Statement covering the offer by the Company and the
Guarantor to the Holders to exchange all of the Registrable Securities for
Exchange Securities on or prior to the date that is 60 days after the
Closing Date, to have such Registration Statement declared effective by the
SEC on or prior to the date that is 120 days after the Closing Date and
remain effective until the closing of the Exchange Offer and to consummate
the Exchange Offer on or prior to the date that is 150 days after the
Closing Date. For purposes hereof, "CONSUMMATE" shall mean that the
Exchange Offer Registration Statement shall have been declared effective,
subject to Section 2, the period of the Exchange Offer provided in
accordance with clause 2 below shall have expired and all Registrable
Securities validly tendered in connection with such Exchange Offer shall
have been exchanged for Exchange Securities. The Company and the Guarantor
shall commence the Exchange Offer by mailing the related exchange offer
Prospectus and accompanying documents to each Holder stating, in addition
to such other disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities
validly tendered will be accepted for exchange;
5
<PAGE>
(ii) the dates of acceptance for exchange (which shall be a
period of at least 30 days from the date such notice is mailed) (each
such date being an "EXCHANGE DATE");
(iii) that any Registrable Note not tendered will remain
outstanding and continue to accrue interest, but will not retain any
rights under this Agreement, other than Securities that represent an
unsold allotment for the original offering thereof;
(iv) that Holders electing to have a Registrable Note exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Note, together with the enclosed letters of transmittal,
to the institution and at the address specified in the notice prior to
the close of business on the last Exchange Date (the "OFFER
TERMINATION DATE"); and
(v) that Holders will be entitled to withdraw their election,
not later than the close of business on the Offer Termination Date, by
sending to the institution and at the address specified in the notice
a telegram, telex, facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Registrable Securities
delivered for exchange and a statement that such Holder is withdrawing
his election to have such Registrable Securities exchanged.
As soon as practicable after the Offer Termination Date, the Company and
the Guarantor shall:
(A) accept for exchange Registrable Securities or portions
thereof tendered and not validly withdrawn pursuant to the
Exchange Offer; and
(B) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so
accepted for exchange by the Company and the Guarantor and issue,
and cause the Trustee to promptly authenticate and mail to each
Holder, an Exchange Note equal in aggregate principal amount to
the aggregate principal amount of the Registrable Securities
surrendered by such Holder.
Each of the Company and the Guarantor shall use its best efforts to
complete the Exchange Offer as provided above and shall comply with the
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applicable requirements of the 1933 Act, the 1934 Act and other applicable laws
and regulations in connection with the Exchange Offer. The Exchange Offer shall
not be subject to any conditions, other than that the Exchange Offer does not
violate applicable law or any applicable interpretation of the Staff of the SEC.
(b) In the event that (i) the Company or the Guarantor determines
that the Exchange Offer Registration provided for in Section 2 above is not
available or may not be consummated as soon as practicable after the Offer
Termination Date because it would violate applicable law or the applicable
interpretations of the Staff of the SEC, (ii) the Exchange Offer is not for
any other reason consummated within 150 days after the Closing Date or
(iii) in the opinion of counsel for the Initial Purchasers a Registration
Statement must be filed and a Prospectus must be delivered by the Initial
Purchasers in connection with any offering or sale of Registrable
Securities because such Registrable Securities represent an unsold
allotment for the original offering thereof, each of the Company and the
Guarantor shall use its best efforts to cause to be filed as soon as
practicable after such determination, date or notice of such opinion of
counsel is given to the Company or the Guarantor, as the case may be, a
Shelf Registration Statement providing for the sale of such Registrable
Securities and to have such Shelf Registration Statement declared effective
by the SEC. In the event the Company and the Guarantor are required to file
a Shelf Registration Statement solely as a result of the matters referred
to in clause (iii) of the preceding sentence, the Company and the Guarantor
shall file and have declared effective by the SEC both an Exchange Offer
Registration Statement pursuant to Section 2 with respect to all
Registrable Securities and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration
Statement) with respect to offers and sales of Registrable Securities held
by the Initial Purchasers after completion of the Exchange Offer. Each of
the Company and the Guarantor agrees to use its best efforts to keep the
Shelf Registration Statement continuously effective until 180 days from the
effective date thereof or such shorter period that will terminate when all
of the Registrable Securities covered by the Shelf Registration Statement
have been sold pursuant to the Shelf Registration Statement. Each of the
Company and the Guarantor further agrees to supplement or amend the Shelf
Registration Statement if required by the rules, regulations or
instructions applicable to the registration form used by the Company and
the Guarantor for such Shelf Registration Statement or by the 1933 Act or
by any other rules and regulations thereunder for shelf registration or if
reasonably requested by a Holder with respect to information relating to
such Holder, and to use its best efforts to cause any such amendment to
become effective and such
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Shelf Registration Statement to become usable as soon as practicable
thereafter. The Company and the Guarantor agree to furnish to the Holders
of Registrable Securities copies of any such supplement or amendment
promptly after its being used or filed with the SEC.
(c) The Company and the Guarantor shall pay all Registration Expenses
in connection with the registration pursuant to Section 2 or Section 2.
Each Holder shall pay all underwriting discounts, if any, and commissions
and transfer taxes, if any, relating to the sale or disposition of such
Holder's Registrable Securities pursuant to a Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section 2
hereof or a Shelf Registration Statement pursuant to Section 2 hereof will
not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that, if, after it has been
declared effective, the offering of Registrable Securities pursuant to a
Shelf Registration Statement is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other
governmental agency or court, such Registration Statement will be deemed
not to be effective during the period of such interference until the
offering of Registrable Securities pursuant to such Registration Statement
may legally resume.
(e) In the event that (i) the Exchange Offer Registration Statement
relating to the Exchange Offer is not filed with the Commission on or prior
to the date that is 60 days after the Closing Date, (ii) the Exchange Offer
Registration Statement is not declared effective on or prior to the date
that is 120 days after the Closing Date, or (iii) the Exchange Offer is not
consummated or a Shelf Registration Statement with respect to resale of the
Securities is not declared effective on or prior to the date that is 150
days after the Closing Date (each such event referred to in clauses (i)
through (iii), a "REGISTRATION DEFAULT"), then the Company will pay
additional interest (in addition to the interest otherwise due on the
Securities) to each Holder of Securities during the first 90-day period
immediately following the occurrence of each such Registration Default in
an amount equal to 0.25% per annum. The amount of interest will increase by
an additional 0.25% per annum for each subsequent 90-day period until such
Registration Default is cured, up to a maximum amount of additional
interest of 1.00% per annum. Such additional interest will cease accruing
on such Securities with respect to any Registration Default when such
Registration Default has been cured.
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(f) Without limiting the remedies available to the Initial Purchasers
and the Holders, the Company and the Guarantor acknowledge that any failure
by the Company or the Guarantor to comply with their respective obligations
under Section 2 and Section 2 hereof may result in material irreparable
injury to the Initial Purchasers or the Holders for which there is no
adequate remedy at law, that it will not be possible to measure damage for
such injuries precisely and that, in the event of any such failure, the
Initial Purchasers or any Holder may obtain such relief as may be required
to specifically enforce the Company's and the Guarantor's obligations under
Section 2 and Section 2 hereof.
3. Registration Procedures.
-----------------------
In connection with the obligations of the Company and the Guarantor with
respect to the Registration Statements pursuant to Section 2 and Section 2
hereof, each of the Company and the Guarantor shall reasonably promptly:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form shall (x) be selected by
the Company and the Guarantor, (y) in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling Holders
thereof and (z) comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith, and use its best efforts to
cause such Registration Statement to become effective and remain effective
in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and, as
so supplemented, to be filed pursuant to Rule 424 under the 1933 Act; and
keep each Prospectus current during the period described under Section 4(3)
and Rule 174 under the 1933 Act that is applicable to transactions by
brokers or dealers with respect to the Registrable Securities or Exchange
Securities;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Holders and for the Initial
Purchasers (or, if applicable, separate counsel for the Holders) and to
each Underwriter of an Underwritten Offering of Registrable Securities, if
any, without charge, as many copies of each Prospectus, including each
preliminary Prospectus and any amendment or supplement thereto and
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<PAGE>
such other documents as such Holder or Underwriter may reasonably request,
in order to facilitate the public sale or other disposition of the
Registrable Securities; and each of the Company and the Guarantor consents
to the use of such Prospectus and any amendment or supplement thereto in
accordance with applicable law by each of the selling Holders of
Registrable Securities and any such Underwriters in connection with the
offering and sale of the Registrable Securities covered by and in the
manner described in such Prospectus or any amendment or supplement thereto
in accordance with applicable law;
(d) use its best efforts (i) to register or qualify the Registrable
Securities under all applicable state securities or blue sky laws of such
jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement shall reasonably request in writing by the time the
applicable Registration Statement is declared effective by the SEC and (ii)
to cooperate with such Holders in connection with any filings required to
be made with the National Association of Securities Dealers, Inc. and do
any and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by such Holder; provided,
however, that neither the Company nor the Guarantor shall be required to
(A) register or qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required to
register or qualify but for this Section, (B) file any general consent to
service of process or (C) subject itself to taxation in any such
jurisdiction if they are not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for the Holders and for the Initial
Purchasers (or, if applicable, separate counsel for the Holders) and, if
requested by such Persons, confirm such advice in writing, (i) when a
Registration Statement has become effective and when any post-effective
amendment thereto has been filed and becomes effective, (ii) of any request
by the SEC or any state securities authority for amendments and supplements
to a Registration Statement and Prospectus or for additional information
after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) if, between the effective date of
a Registration Statement and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties of the
Company or the Guarantor contained in any underwriting agreement,
securities sales agreement or other similar agreement, if any, relating to
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<PAGE>
the offering cease to be true and correct in all material respects or if
the Company or the Guarantor receives any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation of any proceeding for such purpose, (v)
of the happening of any event during the period a Shelf Registration
Statement is effective which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or which
requires the making of any changes in such Registration Statement or
Prospectus in order to make the statements therein not misleading and (vi)
of any determination by the Company or the Guarantor that a post-effective
amendment to a Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment and provide prompt notice to each Holder of the
withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends (unless required by applicable
securities laws) and enable such Registrable Securities to be in such
denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders may reasonably request at
least two business days prior to the closing of any sale of Registrable
Securities;
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3 hereof, use its best efforts to prepare a
supplement or post-effective amendment to a Registration Statement or the
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, such Prospectus will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Each of the Company and the
Guarantor agree to notify the Holders to suspend use of
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<PAGE>
the Prospectus as promptly as practicable after the occurrence of such an
event, and the Holders hereby agree to suspend use of the Prospectus until
the Company and the Guarantor have amended or supplemented the Prospectus
to correct such misstatement or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus, or any document which is to be
incorporated by reference into a Registration Statement or Prospectus after
the initial filing of a Registration Statement, provide copies of such
document to the Initial Purchasers and their counsel (and, in the case of a
Shelf Registration Statement, counsel for the Holders) and make such of the
representatives of each of the Company and the Guarantor as shall be
reasonably requested by the Initial Purchasers or its counsel (and, in the
case of a Shelf Registration Statement, counsel for the Holders) available
for discussion of such document, and shall not at any time file or make any
amendment to the Registration Statement, any Prospectus or any amendment of
or supplement to a Registration Statement or a Prospectus or any document
which is to be incorporated by reference into a Registration Statement or a
Prospectus, of which the Initial Purchasers and their counsel (and, in the
case of a Shelf Registration Statement, counsel for the Holders) shall not
have previously been advised and furnished a copy or to which the Initial
Purchasers or their counsel (and, in the case of a Shelf Registration
Statement, counsel for the Holders) shall reasonably object;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;
(l) cause the Indenture to be qualified under the Trust Indenture Act
of 1939, as amended (the "TIA"), in connection with the registration of the
Exchange Securities or Registrable Securities, as the case may be, and
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use its best efforts
to cause the Trustee to execute, all documents as may be required to effect
such changes and all other forms and documents required to be filed with
the SEC to enable the Indenture to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant to
such Shelf
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<PAGE>
Registration Statement, and counsel for the Holders, at reasonable times
and in a reasonable manner, all financial and other records, pertinent
documents and properties of each of the Company and the Guarantor, and
cause the respective officers, directors and employees of each of the
Company and the Guarantor to supply all information reasonably requested by
any such representative, Underwriter, attorney or accountant in connection
with a Shelf Registration Statement, in each case that would customarily be
reviewed or examined in connection with "DUE DILIGENCE" review of the
Company and the Guarantor;
(n) if reasonably requested by any Holder of Registrable Securities
covered by a Registration Statement, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information with
respect to such Holder as such Holder reasonably requests to be included
therein and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as the Company or the Guarantor has
received notification of the matters to be incorporated in such filing;
(o) cause all Registrable Securities covered by a Registration
Statement to be (i) listed on each securities exchange or quotation system
on which similar securities issued by the Company or the Guarantor are then
listed, if so requested by the Majority Holders and (ii) rated with the
appropriate rating agencies, if so requested by the Majority Holders; and
(p) in the case of an Underwritten Offering pursuant to a Shelf
Registration, enter into such customary agreements and take all such other
customary actions in connection therewith (including, those reasonably
requested by counsel for the Holders) in order to expedite or facilitate
the disposition of such Registrable Securities and in such connection, (i)
to the extent possible, make such representations and warranties to the
Holders and any Underwriters of such Registrable Securities with respect to
the business of the Guarantor, the Company and their respective
subsidiaries, the Registration Statement, Prospectus and documents
incorporated by reference or deemed incorporated by reference, if any, in
each case, in form, substance and scope as are customarily made by issuers
to underwriters in underwritten offerings and confirm the same if and when
requested, (ii) obtain opinions of counsel to the Company and the Guarantor
(which counsel and opinions, in form, scope and substance, shall be
reasonably satisfactory to the Holders and such Underwriters and their
respective counsel) addressed to each selling Holder and Underwriter of
Registrable Securities, covering the matters customarily covered in
opinions requested in underwritten offerings, (iii) obtain "cold comfort"
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<PAGE>
letters from the independent certified public accountants of the Company
and the Guarantor (and, if necessary, any other certified public accountant
of any subsidiary of the Company or the Guarantor, or any business acquired
by the Company or the Guarantor for which financial statements and
financial data are or are required to be included in the Registration
Statement) addressed to each selling Holder and Underwriter of Registrable
Securities, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings, and (iv) deliver such documents and certificates as
may be reasonably requested by counsel for the Holders to evidence the
continued validity of the representations and warranties of each of the
Company and the Guarantor made pursuant to clause (i) above and to evidence
compliance with any customary conditions in an underwriting agreement. In
the case of any Underwritten Offering, the Company and the Guarantor shall
provide written notice to the Holders of all Registrable Securities of such
Underwritten Offering at least 30 days prior to the filing of a prospectus
supplement for such Underwritten Offering. Such notice shall (x) offer each
such Holder the right to participate in such Underwritten Offering, (y)
specify a date, which shall be no earlier than 10 days following the date
of such notice, by which such Holder must inform the Company and the
Guarantor of its intent to participate in such Underwritten Offering and
(z) include the instructions such Holder must follow in order to
participate in such Underwritten Offering.
In the case of a Shelf Registration Statement, the Company or the Guarantor
may require each Holder of Registrable Securities to promptly furnish to the
Company or the Guarantor such information regarding the Holders and the proposed
distribution by such Holder of such Registration Securities as the Company or
the Guarantor may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company or the Guarantor of the happening of
any event of the kind described in Section 3 hereof, such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to a Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3 hereof, and, if so directed by the
Company or the Guarantor, such Holder will deliver to the Company or the
Guarantor (at its expense) all copies in its possession, other than permanent
file copies then in such Holder's possession, of the Prospectus covering such
Registration Securities current at the time of receipt of such notice.
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<PAGE>
If the Company or the Guarantor shall give any such notice to suspend the
disposition of Registrable Securities pursuant to a Registration Statement, the
Company and the Guarantor shall extend the period during which the Registration
Statement shall be maintained effective pursuant to this Agreement by the number
of days during the period from and including the date of the giving of such
notice to and including the date when the Holders shall have received copies of
the supplemented or amended Prospectus necessary to resume such dispositions.
The Holders of Registrable Securities covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
Underwritten Offering. In any such Underwritten Offering, the investment banker
or investment bankers and manager or managers (the "UNDERWRITERS") that will
administer the offering will be selected by the Holders of a majority in
principal amount of the Registrable Securities included in such offering.
4. Participation of Broker-Dealers in Exchange Offer.
-------------------------------------------------
(a) Each of the Company and the Guarantor understands that the Staff
of the SEC has taken the position that any broker-dealer that receives
Exchange Securities for its own account in the Exchange Offer in exchange
for Securities that were acquired by such broker-dealer as a result of
market-making or other trading activities (a "PARTICIPATING BROKER-
DEALER"), may be deemed to be an "underwriter" within the meaning of the
1933 Act in connection with any resale of such Exchange Securities.
Each of the Company and the Guarantor understands that it is the Staff's
position that if the Prospectus contained in the Exchange Offer Registration
Statement includes a plan of distribution containing a statement to the above
effect and the means by which Participating Broker-Dealers may resell the
Exchange Securities, without naming the Participating Broker-Dealers or
specifying the amount of Exchange Securities owned by them, such Prospectus may
be delivered by Participating Broker-Dealers to satisfy their prospectus
delivery obligation under the 1933 Act in connection with resales of Exchange
Securities for their own accounts, so long as the Prospectus otherwise meets the
requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, each of the Company and the Guarantor agrees that the
provisions of this Agreement as they relate to a Shelf Registration shall
also apply to an Exchange Offer Registration to the extent, and with such
reasonable modifications thereto as may be reasonably requested by the
Initial Purchasers or by one or more Participating Broker-Dealers, in each
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<PAGE>
case as provided in clause 4 below, in order to expedite or facilitate the
disposition of any Exchange Securities by Participating Broker-Dealers
consistent with the positions of the Staff recited in Section 4 above;
provided that:
(i) the Company and the Guarantor shall not be required to
amend or supplement the Prospectus contained in the Exchange Offer
Registration Statement, as would otherwise be contemplated by Section
3, for a period exceeding 180 days after the Offer Termination Date
(as such period may be extended pursuant to the penultimate paragraph
of Section 3) and Participating Broker-Dealers shall not be authorized
by the Company or the Guarantor to deliver and shall not deliver such
Prospectus after such period in connection with the resales
contemplated by this Section; and
(ii) the application of the Shelf Registration procedures set
forth in Section 3 of this Agreement to an Exchange Offer
Registration, to the extent not required by the positions of the Staff
of the SEC or the 1933 Act and the rules and regulations thereunder,
will be in conformity with the reasonable request to the Company or
the Guarantor by the Initial Purchasers or with the reasonable request
in writing to the Company or the Guarantor by one or more broker-
dealers who certify to the Initial Purchasers, the Company or the
Guarantor in writing that they anticipate that they will be
Participating Broker-Dealers; and provided further that, in connection
with such application of the Shelf Registration procedures set forth
in Section 3 to an Exchange Offer Registration, each of the Company
and the Guarantor shall be obligated (x) to deal only with only the
entity representing the Participating Broker-Dealers, which shall be
J.P. Morgan Securities Inc. unless it elects not to act as such
representative, (y) to pay the fees and expenses of only one counsel
representing the Participating Broker-Dealers, which shall be counsel
to the Initial Purchasers unless such counsel elects not to so act and
(z) to cause to be delivered only one, if any, "cold comfort" letter
with respect to the Prospectus in the form existing on the Offer
Termination Date.
(c) The Initial Purchasers shall have no liability to the Company,
the Guarantor or any Holder with respect to any request that they make
pursuant to Section 4 above.
5. Indemnification and Contribution.
--------------------------------
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(a) Each of the Company and the Guarantor, jointly and severally,
agrees to indemnify and hold harmless each Initial Purchaser, each Holder
and each Person, if any who controls any Initial Purchaser or any Holder
and each affiliate of any Initial Purchaser which assists such Initial
Purchaser in the distribution of the Securities and the Guarantee within
the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934
Act, or is under common control with, or is controlled by, the Initial
Purchasers or any Holder, from and against any and all losses, claims,
damages and liabilities (including without limitation the reasonable legal
fees and other expenses incurred in connection with any suit, action or
proceeding or any claim asserted) and arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement (or any amendment thereto pursuant to which
Exchange Securities or Registrable Securities were registered under the
1933 Act, including all documents incorporated therein by reference), or
arising out of or based upon any omissions or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained
in any Prospectus (as amended or supplemented if the Company or the
Guarantor shall have furnished any amendments or supplements thereto,
including all documents incorporated therein by reference), or arising out
of or based upon any omission or alleged omission to state therein a
material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, except insofar as
such losses, claims, damages or liabilities arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission
which has been made therein or omitted therefrom in reliance upon and in
conformity with the information relating to such Initial Purchasers or
Holder furnished in writing to the Company or the Guarantor by or on behalf
of any Initial Purchaser or Holder expressly for use in connection
therewith. In connection with any Underwritten Offering permitted by
Section 3 hereof, each of the Company and the Guarantor will also indemnify
the Underwriters, if any, selling brokers, dealers and similar securities
industry professionals participating in the distribution, their officers
and directors and each Person who controls such Persons within the meaning
of either Section 15 of the 1933 Act or Section 20 of the 1934 Act to the
same extent as provided above with respect to the indemnification of the
Holders, if requested in connection with any Registration Statement.
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<PAGE>
(b) Each of the Initial Purchasers and Holders agree, severally and
not jointly, to indemnify and hold harmless each of the Company and the
Guarantor, their directors and officers, and any Person who controls the
Company or the Guarantor within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, to the same extent as the foregoing
indemnity from the Company and the Guarantor to the Initial Purchasers and
Holders, but only with respect to information relating to each Initial
Purchaser or Holder furnished in writing by or on behalf of such Initial
Purchaser or Holder expressly for use in any Registration Statement (or any
amendment thereto) or any prospectus (or any amendment or supplement
thereto).
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted
against any Person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such Person (the "INDEMNIFIED
PERSON") shall promptly notify the Person against whom such indemnity may
be sought (the "INDEMNIFYING PERSON") in writing, and the Indemnifying
Person, upon request of the Indemnified Person, shall retain counsel
reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may designate in
such proceeding and shall pay the reasonable fees and expenses of such
counsel related to such proceeding. In any such proceeding, any Indemnified
Person shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Person has failed
within a reasonable time to retain counsel reasonably satisfactory to the
Indemnified Person or (iii) the named parties in any such proceeding
(including any impleaded parties) include both the Indemnifying Person and
the Indemnified Person and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Person shall
not, in connection with any proceeding or related proceeding in the same
jurisdiction, be liable for (a) the fees and expenses of more than one
separate firm (in addition to any local counsel) for the Initial Purchasers
and all Persons, if any, who control the Initial Purchasers within the
meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act,
(b) the fees and expenses of more than one separate firm (in addition to
any local counsel) for the Company and the Guarantor, their directors,
their officers who sign the Registration Statement and each Person, if any,
who controls the Company or the Guarantor within the meaning of either such
Section and (c) the fees and
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expenses of more than one separate firm (in addition to any local counsel)
for all Holders and all Persons, if any, who control any Holders within the
meaning of either such Section. Any such separate firm for the Initial
Purchasers and such control Persons of Initial Purchasers shall be
designated in writing by J.P. Morgan Securities Inc., any such separate
firm for the Holders and such Persons who control Holders shall be
designated in writing by the Majority Holders and any such separate firm
for the Company and the Guarantor, their directors, their officers and such
control Persons of the Company or the Guarantor shall be designated in
writing by the [Company]. The Indemnifying Person shall not be liable for
any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the
plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement
or judgment. Notwithstanding the foregoing sentence, if at any time an
Indemnified Person shall have requested an Indemnifying Person to reimburse
the Indemnified Person for reasonable fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such settlement
is entered into more than 90 days after receipt by such Indemnifying Person
of the aforesaid request and (ii) such Indemnifying Person shall not have
reimbursed the Indemnified Person in accordance with such request prior to
the date of such settlement. No Indemnifying Person shall, without the
prior written consent of the Indemnified Person, effect any settlement of
any pending or threatened proceeding in respect of which any Indemnified
Person is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Person, unless such settlement includes an
unconditional release of such Indemnified Person from all liability on
claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in this Section is
unavailable to an Indemnified Person under paragraphs (a) or (b) hereof in
respect of any losses, claims, damages or liabilities referred to therein,
then an Indemnifying Person, in lieu of indemnifying such Indemnified
Person, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the Company
and the Guarantor on the one hand and the Initial Purchasers or Holders on
the other hand in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of
19
<PAGE>
the Company and the Guarantor on the one hand and the Initial Purchasers or
Holders on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Guarantor on the one hand or by
Initial Purchasers or the Holders on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) The Company, the Guarantor, the Initial Purchasers and each
Holder agree that it would not be just or equitable if contribution
pursuant to this Section were determined by pro rata allocation (even if
the Initial Purchasers and the Holders were treated as one entity for such
purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph 5 above. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in paragraph 5 above shall be deemed to
include, subject to the limitations set forth above, any reasonable legal
or other expenses incurred by such Indemnified Person in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section, no Initial Purchaser or Holder shall be
required to indemnify or contribute any amount in excess of the amount by
which the total price at which Registrable Securities were sold by such
Initial Purchaser or Holder exceeds the amount of any damages that such
Initial Purchaser or Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation. The
Holders' obligations to contribute pursuant to this Section are several in
proportion to the aggregate principal amount of Registrable Securities sold
by them pursuant to such Registration Statement.
(f) Any losses, claims, damages or liabilities for which an
Indemnified Person is entitled to indemnification or contribution under
this Section shall be paid by the Indemnifying Person to the Indemnified
Person as such losses, claims, damages or liabilities are incurred. The
indemnity and contribution agreements contained in this Section and the
representations and warranties of the Company and the Guarantor set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Initial
Purchaser, any
20
<PAGE>
Holder or any Person controlling any Initial Purchaser, any Holder, the
Company's or the Guarantor's directors or officers or any Person
controlling the Company and the Guarantor, (ii) acceptance of any Exchange
Securities (iii) any termination of this Agreement and (iv) any sale of
Registrable Securities pursuant to a Shelf Registration Statement.
21
<PAGE>
6. Miscellaneous.
-------------
(a) No Inconsistent Agreements. Neither the Company nor the Guarantor
--------------------------
has entered into, and on or after the date of this Agreement will not enter
into, any agreement which is inconsistent with the rights granted to the
Holders of Registrable Securities in this Agreement or otherwise conflicts
with the provisions hereof. The rights granted to the Holders hereunder do
not in any way conflict with and are not inconsistent with the rights
granted to the holders of the Company's or the Guarantor's other issued and
outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given unless the Company or the Guarantor has obtained
the written consent of Holders of at least a majority in aggregate
principal amount of the outstanding Registrable Securities affected by such
amendment, modification, supplement, waiver or consent; provided, however,
that no amendment, modification, supplement, waiver or consent to any
departure from the provisions of Section 5 hereof shall be effective as
against any Holder of Registrable Securities unless consented to in writing
by such Holder.
(c) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such
Holder to the Company or the Guarantor by means of a notice given in
accordance with the provisions of this Section, which address initially is,
with respect to the Initial Purchasers, the address set forth in the
Purchase Agreement; and (ii) if to the Company or the Guarantor, initially
at the Guarantor's address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance
with the provisions of this Section.
All such notices and communications shall be deemed to have been duly given
at the time delivered, if personally delivered; five business days after being
deposited in the mail, postage pre-paid, if mailed; when answered back, if
telexed; when receipt is acknowledged, if telecopied; and on the next business
day if timely delivered to an air courier guaranteeing overnight delivery.
22
<PAGE>
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors, assigns and transferees of each of
the parties, including, without limitation and without the need for an
express assignment or assumption, subsequent Holders; provided that nothing
herein shall be deemed to permit any assignment, transfer or other
disposition of Registrable Securities in violation of the terms of the
Purchase Agreement. The Initial Purchasers shall have no liability or
obligation to the Company or the Guarantor with respect to any failure by a
Holder to comply with, or any breach by any Holder of, the obligations of
such Holder under this Agreement.
(e) Purchases and Sales of Securities. The Company and the Guarantor
---------------------------------
shall not, and shall cause their respective affiliates (as defined in rule
405 under the 1993 Act) not to, purchase and then resell or otherwise
transfer any Securities (other than Exchange Securities) other than to the
Company, the Guarantor or their respective affiliates.
(f) Third Party Beneficiary. Each Holder shall be a third party
-----------------------
beneficiary to the agreements made hereunder between the Company and the
Guarantor, on the one hand, and the Initial Purchasers, on the other hand,
and shall have the right to enforce such agreements directly to the extent
it deems such enforcement necessary or advisable to protect its rights or
the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. This Agreement shall be governed by laws of the
-------------
State of New York.
(j) Severability. In the event that one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable the validity, legality and enforceability
of
23
<PAGE>
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
VENCOR OPERATING, INC.
By _____________________________
Name:
Title:
VENCOR HEALTHCARE, INC.
By _____________________________
Name:
Title:
J.P. MORGAN SECURITIES INC.
GOLDMAN, SACHS & CO.
By: J.P. MORGAN SECURITIES INC.
By __________________________
Name:
Title:
25
<PAGE>
CROSS-REFERENCE TARGET LIST
===========================
NOTE: DUE TO THE NUMBER OF TARGETS SOME TARGET NAMES MAY NOT APPEAR IN THE
TARGET PULL-DOWN LIST.
(This list is for the use of the wordprocessor only, is not a part of this
document and may be discarded.)
<TABLE>
<CAPTION>
ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME
=============== =========== =============== =========== =============== =========== =============== ===========
<S> <C> <C> <C> <C> <C> <C>
2..............................reg.1933
2(a).................exch.off.statement
2(a)(ii)..................Exchange.Date
2(a)(iv).......................Reg.Note
2(b)..................reg.placement.agt
2(b).....................exch.offer.reg
3............................Reg.proced
3(e)..................shelf.reg.changes
3(i).....................shelf.reg.supp
3(l)...................trust.indent.act
3(o)..............reg.Securities.listed
3(p)...................reg.note.issuers
4...................Part.Broker.Dealers
4(a).................part.brok.deal.und
4(b)................part.brok.deal.exch
4(b)(iii).................shelf.reg.app
5.........................Indem.contrib
5(d)......................indem.damages
6(b)......................Amend.waivers
</TABLE>
26
<PAGE>
EXHIBIT 5
[Letterhead of Sullivan & Cromwell]
June 29, 1998
Vencor, Inc.,
3300 Aegon Center,
400 West Market Street,
Louisville, Kentucky 40202
Vencor, Inc.,
3300 Aegon Center,
400 West Market Street,
Louisville, Kentucky 40202.
Dear Sirs:
In connection with the registration under the Securities Act of 1933
(the "Act") of $300,000,000 aggregate principal amount of 9 7/8% Guaranteed
Senior Subordinated Notes due 2005 (the "Securities") of Vencor Operating, Inc.,
a Delaware corporation (the "Company"), which have been unconditionally and
irrevocably guaranteed (the "Guarantee") as to payment of principal, premium, if
any, and interest by Vencor, Inc., a Delaware corporation (the "Guarantor), we,
as your special counsel, have examined such corporate records, certificates and
other documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our opinion,
when the Company's Registration Statement on Form S-4 (the "Registration
Statement") has
<PAGE>
-2-
become effective under the Act, the Guarantee relating the Securities has been
duly authorized, executed and delivered, the terms of the Securities and of
their issuance and sale have been duly established in conformity with the
Indenture dated as of April 30, 1998 (the "Indenture") among the Company, the
Guarantor and PNC Bank, National Association (the "Trustee"), so as not to
violate any applicable law or result in a default under or breach of any
agreement or instrument binding upon the Company and so as to comply with any
requirement or restriction imposed by any court or governmental body having
jurisdiction over the Company, and the Securities have been duly executed and
authenticated in accordance with the Indenture and issued and sold as
contemplated in the Registration Statement, the Securities and the Guarantee
will constitute valid and legally binding obligations of the Company and the
Guarantor, respectively, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
The foregoing opinion is limited to the Federal laws of the United
States, the laws of the State of
<PAGE>
-3-
New York and the General Corporation Law of the State of Delaware, and we are
expressing no opinion as to the effect of the laws of any other jurisdiction.
We have relied as to certain matters on information obtained from public
officials, officers of the Company and the Guarantor and other sources believed
by us to be responsible, and we have assumed that the Indenture has been duly
authorized, executed and delivered by the Trustee thereunder, an assumption
which we have not independently verified.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the heading "Legal
Matters" in the Prospectus dated as of June 29, 1998 relating to the offer to
exchange the Securities. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE>
EXHIBIT 6
THE CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(B) OF THE ACT
PNC Bank, National Association, the Trustee executing the statement of
eligibility and qualification to which this Exhibit is attached does hereby
consent that reports of examinations of the undersigned by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefore in accordance with the
provisions of Section 321(b) of the Trust Indenture Act of 1939.
PNC BANK, NATIONAL ASSOCIATION
BY: /s/ David G. Metcalf
------------------------------
David G. Metcalf
Vice President
DATE: June 16, 1998
----------------
<PAGE>
EXHIBIT 8
[LETTERHEAD OF SULLIVAN & CROMWELL]
June 29, 1998
Vencor, Inc.,
Vencor Operating, Inc.,
3300 Aegon Center,
400 West Market Street,
Louisville, Kentucky 40202
Ladies and Gentlemen:
As counsel to Vencor Operation, Inc., a Delaware corporation (the
"Company"), in connection with the issuance of $300,000,000 aggregate principal
amount of Guaranteed Senior Subordinated Notes due 2005 of the Company, it is
our opinion that the discussion in the Form S-4 to which this opinion is filed
as an exhibit (the "Registration Statement") under the heading "Certain United
States Federal Income Tax Considerations" is a fair and accurate summary of the
matters therein discussed.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. By giving the foregoing consent, we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours
/s/ Sullivan & Cromwell
<PAGE>
CONFORMED COPY
$1,000,000,000 CREDIT AGREEMENT
dated as of Exhibit 10.1
April 29, 1998
among
VENCOR OPERATING, INC.
VENCOR HEALTHCARE, INC.
(to be renamed Vencor, Inc.)
THE LENDERS PARTY HERETO
THE SWINGLINE BANK PARTY HERETO
THE LC ISSUING BANKS PARTY HERETO
THE SENIOR MANAGING AGENTS, MANAGING AGENTS
AND CO-AGENTS PARTY HERETO
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Documentation Agent and Collateral Agent
and
NATIONSBANK, N.A.,
as Administrative Agent
- --------------------------------------------------------------------------------
Arranged by
J.P. Morgan Securities Inc. and
NationsBanc Montgomery Securities LLC
as Co-Arrangers
<PAGE>
TABLE OF CONTENTS
-----------
Page
----
ARTICLE 1
Definitions
Section 1.01. Definitions..................................................... 4
Section 1.02. Accounting Terms and Determinations.............................38
Section 1.03. Types of Loans..................................................39
Section 1.04. Other Definitional Provisions...................................39
ARTICLE 2
The Facilities
Section 2.01. Commitments to Lend.............................................40
Section 2.02. Notice of Borrowing.............................................41
Section 2.03. Notice to Lenders; Funding of Loans.............................42
Section 2.04. Notes...........................................................43
Section 2.05. Interest Rates..................................................43
Section 2.06. Method of Electing Interest Rates...............................46
Section 2.07. Letters of Credit...............................................48
Section 2.08. Swingline Loans.................................................56
Section 2.09. Commitment Fee..................................................58
Section 2.10. Final Maturity of Loans.........................................59
Section 2.11. Prepayment of Bridge Loans......................................59
Section 2.12. Scheduled Amortization of Term Loans............................59
Section 2.13. Unscheduled Mandatory Prepayments of Loans......................61
Section 2.14. Optional Prepayments............................................64
Section 2.15. Termination or Reduction of Commitments.........................65
Section 2.16. General Provisions as to Payments...............................66
Section 2.17. Funding Losses..................................................67
Section 2.18. Computation of Interest and Fees................................67
Section 2.19. Regulation D Compensation.......................................68
Section 2.20. Release of Security Interests in Assets Being Sold..............68
ARTICLE 3
Conditions
Section 3.01. Effectiveness of this Agreement; Closing........................69
Section 3.02. Credit Events...................................................72
<PAGE>
Page
----
ARTICLE 4
Representations and Warranties
Section 4.01. Corporate Existence and Power...................................73
Section 4.02. Corporate and Governmental Authorization; No Contravention......73
Section 4.03. Binding Effect..................................................74
Section 4.04. Security Interests..............................................74
Section 4.05. Financial Information...........................................74
Section 4.06. Litigation......................................................75
Section 4.07. Compliance with ERISA...........................................75
Section 4.08. Taxes...........................................................75
Section 4.09. Compliance with Laws............................................76
Section 4.10. No Regulatory Restrictions on Borrowing.........................76
Section 4.11. Environmental Matters...........................................76
Section 4.12. Related Documents...............................................77
Section 4.13. Effect of Reorganization Transactions on Outstanding Debt.......77
Section 4.14. Full Disclosure.................................................77
Section 4.15. Information as to Equity Interests and Instruments Owned
by Vencor Companies.....................................................77
Section 4.16. Representations in Other Financing Documents....................78
Section 4.17. Timing of Certain Reorganization Transactions...................78
Section 4.18. Year 2000 Compliance............................................78
Section 4.19. Margin Stock....................................................78
ARTICLE 5
Affirmative Covenants
Section 5.01. Information.....................................................79
Section 5.02. Maintenance of Property.........................................83
Section 5.03. Insurance.......................................................83
Section 5.04. Compliance with Law.............................................84
Section 5.05. Maintenance of Existence, Rights, Etc...........................84
Section 5.06. Use of Proceeds and Letters of Credit...........................84
Section 5.07. Completion of Reorganization Transaction........................84
Section 5.08. Designation of Material Subsidiaries............................85
Section 5.09. Guarantees by Future Material Subsidiaries......................86
Section 5.10. Future Assets to be Added to Collateral.........................86
Section 5.11. Hedging Facilities..............................................87
Section 5.12. Compliance with Material Agreements.............................87
Section 5.13. Casualty Events.................................................87
ii
<PAGE>
Page
----
ARTICLE 6
Financial Covenants
Section 6.01. Total Leverage Ratio............................................88
Section 6.02. Senior Leverage Ratio...........................................89
Section 6.03. Fixed Charge Coverage Ratio.....................................90
Section 6.04. Minimum Consolidated Net Worth..................................90
ARTICLE 7
Negative Covenants Applicable to the Basic Facilities
Section 7.01. Limitation on Debt of Vencor....................................91
Section 7.02. Limitation on Debt of the Borrower..............................91
Section 7.03. Limitation on Debt of Subsidiaries..............................93
Section 7.04. Negative Pledge.................................................94
Section 7.05. Consolidations, Mergers and Asset Sales.........................96
Section 7.06. Limitations on Investments......................................98
Section 7.07. Limitation on Capital Expenditures..............................99
Section 7.08. Limitations on Transactions with Affiliates.....................99
Section 7.09. Limitation on Restrictions Affecting Subsidiaries..............100
Section 7.10. Restricted Payments............................................101
Section 7.11. No Modification of Certain Documents Without Consent...........101
Section 7.12. No Change of Fiscal Periods....................................102
Section 7.13. Limitation of Designated Interest Rate Agreements..............102
Section 7.14. 1998 Subordinated Notes........................................102
Section 7.15. No Voluntary Prepayments of Other Debt.........................103
Section 7.16. Margin Stock...................................................103
Section 7.17. Limitation on Business.........................................103
Section 7.18. Leases.........................................................103
Section 7.19. Cash Consideration for Asset Sales.............................104
Section 7.20. Limitation on Cash Not Held in Collateral Accounts or
Concentration Accounts.................................................104
ARTICLE 8
Negative Covenants Applicable to the Facility B Loans
iii
<PAGE>
Page
----
ARTICLE 9
Defaults
Section 9.01. Bankruptcy Events of Default...................................105
Section 9.02. Other Events of Default Applicable to Basic Facilities.........106
Section 9.03. Other Events of Default Applicable to Facility B...............110
Section 9.04. Notice of Default..............................................112
Section 9.05. Enforcement Notice.............................................112
Section 9.06. Cash Cover.....................................................112
ARTICLE 10
The Agents
Section 10.01. Appointment and Authorization.................................113
Section 10.02. Agents and Affiliates.........................................113
Section 10.03. Action by Agents..............................................113
Section 10.04. Consultation with Experts.....................................114
Section 10.05. Liability of Agents...........................................114
Section 10.06. Indemnification...............................................114
Section 10.07. Credit Decision...............................................114
Section 10.08. Agents' Fees..................................................115
Section 10.09. Successor Agents..............................................115
Section 10.10. Collateral Agent..............................................115
Section 10.11. Obligations of Senior Managing Agents, Managing Agents
and Co-Agents..........................................................116
ARTICLE 11
Changes in Circumstances
Section 11.01. Basis for Determining Interest Rate Inadequate or Unfair......116
Section 11.02. Illegality....................................................116
Section 11.03. Increased Cost and Reduced Return.............................117
Section 11.04. Taxes.........................................................119
Section 11.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans....121
Section 11.06. Substitution of Lenders.......................................121
ARTICLE 12
Miscellaneous
Section 12.01. Notices.......................................................123
Section 12.02. No Waiver.....................................................123
iv
<PAGE>
Page
----
Section 12.03. Expenses; Indemnification.....................................123
Section 12.04. Sharing of Set-offs...........................................124
Section 12.05. Amendments and Waivers........................................124
Section 12.06. Successors and Assigns........................................127
Section 12.07. Designated Lenders............................................130
Section 12.08. Margin Stock..................................................131
Section 12.09. Failure of Revolving Credit Lender to Satisfy Minimum Rating
Condition..............................................................131
Section 12.10. Governing Law; Submission to Jurisdiction.....................132
Section 12.11. Counterparts; Integration.....................................132
Section 12.12. WAIVER OF JURY TRIAL..........................................133
Section 12.13. Confidentiality...............................................133
Commitment Schedule
Pricing Schedule
Schedule 1 - Existing Letters of Credit
Schedule 2 - Reorganization Agreements
Schedule 3 - Deferred Master Lease Properties
Schedule 4 - Material Subsidiaries and Insurance Subsidiaries
(as of the Closing Date)
Schedule 5 - Minority-Owned Affiliates (as of the Closing Date)
Schedule 6 - Existing Affiliate Agreements
Schedule 7 - Third Party Leases
Schedule 8 _ Management Contracts
Schedule 9 - Litigation
Exhibit A - Form of Note
Exhibit B - Form of Swingline Note
Exhibit C - Form of Security Agreement
v
<PAGE>
Exhibit D - Financial Officer's Certificate
Exhibit E - Form of Opinion of the General Counsel
of the Borrower
Exhibit F - Form of Opinion of Sullivan & Cromwell, Special
Counsel for Vencor and the Borrower
Exhibit G - Form of Opinion of Davis Polk & Wardwell,
Special Counsel for the Agents
Exhibit H - Form of Notice of Borrowing
Exhibit I - Form of Prepayment Notice
Exhibit J _ Form of Facility B Unscheduled Prepayment Notice
Exhibit K - Form of Notice of Swingline Borrowing
Exhibit L _ Form of Vencor Guaranty Agreement
Exhibit M - Form of Subsidiary Guaranty Agreement
Exhibit N - Calculation of Funding Losses
Exhibit O - Form of Designation Agreement
Exhibit P _ Negative Covenants Applicable to Facility B and
Related Definitions
vi
<PAGE>
CREDIT AGREEMENT
AGREEMENT dated as of April 29, 1998 among VENCOR OPERATING, INC., VENCOR
HEALTHCARE, INC. (to be renamed Vencor, Inc.), the LENDERS party hereto, the
SWINGLINE BANK party hereto, the LC ISSUING BANKS party hereto, the SENIOR
MANAGING AGENTS, MANAGING AGENTS and CO-AGENTS party hereto, MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Documentation Agent and Collateral Agent, and
NATIONSBANK, N.A., as Administrative Agent.
WHEREAS, the Delaware corporation which is named "Vencor, Inc." on the date
hereof proposes to reorganize the business currently conducted by it and its
subsidiaries into two separate businesses, namely (a) a real estate business
owning substantially all of the land, buildings and other improvements and real
estate related assets currently owned by said corporation and its subsidiaries
and having substantially all the liabilities related thereto and (b) an
operating business having the assets and liabilities relating to the historical
operations of said corporation and its subsidiaries;
WHEREAS, said real estate business is to be retained by said corporation,
which on the Closing Date will be renamed "Ventas, Inc." and is herein called
either "Old Vencor" (generally with reference to periods before said
reorganization) or "Ventas" (generally with reference to periods after said
reorganization);
WHEREAS, said operating business is to be transferred to a Delaware
corporation which is named "Vencor Healthcare, Inc." on the date hereof and on
the Closing Date will be renamed "Vencor, Inc." and is herein called "Vencor";
WHEREAS, said reorganization will be accomplished by a series of
transactions, including but not limited to the following:
(i) certain subsidiaries of Old Vencor which own real
properties will merge into Old Vencor on or before the Closing Date,
certain other subsidiaries of Old Vencor will transfer most of their
real estate assets to Old Vencor on or before the Closing Date and
certain other subsidiaries of Old Vencor (herein called "Deferred
Merger Subsidiaries") will merge into Old Vencor after the Closing
Date as and when certain regulatory consents are obtained;
(ii) Old Vencor will transfer substantially all its resulting
assets and liabilities, including the capital stock of certain of its
first-tier subsidiaries that are not to be merged into it and its real
properties currently under development or to be developed (herein
called "Development Properties"), but excluding substantially all
<PAGE>
other land, buildings and other improvements and real estate related
assets, to Vencor in consideration of (a) the assumption by Vencor of
liability for a portion of Old Vencor's outstanding subordinated notes
and a portion of the loans outstanding under Old Vencor's existing
credit agreement and (b) the issuance by Vencor of its common stock
and Series A preferred stock to Old Vencor;
(iii) on the Closing Date, Old Vencor and its subsidiaries
(herein called the "Ventas Companies") will (x) lease substantially
all their retained real properties (except where requisite consents
have not been obtained before the Closing) to Vencor and its
Subsidiaries (herein called the "Vencor Companies") under four Master
Lease Agreements, (y) sublease and/or assign their rights and
obligations as lessee under leases (herein called "Third Party
Leases") of healthcare facilities to Vencor and (z) assign and/or
subcontract their rights and obligations under management contracts
(herein called "Management Contracts") relating to certain healthcare
facilities to Vencor;
(iv) after the Closing Date, (a) real properties retained by the
Ventas Companies and not leased to Vencor on the Closing Date will be
leased to Vencor under the Master Lease Agreements from time to time
as requisite consents are obtained and (b) Development Properties
will, at the option of the Ventas Companies, be purchased by them from
and leased back by them to the Vencor Companies under Master Lease
Agreements as such Development Properties are completed;
(v) Vencor will transfer all of the assets and operating
liabilities so acquired by it to its wholly-owned subsidiary, Vencor
Operating, Inc. (herein called the "Borrower"); Vencor will also
assign the leasehold interests acquired by Vencor under the Master
Lease Agreements to the Borrower and the Borrower will assume Vencor's
obligations thereunder;
(vi) in consideration of such transfer of assets to the
Borrower, the Borrower will (a) pay to Vencor the cash required to
enable Vencor to purchase and retire the outstanding subordinated
notes of Old Vencor assumed by it and to repay the loans of Old Vencor
assumed by it and (b) assume the operating liabilities transferred by
Old Vencor to Vencor;
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(vii) the Borrower will sublease and/or assign the leasehold
interests so acquired by it, and assign its rights in respect of the
Management Contracts, to certain of its operating subsidiaries (herein
called "New Subsidiaries"), each of which will, in effect, assume the
relevant portion of the Borrower's obligations with respect to the
Master Lease Agreements, the Third Party Leases and the Management
Contracts;
(viii) included among the assets to be acquired by the Borrower
as described above will be (a) the capital stock of certain
subsidiaries formerly owned by Old Vencor (herein, together with their
respective subsidiaries, called "Continuing Subsidiaries") which will
become subsidiaries of the Borrower on the Closing Date and (b) a
minority interest in the outstanding capital stock of each of Atria
Communities, Inc. and Behavioral Healthcare Corporation; and
(ix) after the Closing, Old Vencor will distribute all the
shares of Vencor's common stock to the stockholders of Old Vencor;
WHEREAS, in order to finance the foregoing transactions and the
continuing business of itself and its subsidiaries, the Borrower has requested
the following credit facilities:
(i) a $200,000,000 bridge loan facility to be repaid when the
Borrower sells certain assets, including its minority interest in the
outstanding capital stock of Atria Communities, Inc. and/or Behavioral
Healthcare Corporation, or receives cash from certain other
transactions;
(ii) a $300,000,000 revolving credit facility;
(iii) a $250,000,000 five-year term loan facility; and
(iv) a $250,000,000 seven-year term loan facility;
WHEREAS, the Borrower proposes to use the proceeds of said bridge loans
facility, five-year term loan facility and seven-year term loan facility to fund
a portion of the cash payment to be made by the Borrower to Vencor on the
Closing Date as described above and proposes to use said revolving credit
facility to provide loans and letters of credit for the general corporate
purposes of the Borrower and its subsidiaries after the Closing Date;
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WHEREAS, the obligations of the Borrower under the foregoing facilities and
certain interest rate hedging arrangements are to be (a) secured by
substantially all the Borrower's assets (excluding the Development Properties
and its leasehold interests under the Third Party Leases) and (b) guaranteed by
Vencor and the Borrower's material subsidiaries (other than its insurance
subsidiaries); and each of such guaranties is to be secured by substantially all
the assets of the relevant guarantor (excluding certain real property);
WHEREAS, on the Closing Date the Borrower will also issue and sell
$300,000,000 aggregate principal amount of its new subordinated notes to fund a
portion of the cash payment to be made by it to Vencor on the Closing Date; and
WHEREAS, the Lenders are willing to extend the foregoing credit facilities
to the Borrower, the LC Issuing Banks are willing to issue letters of credit
thereunder (or in certain cases maintain previously issued letters of credit
thereunder) and the Swingline Bank is willing to make Swingline Loans
thereunder, all on the terms and conditions provided herein;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Accepting Facility B Lender" has the meaning set forth in Section
213(j)(C).
"Account Party" means (i) for each Existing Letter of Credit, the party
identified on Schedule 1 hereto as the Account Party for such Existing Letter of
Credit and (ii) for each Additional Letter of Credit, the party identified as
the Account Party for such Additional Letter of Credit pursuant to Section
2.07(d).
"Acquisition Loan" means a Loan designated by the Borrower as an
Acquisition Loan in the applicable Notice of Borrowing or Notice of Interest
Rate Election. Acquisition Loans may be borrowed for the purposes of paying to
Vencor a portion of the consideration to be paid to it for the transfer of
assets by it to the Borrower on the Closing Date, financing acquisitions by the
Borrower after the Closing Date, refinancing outstanding Debt in connection with
such acquisitions and/or refinancing Debt incurred for any of the foregoing
purposes, and for other general corporate purposes of the Borrower and its
Subsidiaries.
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"Additional Letter of Credit" means any letter of credit issued hereunder
by an LC Issuing Bank on or after the Closing Date.
"Adjusted CD Base Rate" has the meaning set forth in Section 2.05(b).
"Adjusted Consolidated Debt for Borrowed Money" means at any date the sum
of (i) Consolidated Debt for Borrowed Money at such date plus (ii) eight times
the Consolidated Rental Expense for the four Fiscal Quarters then most recently
ended; provided that, at any date prior to June 30, 1999, the Consolidated
Rental Expense to be multiplied by eight shall be determined as of the end of
the then most recently ended Fiscal Quarter on an Annualized Basis.
"Adjusted Consolidated Net Income" means, for any period, Consolidated Net
Income for such period, adjusted to exclude therefrom, without duplication, (i)
gains or losses from Asset Sales net of related tax effects and (ii) any net
income (or loss) of any Person (other than a Consolidated Subsidiary or Non-
Consolidated Partnership) in which a Vencor Company has an ownership interest,
except that such Person's net income shall not be excluded if (and to the extent
that) such Person pays dividends or distributions in cash to a Vencor Company
during such period.
"Adjusted Consolidated Senior Debt for Borrowed Money" means at any date
Adjusted Consolidated Debt for Borrowed Money at such date less the then
outstanding aggregate principal amount of (i) the Existing Subordinated Notes,
(ii) the 1998 Subordinated Notes and (iii) any other subordinated debt of the
Borrower that is incurred or assumed after the Closing Date and is subordinated
to the Borrower's obligations under this Agreement and any Designated Interest
Rate Agreements by subordination provisions reasonably satisfactory to the
Documentation Agent.
"Administrative Agent" means NationsBank, in its capacity as administrative
agent for the Lenders under the Financing Documents, and its successors in such
capacity.
"Administrative Questionnaire" means, with respect to each Lender, an
administrative questionnaire in the form prepared by the Administrative Agent,
duly completed by such Lender and submitted to the Administrative Agent (with a
copy to the Borrower and the Documentation Agent).
"Affiliate" means any Person (other than a Subsidiary) directly or
indirectly controlling, controlled by or under common control with Vencor. As
used in this definition, the term "control" means possession, directly or
indirectly, of the power to vote 10% or more of any class of voting securities
of a Person or to direct or cause the direction of the management or policies of
a Person, whether
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through the ownership of voting securities, by contract or otherwise. The fact
that, after the Spin-Off is consummated, Ventas and Vencor will have many
stockholders in common will not be deemed to constitute "common control" for
purposes of this definition unless stockholders possessing, directly or
indirectly, the power the vote more than 10% of Vencor's outstanding common
stock attempt to influence its management or policies in a manner which is, or
could reasonably be expected to be, favorable to any Ventas Company.
"Agents" means the Documentation Agent, the Administrative Agent and the
Collateral Agent.
"Aggregate LC Exposure" means, at any time, the sum, without duplication,
of (i) the aggregate amount that is (or may thereafter become) available for
drawing under all Letters of Credit outstanding at such time and (ii) the
aggregate unpaid principal amount of all LC Reimbursement Obligations
outstanding at such time.
"Annualized Basis" means that, when a provision hereof provides that
Consolidated Rental Expense or Consolidated EBITDAR is to be calculated as of a
date (the "relevant date") prior to June 30, 1999 for a period of four
consecutive Fiscal Quarters ending on the relevant date, (i) Consolidated Rental
Expense or Consolidated EBITDAR, as the case may be, shall be calculated for the
period from the end of the month in which the Closing Date occurs to the
relevant date (a "short period") and (ii) the amount so calculated shall be
multiplied by a fraction of which the numerator is 12 and the denominator is the
number of whole calendar months in such short period.
"Applicable Amortization Date" means (i) when used with respect to Facility
A or Facility A Loans, a date on which a portion of the principal of the
Facility A Loans is required to be prepaid pursuant to Section 2.12(a) and (ii)
when used with respect to Facility B or Facility B Loans, a date on which a
portion of the principal of the Facility B Loans is required to be prepaid
pursuant to Section 2.12(b).
"Applicable Margin" means (i) with respect to any Basic Loan that is a
Euro-Dollar Loan, the Basic Euro-Dollar Margin, (ii) with respect to any
Facility B Loan that is a Euro-Dollar Loan, the Facility B Euro-Dollar Margin,
(iii) with respect to any CD Loan, the CD Margin, (iv) with respect to any Basic
Loan that is a Base Rate Loan, the Basic Base Rate Margin and (v) with respect
to any Facility B Loan that is a Base Rate Loan, the Facility B Base Rate
Margin.
"Applicable Lending Office" means, with respect to any Lender, (i) in the
case of its Base Rate Loans, its CD Loans and its participations in Letters of
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Credit, its Domestic Lending Office and (ii) in the case of its Euro-Dollar
Loans, its Euro-Dollar Lending Office.
"Applicable Maturity Date" means (i) for the Bridge Loans, October 31,
1999, (ii) for the Revolving Credit Loans, March 31, 2003, (iii) for the
Facility A Loans, March 31, 2003 and (iv) for the Facility B Loans, January 15,
2005.
"Asset Sale" means any sale, lease or other transfer (including any such
transaction effected by way of merger or consolidation) of any asset by any
Vencor Company, including without limitation any sale-leaseback transaction,
whether or not involving a capital lease, but excluding (i) any transfer of
inventory, cash, cash equivalents and other cash management investments and
obsolete, unused or unnecessary equipment, in each case in the ordinary course
of business, (ii) any transfer of assets to another Vencor Company and (iii) any
sale of any Development Property to a Ventas Company.
"Asset Transfer Documents" means the following documents transferring or
leasing to the Vencor Companies assets (including contract rights) previously
owned by or leased to Old Vencor and its Subsidiaries: (i) the Master Lease
Agreements, (ii) assignments or subleases of the Third Party Leases, (iii)
assignments of, or sub-contracts with respect to, the Management Contracts, (iv)
assignments of personal property to be transferred pursuant to the
Reorganization Transactions and (v) any other assignments, leases, subleases,
agreements or similar instruments required to consummate the Reorganization
Transactions.
"Assignee" has the meaning set forth in Section 12.06(c).
"Atria" means Atria Communities, Inc., a Delaware corporation, and its
successors.
"Atria Shares" means all shares of common stock of Atria owned directly or
indirectly by Old Vencor immediately before the Closing or by a Vencor Company
after the Closing.
"Available Cash Flow" means, for any period:
(i) Consolidated Net Income for such period, plus
(ii) to the extent deducted in determining Consolidated Net
Income for such period, depreciation, amortization and other similar
noncash charges, plus
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(iii) any increase (or minus any decrease) during such period in
the consolidated deferred tax liabilities of Vencor and its
Consolidated Subsidiaries, minus
(iv) any gain (or plus any loss) from Asset Sales to the extent
included (or deducted), net of related tax effects, in determining
Consolidated Net Income for such period, plus
(v) non-cash compensation expense for such period, minus
(vi) any cash paid during such period in respect of non-cash
compensation expense accrued during any prior period, minus
(vii) the non-cash portion of any gain (or plus the non-cash
portion of any loss), to the extent included (or deducted), net of
related tax effects, in determining Consolidated Net Income for such
period; provided that such gain or loss is not attributable to Asset
Sales and (A) is classified as extraordinary, (B) is reported
separately as an unusual or non-recurring item or (C) represents the
effect of an accounting change on prior periods.
"Base Rate" means, for any day, a rate per annum equal to the higher of (i)
the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds
Rate for such day.
"Base Rate Loan" means at any time a Loan which bears interest at such time
at a rate based on the Base Rate pursuant to the applicable Notice of Borrowing
or Notice of Interest Rate Election or the provisions of Article 11.
"Basic Base Rate Margin" has the meaning set forth in the Pricing Schedule.
"Basic Credit Exposures" means the Credit Exposures under the Bridge
Facility, the Revolving Credit Facility and Facility A.
"Basic Euro-Dollar Margin" means a rate per annum determined in accordance
with the Pricing Schedule.
"Basic Facility" means the Bridge Facility, the Revolving Credit Facility
and Facility A.
"Basic Lender" means a Bridge Lender, Revolving Credit Lender or Facility A
Lender.
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"Basic Loan" means a Bridge Loan, Revolving Credit Loan or Facility A Loan.
"BHC Shares" means all shares of common stock of Behavioral Healthcare
Corporation, a Delaware corporation, owned directly or indirectly by Old Vencor
immediately before the Closing or by a Vencor Company after the Closing.
"Borrower" means Vencor Operating, Inc., a Delaware corporation, and its
successors.
"Borrowing" has the meaning set forth in Section 1.03.
"Bridge Commitment" means, with respect to any Lender listed on the
Commitment Schedule, the amount (if any) set forth therein opposite the name of
such Lender under the heading "Bridge Commitment".
"Bridge Facility" means the credit facility provided to the Borrower under
Section 2.01(a) and the other provisions hereof relating to Bridge Loans.
"Bridge Lender" means at any time a Lender that has a Bridge Commitment or
holds an outstanding Bridge Loan at such time.
"Bridge Loan" means a loan made by a Bridge Lender pursuant to Section
2.01(a); provided that, if any such loan or loans (or portions thereof) are
combined or subdivided pursuant to a Notice of Interest Rate Election, the term
"Bridge Loan" shall refer to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
"Capital Lease" means a lease that would be capitalized on a balance sheet
of the lessee prepared in accordance with GAAP.
"Casualty Event" means (i) any Condemnation Event with respect to any
property owned by or leased to any Vencor Company or (ii) any damage to, or
destruction of, any property owned by any Vencor Company.
"Casualty Proceeds" means (i) with respect to any Condemnation Event, all
awards or payments received by any Vencor Company or the Collateral Agent by
reason of such Condemnation Event, including all amounts received with respect
to any transfer in lieu or anticipation of such Condemnation Event or in
settlement of any proceeding relating to such Condemnation Event and (ii) with
respect to any other Casualty Event, all insurance proceeds or payments
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(excluding payments with respect to business interruption) which any Vencor
Company or the Collateral Agent receives by reason of such Casualty Event.
"CD Loan" means at any time a Loan which bears interest at such time at a
rate based on the Adjusted CD Base Rate pursuant to the applicable Notice of
Borrowing or Notice of Interest Rate Election.
"CD Margin" means a rate per annum determined in accordance with the
Pricing Schedule.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended from time to time, and the regulations
promulgated thereunder.
"Closing" means the closing hereunder on the Closing Date.
"Closing Date" means the date on which the Documentation Agent shall have
received the documents specified in or pursuant to Section 3.01 and the other
conditions specified in Section 3.01 shall have been satisfied.
"Co-Agents" means the Lenders designated as Co-Agents on the signature
pages hereof, in their respective capacities as Co-Agents in connection with the
credit facility provided hereunder.
"Collateral" means all property, real and personal, tangible and
intangible, with respect to which Liens are created or purportedly created
pursuant to the Collateral Documents.
"Collateral Accounts" has the meaning set forth in Section 1 of the
Security Agreement.
"Collateral Agent" means Morgan, in its capacity as Collateral Agent for
the holders of the Secured Obligations under the Collateral Documents, and its
successors in such capacity.
"Collateral Documents" means the Security Agreement, the Security Agreement
Supplements, the Leasehold Mortgages and all other supplemental or additional
security agreements, mortgages or similar instruments delivered pursuant hereto
or thereto.
"Commitment" means a Bridge Commitment, a Revolving Credit Commitment, a
Facility A Commitment or a Facility B Commitment.
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"Commitment Fee Rate" means a rate per annum determined in accordance with
the Pricing Schedule.
"Commitment Schedule" means the Commitment Schedule attached hereto.
"Concentration Accounts" has the meaning set forth in Section 6(a) of the
Security Agreement.
"Condemnation Event" means any condemnation or other taking or temporary or
permanent requisition of any property, any interest therein or right appurtenant
thereto, or any change of grade affecting any property, as the result of the
exercise of any right of condemnation or eminent domain. A transfer to a
governmental authority in lieu or anticipation of condemnation shall be deemed
to be a Condemnation Event.
"Consolidated Capital Expenditures" means, for any period, the gross
additions to property, plant and equipment and other capital expenditures of
Vencor and its Consolidated Subsidiaries for such period, as the same are or
would be reflected in a consolidated statement of cash flows of Vencor and its
Consolidated Subsidiaries for such period.
"Consolidated Debt for Borrowed Money" means at any date the sum, without
duplication, of (x) the aggregate amount of Debt of the types described in
clauses (i), (ii) and (iv) of the definition of "Debt" which is Debt of Vencor
and its Consolidated Subsidiaries, (y) the aggregate amount of Debt of the type
described in clause (vi) of the definition of "Debt" which is non-contingent
Debt of Vencor and its Consolidated Subsidiaries and (z) the aggregate amount of
Guarantees by Vencor and its Consolidated Subsidiaries with respect to Debt of
others of the types described in clauses (i), (ii) and (iv) of the definition of
Debt and non-contingent Debt of others of the type described in clause (vi) of
the definition of Debt, all determined on a consolidated basis as of such date
after excluding accrued interest for the then current period not yet due and
payable.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent deducted in determining Adjusted
Consolidated Net Income for such period, the sum of (i) Consolidated Interest
Expense, (ii) income tax expense and (iii) depreciation, amortization and other
similar non-cash charges.
"Consolidated EBITDAR" means, for any period, Consolidated EBITDA for such
period plus, to the extent deducted in determining Consolidated EBITDA for such
period, the sum of (i) Consolidated Rental Expense and (ii) non-cash
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compensation expense and minus (iii) any cash paid during such period in respect
of non-cash compensation expense accrued during any prior period; provided that:
(x) Consolidated EBITDAR shall be calculated so as to exclude
the effect of any income or expense that (A) is classified as
extraordinary, (B) is reported separately as an unusual or non-recurring
item, (C) is attributable to discontinued operations or (D) represents the
effect of an accounting change on prior periods, in each case in accordance
with GAAP; and
(y) if any Subsidiary of the Borrower is subject to a
limitation permitted by clause (2) of Section 7.09(d) at the end of such
period, Consolidated EBITDAR for such period shall be adjusted (except for
purposes of said clause (2)) to exclude any portion thereof that is
attributable to such Subsidiary and that, as a result of such limitation,
it would be prohibited from paying, directly or indirectly, to the Borrower
at the end of such period.
"Consolidated Interest Expense" means, for any period, the interest expense
of Vencor and its Consolidated Subsidiaries, determined on a consolidated basis
for such period; provided that Consolidated Interest Expense shall not (i)
include interest capitalized in accordance with GAAP or (ii) be reduced by any
interest income.
"Consolidated Net Income" means, for any period, the net income of Vencor
and its Consolidated Subsidiaries, determined on a consolidated basis for such
period.
"Consolidated Net Working Investment" means at any date (i) the
consolidated current assets of Vencor and its Consolidated Subsidiaries
determined as of such date minus (ii) the consolidated current liabilities of
Vencor and its Consolidated Subsidiaries determined as of such date; provided
that cash and cash equivalents shall be excluded from current assets for
purposes of clause (i) and both short-term Debt and current maturities of long-
term Debt shall be excluded from current liabilities for purposes of clause
(ii).
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of Vencor and its Consolidated Subsidiaries determined as of such date.
"Consolidated Rental Expense" means, for any period, the total rental
expense (reduced by rental income) for operating leases of Vencor and its
Consolidated Subsidiaries, determined on a consolidated basis for such period.
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"Consolidated Subsidiary" means, as to any Person at any date, any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date. Unless otherwise specified, "Consolidated
Subsidiary" means a Consolidated Subsidiary of Vencor.
"Continuing Existing Obligations" means Debt of and Guarantees of Debt by
one or more Ventas Companies which are to remain outstanding as obligations of
one or more Vencor Companies after the Closing Date; provided that (i) the term
"Continuing Existing Obligations" shall not include the Existing Subordinated
Notes and (ii) the principal amount of any Continuing Existing Obligation which
is a Guarantee shall be deemed to be equal to the principal amount of the Debt
guaranteed thereby.
"Continuing Subsidiary" means a corporation listed in Part I of Schedule 4
hereto. The capital stock of each first tier Continuing Subsidiary will be owned
by Old Vencor prior to the Closing and will on the Closing Date be transferred
by Old Vencor to Vencor and then further transferred by Vencor to the Borrower.
"Credit Event" means (i) the making of a Loan or Swingline Loan, (ii) the
issuance of a Letter of Credit or (iii) the extension of the expiry date of a
Letter of Credit.
"Credit Exposure" means, as to any Lender, (i) at any time before the
Closing, the amount of its Commitment (or the aggregate amount of its
Commitments, if it has more than one) at such time or (ii) at any time after the
Closing:
(iii) in the case of a Bridge Lender, the aggregate
outstanding principal amount of its Bridge Loans;
(iv) in the case of a Revolving Credit Lender, its Revolving
Credit Exposure;
(v) in the case of a Facility A Lender, the aggregate
outstanding principal amount of its Facility A Loans; and
(vi) in the case of a Facility B Lender, the aggregate
outstanding principal amount of its Facility B Loans;
all determined at such time after giving effect to any prior assignments by or
to such Lender pursuant to Section 11.06 or 12.06(c).
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"Debt" of any Person means, without duplication, (i) all obligations of
such Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person to pay the deferred purchase price of property or services, (iv) all
obligations of such Person as lessee under Capital Leases, (v) all obligations
of such Person to purchase securities which arise out of or in connection with
the sale of the same or substantially similar securities, (vi) all obligations
of such Person (whether contingent or non-contingent) to reimburse any Lender or
other Person in respect of amounts paid under a letter of credit, banker's
acceptance or similar instrument, (vii) all Debt secured by a Lien on any asset
of such Person, whether or not such Debt is otherwise an obligation of such
Person, and (viii) all Guarantees by such Person of Debt of another Person (each
such Guarantee to constitute Debt in an amount equal to the maximum amount of
such other Person's Debt Guaranteed thereby); provided that neither trade
accounts payable arising in the ordinary course of business nor obligations in
respect of insurance policies or performance or surety bonds which are not
themselves Guarantees of Debt (nor drafts, acceptances or similar instruments
evidencing the same nor obligations in respect of letters of credit supporting
the payment of the same) shall constitute Debt.
"Default" means any condition or event that constitutes an Event of Default
or that with the giving of notice or lapse of time or both would, unless cured
or waived, become an Event of Default.
"Deferred Facility B Prepayment Date" has the meaning set forth in
Section 2.13(j)(A).
"Deferred Master Lease Properties" means the Healthcare Facilities listed
on Schedule 3 hereto, each of which is to be leased to a Vencor Company under a
Master Lease Agreement when certain necessary licenses or other governmental
consents have been obtained and, until that time, is to be operated by a Vencor
Company on behalf of the relevant Ventas Company under an Interim Operating
Agreement.
"Designated Interest Rate Agreement" means the interest rate swap
agreements listed on Schedule 2 to the Security Agreement and any other interest
rate swap agreement or any interest rate cap and floor agreement designated by
the Borrower, in a notice to the Collateral Agent, as a Designated Interest Rate
Agreement for purposes of the Financing Documents.
"Designated Lender" means, with respect to any Designating Lender, an
Eligible Lending Designee designated by it pursuant to Section 12.07 as a
Designated Lender for purposes of the Financing Documents.
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"Designating Lender" means, with respect to each Designated Lender, the
Lender that designated such Designated Lender pursuant to Section 12.07(a).
"Development Agreement" means the Development Agreement described in item 1
of Schedule 2 hereto.
"Development Properties" means the Healthcare Facilities identified as the
"Development Properties" in the Proxy Statement and listed on pages 97-98
thereof, each of which after the Closing Date will be under development or
proposed to be developed by a Vencor Company and, at the option of a Ventas
Company, will be sold to a Ventas Company upon completion of the development
thereof and leased back from such Ventas Company by a Vencor Company under a
Master Lease Agreement, all substantially as described in the Proxy Statement.
"Documentation Agent" means Morgan, in its capacity as documentation agent
for the Lenders under the Financing Documents, and its successors in such
capacity.
"Domestic Business Day" means any day except a Saturday, Sunday or other
day on which commercial banks in New York, New York or Charlotte, North Carolina
are authorized by law to close.
"Domestic Lending Office" means, as to each Lender, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Lender may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Administrative Agent.
"Eastern Time" means local time in the Eastern time zone of the United
States.
"EBITDA" means, when used with respect to any Healthcare Facility for any
period, the net income attributable to the operations of such Healthcare
Facility during such period plus, to the extent deducted in determining such net
income, the sum of (i) interest expense, (ii) income tax expense and (iii)
depreciation, amortization and other similar non-cash charges.
"Eligible Lending Designee" means a special purpose corporation that (i) is
organized under the laws of the United States or any state thereof, (ii) is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and (iii) issues (or the parent of which issues)
commercial paper rated at least A-1 or the equivalent thereof by S&P or at least
P-1 or the equivalent thereof by Moody's.
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"Enforceable Judgment" means a judgment or order of a court or arbitral or
regulatory authority as to which the period, if any, during which the
enforcement of such judgment or order is stayed shall have expired. A judgment
or order which is under appeal or as to which the time in which to perfect an
appeal has not expired shall not be deemed an Enforceable Judgment so long as
enforcement thereof is effectively stayed pending the outcome of such appeal or
the expiration of such period, as the case may be.
"Enforcement Notice" means a notice delivered by the Documentation Agent to
the Collateral Agent pursuant to Section 905 directing the Collateral Agent to
exercise one or more specific rights or remedies under the Collateral Documents.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions relating to the
environment or to the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment, including ambient air, surface water, ground water
or land, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, Hazardous Substances or wastes or the clean-up or other
remediation thereof.
"Environmental Liabilities" means any and all liabilities of or relating to
any of the Vencor Companies (including any entity which is, in whole or in part,
a predecessor of any of the Vencor Companies), whether vested or unvested,
contingent or fixed, actual or potential, known or unknown, which arise under or
relate to matters covered by Environmental Laws.
"Equity Interest" means (i) in the case of a corporation, any shares of its
capital stock, (ii) in the case of a limited liability company, any membership
interest therein, (iii) in the case of a partnership, any partnership interest
(whether general or limited) therein, (iv) in the case of any other business
entity, any participation or other interest in the equity or profits thereof or
(v) any warrant, option or other right to acquire any Equity Interest described
in the foregoing clauses (i), (ii), (iii) and (iv).
"Equity Issuance" means any issuance or sale by any Vencor Company of any
Equity Interest in such Vencor Company, other than (i) any issuance or sale of
such Equity Interests to any other Vencor Company and (ii) the issuance and sale
of the Management Preferred Stock.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Vencor Companies and all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with any Vencor Company, are treated as a
single employer under Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Lender, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Euro-
Dollar Lending Office) or such other office, branch or affiliate of such Lender
as it may hereafter designate as its Euro-Dollar Lending Office by notice to the
Borrower and the Administrative Agent.
"Euro-Dollar Loan" means at any time a Loan which bears interest at such
time at a rate based on the London Interbank Offered Rate pursuant to the
applicable Notice of Borrowing or Notice of Interest Rate Election.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor), for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Lender to
United States residents).
"Event of Default" means any event defined as an "Event of Default" in
Section 9.01, 9.02 or 9.03.
"Evergreen Letter of Credit" means a Letter of Credit that is automatically
renewed or extended unless the relevant LC Issuing Bank gives notice to the
account party and/or beneficiary thereof stating that such Letter of Credit will
not be extended or renewed.
"Excess Cash Flow" means, for any period:
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(A) the sum of (i) Available Cash Flow for such period and (ii)
any decrease in Consolidated Net Working Investment between the
beginning and the end of such period; less
(B) the sum of (i) Consolidated Capital Expenditures for such
period (excluding any portion thereof financed with capital leases or
other purchase money debt), (ii) any increase in Consolidated Net
Working Investment between the beginning and the end of such period,
(iii) mandatory reductions of long-term Debt of Vencor and its
Consolidated Subsidiaries during such period (excluding mandatory
prepayments pursuant to Section 2.13) and (iv) any optional prepayments
of Bridge Loans or Term Loans during such period.
"Excess Casualty Proceeds" has the meaning set forth in Section 5.13(a).
"Excluded Properties" means real properties (other than Development
Properties) having an aggregate book value not exceeding $70,000,000 which are
to be owned by the Vencor Companies immediately after the Closing and which they
expect (as of the date hereof) to sell within three years after the Closing
Date.
"Executive Officer" means any "executive officer" (within the meaning of
Rule 3b-7 under the Securities Exchange Act) of either Vencor or the Borrower.
"Existing Affiliate Agreements" means the agreements listed in Schedule 6
hereto.
"Existing Letters of Credit" means the letters of credit issued by LC
Issuing Banks before the Closing Date and listed in Schedule 1 hereto.
"Existing Subordinated Notes" means Old Vencor's 8 5/8% Senior Subordinated
Notes due 2007.
"Facility" means the Bridge Facility, the Revolving Credit Facility,
Facility A or Facility B, each of which is a Facility.
"Facility A" means the credit facility provided to the Borrower under
Section 2.01(c) and the other provisions hereof relating to Facility A Loans.
"Facility A Commitment" means, with respect to any Lender listed on the
Commitment Schedule, the amount (if any) set forth therein opposite the name of
such Lender under the heading "Facility A Commitment".
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"Facility A Lender" means at any time a Lender that has a Facility A
Commitment or holds an outstanding Facility A Loan at such time.
"Facility A Loan" means a loan made by a Facility A Lender pursuant to
Section 2.01(c); provided that, if any such loan or loans (or portions thereof)
are combined or subdivided pursuant to a Notice of Interest Rate Election, the
term "Facility A Loan" shall refer to the combined principal amount resulting
from such combination or to each of the separate principal amounts resulting
from such subdivision, as the case may be.
"Facility B" means the credit facility provided to the Borrower under
Section 2.01(d) and the other provisions hereof relating to Facility B Loans.
"Facility B Base Rate Margin" means a rate per annum determined in
accordance with the Pricing Schedule.
"Facility B Commitment" means, with respect to any Lender listed on the
Commitment Schedule, the amount (if any) set forth therein opposite the name of
such Lender under the heading "Facility B Commitment".
"Facility B Euro-Dollar Margin" means a rate per annum determined in
accordance with the Pricing Schedule.
"Facility B Lender" means at any time a Lender that has a Facility B
Commitment or holds an outstanding Facility B Loan at such time.
"Facility B Loan" means a loan made by a Facility B Lender pursuant to
Section 2.01(d); provided that, if any such loan or loans (or portions thereof)
are combined or subdivided pursuant to a Notice of Interest Rate Election, the
term "Facility B Loan" shall refer to the combined principal amount resulting
from such combination or to each of the separate principal amounts resulting
from such subdivision, as the case may be.
"Facility B Prepayment Amount" has the meaning set forth in
Section 2.13(j)(A).
"Facility B Unscheduled Prepayment Notice" has the meaning set forth in
Section 2.13(i).
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next
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succeeding such day, provided that (i) if such day is not a Domestic Business
Day, the Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Domestic Business Day as so published on the next
succeeding Domestic Business Day, and (ii) if no such rate is so published on
such next succeeding Domestic Business Day, the Federal Funds Rate for such day
shall be the average rate quoted to the Administrative Agent on such day on such
transactions as determined by the Administrative Agent.
"Financial Accommodations" means arrangements for the extension of credit
or other financial accommodation to one or more of the Vencor Companies,
including committed or uncommitted lines of credit for advances or other
financial accommodation, letters of credit, performance and surety bonds and the
like, committed or uncommitted agreements for the purchase of accounts
receivable or other financial assets, with or without recourse or repurchase
obligation, forward and future contracts for purchase of bullion or foreign
currencies and other similar arrangements and interest rate swaps and other
similar arrangements, but excluding (i) trade accounts payable arising in the
ordinary course of business and (ii) Debt, Letters of Credit and Commitments
under this Agreement.
"Financial Officer" means the principal financial officer, principal
accounting officer or treasurer of either Vencor or the Borrower.
"Financing Documents" means this Agreement (including the Schedules and
Exhibits hereto), the Notes, the Swingline Note, the Guaranty Agreements and the
Collateral Documents.
"Fiscal Quarter" means a fiscal quarter of Vencor.
"Fiscal Year" means a fiscal year of Vencor.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or any combination
of the foregoing.
"GAAP" means at any time generally accepted accounting principles as then
in effect, applied on a basis consistent (except for changes concurred in by
Vencor's independent public accountants) with the Most Recent Audited Financial
Statements.
"General Purpose Loan" means a Loan designated by the Borrower as a General
Purpose Loan in the applicable Notice of Borrowing or Notice of Interest Rate
Election. General Purpose Loans may be borrowed for the general corporate
purposes of the Vencor Companies including, without limitation, their working
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capital requirements and any purpose for which Acquisition Loans may be
borrowed.
"Group of Loans" means at any time a group of Loans consisting of (i) all
Loans under the same Facility that have the same Purpose and are Base Rate Loans
at such time, (ii) all Loans under the same Facility that have the same Purpose
and are Euro-Dollar Loans having the same Interest Period at such time or (iii)
all Loans under the same Facility that have the same Purpose and are CD Loans
having the same Interest Period at such time; provided that, if a Loan of any
particular Lender is converted to or made as a Base Rate Loan pursuant to
Section 11.02 or 11.05, such Loan shall be included in the same Group or Groups
of Loans from time to time as it would have been in if it had not been so
converted or made.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt (whether
arising by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise), (ii) to reimburse a bank for
drawings under a letter of credit for the purpose of paying such Debt or (iii)
entered into for the purpose of assuring in any other manner the holder of such
Debt of the payment thereof or to protect such holder against loss in respect
thereof (in whole or in part); provided that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee", when used as a verb, has a corresponding
meaning.
"Guarantors" means Vencor and the Subsidiary Guarantors.
"Guaranty Agreements" means the Vencor Guaranty Agreement and the
Subsidiary Guaranty Agreements.
"Hazardous Substances" means any toxic, radioactive, corrosive or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics, whether or not regulated under Environmental
Laws.
"Healthcare Facility" means (i) a hospital, outpatient clinic, nursing
center, assisted or independent living community, long-term care facility or any
other facility that is used or useful in the provision of healthcare or
custodial care services, (ii) any healthcare business affiliated or associated
with a Healthcare
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Facility or (iii) any business related or ancillary to the provision of
healthcare services or the operation of a Healthcare Facility including, but not
limited to, contract therapy services, as well as hospice and home care
services.
"Indemnitee" has the meaning set forth in Section 12.03(b).
"Information Memorandum" means (i) the Information Memorandum dated March,
1998 (including the appendices and attachments thereto) furnished to the Lenders
in connection with the transactions contemplated hereby and (ii) the Proxy
Statement (which shall be deemed to have replaced the draft thereof included in
the Information Memorandum as originally furnished to the Lenders).
"Initial Asset Transfer Documents" means all Asset Transfer Documents
except those relating solely to transactions to be consummated after the Closing
Date as described in the Proxy Statement or in Section 4.17.
"Initial Master Lease Properties" means the Healthcare Facilities
identified as the "Leased Properties" in the Proxy Statement and listed on pages
90-96 thereof, other than the Deferred Master Lease Properties.
"Insurance Subsidiary" means each Subsidiary of the Borrower listed in Part
III of Schedule 4 hereto and any other insurance company that becomes a
Subsidiary of the Borrower after the Closing Date.
"Interest Hedge Counterparty" means the counterparty under any Designated
Interest Rate Agreement.
"Interest Period" means: (1) with respect to each Euro-Dollar Loan, a
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in the applicable Notice of Interest Rate
Election and ending one, two, three or six months thereafter, as the Borrower
may elect in the applicable notice; provided that:
(a) the Borrower may specify a duration of one week for any Interest
Period that begins within two weeks after the Closing Date;
(b) any Interest Period that would otherwise end on a day that is not
a Euro-Dollar Business Day shall be extended to the next succeeding Euro-
Dollar Business Day unless such day falls in another calendar month, in
which case such Interest Period shall end on the next preceding Euro-Dollar
Business Day;
(c) any Interest Period that begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no
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numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clauses (d) and (e) of this proviso, end
on the last Euro-Dollar Business Day of a calendar month;
(d) if any Interest Period includes an Applicable Amortization Date
but does not end on such date, then (i) the principal amount (if any) of
each Euro-Dollar Loan required to be repaid on such date shall have an
Interest Period ending on such date and (ii) the remainder (if any) of each
such Euro-Dollar Loan shall have an Interest Period determined as set forth
above; and
(e) any Interest Period that would otherwise end after the Applicable
Maturity Date shall end on the Applicable Maturity Date;
(2) with respect to each CD Borrowing, the period commencing on the date
of borrowing specified in the applicable Notice of Borrowing or on the date
specified in the applicable Notice of Interest Rate Election and ending 30, 60,
90 or 180 days thereafter, as the Borrower may elect in the applicable notice;
provided that:
(a) any Interest Period that would otherwise end on a day which is not
a Euro-Dollar Business Day shall be extended to the next succeeding Euro-
Dollar Business Day;
(b) if any Interest Period includes an Applicable Amortization Date
but does not end on such date, then (i) the principal amount (if any) of
each CD Loan required to be repaid on such date shall have an Interest
Period ending on such date and (ii) the remainder (if any) of each such CD
Loan shall have an Interest Period determined as set forth above; and
(c) any Interest Period that would otherwise end after the Applicable
Maturity Date shall end on the Applicable Maturity Date.
"Interest Type" has the meaning set forth in Section 1.03.
"Interim Operating Agreement" means an agreement under which (i) a Vencor
Company will operate a Deferred Master Lease Property on behalf of a Ventas
Company for an interim period after the Closing Date until one or more requisite
consents are obtained and such Deferred Master Lease Property is leased or
subleased to such Vencor Company under a Master Lease Agreement and (ii) such
Vencor Company will receive the economic benefits of operating such Deferred
Master Lease Property during such interim period, net of the rent it would have
paid if such Deferred Master Lease Property were leased under such Master Lease
Agreement at the beginning of such interim period.
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"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
"Investment" means, with respect to any Person (the "Investor"), any
investment by the Investor in any other Person, whether by means of share
purchase, capital contribution, loan, advance, purchase of Debt, payment in
respect of a Guarantee of Debt, time deposit or otherwise.
"LC Exposure" means, with respect to any Revolving Credit Lender at any
time, its Revolving Credit Percentage of the Aggregate LC Exposure at such time.
"LC Fee Rate" means a rate per annum determined in accordance with the
Pricing Schedule.
"LC Indemnitees" has the meaning set forth in Section 2.07(o).
"LC Issuing Bank" means (i) NationsBank, National City Bank of Kentucky,
PNC Bank, National Association, Bank of America NT&SA and The Bank of Nova
Scotia and (ii) any other Lender designated as an "LC Issuing Bank" for purposes
hereof in a notice to the Administrative Agent signed by the Borrower and such
Lender, acting in each case in the capacity of an LC Issuing Bank under the
letter of credit facility described in Section 2.07, and their respective
successors.
"LC Office" means, with respect to any LC Issuing Bank, the office at which
it books any Letter of Credit issued by it.
"LC Payment Date" has the meaning set forth in Section 2.07(i).
"LC Reimbursement Obligations" means, at any time, all obligations of the
Borrower to reimburse the LC Issuing Banks pursuant to Section 2.07 for amounts
paid by the LC Issuing Banks in respect of drawings under Letters of Credit,
including any portion of any such obligation to which a Lender has become
subrogated pursuant to Section 2.07(k)(i).
"Leasehold Mortgages" means leasehold mortgages, substantially in the form
of Exhibit F to the Security Agreement, relating to the leases of the Master
Lease Properties.
"Lender" means each bank or other financial institution listed on the
Commitment Schedule, each Assignee which becomes a "Lender" for purposes hereof
pursuant to Section 11.06 or 12.06(c), and their respective successors. The term
"Lender" does not include the Swingline Bank in its capacity as such.
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"Lender Parties" means the Lenders, the LC Issuing Banks, the Swingline
Bank and the Agents.
"Letter of Credit" means any Existing Letter of Credit or Additional Letter
of Credit.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset or
any other arrangement the economic effect of which is to give a creditor
preferential access to such asset to satisfy its claim. For purposes of this
Agreement, any Vencor Company shall be deemed to own subject to a Lien any asset
that it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement or other title retention agreement relating
to such asset or any Capital Lease.
"Lien Grantor" means a Vencor Company that grants a Lien on any of its
property pursuant to the Collateral Documents.
"Loan" means a Bridge Loan, a Revolving Credit Loan, a Facility A Loan or a
Facility B Loan and "Loans" means any or all of the foregoing, as the context
may require. The term "Loan" does not include a Swingline Loan.
"London Interbank Offered Rate" has the meaning set forth in Section
2.05(c).
"Management Contracts" means the management contracts for 1 hospital and 15
nursing centers listed on Schedule 8 hereto pursuant to which subsidiaries of
Old Vencor managed Healthcare Facilities immediately before the Closing, each of
which management contracts is to be assigned to the appropriate Vencor Company
as part of the Reorganization Transactions.
"Management Preferred Stock" means up to $17,700,000 (or approximately
1,500,000 shares) of Vencor's Series A Preferred Stock to be issued to Old
Vencor on the Closing Date and sold by it to officers of the Borrower pursuant
to a Management Equity Ownership Program as described in the Proxy Statement.
The Management Preferred Stock will be convertible into common stock of Vencor
after two years and mandatorily redeemable after ten years.
"Managing Agents" means the Lenders listed under the heading "Managing
Agents" on the signature pages hereof.
"Margin Stock" has the meaning set forth in Regulation U.
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"Master Lease Agreements" means the master lease agreements that will set
forth the material terms governing the lease of each Master Lease Property
substantially as described in the Proxy Statement.
"Master Lease Property" means, at any time after the Closing, (i) the
Initial Master Lease Properties, (ii) all Deferred Master Lease Properties and
Development Properties leased under Master Lease Agreements at or before such
time and (iii) any additional properties leased under Master Lease Agreements at
or before such time pursuant to the Participation Agreement or otherwise.
"Material Adverse Effect" means (i) any material adverse effect upon the
condition (financial or otherwise), results of operations, business or prospects
of Vencor and its Consolidated Subsidiaries, taken as a whole, (ii) any material
adverse change in any of the foregoing as compared with the pro forma condition
(financial or otherwise), results of operations, business or prospects of Vencor
and its Consolidated Subsidiaries, taken as a whole, expected (on a pro forma
basis) to exist as of the Closing Date (or for the Fiscal Year ended December
31, 1997 in the case of such results of operations) as described in the
Information Memorandum, including the pro forma financial information set forth
therein, (iii) a material adverse effect on the validity, binding effect or
enforceability of any Financing Document or (iv) a material adverse effect on
the validity, perfection or priority of any Lien on any of the Collateral
created or purportedly created under the Collateral Documents.
"Material Debt" means Debt (other than Debt arising under this Agreement)
of one or more Vencor Companies, arising in one or more related or unrelated
transactions, in an aggregate outstanding amount (excluding accrued interest) of
$5,000,000 or more.
"Material Plan" means at any time a Plan or Plans having aggregate Unfunded
Liabilities in excess of $1,000,000.
"Material Real Property" means (i) any Development Property that is not
sold to a Person (other than a Vencor Company) on or before December 31, 2000,
(ii) any Excluded Property that is not sold to a Person (other than a Vencor
Company) on or before April 30, 2001 and has a fair market value exceeding
$5,000,000 at that time, (iii) any other real property with a fair market value
exceeding $5,000,000 which is acquired by a Vencor Company after the Closing and
is not sold to a Person (other than a Vencor Company) within 90 days after such
acquisition or (iv) any real property leased to a Vencor Company after the
Closing, if the real property subject to such lease has a fair market value
exceeding $5,000,000.
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"Material Subsidiary" means (i) each Subsidiary of the Borrower listed in
Part I or Part II of Schedule 4 hereto, (ii) each additional Wholly-Owned
Subsidiary designated by the Borrower from time to time after the Closing, by
notice to the Agents, as a Material Subsidiary and (iii) each Wholly-Owned
Subsidiary of the Borrower that owns any Equity Interest in any Material
Subsidiary described in clause (i) or (ii) of this definition; provided that the
Borrower may terminate the status of any Subsidiary as a Material Subsidiary as
provided in Section 5.08.
"Minority-Owned Affiliate" means any Person (other than a Subsidiary) in
which (i) the Vencor Companies own 10% or more of any class of capital stock or
other Equity Interests or (ii) any Vencor Company is a general partner.
"Moody's" means Moody's Investors Service, Inc.
"Morgan" means Morgan Guaranty Trust Company of New York and its
successors.
"Most Recent Audited Financial Statements" means (i) at any time before
audited consolidated financial statements of Vencor have been delivered pursuant
to Section 5.01(a), the audited consolidated financial statements of Old Vencor
as of December 31, 1997 and (ii) at any time after audited consolidated
financial statements of Vencor have been delivered pursuant to Section 5.01(a),
the most recent audited consolidated financial statements of Vencor so
delivered.
"Most Recent Financial Statements" means (i) at any time before
consolidated financial statements of Vencor (whether audited or unaudited) have
been delivered pursuant to Section 5.01(a) or (b), the consolidated financial
statements of Old Vencor as of December 31, 1997 and (ii) at any time after
consolidated financial statements of Vencor have been delivered pursuant to
Section 5.01(a) or (b), the most recent consolidated financial statements of
Vencor so delivered.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"NationsBank" means NationsBank, N.A., and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, Equity Issuance
or incurrence of Debt, an amount equal to the cash proceeds received by
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the Vencor Companies in respect of such Asset Sale, Equity Issuance or
incurrence of Debt (including any cash proceeds received as income or other cash
proceeds of any noncash proceeds of such Asset Sale), less:
(i) any expenses reasonably incurred by such Person in respect of such
Asset Sale, Equity Issuance or incurrence of Debt, and
(ii) in the case of an Asset Sale, (x) the amount of any Debt secured
by a Lien on any asset disposed of in such Asset Sale and discharged from
the proceeds thereof and (y) any payments with respect to taxes actually
paid or to become payable by such Person (as reasonably estimated by a
Financial Officer) in respect of such Asset Sale.
"New Subsidiary" means a subsidiary of the Borrower listed in Part II of
Schedule 4 hereto. Each New Subsidiary will on or after the Closing Date receive
assets previously owned by Old Vencor and its Subsidiaries.
"1998 Subordinated Note Indenture" means an indenture, substantially in the
form delivered to the Agents on or about April 27, 1998, pursuant to which the
1998 Subordinated Notes are to be issued.
"1998 Subordinated Notes" means subordinated notes of the Borrower in the
aggregate principal amount of $300,000,000 issued pursuant to the 1998
Subordinated Note Indenture and any "exchange securities" issued in exchange for
such subordinated notes pursuant to the 1998 Subordinated Note Indenture.
"Non-Consolidated Partnership" means any partnership (other than a
Consolidated Subsidiary) in which a Vencor Company is a general partner.
"Note" means a promissory note of the Borrower payable to the order of a
Lender evidencing the Borrower's obligation to repay the Loans made by such
Lender. Each Note shall be substantially in the form of Exhibit A hereto
(modified as provided in Section 2.04(b), if applicable). "Notes" means any or
all of such promissory notes, as the context may require.
"Notice of Borrowing" means a Notice of Borrowing (as defined in Section
2.02) or a Notice of Swingline Borrowing (as defined in Section 2.08(b)).
"Notice of Interest Rate Election" has the meaning set forth in Section
2.06(a).
"Old Vencor" means the Delaware corporation which is named "Vencor, Inc."
on the date hereof and will be renamed "Ventas, Inc." on the Closing Date,
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and its successors. The terms "Old Vencor" and "Ventas" refer to the same
corporation.
"Old Vencor's Existing Credit Agreement" means the Amended and Restated
Credit Agreement dated as of May 30, 1997 among Old Vencor, the Banks, Swingline
Bank, LC Issuing Banks, Managing Agents and Co-Agents party thereto, Morgan
Guaranty Trust Company of New York, as Documentation Agent and Collateral Agent,
and NationsBank, N.A., as Administrative Agent, as amended from time to time
prior to the Closing Date.
"Organizational Documents" means (i) with respect to any corporation, its
certificate or articles of incorporation, by-laws and other constitutional
documents, including the certificate of designation for any series of its
preferred stock, (ii) with respect to any limited liability company, its
articles of organization and operating agreement, or other comparable documents
however named, and (iii) with respect to any partnership, its partnership
agreement.
"Outstanding Revolving Credit Amount" means, with respect to any Revolving
Credit Lender at any time, the sum of (i) the aggregate outstanding principal
amount of its Revolving Credit Loans, (ii) its Revolving Credit Percentage of
the aggregate outstanding principal amount of the Swingline Loans (if any) and
(iii) its LC Exposure, all determined at such time after giving effect to any
prior assignments by or to such Revolving Credit Lender pursuant to Section
11.06 or 12.06(c).
"Parent" means, with respect to any Lender, any Person controlling such
Lender.
"Participant" has the meaning set forth in Section 12.06(b).
"Participation Agreement" means the Participation Agreement described in
item 2 of Schedule 2 hereto.
"Payment Default" means a failure to pay any scheduled installment of
principal of, premium, if any, or interest on any Debt within the grace period
provided for such payment in the documentation governing such Debt.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Encumbrances" means, with respect to any property (including any
leasehold interest) owned by any Vencor Company:
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(a) Liens for taxes, assessments or other governmental charges not yet
due or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of such Vencor Company in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', materialmens', repairmens'
or other like Liens arising by operation of law in the ordinary course of
business so long as (A) the underlying obligations are not overdue for a
period of more than 60 days or (B) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with respect
thereto are maintained on the books of such Vencor Company in accordance
with GAAP; and
(c) other Liens or title defects (including matters which an accurate
survey might disclose) which (x) do not secure Debt and (y) do not
materially detract from the value of such property or materially impair the
use thereof by such Vencor Company in the operation of its business.
"Permitted Intercompany Debt" means Debt owed by any Vencor Company to any
other Vencor Company; provided that such Debt is either evidenced by a
promissory note or maintained in the form of open account balances in which, in
either case, the Collateral Agent has a first priority, perfected security
interest under the Security Agreement at all times until such security interest
is released pursuant to Section 18 thereof.
"Permitted Liens" means Liens permitted to exist under Section 7.04.
"Person" means an individual, a corporation, a limited liability company, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Prepayment Notice" means a properly completed Prepayment Notice,
substantially in the form of Exhibit I hereto.
"Pricing Level" has the meaning set forth in the Pricing Schedule.
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"Pricing Schedule" means the Pricing Schedule attached hereto.
"Prime Rate" means the rate of interest established by the Administrative
Agent from time to time as its Prime Rate.
"Project Loan" means a Loan designated by the Borrower as a Project Loan in
the applicable Notice of Borrowing or Notice of Interest Rate Election. Project
Loans may be borrowed for the purpose of financing capital expansion projects or
refinancing Debt that was incurred to finance such projects.
"Proxy Statement" means the Proxy Statement dated March 25, 1998 and
distributed by Old Vencor to its stockholders.
"Purpose" has the meaning set forth in Section 1.03.
"Qualification" means, with respect to any report of independent public
accountants covering financial statements, a qualification to such report (such
as a "subject to" or "except for" statement therein) (i) resulting from a
limitation on the scope of examination of such financial statements or the
underlying data, (ii) as to the capability of the Person whose financial
statements are being examined to continue operations as a going concern or (iii)
which could be eliminated by changes in financial statements or notes thereto
covered by such report (such as, by the creation of or increase in a reserve or
a decrease in the carrying value of assets); provided that neither of the
following shall constitute a Qualification: (a) a consistency exception
relating to a change in accounting principles with which the independent public
accountants for the Person whose financial statements are being examined have
concurred or (b) a qualification relating to the outcome or disposition of any
uncertainty, including but not limited to threatened litigation, pending
litigation being contested in good faith, pending or threatened claims or other
contingencies, the impact of which litigation, claims, contingencies or
uncertainties cannot be determined with sufficient certainty to permit
quantification in such financial statements.
"Quarterly Amortization Date" means the last day of each calendar quarter
from September 30, 1998 to December 31, 2004, inclusive, and January 15, 2005.
"Quarterly Measurement Date" means the end of a Fiscal Quarter.
"Rate Period" has the meaning set forth in the Pricing Schedule.
"Register" has the meaning set forth in Section 12.06(e).
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"Regulated Activity" means any generation, treatment, storage, recycling,
transportation or disposal of any Hazardous Substance.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Related Fund" means, with respect to any Lender that is a fund that
invests in commercial loans, any other fund that invests in commercial loans and
is managed by the same investment advisor as such Lender or by an affiliate of
such investment advisor.
"Release" means any discharge, emission or release, including a Release as
defined in CERCLA at 42 U.S.C. Section 9601(22). The term "Release", when used
as a verb, has a corresponding meaning.
"Reorganization Agreements" means the material agreements listed on
Schedule 2 hereto, each of which is entered into or to be entered into by one or
more Ventas Companies and one or more Vencor Companies in connection with the
Reorganization Transactions.
"Reorganization Transactions" has the meaning set forth in the Proxy
Statement.
"Required Basic Lenders" means (i) at any time before the Closing, Lenders
having more than 50% of the aggregate amount of the Commitments (other than the
Facility B Commitments) or (ii) at any time after the Closing, Lenders having
outstanding Bridge Loans, Revolving Credit Exposures and/or outstanding Facility
A Loans in an aggregate amount (excluding accrued interest) equal to more than
50% of the sum of (x) the aggregate outstanding principal amount of the Bridge
Loans at such time, (y) the aggregate amount of the Revolving Credit Exposures
at such time and (z) the aggregate outstanding principal amount of the Facility
A Loans at such time.
"Required Bridge Lenders" means (i) at any time before the Closing, Bridge
Lenders having more than 50% of the aggregate amount of the Bridge Commitments
or (ii) at any time after the Closing, Bridge Lenders holding more than 50% of
the aggregate outstanding principal amount of the Bridge Loans at such time.
"Required Facility A Lenders" means (i) at any time before the Closing,
Facility A Lenders having more than 50% of the aggregate amount of the Facility
A Commitments or (ii) at any time after the Closing, Facility A Lenders holding
more than 50% of the aggregate outstanding principal amount of the Facility A
Loans at such time.
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"Required Facility B Lenders" means (i) at any time before the Closing,
Facility B Lenders having more than 50% of the aggregate amount of the Facility
B Commitments or (ii) at any time after the Closing, Facility B Lenders holding
more than 50% of the aggregate outstanding principal amount of the Facility B
Loans at such time.
"Required Lenders" means, at any time, Lenders having more than 50% of the
aggregate amount of the Credit Exposures at such time.
"Required Revolving Credit Lenders" means, at any time, Revolving Credit
Lenders having more than 50% of the Revolving Credit Exposures at such time.
"Restricted Payment" means (i) any dividend or other distribution on any
Equity Securities of Vencor (except dividends payable solely in Equity
Securities of the same class) and (ii) any payment on account of the purchase,
redemption, retirement or acquisition of any Equity Securities of Vencor.
"Revolving Credit Commitment" means (i) with respect to any Lender listed
on the Commitment Schedule, the amount (if any) set forth therein opposite the
name of such Lender under the heading "Revolving Credit Commitment" and (ii)
with respect to any Assignee of a Revolving Credit Commitment, the amount of the
transferor Lender's Revolving Credit Commitment assigned to such Assignee
pursuant to Section 11.06 or 12.06(c), in each case as such amount may be
reduced from time to time pursuant to Section 2.15 or changed as a result of an
assignment pursuant to Section 11.06 or 12.06(c). The term "Revolving Credit
Commitment" does not include the Swingline Commitment.
"Revolving Credit Exposure" means, as to any Revolving Credit Lender at any
time:
(i) the amount of its Revolving Credit Commitment (whether used or
unused); or
(ii) if the Revolving Credit Commitments have terminated in their
entirety, its Outstanding Revolving Credit Amount,
all determined at such time after giving effect to any prior assignments by or
to such Revolving Credit Lender pursuant to Section 11.06 or 12.06(c).
"Revolving Credit Facility" means the credit facility provided to the
Borrower under Sections 2.01(b), 2.07 and 2.08 and the other provisions hereof
relating to Revolving Credit Loans, Letters of Credit and Swingline Loans.
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"Revolving Credit Lender" means at any time a Lender that has a Revolving
Credit Exposure at such time.
"Revolving Credit Loan" means a loan made by a Revolving Credit Lender
pursuant to Section 2.01(b); provided that, if any such loan or loans (or
portions thereof) are combined or subdivided pursuant to a Notice of Interest
Rate Election, the term "Revolving Credit Loan" shall refer to the combined
principal amount resulting from such combination or to each of the separate
principal amounts resulting from such subdivision, as the case may be.
"Revolving Credit Percentage" means, with respect to any Revolving Credit
Lender at any time, the percentage which the amount of its Revolving Credit
Commitment at such time represents of the aggregate amount of all the Revolving
Credit Commitments at such time. At any time after the Revolving Credit
Commitments shall have terminated, the term "Revolving Credit Percentage" shall
refer to a Lender's Revolving Credit Percentage immediately before such
termination, adjusted to reflect any subsequent assignments pursuant to Section
11.06 or 12.06(c).
"Revolving Credit Termination Date" means March 31, 2003 or, if such day is
not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"S&P" means Standard and Poor's Rating Services, a division of The McGraw-
Hill Companies, Inc.
"SEC" means the United States Securities and Exchange Commission.
"Secured Obligations" has the meaning set forth in Section 1 of the
Security Agreement.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Security Agreement" means the Security Agreement dated as of April 29,
1998 among the Borrower, the Guarantors party thereto and the Collateral Agent,
substantially in the form of Exhibit C hereto, as amended from time to time.
"Security Agreement Supplement" means a Security Agreement Supplement,
substantially in the form of Exhibit A to the Security Agreement, whereby the
Borrower or a Guarantor grants (or confirms its grant of) a security interest in
additional Collateral to the Collateral Agent and, if the grantor of such
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security interest is a Subsidiary that is not already a party to the Security
Agreement, such Subsidiary becomes a party thereto.
"Security Interests" has the meaning set forth in Section 1 of the Security
Agreement.
"Senior Managing Agents" means the Lenders listed under the heading "Senior
Managing Agents" on the signature pages hereof.
"Significant Subsidiary" means, at any date of determination, any
Subsidiary that, together with its Subsidiaries, (i) accounted for more than 10%
of the consolidated revenues of Vencor and its Consolidated Subsidiaries for the
most recent Fiscal Year for which consolidated financial statements of Vencor
are then available or (ii) as of the end of such Fiscal Year owned more than 10%
of the consolidated assets of Vencor and its Consolidated Subsidiaries, all as
set forth on such most recently available consolidated financial statements of
Vencor.
"Spin-Off" means the distribution of all the common stock of Vencor to the
stockholders of Old Vencor on a pro rata basis after the Closing.
"Subsidiary" means, as to any Person, (i) any corporation or other entity
of which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person or (ii)
any limited liability company or partnership that, in accordance with GAAP, is a
Consolidated Subsidiary of such Person. Unless otherwise specified, "Subsidiary"
means a Subsidiary of Vencor.
"Subsidiary Guarantor" means a Material Subsidiary that (i) guarantees the
obligations of the Borrower under the Financing Documents and the Designated
Interest Rate Agreements pursuant to a Subsidiary Guaranty Agreement and (ii)
grants a security interest in its assets to the Collateral Agent under the
Security Agreement to secure its Subsidiary Guaranty.
"Subsidiary Guaranty" means a guaranty by a Subsidiary Guarantor that the
Borrower will perform its obligations under the Financing Documents and the
Designated Interest Rate Agreements, such guaranty to be set forth in a
Subsidiary Guaranty Agreement.
"Subsidiary Guaranty Agreement" means an instrument, substantially in the
form of Exhibit M hereto, setting forth the Subsidiary Guaranties of one or more
Subsidiary Guarantors.
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"Super-Majority Lenders" means, at any time, Lenders having more than 75%
of the aggregate amount of the Credit Exposures at such time (said 75% to be
calculated net of any participating interests as to which such Lenders are not
permitted to vote favorably pursuant to directions given in accordance with
Section 12.06(b)).
"Swingline Availability Period" means the period from and including the
Closing Date to but excluding the Swingline Maturity Date.
"Swingline Bank" means NationsBank, in its capacity as the Swingline Bank
under the Swingline facility described in Section 2.08, and its successors in
such capacity.
"Swingline Borrowing" means a borrowing of a Swingline Loan pursuant to
Section 2.08(a).
"Swingline Commitment" means the obligation of the Swingline Bank to make
Swingline Loans to the Borrower in aggregate principal amount at any one time
outstanding not to exceed $10,000,000.
"Swingline Loan" means a loan made by the Swingline Bank pursuant to
Section 208.
"Swingline Maturity Date" means the day that is 30 days before the
Revolving Credit Termination Date.
"Swingline Note" has the meaning set forth in Section 2.08(d).
"Temporary Cash Investment" means any Investment in (i) securities issued,
or directly and fully guaranteed or insured, by the United States or any agency
or instrumentality thereof; provided that the full faith and credit of the
United States is pledged in support thereof, (ii) time deposit accounts,
bankers' acceptances, certificates of deposit and money market deposits maturing
within 180 days of the date of acquisition thereof issued by any office located
in the United States of a bank or trust company which is organized or licensed
under the laws of the United States or any State thereof and which bank or trust
company has capital, surplus and undivided profits aggregating more than
$1,000,000,000 and has outstanding debt which is rated "P-1" (or higher) by
Moody's or "A-1" (or higher) by S&P or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with an office located in
the United States of a bank or trust company meeting the qualifications
described in clause (ii) above, (iv) commercial paper, maturing not more than 90
days after the date of acquisition,
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issued by a corporation (other than any Ventas Company, any Vencor Company or
any Affiliate) organized under the laws of the United States or any State
thereof with a rating, at the date of acquisition, of "P-1" (or higher) by
Moody's or "A-1" (or higher) by S&P, (v) securities with maturities of six
months or less from the date of acquisition issued or fully and unconditionally
guaranteed by any State, commonwealth or territory of the United States, or by a
political subdivision or taxing authority thereof, and rated at least "P-1" (or
higher) by Moody's or "A-1" (or higher) by S&P and (vi) money market funds which
invest substantially all of their assets in securities described in the
preceding clauses (i) through (v).
"Tenet Guarantee Reimbursement Agreement" means the Guarantee Reimbursement
Agreement dated as of January 31, 1990, as amended, between Tenet Healthcare
Corporation (formerly named National Medical Enterprises, Inc.) and Old Vencor
(as successor by merger to The Hillhaven Corporation).
"Term Loans" means the Facility A Loans and the Facility B Loans.
"Third Party Leases" means the leases of 6 hospitals and 72 nursing centers
listed in Schedule 7 hereto, each of which, immediately before the Closing Date
is leased to and operated by Old Vencor or one of its Subsidiaries and on or
after the Closing Date is to be leased (pursuant to an assignment of an existing
lease) or subleased to a Vencor Company.
"UCC" has the meaning set forth in Section 1 of the Security Agreement.
"UCP" means the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500, or any
successor publication governing the rights and obligations of the parties in
connection with Letters of Credit.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title I of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including the States
and the District of Columbia, but excluding its territories and possessions.
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"Unscheduled Mandatory Prepayment" has the meaning set forth in Section
2.13(g).
"Unscheduled Mandatory Prepayment Date" has the meaning set forth in
Section 2.13(i).
"Vencor" means the Delaware corporation which is named "Vencor Healthcare,
Inc." on the date hereof and will be renamed "Vencor, Inc." on the Closing Date,
and its successors.
"Vencor Company" means Vencor or any Subsidiary of Vencor.
"Vencor Guaranty" means the guaranty by Vencor that the Borrower will
perform its obligations under the Financing Documents and the Designated
Interest Rate Agreements, such guaranty to be set forth in the Vencor Guaranty
Agreement.
"Vencor Guaranty Agreement" means an instrument, substantially in the form
of Exhibit L hereto, setting forth the Vencor Guaranty.
"Ventas" means the Delaware corporation which is named "Vencor, Inc." on
the date hereof and will be renamed "Ventas, Inc." on the Closing Date, and its
successors. The terms "Old Vencor" and "Ventas" refer to the same corporation.
"Ventas Company" means Ventas or any Subsidiary of Ventas.
"Wholly-Owned Material Subsidiary" means a Wholly-Owned Subsidiary that is
a Material Subsidiary.
"Wholly-Owned Subsidiary" means at any time a Subsidiary, all the
outstanding Equity Interests in which are owned by the Vencor Companies at such
time.
Section 1.02. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP;
provided that, if the Borrower notifies the Documentation Agent that the
Borrower wishes to amend any provision hereof to eliminate the effect of any
change in GAAP on the operation of such provision (or if the Documentation Agent
notifies the Borrower that the Required Lenders wish to amend any provision
hereof for such purpose), then such provision shall be applied on the basis of
GAAP in effect immediately before the relevant change in GAAP became
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effective, until either such notice is withdrawn or such provision is amended in
a manner satisfactory to the Borrower and the Required Lenders.
Section 1.03. Types of Loans. Loans hereunder are distinguished by (i) the
Facility under which they are made, (ii) their Purpose and (iii) their Interest
Type. The "Purpose" of a Loan refers to whether such Loan is designated by the
Borrower as an Acquisition Loan, a Project Loan or a General Purpose Loan. The
"Interest Type" of a Loan refers to whether such Loan is a Euro-Dollar Loan, a
CD Loan or a Base Rate Loan. A Loan may be identified by both Facility and
Interest Type (e.g., a Revolving Credit Euro-Dollar Loan" indicates that such
Loan is both a Revolving Credit Loan and a Euro-Dollar Loan). Identification of
a Borrowing or Group of Loans by Facility, Purpose and/or Interest Type
indicates that such Borrowing or Group of Loans is comprised of Loans of the
specified Facility, Purpose and/or Interest Type. The term "Borrowing" denotes
the aggregation of Loans to be made to the Borrower by the Lenders pursuant to
Article 2 on the same day, all of which Loans are made under the same Facility,
have the same Purpose and are of the same Interest Type (subject to Article 11)
and, except in the case of Base Rate Loans, have the same initial Interest
Period. Borrowings are also classified for purposes hereof by reference to the
pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a
Borrowing comprised of Euro-Dollar Loans).
Section 1.04. Other Definitional Provisions. References in this Agreement
to "Articles", "Sections", "Schedules" or "Exhibits" are to Articles, Sections,
Schedules or Exhibits of or to this Agreement unless otherwise specifically
provided. Any of the terms defined in Section 1.01 may, unless the context
otherwise requires, be used in the singular or plural depending on the
reference. "Include", "includes" and "including" are deemed to be followed by
"without limitation" whether or not they are in fact followed by such words or
words of like import. "Writing", "written" and comparable terms refer to
printing, typing, facsimile and other means of reproducing words on paper.
References to any agreement or contract are to such agreement or contract as
amended, modified or supplemented from time to time (whether before, on or after
the Closing Date) in accordance with the terms hereof and thereof. "Hereto",
"herein" and "hereof" refer to this Agreement as amended from time to time;
provided that "hereto", "herein" and "hereof", when used in Exhibit P hereto,
refer to Exhibit P.
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ARTICLE 2
The Facilities
Section 2.01. Commitments to Lend. (a) Bridge Loans. Subject to the terms
and conditions set forth in this Agreement, each Bridge Lender severally agrees
to make one or more loans to the Borrower pursuant to this subsection on the
Closing Date in an aggregate principal amount equal to such Lender's Bridge
Commitment. Each Group of Loans borrowed under this subsection shall be borrowed
from the several Bridge Lenders ratably in proportion to their respective Bridge
Commitments.
(b) Revolving Credit Loans. Subject to the terms and conditions set forth
in this Agreement, each Revolving Credit Lender severally agrees to make loans
to the Borrower pursuant to this subsection, from time to time during the period
from and including the Closing Date to but excluding the Revolving Credit
Termination Date; provided that, immediately after each such loan is made (and
after giving effect to any substantially concurrent application of the proceeds
thereof to repay outstanding Revolving Credit Loans and Swingline Loans), such
Lender's Outstanding Revolving Credit Amount shall not exceed its Revolving
Credit Commitment. Each Group of Loans borrowed under this subsection shall be
borrowed from the several Revolving Credit Lenders ratably in proportion to
their respective Revolving Credit Commitments. Within the limits specified in
this subsection, the Borrower may borrow pursuant to this subsection, repay such
borrowing and reborrow pursuant to this subsection.
(c) Facility A Loans. Subject to the terms and conditions set forth in this
Agreement, each Facility A Lender severally agrees to make one or more loans to
the Borrower pursuant to this subsection on the Closing Date in an aggregate
principal amount equal to such Lender's Facility A Commitment. Each Group of
Loans borrowed under this subsection shall be borrowed from the several Facility
A Lenders ratably in proportion to their respective Facility A Commitments.
(d) Facility B Loans. Subject to the terms and conditions set forth in this
Agreement, each Facility B Lender severally agrees to make one or more loans to
the Borrower pursuant to this subsection on the Closing Date in an aggregate
principal amount equal to such Lender's Facility B Commitment. Each Group of
Loans borrowed under this subsection shall be borrowed from the several Facility
B Lenders ratably in proportion to their respective Facility B Commitments.
(e) Amount of Each Borrowing. Each Borrowing under this Section 2.01 shall
be in an aggregate principal amount of (i) $5,000,000 or any larger multiple of
$1,000,000 in the case of a Euro-Dollar Borrowing or a CD
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Borrowing or (ii) $1,000,000 or any larger multiple of $100,000 in the case of a
Base Rate Borrowing; provided that (x) any Revolving Credit Borrowing may be in
an aggregate amount equal to the aggregate unused amount of the Revolving Credit
Commitments and (y) if a Revolving Credit Borrowing is made on the Swingline
Maturity Date, such Revolving Credit Borrowing may be in the aggregate amount of
the Swingline Loans outstanding on such date.
Section 2.02. Notice of Borrowing. (a) The Borrower shall give the
Administrative Agent notice, substantially in the form of Exhibit H hereto (a
"Notice of Borrowing"), not later than 12:00 Noon (Eastern Time) on (x) the date
of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD
Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar
Borrowing, specifying:
(i) the proposed date of such Borrowing, which shall be a
Domestic Business Day in the case of a CD Borrowing or a Base Rate
Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar
Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) whether the Loans comprising such Borrowing are to be
Bridge Loans, Revolving Credit Loans, Facility A Loans or Facility B
Loans;
(iv) whether the Loans comprising such Borrowing are to be
Acquisition Loans, General Purpose Loans or Project Loans;
(v) whether the Loans comprising such Borrowing are to be
initially Base Rate Loans, CD Loans or Euro-Dollar Loans; provided that
Facility B Loans may not be CD Loans; and
(vi) in the case of a CD Borrowing or a Euro-Dollar Borrowing,
the duration of the initial Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period.
No Notice of Borrowing shall create a new Group of Loans if, immediately
after giving effect thereto, there would be more than 25 Groups of Loans (other
than Base Rate Loans) outstanding hereunder.
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Section 2.03. Notice to Lenders; Funding of Loans. (a) Upon receipt of a
Notice of Borrowing under any Facility, the Administrative Agent shall promptly
notify each Lender under such Facility of the contents thereof and of such
Lender's ratable share of such Borrowing. Such Notice of Borrowing shall not
thereafter be revocable by the Borrower.
(b) Not later than (i) 2:00 P.M. (Eastern Time) on the date of each Base
Rate Borrowing and (ii) 1:00 P.M. (Eastern Time) on the date of each other
Borrowing, each Lender participating in such Borrowing shall make available its
ratable share of such Borrowing, in Federal or other funds immediately available
in Charlotte, North Carolina, to the Administrative Agent at its address for
payments specified in or pursuant to Section 12.01. Unless the Administrative
Agent determines that any applicable condition specified in Article 3 has not
been satisfied, the Administrative Agent shall make such funds available to the
Borrower on such date at the Administrative Agent's aforesaid address; provided
that, in the case of a Revolving Credit Borrowing, the Administrative Agent
shall (i) to the extent required by Section 2.08(g), apply the funds so received
from the Revolving Credit Lenders to prepay all Swingline Loans that have the
same Purpose as such Borrowing, together with interest accrued thereon, and (ii)
make the remainder of such funds available to the Borrower on such date at the
Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received, prior to the date
of any Borrowing, notice from a Lender under the relevant Facility that such
Lender will not make available to the Administrative Agent such Lender's share
of such Borrowing, the Administrative Agent may assume that such Lender has made
such share available to the Administrative Agent on the date of such Borrowing
in accordance with Section 2.03(b) and, in reliance upon such assumption,
Administrative Agent may (but shall not be obligated to) make available to the
Borrower on such date a corresponding amount. If and to the extent that such
Lender shall not have so made such share available to the Administrative Agent,
such Lender and the Borrower severally agree to repay to the Administrative
Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the day such amount is made available to the Borrower
until the day such amount is repaid to the Administrative Agent, at (i) in the
case of the Borrower, a rate per annum equal to the higher of the Federal Funds
Rate and the interest rate applicable thereto pursuant to Section 2.05, and (ii)
in the case of such Lender, a rate per annum equal to (x) for each day from the
day such amount is made available to the Borrower to the third succeeding
Domestic Business Day, inclusive, the Federal Funds Rate for such day as
determined by the Administrative Agent and (y) for each day thereafter until the
day such amount is repaid to the Administrative Agent, the Base Rate for such
day. If such Lender shall repay such corresponding
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amount to the Administrative Agent, the amount so repaid shall constitute such
Lender's Loan included in such Borrowing for purposes of this Agreement.
Section 2.04. Notes. (a) Each Lender's Loans shall be evidenced by a
single Note payable to the order of such Lender for the account of its
Applicable Lending Office; provided that any Facility B Lender may, by notice to
the Administrative Agent (with a copy to the Documentation Agent), elect that
its Loans not be evidenced by a Note, in which case such Loans will be evidenced
solely by the Register.
(b) Each Lender may, by notice to the Borrower and the Documentation Agent,
request that its Loans under a particular Facility and/or of a particular
Interest Type be evidenced by a separate Note. Each such Note shall be
substantially in the form of Exhibit A hereto, with appropriate modifications to
reflect the fact that it evidences solely Loans under the relevant Facility
and/or of the relevant Interest Type. Each reference in this Agreement to the
"Note" of such Lender shall be deemed to refer to and include any or all of such
Notes, as the context may require.
(c) Upon receipt of each Lender's Note pursuant to Section 3.01(b), the
Documentation Agent shall forward such Note to such Lender. Each Lender shall
record the date, amount, Facility, Purpose and Interest Type of each Loan made
by it and the date and amount of each payment of principal made by the Borrower
with respect thereto, and may, in connection with any transfer or enforcement of
its Note, endorse on the schedule forming a part thereof appropriate notations
to evidence the foregoing information with respect to the then outstanding Loans
evidenced by such Note; provided that neither the failure of any Lender to make
any such recordation or endorsement nor any error therein shall affect the
obligations of the Borrower under any Financing Document. Each Lender is hereby
irrevocably authorized by the Borrower so to endorse its Note and to attach to
and make a part of its Note a continuation of any such schedule as and when
required.
Section 2.05. Interest Rates. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof, for each day from and
including the day such Loan is made (or is converted from a Euro-Dollar Loan or
CD Loan to a Base Rate Loan) to but excluding the day it becomes due (or is
converted to a Euro-Dollar Loan or CD Loan), at a rate per annum equal to the
sum of the Applicable Margin (if any) for such day plus the Base Rate for such
day. Such interest shall be payable quarterly in arrears on the last Domestic
Business Day of each calendar quarter. Any overdue principal of or interest on
any Base Rate Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the sum of 2% plus the Applicable Margin (if
any) for such day plus the Base Rate for such day.
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(b) Each CD Loan shall bear interest on the outstanding principal amount
thereof, for each day during each Interest Period applicable thereto, at a rate
per annum equal to the sum of the Applicable Margin for such day plus the
Adjusted CD Base Rate applicable to such Interest Period; provided that if any
CD Loan or any portion thereof shall, as a result of clause (2)(b)(i) or 2(c) of
the definition of Interest Period, have an Interest Period of less than 30 days,
such portion shall bear interest for each day during such Interest Period at the
rate applicable to Basic Base Rate Loans for such day. Such interest shall be
payable for each Interest Period on the last day thereof and, if such Interest
Period is longer than 90 days, 90 days after the first day thereof. Any overdue
principal of or interest on any CD Loan shall bear interest, payable on demand,
for each day until paid at a rate per annum equal to the sum of 2% plus the rate
applicable to Basic Base Rate Loans for such day.
The "Adjusted CD Base Rate" applicable to any Interest Period means a rate
per annum determined pursuant to the following formula:
[ CDBR ]*
ACDBR = [ ----------] + AR
[ 1.00-DRP ]
ACDBR = Adjusted CD Base Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
- ----------
* The amount in brackets being rounded upward, if necessary, to the next higher
1/100 of 1%.
The "CD Base Rate" applicable to any Interest Period is the rate of
interest determined by the Administrative Agent to be the average (rounded
upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates
per annum bid at 10:00 A.M. (Eastern Time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two or more New York
certificate of deposit dealers of recognized standing for the purchase at face
value from NationsBank of its certificates of deposit in an amount comparable to
the principal amount of the CD Loan of NationsBank to which such Interest Period
applies (or, in the case of an Interest Period applicable to Facility B Loans,
in the amount of $5,000,000) and having a maturity comparable to such Interest
Period.
"Domestic Reserve Percentage" means for any day that percentage (expressed
as a decimal) which is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including without limitation any
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basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Base Rate shall be adjusted automatically on and as of
the effective date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate in effect on
such day which is payable by a member of the Bank Insurance Fund classified as
adequately capitalized and within supervisory subgroup "A" (or a comparable
successor assessment risk classification) within the meaning of 12 C.F.R.
(S) 327.4(a) (or any successor provision) to the Federal Deposit Insurance
Corporation (or any successor) for such Corporation's (or such successor's)
insuring time deposits at offices of such institution in the United States. The
Adjusted CD Base Rate shall be adjusted automatically on and as of the effective
date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the Applicable Margin for such day plus the
London Interbank Offered Rate applicable to such Interest Period. Such interest
shall be payable for each Interest Period on the last day thereof and, if such
Interest Period is longer than three months, three months after the first day
thereof.
The "London Interbank Offered Rate" applicable to any Interest Period means
the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in dollars at approximately 11:00 A.M. (London time)
two Euro-Dollar Business Days before the first day of such Interest Period for a
term comparable to such Interest Period; provided that, if more than one rate is
specified on such Telerate Page, the applicable rate shall be the arithmetic
mean of all such rates. If for any reason no such rate is available on such
Telerate Page, the applicable London Interbank Offered Rate shall be determined
in accordance with the preceding sentence on the basis of the comparable rate or
rates appearing on Reuters Screen LIBO Page.
(d) Any overdue principal of or interest on any Euro-Dollar Loan shall
bear interest, payable on demand, for each day until paid, at a rate per annum
equal to the sum of 2% plus the Applicable Margin for such day plus the quotient
obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by
dividing (x) the average (rounded upward, if necessary, to the next higher 1/16
of 1%) of the respective rates per annum at which one day (or, if such amount
due remains unpaid more than three Euro-Dollar Business Days, then for such
other
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period of time not longer than six months as the Administrative Agent may
select) deposits in dollars in an amount approximately equal to such overdue
payment due to NationsBank (or, in the case of an Interest Period applicable to
Facility B Loans, in the amount of $5,000,000) are offered to NationsBank in the
London interbank market for the applicable period determined as provided above
by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances
described in clause (a) or (b) of Section 11.01 shall exist, at a rate per annum
equal to the sum of 2% plus the Applicable Margin for such day plus the Base
Rate for such day).
Section 2.06. Method of Electing Interest Rates. (a) The Loans included
in each Borrowing shall bear interest initially at the type of rate specified by
the Borrower in the applicable Notice of Borrowing. Thereafter, the Borrower
may from time to time elect to change or continue the type of interest rate
borne by each Group of Loans (subject in each case to the provisions of Article
11), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect
to convert such Loans to Euro-Dollar Loans under the same Facility and for
the same Purpose as of any Euro-Dollar Business Day or to CD Loans under
such Facility and for such Purpose as of any Domestic Business Day;
provided that (x) notice of such election may not be given if an Event of
Default shall have occurred and be continuing on the third Euro-Dollar
Business Day before such conversion is to be effective (in the case of a
conversion to Euro-Dollar Loans) or the second Domestic Business Day before
such conversion is to be effective (in the case of a conversion to CD
Loans) and (y) the Borrower may not elect to convert any Facility B Loans
to CD Loans;
(ii) if such Loans are CD Loans, the Borrower may elect to
convert such Loans to Euro-Dollar Loans under the same Facility and for the
same Purpose or to Base Rate Loans under such Facility and for such Purpose
or to continue such Loans as CD Loans under such Facility and for such
Purpose for an additional Interest Period, in each case effective on the
last day of the then current Interest Period applicable to such Loans; and
(iii) if such Loans are Euro-Dollar Loans, the Borrower may
elect to convert such Loans to Base Rate Loans under the same Facility and
for the same Purpose or to CD Loans under such Facility and for such
Purpose or elect to continue such Loans as Euro-Dollar Loans under such
Facility and for such Purpose for an additional Interest Period, in each
case effective on the last day of the then current Interest Period
applicable to
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such Loans; provided that the Borrower may not elect to convert any
Facility B Loans to CD Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Administrative Agent not later than 12:00 Noon (Eastern
Time) on the third Euro-Dollar Business Day (or the second Domestic Business Day
in the case of a conversion to CD Loans) before the conversion or continuation
selected in such notice is to be effective. A Notice of Interest Rate Election
may, if it so specifies, apply to only a portion of the aggregate principal
amount of the relevant Group of Loans; provided that (i) such portion is
allocated ratably among the Loans comprising such Group, (ii) the portion to
which such notice applies, and the remaining portion to which it does not apply,
are each at least $5,000,000 (if such portion is to be comprised of CD Loans or
Euro-Dollar Loans) or at least $1,000,000 (if such portion is to be comprised of
Base Rate Loans) and (iii) immediately after giving effect to such Notice of
Interest Rate Election, there shall be no more than 25 Groups of Loans (other
than Base Rate Loans) outstanding hereunder.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such
notice applies, including the Facility, Interest Type and Purpose of such
Loans;
(ii) the date on which the conversion or continuation selected
in such notice is to be effective, which shall comply with the
applicable clause of Section 2.06(a);
(iii) if the Loans comprising such Group are to be converted,
the new Interest Type of such Loans and, if such Loans are to be
converted to Euro-Dollar Loans under the same Facility and for the same
Purpose or CD Loans under such Facility and for such Purpose, the
duration of the initial Interest Period applicable thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans
under the same Facility and for the same Purpose or CD Loans under such
Facility and for such Purpose for an additional Interest Period, the
duration of such additional Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to Section 2.06(a), the Administrative Agent shall promptly
notify each Lender under the relevant Facility of the contents thereof and such
notice shall not
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thereafter be revocable by the Borrower. If the Borrower fails to deliver a
timely Notice of Interest Rate Election to the Administrative Agent for any
Group of Euro-Dollar Loans or CD Loans, such Loans shall be converted to Base
Rate Loans under the same Facility and for the same Purpose on the last day of
the then current Interest Period applicable thereto.
Section 2.07. Letters of Credit. (a) Existing Letters of Credit. On the
Closing Date, each LC Issuing Bank that has issued an Existing Letter of Credit
shall be deemed, without further action by any party hereto, to have sold to
each other Revolving Credit Lender, and each such Revolving Credit Lender shall
be deemed, without further action by any party hereto, to have purchased from
such LC Issuing Bank, a participation in such Existing Letter of Credit, on the
terms specified in this Section, equal to such Lender's Revolving Credit
Percentage thereof. Concurrently the participations in the Existing Letters of
Credit sold to the Lenders under Old Vencor's Existing Credit Agreement shall be
cancelled (and each party hereto that holds such a participation consents to
such cancellation).
(b) Issuance of Additional Letters of Credit. Any LC Issuing Bank may,
but shall not be obligated to, issue a letter of credit at the request of the
Borrower pursuant to this subsection, from time to time during the period from
and including the Closing Date to but excluding the date that is 30 days before
the Revolving Credit Termination Date; provided that, immediately after each
such letter of credit is issued and participations therein are sold to the
Revolving Credit Lenders as provided in this subsection:
(i) the Aggregate LC Exposure shall not exceed $50,000,000; and
(ii) in the case of each Revolving Credit Lender, its
Outstanding Revolving Credit Amount shall not exceed its Revolving Credit
Commitment.
Upon the issuance by any LC Issuing Bank of an Additional Letter of Credit
pursuant to this subsection, such LC Issuing Bank shall be deemed, without
further action by any party hereto, to have sold to each other Revolving Credit
Lender, and each such Revolving Credit Lender shall be deemed, without further
action by any party hereto, to have purchased from such LC Issuing Bank, a
participation in such Additional Letter of Credit, on the terms specified in
this Section, equal to such Lender's Revolving Credit Percentage thereof.
(c) Expiry Dates. No Letter of Credit shall have an expiry date later
than the fifth Domestic Business Day before the Revolving Credit Termination
Date.
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(d) Notice of Proposed Issuance. With respect to each Additional Letter
of Credit, the Borrower shall give the relevant LC Issuing Bank and the
Administrative Agent at least three Domestic Business Days' prior notice (i)
specifying the date such Additional Letter of Credit is to be issued, (ii)
describing the proposed terms of such Additional Letter of Credit and the nature
of the transactions proposed to be supported thereby and (iii) specifying the
Account Party for such Additional Letter of Credit, which may be any Vencor
Company or any partnership in which any Vencor Company is a general partner or
any other entity managed by a Vencor Company. Upon receipt of such notice, the
Administrative Agent shall promptly notify each Revolving Credit Lender of the
contents thereof.
(e) Conditions to Issuance. No LC Issuing Bank shall issue any Additional
Letter of Credit unless:
(i) such Letter of Credit shall be satisfactory in form and
substance to such LC Issuing Bank;
(ii) the Borrower shall have executed and delivered such other
instruments and agreements relating to such Additional Letter of Credit as
such LC Issuing Bank shall have reasonably requested;
(iii) if the Account Party for such Letter of Credit is not the
Borrower, such Account Party shall have executed and delivered such other
instruments and agreements relating to such Letter of Credit as such LC
Issuing Bank shall have reasonably requested;
(iv) such LC Issuing Bank shall have confirmed with the
Administrative Agent on the date of such issuance that the limitations
specified in clauses (i) and (ii) of subsection (b) of this Section will
not be exceeded immediately after such Letter of Credit is issued; and
(v) such LC Issuing Bank shall not have been notified in
writing by any Vencor Company, any Agent or the Required Revolving Credit
Lenders expressly to the effect that any condition specified in clause (c)
or (d) of Section 3.02 is not satisfied at the time such Letter of Credit
is to be issued.
(f) Notice of Proposed Extensions of Expiry Dates. The relevant LC
Issuing Bank or the Borrower shall give the Administrative Agent at least three
Domestic Business Days' notice before such LC Issuing Bank extends (or allows an
automatic extension of) the expiry date of any Letter of Credit issued by it
(whether such extension results from a request therefor by the Borrower or, in
the
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case of an Evergreen Letter of Credit, from the absence of a request by the
Borrower for the termination thereof). Such notice shall (i) identify such
Letter of Credit, (ii) specify the date on which such extension is to be made
(or the last day on which such LC Issuing Bank can give notice to prevent such
extension from occurring) and (iii) specify the date to which such expiry date
is to be so extended. Upon receipt of such notice, the Administrative Agent
shall promptly notify each Revolving Credit Lender of the contents thereof. No
LC Issuing Bank shall extend (or allow the extension of) the expiry date of any
Letter of Credit if (x) the extended expiry date would be after the fifth
Domestic Business Day before the Revolving Credit Termination Date or (y) such
LC Issuing Bank shall have been notified by any Vencor Company, any Agent or the
Required Revolving Credit Lenders expressly to the effect that any condition
specified in clause (c) or (d) of Section 3.02 is not satisfied at the time such
Letter of Credit is to be extended.
(g) Notice of Actual Issuances and Extensions. Promptly upon issuing any
Additional Letter of Credit or extending any Letter of Credit (or allowing any
Evergreen Letter of Credit to be extended), the relevant LC Issuing Bank will
notify the Administrative Agent of the date of such Letter of Credit, the amount
thereof, the beneficiary or beneficiaries thereof and the expiry date or
extended expiry date thereof. Upon receipt of such notice the Administrative
Agent shall promptly notify each Revolving Credit Lender of the contents thereof
and the amount of such Revolving Credit Lender's participation in the relevant
Letter of Credit. Promptly upon issuing any Additional Letter of Credit, the
relevant LC Issuing Bank will send a copy of such Additional Letter of Credit to
the Administrative Agent.
(h) Fees. The Borrower shall pay to the Administrative Agent, for the
account of the Revolving Credit Lenders ratably in accordance with their
respective Revolving Credit Percentages, a letter of credit fee, calculated for
each day at the LC Fee Rate for such day, on the aggregate amount available for
drawings (whether or not conditions for drawing thereunder have been satisfied)
under all Letters of Credit outstanding at the close of business on such day.
Such letter of credit fee shall be payable with respect to each Letter of Credit
in arrears on the last Domestic Business Day of each calendar quarter for so
long as such Letter of Credit is outstanding and on the final expiry date
thereof. The Borrower shall pay to each LC Issuing Bank additional fronting
fees, quarterly in arrears, and reasonable expenses in the amounts and at the
times agreed between the Borrower and such LC Issuing Bank.
(i) Drawings. Upon receiving a demand for payment under any Letter of
Credit from the beneficiary thereof, the relevant LC Issuing Bank shall
determine in accordance with the terms of such Letter of Credit whether such
demand for payment should be honored. If such LC Issuing Bank determines that
any such demand for payment should be honored, such LC Issuing Bank shall (i)
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promptly notify the Borrower and the Administrative Agent as to the amount to be
paid by such LC Issuing Bank as a result of such demand and the date on which
such amount is to be paid (an "LC Payment Date") and (ii on such LC Payment Date
make available to such beneficiary in accordance with the terms of such Letter
of Credit the amount of the drawing under such Letter of Credit.
(j) Reimbursement and Other Payments by the Borrower. If any amount is
drawn under any Letter of Credit:
(i) the Borrower irrevocably and unconditionally agrees to reimburse
the relevant LC Issuing Bank for all amounts paid by such LC Issuing Bank
upon such drawing, together with any and all reasonable charges and
expenses which such LC Issuing Bank may pay or incur relative to such
drawing and interest on the amount drawn at the Federal Funds Rate for each
day from and including the date such amount is drawn to but excluding the
date such reimbursement payment is due and payable. Such reimbursement
payment shall be due and payable at or before 3:00 P.M. (Eastern Time) (x)
on the relevant LC Payment Date if such LC Issuing Bank notifies the
Borrower of such drawing before 11:00 A.M. (Eastern Time) on such date or
(y) on the date such notice is given, if such notice is given after the LC
Payment Date; provided that any notice given to the Borrower after 11:00
A.M. (Eastern Time) on any day shall be deemed for purposes of the
foregoing clause (y) to have been given on the next succeeding Domestic
Business Day; and
(ii) in addition, the Borrower agrees to pay to the relevant LC
Issuing Bank interest on any and all amounts not paid by the Borrower when
due hereunder with respect to a Letter of Credit, for each day from and
including the date when such amount becomes due to but excluding the date
such amount is paid in full, payable on demand, at a rate per annum equal
to the sum of 2% plus the rate applicable to Basic Base Rate Loans for such
day.
Each payment to be made by the Borrower pursuant to this subsection (j) shall be
made to the relevant LC Issuing Bank in Federal or other funds immediately
available to it at its address specified in or pursuant to Section 12.01.
(k) Payments by Revolving Credit Lenders with Respect to Letters of
Credit. If the Borrower fails to reimburse the relevant LC Issuing Bank as and
when required by subsection (j) above for all or any portion of any amount drawn
under a Letter of Credit issued by it:
(i) such LC Issuing Bank may notify the Administrative Agent of such
unreimbursed amount and request that the Revolving Credit
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Lenders reimburse such LC Issuing Bank for their respective Revolving
Credit Percentages thereof. Upon receiving any such notice from an LC
Issuing Bank, the Administrative Agent shall promptly notify each Revolving
Credit Lender of the unreimbursed amount and such Lender's Revolving Credit
Percentage thereof. Upon receiving such notice from the Administrative
Agent, each Revolving Credit Lender shall make available to such LC Issuing
Bank, at its address specified in or pursuant to Section 12.01, an amount
equal to such Lender's Revolving Credit Percentage of such unreimbursed
amount as set forth in such notice, in Federal or other funds immediately
available to such LC Issuing Bank, by 3:00 P.M. (Eastern Time) (A) on the
day such Revolving Credit Lender receives such notice if it is received at
or before 12:00 Noon (Eastern Time) on such day or (B) on the first
Domestic Business Day following such Revolving Credit Lender's receipt of
such notice if it is received after 12:00 Noon (Eastern Time) on the date
of receipt, in each case together with interest on such amount for each day
from and including the relevant LC Payment Date to but excluding the day
such payment is due from such Revolving Credit Lender at the Federal Funds
Rate for such day. Upon payment in full thereof, such Revolving Credit
Lender shall be subrogated to the rights of such LC Issuing Bank against
the Borrower to the extent of such Lender's Revolving Credit Percentage of
the related LC Reimbursement Obligation (including interest accrued
thereon). Nothing in this subsection (k) shall affect any rights any
Revolving Credit Lender may have against any LC Issuing Bank for any action
or omission for which such LC Issuing Bank is not indemnified under
subsection (o) of this Section; and
(ii) if any Revolving Credit Lender fails to pay any amount required
to be paid by it pursuant to clause (i) of this subsection (k) on the date
on which such payment is due, interest shall accrue on such Revolving
Credit Lender's obligation to make such payment, for each day from and
including the date such payment became due to but excluding the date such
Revolving Credit Lender makes such payment, at a rate per annum equal to
(x) for each day from the day such payment is due to the third succeeding
Domestic Business Day, inclusive, the Federal Funds Rate for such day as
determined by the relevant LC Issuing Bank and (y) for each day thereafter
the Base Rate for such day. Any payment made by any Revolving Credit Lender
after 3:00 P.M. (Eastern Time) on any Domestic Business Day shall be deemed
for purposes of the preceding sentence to have been made on the next
succeeding Domestic Business Day.
If the Borrower shall reimburse any LC Issuing Bank for any drawing with respect
to which any Revolving Credit Lender shall have made funds available to such LC
Issuing Bank in accordance with clause (i) of this subsection (k), such
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LC Issuing Bank shall promptly upon receipt of such reimbursement distribute to
such Revolving Credit Lender its pro rata share thereof, including interest, to
the extent received by such LC Issuing Bank.
(l) Increased Cost and Reduced Return. If, on or after the date hereof,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Revolving Credit Lender or LC Issuing Bank with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency, shall impose, modify or deem applicable any tax, reserve,
special deposit or similar requirement against or with respect to or measured by
reference to letters of credit or participations therein, and the result of any
of the foregoing is to increase the cost to such Revolving Credit Lender or LC
Issuing Bank of issuing or maintaining any Letter of Credit or any participation
therein, or to reduce any amount receivable by any Revolving Credit Lender or LC
Issuing Bank under this Section 2.07 in respect of any Letter of Credit or any
participation therein (which increase in cost, or reduction in amount
receivable, shall be the result of such Revolving Credit Lender's or LC Issuing
Bank's reasonable allocation of the aggregate of such increases or reductions
resulting from such event), then, within 15 days after demand by such Revolving
Credit Lender or LC Issuing Bank (with a copy to the Administrative Agent), the
Borrower agrees to pay to such Revolving Credit Lender or LC Issuing Bank, from
time to time as specified by such Revolving Credit Lender or LC Issuing Bank,
such additional amounts as shall be sufficient to compensate such Revolving
Credit Lender or LC Issuing Bank for such increased cost or reduction. A
certificate of such Revolving Credit Lender or LC Issuing Bank submitted to the
Borrower pursuant to this subsection and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error.
(m) Exculpatory Provisions. The Borrower's obligations under this Section
2.07 shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment which any Vencor
Company or any Account Party may have or have had against any LC Issuing Bank,
any Revolving Credit Lender, the beneficiary of any Letter of Credit or any
other Person. The Borrower assumes all risks of the acts or omissions of any
beneficiary of any Letter of Credit with respect to the use of such Letter of
Credit by such beneficiary. None of the LC Issuing Banks, the Revolving Credit
Lenders and their respective officers, directors, employees and agents shall be
responsible for, and the obligations of each Revolving Credit Lender to make
payments to each LC Issuing Bank and of the Borrower to reimburse each LC
Issuing Bank for drawings pursuant to this Section (except to the extent such
obligations result from the gross negligence or willful misconduct
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of the relevant LC Issuing Bank) shall not be excused or affected by, among
other things, (i) the use which may be made of any Letter of Credit or any acts
or omissions of any beneficiary or transferee in connection therewith; (ii) the
validity, sufficiency or genuineness of documents presented under any Letter of
Credit or of any endorsements thereon, even if such documents should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged;
(iii) payment by any LC Issuing Bank against presentation of documents to it
which do not comply with the terms of the relevant Letter of Credit or (iv) any
dispute between or among any of the Vencor Companies or their Affiliates, the
beneficiary of any Letter of Credit or any other Person or any claims or
defenses whatsoever of any of the Vencor Companies or their Affiliates or any
other Person against the beneficiary of any Letter of Credit. No LC Issuing Bank
shall be liable for any error, omission, interruption or delay in transmission,
dispatch or delivery of any message or advice, however transmitted, in
connection with any Letter of Credit. Any action taken or omitted by any LC
Issuing Bank or any Revolving Credit Lender under or in connection with any
Letter of Credit and the related drafts and documents, if done without willful
misconduct or gross negligence, shall be binding upon the Borrower and shall not
place any LC Issuing Bank or any Revolving Credit Lender under any liability to
any Vencor Company.
(n) Reliance, Etc. Subject to Section 2.07(e), each LC Issuing Bank shall
be entitled (but not obligated) to rely, and shall be fully protected in
relying, on the representation and warranty by the Borrower set forth in the
last sentence of Section 3.02 to establish whether the conditions specified in
clauses (c) and (d) of Section 3.02 are met in connection with any issuance or
extension of a Letter of Credit. The rights and obligations of each LC Issuing
Bank under each Letter of Credit issued by it shall be governed by the
provisions thereof and the provisions of the UCP and/or UCC referred to therein
or otherwise applicable thereto.
(o) Indemnification by the Borrower. The Borrower agrees to indemnify and
hold harmless each Revolving Credit Lender, each LC Issuing Bank and the
Administrative Agent and their respective directors, officers, agents and
employees (collectively, the "LC Indemnitees") from and against any and all
claims, damages, losses, liabilities, costs or expenses (including, without
limitation, the reasonable fees and disbursements of counsel) which such LC
Indemnitee may reasonably incur (or which may be claimed against any such LC
Indemnitee by any Person) by reason of or in connection with the execution and
delivery or transfer of or payment or failure to pay under any Letter of Credit
or any actual or proposed use of any Letter of Credit, including any claims,
damages, losses, liabilities, costs or expenses which any LC Issuing Bank may
incur by reason of or in connection with the failure of any Revolving Credit
Lender to fulfill or comply with its obligations to such LC Issuing Bank
hereunder in connection with any Letter of Credit (but nothing herein contained
shall affect any
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rights the Borrower may have against any such defaulting Revolving Credit
Lender); provided that the Borrower shall not be required to indemnify any LC
Indemnitee for any claims, damages, losses, liabilities, costs or expenses to
the extent, but only to the extent, caused by (i) the willful misconduct or
gross negligence of any LC Issuing Bank in determining whether a request
presented under any Letter of Credit issued by it complied with the terms of
such Letter of Credit or (ii) any LC Issuing Bank's failure to pay under any
Letter of Credit issued by it after the presentation to it of a request strictly
complying with the terms and conditions of such Letter of Credit. Nothing in
this subsection (o) is intended to limit the obligations of the Borrower under
any other provision of this Section.
(p) Indemnification by Revolving Credit Lenders. Each Revolving Credit
Lender shall, ratably in accordance with its Revolving Credit Percentage,
indemnify each LC Issuing Bank, its affiliates and their respective directors,
officers, agents and employees (to the extent not reimbursed by the Vencor
Companies) against any cost, expense (including reasonable fees and
disbursements of counsel), claim, demand, action, loss or liability (except such
as result from such indemnitees' gross negligence or willful misconduct or such
LC Issuing Bank's failure to pay under any Letter of Credit issued by it after
the presentation to it of a request strictly complying with the terms and
conditions of such Letter of Credit) that any such indemnitee may suffer or
incur in connection with this Section or any action taken or omitted by such
indemnitee under this Section.
(q) Liability for Damages. Nothing in this Section shall preclude the
Borrower or any Revolving Credit Lender from asserting against any LC Issuing
Bank any claim for direct (but not consequential) damages suffered by the
Borrower or such Revolving Credit Lender to the extent, but only to the extent,
caused by (i) the willful misconduct or gross negligence of such LC Issuing Bank
in determining whether a request presented under any Letter of Credit issued by
it complied with the terms thereof or (ii) such LC Issuing Bank's failure to pay
under any such Letter of Credit after the presentation to it of a request
strictly complying with the terms and conditions thereof.
(r) Dual Capacities. In its capacity as a Revolving Credit Lender, each
LC Issuing Bank shall have the same rights and obligations under this Section as
any other Revolving Credit Lender.
(s) Information to be Provided to Administrative Agent. The LC Issuing
Banks shall furnish to the Administrative Agent upon request such information as
the Administrative Agent shall reasonably request in order to calculate (i) the
Aggregate LC Exposure existing from time to time and (ii) the amount of any fee
payable for the account of the Revolving Credit Lenders under Section 2.07(h).
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Section 2.08. Swingline Loans. (a) Swingline Commitment. The Swingline
Bank agrees, on the terms and conditions set forth in this Agreement, to make
loans to the Borrower pursuant to this Section from time to time during the
Swingline Availability Period for any purpose for which Revolving Credit Loans
may be borrowed; provided that, immediately after each such loan is made (and
after giving effect to any substantially concurrent application of the proceeds
thereof to repay outstanding Revolving Credit Loans or LC Reimbursement
Obligations):
(i) the aggregate outstanding principal amount of the Swingline
Loans shall not exceed the Swingline Commitment; and
(ii) in the case of each Revolving Credit Lender, its Outstanding
Revolving Credit Amount shall not exceed its Revolving Credit Commitment.
Within the foregoing limits, the Borrower may borrow Swingline Loans, prepay
Swingline Loans and reborrow Swingline Loans at any time during the Swingline
Availability Period.
(b) Notice of Swingline Borrowing. The Borrower shall give the Swingline
Bank notice (a "Notice of Swingline Borrowing"), substantially in the form of
Exhibit K hereto, not later than 2:00 P.M. (Eastern Time) on the date of each
Swingline Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day;
(ii) the amount of such Borrowing, which shall be at least
$1,000,000; and
(iii) whether the Swingline Loan being borrowed is an Acquisition
Loan, a General Purpose Loan or a Project Loan.
(c) Funding of Swingline Loans. Not later than 3:00 P.M. (Eastern Time)
on the date of each Swingline Borrowing, the Swingline Bank shall, unless the
Swingline Bank determines that any applicable condition specified in Article 3
has not been satisfied, make available the amount of such Swingline Borrowing,
in Federal or other funds immediately available in Charlotte, North Carolina, to
the Borrower at the Swingline Bank's address specified in or pursuant to Section
12.01.
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(d) Swingline Note. The Borrower's obligation to repay the Swingline
Loans shall be evidenced by a single Note substantially in form of Exhibit B
hereto (the "Swingline Note"). Upon receipt of the Swingline Note pursuant to
Section 3.01(e), the Documentation Agent shall forward the Swingline Note to the
Swingline Bank.
(e) Interest. Each Swingline Loan shall bear interest on the outstanding
principal amount thereof, for each day from and including the day such Swingline
Loan is made to but excluding the day it becomes due, at a rate per annum equal
to the rate applicable to Basic Base Rate Loans for such day or any lower rate
determined by mutual agreement between the Swingline Bank and the Borrower. Such
interest shall be payable quarterly in arrears on the last Domestic Business Day
of each calendar quarter. Any overdue principal of or interest on any Swingline
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 2% plus the rate applicable to Basic Base Rate
Loans for such day.
(f) Optional Prepayment of Swingline Loans. The Borrower may prepay the
Swingline Loans in whole at any time, or from time to time in part in a
principal amount of at least $1,000,000, by giving notice of such prepayment to
the Swingline Bank not later than 12:00 Noon (Eastern Time) on the date of
prepayment and paying the principal amount to be prepaid, together with interest
accrued thereon to the date of prepayment, to the Swingline Bank at its address
specified in or pursuant to Section 12.01, in Federal or other funds immediately
available in Charlotte, North Carolina, not later than 3:00 P.M. (Eastern Time)
on the date of prepayment.
(g) Mandatory Prepayment of Swingline Loans. On the date of each
Borrowing for any Purpose under the Revolving Credit Facility, the
Administrative Agent shall apply the proceeds thereof to prepay all Swingline
Loans made for such Purpose then outstanding, together with interest accrued
thereon to the date of prepayment.
(h) Maturity of Swingline Loans. All Swingline Loans outstanding on the
Swingline Maturity Date shall be due and payable on such date, together with
interest accrued thereon to such date.
(i) Refunding Unpaid Swingline Loans. If (x) the Swingline Loans are not
paid in full on the Swingline Maturity Date or (y) the Swingline Loans become
immediately due and payable pursuant to Article 9, the Swingline Bank (or the
Administrative Agent on its behalf) may, by notice to the Revolving Credit
Lenders (including the Swingline Bank, in its capacity as a Revolving Credit
Lender), require each Revolving Credit Lender to pay to the Swingline Bank an
amount equal to such Lender's Revolving Credit Percentage of the aggregate
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unpaid principal amount of the Swingline Loans then outstanding. Such notice
shall specify the date on which such payments are to be made, which shall be the
first Domestic Business Day after such notice is given. Not later than 12:00
Noon (Eastern Time) on the date so specified, each Revolving Credit Lender shall
pay the amount so notified to it to the Swingline Bank at its address specified
in or pursuant to Section 12.01, in Federal or other funds immediately available
in Charlotte, North Carolina. The amount so paid by each Revolving Credit Lender
shall constitute a Base Rate Loan to the Borrower; provided that, if the
Revolving Credit Lenders are prevented from making such Base Rate Loans to the
Borrower by the provisions of the United States Bankruptcy Code or otherwise,
the amount so paid by each Revolving Credit Lender shall constitute a purchase
by it of a participation in the unpaid principal amount of the Swingline Loans
and interest accruing thereon after the date of such payment at the rate
specified in the last sentence of Section 2.08(e). Each Revolving Credit
Lender's obligation to make such payment to the Swingline Bank under this
subsection shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any set-off, counterclaim,
recoupment, defense or other right which such Revolving Credit Lender or any
other Person may have against the Swingline Bank or the Borrower, (ii) the
occurrence or continuance of a Default or an Event of Default or the termination
of the Revolving Credit Commitments, (iii) any adverse change in the condition
(financial or otherwise) of the Borrower or any other Person, (iv any breach of
this Agreement by any party hereto (other than the Swingline Bank) or (v) any
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing; provided that no Revolving Credit Lender shall be obligated to
make any payment to the Swingline Bank under this subsection with respect to a
Swingline Loan made by the Swingline Bank at a time when it had determined that
any applicable condition precedent set forth in clause (c) or (d) of Section
3.02 was not satisfied.
(j) Termination of Swingline Commitment. The Borrower may, upon at least
three Domestic Business Days' notice to the Swingline Bank and the
Administrative Agent, terminate the Swingline Commitment at any time, if no
Swingline Loans are outstanding at such time. Unless previously terminated, the
Swingline Commitment shall terminate at the close of business on the Swingline
Maturity Date.
Section 2.0. Commitment Fee. The Borrower shall pay to the Administrative
Agent for the account of each Revolving Credit Lender a commitment fee,
calculated for each day at the Commitment Fee Rate for such day, on the amount
by which such Lender's Revolving Credit Commitment on such day exceeds the sum
of (i) the aggregate outstanding principal amount of its Revolving Credit Loans
and (ii) its LC Exposure on such day. Such commitment fees shall accrue from
and including the Closing Date to but excluding the day on which the Revolving
Credit Commitments terminate in their entirety and shall be
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payable quarterly on the last Domestic Business Day of each calendar quarter and
on the day on which the Revolving Credit Commitments terminate in their
entirety.
Section 2.10. Final Maturity of Loans. The Loans outstanding under each
Facility shall mature, and the outstanding principal amount thereof shall be due
and payable (together with interest accrued thereon), on the Applicable Maturity
Date for Loans made under such Facility.
Section 2.11. Prepayment of Bridge Loans. Each Unscheduled Mandatory
Prepayment required by Section 2.13 and each optional prepayment (except a
prepayment of Revolving Credit Loans) made pursuant to Section 2.14 shall be
applied to prepay the Bridge Loans until the Bridge Loans shall have been paid
in full. The Borrower shall give the Administrative Agent a Prepayment Notice
with respect to each such prepayment before 11:00 A.M. (Eastern Time) on the
Domestic Business Day immediately preceding the date of such prepayment,
designating the Group or Groups of Bridge Loans to be prepaid. Such prepayment
shall be applied to prepay ratably the Group or Groups of Bridge Loans so
designated by the Borrower (or selected by the Administrative Agent if the
Borrower fails to make such designation).
Section 2.12. Scheduled Amortization of Term Loans. (a) Facility A Loans.
On each Quarterly Amortization Date during each period set forth below, the
Borrower shall repay Facility A Loans in an aggregate principal amount equal to
the installment amount listed opposite such period below (subject to reduction
as provided in subsection (c) of this Section):
Installment
Period Amount Total
------ ----------- -----
September 30, 1998 $ 1,118,421.05 $ 8,947,368.40
through June 30, 2000
September 30, 2000 $ 7,368,421.05 $ 29,473,684.20
through June 30, 2001
September 30, 2001 $22,368,421.05 $ 89,473,684.20
through June 30, 2002
September 30, 2002 $40,701,754.40 $122,105,263.20
through March 31, 2003 ---------------
Total $250,000,000.00
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(b) Facility B Loans. On each Quarterly Amortization Date during each
period set forth below, the Borrower shall repay Facility B Loans in an
aggregate principal amount equal to the installment amount listed opposite such
period below (subject to reduction as provided in subsection (c) of this
Section):
Installment
Period Amount Total
------ ----------- -----
September 30, 1998
through March 31, 2004 $ 625,000 $ 14,375,000
June 30, 2004
through January 15, 2005 $58,906,250 $235,625,000
------------
Total $250,000,000
(c) Effect of Unscheduled Prepayments. Each unscheduled prepayment of the
Loans outstanding under Facility A or Facility B shall be applied to reduce the
amount of subsequent scheduled repayments of the Loans outstanding under such
Facility as follows:
(i) if such prepayment is a mandatory prepayment pursuant to
subsection (a), (d) or (e) of Section 2.13, (x) 50% of the amount of such
prepayment shall be applied to reduce such subsequent scheduled repayments
in inverse order of maturity and (y) after giving effect to the foregoing
reduction, the remaining 50% of the amount of such prepayment shall be
applied to reduce all such subsequent scheduled repayments ratably by
amount;
(ii) if such prepayment is a mandatory prepayment pursuant to
subsection (b) or (c) of Section 2.13, the entire amount of such prepayment
shall be applied to reduce all such subsequent scheduled prepayments in
inverse order of maturity; and
(iii) if such prepayment is an optional prepayment pursuant to Section
2.14, such prepayment shall be applied (x) to reduce the amount of such
subsequent scheduled prepayments required to be made within six months
after such optional prepayment is made, in the order of the applicable
scheduled repayment dates, and (y) after giving effect to the foregoing
reduction, to reduce the amount of all such subsequent scheduled payments
ratably by amount.
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(d) Interest. Each repayment of principal of the Term Loans under this
Section shall be made together with interest accrued on the amount repaid to the
date of such repayment.
Section 2.13. Unscheduled Mandatory Prepayments of Loans. (a) Asset Sales.
If after the Closing Date any Vencor Company receives any Net Cash Proceeds of
any Asset Sale, the Borrower shall prepay (subject to subsections (f) and (j)
below) an aggregate principal amount of Loans equal to 100% of such Net Cash
Proceeds. Concurrently with the closing of any Asset Sale, the Net Cash Proceeds
received at such closing shall be deposited in a Cash Collateral Account and
held in such Cash Collateral Account until such Net Cash Proceeds (or an amount
equal thereto) are applied to prepay Loans.
(b) Incurrence of Debt. If after the Closing Date any Vencor Company
receives any Net Cash Proceeds from the issuance or other incurrence of any
Debt, the Borrower shall prepay (subject to subsections (f) and (j) below) an
aggregate principal amount of Loans equal to 100% of such Net Cash Proceeds;
provided that this subsection shall not apply to any Net Cash Proceeds of (i)
Debt under this Agreement, (ii) the 1998 Subordinated Notes, (iii) Permitted
Inter-Company Debt or (iv) Debt incurred to refinance other Debt as permitted by
Section 7.02 or 7.03.
(c) Equity Issuances. If after the Closing Date any Vencor Company
receives any Net Cash Proceeds from any Equity Issuance, the Borrower shall
prepay (subject to subsections (f) and (j) below) an aggregate principal amount
of Loans equal to 100% of such Net Cash Proceeds.
(d) Excess Cash Flow. With respect to each Fiscal Year commencing with
Fiscal 1998, the Borrower shall prepay an aggregate principal amount of Loans
equal to 50% of the Excess Cash Flow for such Fiscal Year.
(e) Excess Casualty Proceeds. The Borrower (or the Collateral Agent on its
behalf) shall apply any Excess Casualty Proceeds to prepay (subject to
subsections (f) and (j) below) an aggregate principal amount of Loans equal to
100% of such Excess Casualty Proceeds.
(f) Timing of Prepayment. Each prepayment required by subsection (a), (b)
or (c) of this Section shall be made within two Domestic Business Days after any
Vencor Company receives the relevant Net Cash Proceeds. Each prepayment required
by subsection (d) of this Section shall be made within 90 days after the end of
the relevant Fiscal Year. Each prepayment required by subsection (e) of this
Section shall be made within the time provided in Section 5.13(a)(ii).
Notwithstanding the foregoing, if the aggregate principal amount of the Loans
required to be prepaid on any date pursuant to this Section is less than
$1,000,000, such prepayment shall be deferred until the aggregate principal
amount of the Loans required to be prepaid pursuant to this Section (including
such deferred amounts) is not less than $1,000,000.
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(g) Allocation of Prepayments. Each prepayment of the Loans required under
this Section (an "Unscheduled Mandatory Prepayment") shall be applied as
follows:
(i) Each such prepayment shall be applied to prepay the Bridge
Loans as provided in Section 2.11 until the Bridge Loans shall have been
paid in full.
(ii) After the Bridge Loans shall have been paid in full, each such
prepayment shall be applied to prepay the Term Loans until the Term Loans
shall have been paid in full. Each such prepayment so applied shall be
allocated between Facility A and Facility B in proportion to the aggregate
principal amount of the Loans then outstanding under each such Facility
(subject to any reallocation pursuant to subsection (j) below). The amount
so allocated to each such Facility shall be applied to prepay ratably such
Group or Groups of Loans under such Facility as shall be designated by the
Borrower in the relevant Prepayment Notice (or selected by the
Administrative Agent if the Borrower fails to make such designation).
(iii) After the Term Loans shall have been paid in full, each such
prepayment shall be applied to prepay outstanding Swingline Loans and/or
any Group or Groups of Revolving Credit Loans designated by the Borrower in
the applicable Prepayment Notice (or selected by the Administrative Agent
if the Borrower fails to make such designation). The Borrower shall give
the Administrative Agent notice of any such prepayment as if it were an
optional prepayment made pursuant to Section 2.08(f) or 2.14, as
applicable.
(iv) After all outstanding Term Loans, Swingline Loans and Revolving
Credit Loans shall have been paid in full, the remaining amount of each
such required prepayment shall be applied to reduce the Revolving Credit
Commitments ratably by amount.
(h) Interest. Each prepayment of principal of the Loans under this
Section shall be made together with interest accrued on the amount prepaid to
the date of payment.
(i) Notice of Prepayment. To the extent that any Unscheduled Mandatory
Prepayment is to be applied to prepay Bridge Loans, notice of such
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prepayment shall be given as provided in Section 2.11. To the extent that any
Unscheduled Mandatory Prepayment is to be applied to prepay Term Loans, the
Borrower shall give the Administrative Agent, before 11:00 A.M. (Eastern Time)
on the Domestic Business Day immediately preceding the date of each Unscheduled
Mandatory Prepayment (an "Unscheduled Mandatory Prepayment Date"), a Prepayment
Notice specifying the date and amount of such prepayment and describing the
event or events which require such prepayment to be made. Upon receiving such
Prepayment Notice, the Administrative Agent shall (i) promptly notify each
Facility A Lender of the contents thereof and of such Facility A Lender's share
of such prepayment and (ii) at least one Domestic Business Day before the
relevant Unscheduled Mandatory Prepayment Date, send each Facility B Lender a
notice complying with subsection (j) of this Section (a "Facility B Unscheduled
Prepayment Notice").
(j) Option of Facility B Lenders Not to Accept Unscheduled Mandatory
Prepayments. (A) Each Facility B Unscheduled Prepayment Notice shall state:
(w) the amount of the relevant Unscheduled Mandatory Prepayment
that would, but for the provisions of this subsection (j), be allocated to
Facility B pursuant to subsection (g) above (the "Facility B Prepayment
Amount") and the portion thereof that such Facility B Lender will be
entitled to receive if it accepts prepayment of its Facility B Loans in
accordance with this subsection;
(x) that the portion of such prepayment allocated to Facility B
will be deferred to the fifth Domestic Business Day after the date of such
notice (a "Deferred Facility B Prepayment Date");
(y) that such Facility B Lender is requested to notify the
Administrative Agent in writing, not later than 2:00 P.M. (Eastern Time) on
the Domestic Business Day immediately preceding the Deferred Facility B
Prepayment Date, as to whether such Facility B Lender accepts or rejects
(in each case, in whole and not in part) such prepayment; and
(z) that, if such Facility B Lender fails to reject such
prepayment in writing by 2:00 P.M. (Eastern Time) on the Domestic Business
Day immediately preceding such Deferred Facility B Prepayment Date, it
shall be deemed to accept such prepayment.
(B) On or before such Unscheduled Mandatory Prepayment Date, the Borrower
shall deposit in the Facility B Prepayment Account established pursuant to
Section 7(a) of the Security Agreement an amount equal to the Facility B
Prepayment Amount (together with interest estimated to accrue thereon to but
excluding the Deferred Facility B Prepayment Date).
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(C) On each Deferred Facility B Prepayment Date, the Administrative Agent
shall withdraw from the Facility B Prepayment Account the amount deposited
therein with respect to the relevant Unscheduled Mandatory Prepayment (and any
interest earned thereon) and shall apply such amount as follows:
(x) to prepay a portion of the principal of the Facility B Loans
of each Facility B Lender that shall have accepted (or be deemed to have
accepted) such prepayment (an "Accepting Facility B Lender") equal to the
portion of the Facility B Prepayment Amount initially allocated to such
Accepting Facility B Lender;
(y) to prepay a portion of the principal of any Group of
Facility A Loans designated by the Borrower (or selected by the
Administrative Agent if the Borrower fails to make such designation),
ratably in proportion to the then outstanding principal amounts thereof, in
an aggregate amount equal to the portion of the relevant Facility B
Prepayment Amount initially allocated to Facility B Lenders that rejected
such prepayment; and
(z) to pay interest accrued on the principal amounts so prepaid
to the date of prepayment.
If the amount withdrawn from the Facility B Prepayment Account is not sufficient
to make the foregoing payments, the Borrower shall pay to the Administrative
Agent on such Deferred Facility B Prepayment Date an amount equal to the
shortfall. If the amount withdrawn from the Facility B Prepayment Account is
more than sufficient to make the foregoing payments, the Administrative Agent
shall make available to the Borrower on such Deferred Facility B Prepayment Date
an amount equal to the excess.
Section 2.14. Optional Prepayments. (a) Base Rate Loans. The Borrower
may, upon giving a Prepayment Notice to the Administrative Agent before 12:00
Noon (Eastern Time) on the date of prepayment, prepay the Base Rate Loans
outstanding under any Facility on any Domestic Business Day in whole, or in part
in amounts aggregating $1,000,000 or any larger multiple of $100,000.
(b) CD Loans. The Borrower may, upon giving a Prepayment Notice to the
Administrative Agent at least two Domestic Business Days before the date of
prepayment, prepay any Group of CD Loans on any Domestic Business Day in whole,
or in part in amounts aggregating $5,000,000 or any larger multiple of
$1,000,000. Unless such Loans are prepaid on the last day of an Interest Period
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applicable thereto, the Borrower shall comply with Section 2.17 in connection
with such prepayment.
(c) Euro-Dollar Loans. The Borrower may, upon giving a Prepayment Notice
to the Administrative Agent at least three Euro-Dollar Business Days before the
date of prepayment, prepay any Group of Euro-Dollar Loans on any Euro-Dollar
Business Day in whole, or in part in amounts aggregating $5,000,000 or any
larger multiple of $1,000,000. Unless such Loans are prepaid on the last day of
an Interest Period applicable thereto, the Borrower shall comply with Section
2.17 in connection with such prepayment.
(d) Premium Payable on Early Prepayment of Facility B Loans. If any Group
of Facility B Loans is prepaid pursuant to this Section 2.14 on a date which is
less than 12 months after the Closing Date, the Borrower shall pay to the
Administrative Agent for the account of the Facility B Lenders a prepayment
premium equal to 2% of principal amount being prepaid. If any Group of Facility
B Loans is prepaid pursuant to this Section on a date which is at least 12
months, but less than 18 months, after the Closing Date, the Borrower shall pay
to the Administrative Agent for the account of the Facility B Lenders a
prepayment premium equal to 1% of the principal amount being prepaid.
(e) Notice to Lenders. Upon receiving a Prepayment Notice pursuant to
this Section, the Administrative Agent shall promptly notify each Lender under
the relevant Facility of the contents thereof and of such Lender's share of such
prepayment and such Prepayment Notice shall not thereafter be revocable by the
Borrower.
(f) Ratable Application. Each prepayment of any Group of Loans pursuant
to this Section (and, in the case of Facility B Loans, any related prepayment
premium) shall be applied ratably to the Loans of the several Lenders included
in such Group of Loans.
(g) Payment of Accrued Interest. On the date of each prepayment of Loans
(other than Base Rate Loans) pursuant to this Section, the Borrower shall pay
interest accrued on the principal amount prepaid to the date of prepayment.
Section 2.15. Termination or Reduction of Commitments. (a) Revolving
Credit Commitments. The Borrower may, upon at least three Domestic Business
Days' notice to the Administrative Agent, (i) terminate the Revolving Credit
Commitments at any time, if no Revolving Credit Lender has any Revolving Credit
Exposure after such termination, or (ii) ratably reduce the Revolving Credit
Commitments from time to time by an aggregate amount of $10,000,000 or any
larger multiple of $1,000,000; provided that immediately after such reduction no
Lender's Outstanding Revolving Credit Amount shall exceed its Revolving Credit
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Commitment as so reduced. Unless previously terminated, the Revolving Credit
Commitments shall terminate in their entirety on the Revolving Credit
Termination Date. Once reduced or terminated the Revolving Credit Commitments
may not be reinstated.
(b) Other Commitments. The Bridge Commitments, Facility A Commitments and
Facility B Commitments shall terminate on the Closing Date when the related
Loans are made.
Section 2.16. General Provisions as to Payments. (a) The Borrower shall
make each payment of principal of, and interest on, the Loans and the LC
Reimbursement Obligations and each payment of commitment fees and letter of
credit fees (other than fees payable directly to the LC Issuing Banks) hereunder
not later than 1:00 P.M. (Eastern Time) on the date when due, in Federal or
other funds immediately available in Charlotte, North Carolina, to the
Administrative Agent at its address for payments specified in or pursuant to
Section 12.01. Upon receiving a payment for the account of the Lenders under any
Facility, the Administrative Agent will promptly distribute to each such Lender
its ratable share of such payment. Whenever any payment of principal of, or
interest on, Base Rate Loans, CD Loans, Swingline Loans or LC Reimbursement
Obligations or any payment of commitment fees or letter of credit fees shall be
due on a day which is not a Domestic Business Day, the date for payment thereof
shall be extended to the next succeeding Domestic Business Day. Whenever any
payment of principal of, or interest on, Euro-Dollar Loans shall be due on a day
which is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case the date for payment
thereof shall be the next preceding Euro-Dollar Business Day. If the date for
any payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from the
Borrower before the date on which any payment is due to any of the Lenders
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and, in reliance upon such assumption,
the Administrative Agent may (but shall not be obligated to) cause to be
distributed to each Lender under the relevant Facility on such due date an
amount equal to the amount then due such Lender. If and to the extent that the
Borrower shall not have so made such payment, each such Lender shall repay to
the Administrative Agent forthwith on demand any such amount distributed to such
Lender together with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to the
Administrative Agent, at the Federal Funds Rate.
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Section 2.17. Funding Losses. (a) If the Borrower makes any payment of
principal with respect to any Fixed Rate Loan or if any Fixed Rate Loan is
converted to a Base Rate Loan (whether such payment or conversion is pursuant to
Article 2, 9 or 11 or otherwise) on any day other than the last day of an
Interest Period applicable thereto, or the last day of an applicable period
fixed pursuant to Section 2.05(d), or if the Borrower fails to borrow, prepay,
convert or continue any Fixed Rate Loans after notice has been given to any
Lender in accordance with Section 2.03(a), 2.06(c), 2.13(h) or 2.14(d), the
Borrower shall pay to each Lender an amount calculated as provided in Exhibit N
hereto to compensate such Lender for any resulting loss or expense incurred by
such Lender (or by any existing or prospective Participant in the related Loan),
including any loss incurred in obtaining, liquidating or employing deposits from
third parties.
(b) Each Lender wishing to demand compensation pursuant to this Section
shall, within seven Domestic Business Days after the relevant payment or
conversion or failure to borrow, prepay, convert or continue occurs, notify the
Administrative Agent that it demands such compensation and deliver to the
Administrative Agent a certificate as to the amount of compensation which such
Lender is entitled to receive pursuant to subsection (a) of this Section,
showing the calculation thereof in reasonable detail. Such certificate shall be
conclusive in the absence of manifest error. Promptly after the end of such
period of seven Domestic Business Days, the Administrative Agent shall notify
the Borrower of all demands for such compensation received by it during such
period and deliver to the Borrower copies of the supporting certificates
received by it from Lenders. Within 15 days thereafter, the Borrower shall pay
to the Administrative Agent the aggregate amount properly demanded by Lenders
pursuant to this Section and, upon receipt thereof, the Administrative Agent
shall distribute such amount to the Lenders entitled thereto.
Section 2.18. Computation of Interest and Fees. (a) Interest based on
the Prime Rate and commitment fees hereunder shall be computed on the basis of a
year of 365 days (or 366 days in a leap year) and paid for the actual number of
days elapsed (including the first day but excluding the last day). All other
interest and all letter of credit fees hereunder shall be computed on the basis
of a year of 360 days and paid for the actual number of days elapsed (including
the first day but excluding the last day).
(b) The Administrative Agent shall determine each interest rate applicable
to the Loans hereunder and each Commitment Fee Rate and LC Fee Rate applicable
hereunder. The Administrative Agent shall give prompt notice to the Borrower
and the Lenders of each rate of interest, Commitment Fee Rate and LC Fee Rate so
determined, and its determination thereof shall be conclusive in the absence of
manifest error; provided that, if the Administrative Agent makes
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such determinations for any Rate Period on the basis of an estimated Pricing
Level set forth in a certificate delivered by the Borrower pursuant to Section
5.01(e) and subsequently determines (or receives a certificate pursuant to
Section 5.01(e) establishing) that a higher Pricing Level applies during such
Rate Period, the Administrative Agent shall promptly notify the Borrower and the
Lenders of such higher Pricing Level and, within two Domestic Business Days
after receiving such notice, the Borrower shall pay to the Administrative Agent,
for the accounts of the Lenders, the additional interest and fees that should
have been paid prior to such time by reason of the applicability of such higher
Pricing Level. If the Administrative Agent makes such determinations on the
basis of a Pricing Level estimated by the Borrower and subsequently determines
(or receives a certificate pursuant to Section 5.01(e) establishing) that a
lower Pricing Level applied during the relevant Rate Period, no adjustment shall
be made for any resulting overpayments of interest or fees theretofore made by
the Borrower on the basis of the higher Pricing Level estimated by the Borrower.
Section 2.19. Regulation D Compensation. If and for so long as any Lender
maintains reserves against "Eurocurrency liabilities" (or any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of such Lender to
United States residents), and as a result the cost to such Lender (or its Euro-
Dollar Lending Office) of making or maintaining its Euro-Dollar Loans is
increased, then such Lender may require the Borrower to pay, contemporaneously
with each payment of interest on the Euro-Dollar Loans outstanding under any
Facility, additional interest on the related Euro-Dollar Loan of such Lender
under such Facility, at a rate per annum up to but not exceeding the amount by
which (x) (A) the applicable London Interbank Offered Rate divided by (B) one
minus the Euro-Dollar Reserve Percentage exceeds (y) the applicable London
Interbank Offered Rate. Any Lender wishing to require payment of such
additional interest (i) shall so notify the Borrower and the Administrative
Agent, in which case such additional interest on the Euro-Dollar Loans of such
Lender shall be payable to such Lender at the place indicated in such notice
with respect to each Interest Period commencing at least three Euro-Dollar
Business Days after such notice is given and (ii) shall furnish to the Borrower,
at least five Euro-Dollar Business Days prior to each date on which interest is
payable on the Euro-Dollar Loans, an officer's certificate setting forth the
amount to which such Lender is then entitled under this Section.
Section 2.20. Release of Security Interests in Assets Being Sold. The
Documentation Agent shall from time to time instruct the Collateral Agent to
release specific assets (but not all or substantially all the Collateral) from
the Security Interests pursuant to Section 18 of the Security Agreement if:
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(i) the Documentation Agent shall have received a written request
for such release signed by an Executive Officer or a Financial Officer
stating that (x) the assets to be released are being sold and (y) the sale
thereof does not violate Section 7.05 or 7.19 hereof or Section 10 of
Exhibit P hereto;
(ii) arrangements satisfactory to the Documentation Agent have been
made so that such release will become effective concurrently with the
closing of such sale;
(iii) in the case of an Asset Sale, arrangements satisfactory to the
Documentation Agent have been made to deposit an amount equal to the Net
Cash Proceeds payable at the closing of such Asset Sale in a Collateral
Account and apply it to prepay Loans as required by Section 2.13; and
(iv) no Enforcement Notice is in effect when such instructions are
given.
ARTICLE 3
Conditions
Section 3.01. Effectiveness of this Agreement; Closing. This Agreement
will become effective, and the Closing will occur, when (i) the Documentation
Agent shall have received the following documents, each dated the Closing Date
unless otherwise indicated, and (ii) the other conditions specified below shall
have been satisfied:
(a) with respect to each party listed on the signature pages
hereof, either a counterpart of this Agreement signed by such party or
facsimile or other written confirmation satisfactory to the Documentation
Agent that such party has signed a counterpart hereof;
(b) a duly executed Note complying with the provisions of Section
2.04 for the account of each Lender (except any Facility B Lender that has
elected pursuant to Section 2.04 not to receive a Note);
(c) a duly executed Swingline Note complying with the provisions
of Section 2.08(d) for the account of the Swingline Bank;
(d) a counterpart of the Vencor Guaranty Agreement signed by
Vencor;
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(e) a counterpart of a Subsidiary Guaranty Agreement signed by each
Material Subsidiary listed in Part I or II of Schedule 4 hereto;
(f) a counterpart of the Security Agreement, signed by each of the parties
listed on the signature pages thereof, together with stock certificates
evidencing all the capital stock listed in Schedule 4 hereto (except the capital
stock of the two Insurance Subsidiaries held by Vencor Insurance Holdings, Inc.)
and signed stock powers relating thereto;
(g) a counterpart of each Master Lease Agreement signed by each of the
parties listed on the signature pages thereof, together with evidence
satisfactory to the Documentation Agent that (i) a Master Lease Agreement has
been duly executed and delivered by each Ventas Company that owns an Initial
Master Lease Property or a Deferred Master Lease Property, (ii) each such Master
Lease Agreement conforms in all material respects to the most recent draft
thereof distributed to the Lenders prior to the date hereof, (iii) such Master
Lease Agreements will become effective with respect to the Initial Master Lease
Properties on the Closing Date and (iv) appropriate memoranda of lease will be
recorded on or promptly after the Closing Date, with respect to each of the
Initial Master Lease Properties, as required to protect the rights of the
Borrower as lessee thereof against third parties;
(h) a signed counterpart of a Leasehold Mortgage with respect to the lease
of each of the Initial Master Lease Properties and evidence satisfactory to the
Documentation Agent that such Leasehold Mortgages will be recorded (and any
related intangibles, mortgage recording or similar taxes will be paid) on or
promptly after the Closing Date;
(i) a counterpart of an Interim Operating Agreement with respect to each
Deferred Master Lease Property, signed by the Ventas Company that owns such
Deferred Master Lease Property and the Vencor Company that will operate it;
(j) all signed UCC financing statements reasonably requested by the
Collateral Agent to perfect its security interests in the Collateral and
evidence satisfactory to the Documentation Agent that such UCC financing
statements will be filed on or promptly after the Closing Date;
(k) evidence satisfactory to the Documentation Agent that each Third Party
Lease has been assigned or subleased to the appropriate Vencor Company;
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(l) evidence satisfactory to the Documentation Agent that each
Management Contract has been assigned to the appropriate Vencor Company;
(m) evidence satisfactory to the Documentation Agent that each other
Initial Asset Transfer Document has been duly executed and delivered by the
relevant Ventas Company;
(n) an executed or conformed copy of the 1998 Subordinated Note
Indenture and evidence satisfactory to the Documentation Agent that,
concurrently with the Closing, $300,000,000 aggregate principal amount of
1998 Subordinated Notes are being issued and sold and the net proceeds
thereof are being received by (or for the account of) the Borrower;
(o) evidence satisfactory to the Documentation Agent that, on the
Closing Date, Old Vencor will pay in full all loans and reimbursement
obligations then outstanding under Old Vencor's Existing Credit Agreement,
including all interest and fees accrued thereunder to but excluding the
Closing Date, and the commitments thereunder shall have been terminated;
(p) evidence satisfactory to the Documentation Agent that Old
Vencor's tender offer to purchase the Existing Subordinated Notes has been
accepted by the requisite number of holders thereof and the indenture under
which the Existing Subordinated Notes were issued has been amended to
delete covenants as contemplated in connection with such tender offer;
(q) evidence satisfactory to the Documentation Agent that the
Management Preferred Stock has been issued to Old Vencor;
(r) the Documentation Agent shall not have received notice from the
Required Lenders stating that they have determined in good faith that (i)
any action, suit or proceeding is pending or threatened against any Vencor
Company in which there is a reasonable possibility of an adverse decision
which would have a Material Adverse Effect or (ii) since December 31, 1997
any event has occurred or any condition has come into existence which has
had, or is reasonably likely to have, a Material Adverse Effect;
(s) evidence satisfactory to the Documentation Agent and the
Administrative Agent that the Borrower has paid or will pay on the Closing
Date all fees, expenses and other amounts payable by the
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Borrower on or before the Closing Date to the Agents and the Lenders in
connection with this Agreement;
(t) an opinion of Jill L. Force, General Counsel of Vencor and the
Borrower, substantially in the form of Exhibit E hereto;
(u) an opinion of Sullivan & Cromwell, special counsel for Vencor and
the Borrower, substantially in the form of Exhibit F hereto;
(v) an opinion of Davis Polk & Wardwell, special counsel for the
Agents, substantially in the form of Exhibit G hereto;
(w) all approvals, consents and other actions by or in respect of, or
filings with, any governmental body, agency, official, authority or other
Person (including stockholders) required in connection with the
transactions contemplated by the Financing Documents shall have been
obtained, taken or made (except for (i) the licenses and other governmental
consents referred to in Section 4.17 and (ii) any such approvals, consents,
actions or filings with any Person (other than any governmental body,
agency, official or authority) as to which the failure to have obtained,
taken or made them is not, in the aggregate, material); and
(x) all documents that the Documentation Agent may reasonably request
relating to the existence of the Ventas Companies and the Vencor Companies,
the corporate or other authority for and the validity of the Asset Transfer
Documents and the Financing Documents, the creation and perfection of the
Liens contemplated by the Collateral Documents and any other matters
relevant thereto, all in form and substance satisfactory to the
Documentation Agent.
Promptly after the Closing occurs, the Documentation Agent shall notify the
Borrower, the Administrative Agent and the Lenders thereof, and such notice
shall be conclusive and binding on all parties hereto.
Section 3.02. Credit Events. The obligations (i) of each Lender to make a
Loan on the occasion of each Borrowing (except a Borrowing pursuant to Section
2.08(i) to refund outstanding Swingline Loans), (ii) of an LC Issuing Bank to
sell and of each Lender to purchase each participation in a Letter of Credit as
and when provided in Section 2.07, (iii) of each LC Issuing Bank to extend (or
allow the extension of) the expiry date of a Letter of Credit issued by it
hereunder as and when provided in Section 2.07 and (iv) of the Swingline Bank to
make any Swingline Loan are each subject to the satisfaction of the following
conditions:
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(a) the fact that the Closing Date shall have occurred on or prior to
May 15, 1998;
(b) receipt by the Administrative Agent of notice of the relevant
Credit Event as required by Section 2.02(a), 2.07(d) or 2.08(b), as the
case may be;
(c) the fact that, immediately before and after such Credit Event, no
Default shall have occurred and be continuing; and
(d) the fact that each of the representations and warranties made by
the Borrower or any of its Subsidiaries in or pursuant to any Financing
Document to which it is a party shall be true on and as of the date of such
Credit Event as if made on and as of such date, except that after the
Closing Date this clause (d) shall not apply to the representation and
warranty in Section 4.05(c).
Each Credit Event under this Agreement shall be deemed to be a representation
and warranty by the Borrower on the date of such Credit Event as to the facts
specified in clauses (c) and (d) of this Section.
ARTICLE 4
Representations and Warranties
Each of the Borrower and Vencor represents and warrants to the Lender
Parties that:
Section 4.01. Corporate Existence and Power. Each Vencor Company is a
corporation, limited liability company or partnership duly incorporated or
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, and has all corporate or other
powers and all material governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted and as proposed to
be conducted, except the licenses and other governmental consents relating to
Deferred Master Lease Properties (as to which the representation in Section 4.17
applies).
Section 4.02. Corporate and Governmental Authorization; No Contravention.
The execution and delivery by each Vencor Company of the Financing Documents to
which it is a party and its performance of its obligations thereunder are within
its corporate or other powers, have been duly authorized by all necessary
corporate or other action, require no action by or in respect of, or filing
with, any governmental body, agency or official (except such as shall have
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been made at or before the time required by the Financing Documents and shall be
in full force and effect on and after the date when made to the extent required
by the Financing Documents) and do not contravene, or constitute a default
under, any provision of applicable law or regulation or of its Organizational
Documents, or of any agreement, judgment, injunction, order, decree or other
instrument binding upon it or result in or require the imposition of any Lien
(other than the Liens created by the Collateral Documents) on any of its assets.
Section 4.03. Binding Effect. This Agreement constitutes a valid and
binding agreement of the Borrower and Vencor, and the other Financing Documents,
when executed and delivered as contemplated by this Agreement, will constitute
valid and binding obligations of each Vencor Company that is a party thereto, in
each case enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency, fraudulent conveyance or other similar laws affecting
creditors' rights generally and by general principles of equity.
Section 4.04. Security Interests. On the Closing Date, the Collateral
Documents will create valid Security Interests in substantially all the
properties owned by Vencor, the Borrower and the Material Subsidiaries, except
(i) the Development Properties, (ii) the Excluded Properties and (iii) personal
property excluded from the Security Interests by the proviso at the end of
Section 3(a) of the Security Agreement. At all times after the Closing, the
Collateral Documents will create valid Security Interests in the Collateral from
time to time covered or purportedly covered thereby. Such Security Interests
will be perfected and/or recorded as to each item of Collateral when or promptly
after it is included in the Collateral, and will be prior to all other Liens
(except Permitted Liens) on such item of Collateral until the applicable
Security Interest is released pursuant to Section 18 of the Security Agreement.
Section 4.05. Financial Information. (a) The consolidated balance sheet
of Old Vencor and its Consolidated Subsidiaries as of December 31, 1997 and the
related consolidated statements of operations, cash flows and shareholders'
equity for the Fiscal Year then ended, reported on by Ernst & Young LLP, a copy
of which has been delivered to each of the Lenders, fairly present in all
material respects, in conformity with GAAP, the consolidated financial position
of Old Vencor and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such Fiscal Year.
(b) The unaudited pro forma consolidated balance sheet of Vencor and its
Consolidated Subsidiaries as of December 31, 1997 and the related unaudited pro
forma consolidated statement of income for the Fiscal Year then ended, each as
set forth in the Proxy Statement, fairly present in all material respects, in
conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a) above,
(i) the
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consolidated financial position of Vencor and its Consolidated Subsidiaries as
of such date, adjusted to give effect to the Reorganization Transactions (as if
they had occurred on such date), and (ii) their consolidated results of
operations for such Fiscal Year, adjusted to give effect to the Reorganization
Transactions (as if they had occurred at the beginning of such Fiscal Year). The
projections set forth in the Information Memorandum were based on reasonable
assumptions and, when prepared, represented a reasonable estimate of the future
performance of the Vencor Companies.
(c) Since the respective dates as of which information is stated in the
Information Memorandum, no event has occurred and no condition has come into
existence which has had, or is reasonably likely to have, a Material Adverse
Effect or which has caused the projections therein to be materially misleading
as of the Closing Date.
(d) Since December 31, 1997, no event has occurred and no condition has
come into existence which has had, or is reasonably likely to have, a Material
Adverse Effect.
Section 4.06. Litigation. Except as disclosed in Schedule 9 hereto, there
is no action, suit or proceeding pending against, or to the knowledge of the
Borrower or Vencor threatened against or affecting, any Vencor Company before
any court or arbitrator or any governmental body, agency or official (i) in
which there is a reasonable possibility of an adverse decision that could have a
Material Adverse Effect or (ii) which in any manner questions the validity of
any Financing Document.
Section 4.07. Compliance with ERISA. Each member of the ERISA Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Internal Revenue Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or made any amendment
to any Plan, which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security under ERISA or the Internal Revenue Code
or (iii) incurred any liability under Title IV of ERISA other than a liability
to the PBGC for premiums under Section 4007 of ERISA.
Section 4.08. Taxes. (a) With respect to the period prior to the Closing
Date, Old Vencor and its Subsidiaries have filed all United States Federal
income tax returns that are required to be filed by them (or have filed
appropriate extensions for filing such tax returns) and have paid all taxes due
pursuant to such
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returns or pursuant to any assessment received by any of them, except such
taxes, if any, as are being contested in good faith and as to which reserves
have been provided in accordance with GAAP.
(b) The Vencor Companies have filed all United States Federal income tax
returns that are required to be filed by them (or have filed appropriate
extensions for filing such tax returns) and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by any of them, except such
taxes, if any, as are being contested in good faith and as to which reserves
have been provided. The charges, accruals and reserves on the books of the
Vencor Companies in respect of taxes or other governmental charges are, in the
opinion of Vencor, adequate.
Section 4.09. Compliance with Laws. The Vencor Companies are in
compliance in all material respects with all applicable laws, rules and
regulations, other than such laws, rules or regulations (i) the validity or
applicability of which the relevant Vencor Company is contesting in good faith
or (ii) the failure to comply with which could not, in the aggregate, reasonably
be expected to have a Material Adverse Effect.
Section 4.10. No Regulatory Restrictions on Borrowing. Neither the
Borrower nor any Guarantor is (i) an "investment company", within the meaning of
the Investment Company Act of 1940, as amended, (ii) a "holding company", or an
"affiliate" of a "holding company" or a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended or (iii) otherwise subject to any regulatory scheme which restricts
its ability to incur Debt hereunder.
Section 4.11. Environmental Matters. (a) From time to time before the
Closing, Old Vencor has reviewed the effect of Environmental Laws on its
business, operations and properties and those of its Subsidiaries, in the course
of which reviews it identified and evaluated associated liabilities and costs.
From time to time after the Closing, Vencor will review the effect of
Environmental Laws on the business, operations and properties of the Vencor
Companies, in the course of which reviews it will identify and evaluate
associated liabilities and costs. On the basis of such reviews, Vencor has
reasonably concluded that the foregoing associated liabilities and costs are
unlikely to have a Material Adverse Effect.
(b) Except to the extent that the Environmental Liabilities of the Vencor
Companies that relate to or could result from the matters referred to in this
Section 4.11(b) would not exceed $1,000,000 for any one occurrence, no material
notice, notification, demand, request for information, citation, summons,
complaint or order with respect to Hazardous Substances or any violation of
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Environmental Laws is in existence or, to the knowledge of Vencor, proposed,
threatened or anticipated with respect to or in connection with the operation of
any properties to be owned, leased or operated after the Closing Date by any
Vencor Company.
Section 4.12. Related Documents. The copies of the following documents
relating to the Reorganization Transactions which Vencor has delivered to the
Agents before the Closing are correct and complete copies thereof;
(i) the Proxy Statement;
(ii) the 1998 Subordinated Note Indenture;
(iii) the Reorganization Agreements; and
(iv) the Interim Operating Agreements.
Section 4.13. Effect of Reorganization Transactions on Outstanding Debt.
No Debt or other securities of any Vencor Company outstanding immediately after
the Closing Date will become subject to acceleration or mandatory repayment,
repurchase or other retirement by any Vencor Company by reason of the
Reorganization Transactions, except (i) Existing Subordinated Notes, (ii) other
Debt not exceeding $10,000,000 in aggregate outstanding principal amount and
(iii) the Management Preferred Stock (which will be retired when it is converted
to common stock of Vencor or, if not previously so converted, mandatorily
redeemed in 2008).
Section 4.14. Full Disclosure. All information heretofore furnished in
writing by Old Vencor or any Vencor Company to the Documentation Agent or the
Administrative Agent for inclusion in the Information Memorandum or to any Agent
or any Lender for purposes of or in connection with this Agreement or any
transaction contemplated hereby was, and all such information hereafter
furnished in writing by the Vencor Companies to any Agent or Lender will be,
true and accurate in every material respect or based on reasonable estimates on
the date as of which such information is or was stated or certified. Old Vencor
and Vencor have each disclosed to the Lenders in writing any and all facts which
are known to it and which have had or could reasonably be expected to have a
Material Adverse Effect.
Section 4.15. Information as to Equity Interests and Instruments Owned by
Vencor Companies. Schedule 4 hereto sets forth a correct and complete list, as
of the close of business on the Closing Date, of each Material Subsidiary and
Insurance Subsidiary, its outstanding Equity Interests, the owner thereof and
the
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percentage thereof owned by such owner. Schedule 1 to the Security Agreement
sets forth a correct and complete list, as of the close of business on the
Closing Date, of all Equity Interests in Persons (other than Material
Subsidiaries and Insurance Subsidiaries) owned by the Vencor Companies, the
owner thereof and the percentage thereof owned by such owner. As of the close of
business on the Closing Date, no Debt (including Permitted Inter-Company Debt)
owed to any Lien Grantor is evidenced by an instrument (as such term is defined
in the UCC) that is not held in a Concentration Account.
Section 4.16. Representations in Other Financing Documents. The
representations of each Guarantor in Section 2 of its Guaranty Agreement and the
representations of each Lien Grantor in Section 2 of the Security Agreement and
Section 5 of each Security Agreement Supplement (if any) signed by it are true.
Section 4.17. Timing of Certain Reorganization Transactions. On the
Closing Date (i) all Initial Master Lease Properties will be leased under the
Master Lease Agreements and (ii) all Third Party Leases and the Management
Contracts will be assigned to Vencor. Each of the Deferred Master Lease
Properties will be leased under the Master Lease Agreements promptly after all
requisite licenses and other governmental consents have been obtained. Vencor
expects that all such licenses and other governmental consents will be obtained
on or before July 1, 1998, except to the extent that failures to obtain them
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect.
Section 4.18. Year 2000 Compliance. Before the Closing Old Vencor
initiated, and from time to time after the Closing Vencor will continue, a
review and assessment of all areas within its and its Subsidiaries' businesses
and operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by it or any of its Subsidiaries (or their respective
suppliers and vendors) may be unable to recognize and perform properly date-
sensitive functions involving certain dates prior to and any date after December
31, 1999). Before the Closing Old Vencor did, and after the Closing Vencor will
continue to, develop a plan and timeline for addressing the Year 2000 Problem on
a timely basis and from time to time implement that plan in accordance with that
timetable. The Borrower and Vencor reasonably believe that all computer
applications (including those of its suppliers and vendors) that are material to
its or any of its Subsidiaries' businesses and operations will on a timely basis
be able to perform properly date-sensitive functions for all dates before and
after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent
that a failure to do so could not reasonably be expected to have a Material
Adverse Effect.
Section 4.19. Margin Stock. Upon completion of the Reorganization
Transactions, the Vencor Companies will not own, directly or indirectly, any
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Margin Stock except the Atria Shares. The Borrower expects that pursuant to a
signed merger agreement, a subsidiary of Kapson Senior Quarters Corp. will merge
into Atria and approximately 88% of the Atria Shares will be converted into
rights to receive cash in the amount of $20.25 per share. The Vencor Companies
expect to receive approximately $177.5 million in cash when such merger is
consummated and expect that their remaining Atria Shares will cease to be Margin
Stock when or shortly after such merger is consummated. The Borrower does not,
as of the date hereof, expect that the Vencor Companies will acquire any Margin
Stock (except the Atria Shares) in the future. Even if they do, Margin Stock
will not at any time represent more than 25% of the value (as determined by any
reasonable method) of the assets subject to any provision of the Financing
Documents that restricts the right or ability of the Vencor Companies to sell,
pledge or otherwise dispose of Margin Stock owned by them or requires a
prepayment of Loans upon the exercise of any such right.
ARTICLE 5
Affirmative Covenants
Each of the Borrower and Vencor agrees that, so long as any Lender has any
Credit Exposure hereunder or any interest or fee accrued hereunder remains
unpaid:
Section 5.01. Information. Vencor will deliver the following information
to the Administrative Agent (with copies thereof for each Lender if requested by
the Administrative Agent) and, promptly upon receipt thereof, the Administrative
Agent will deliver a copy thereof to each Lender:
(a) as soon as available and in any event within 90 days after the
end of each Fiscal Year, a consolidated balance sheet of Vencor and its
Consolidated Subsidiaries as of the end of such Fiscal Year, and the
related consolidated statements of operations, cash flows and changes in
stockholders' equity for such Fiscal Year, setting forth in each case in
comparative form the figures for the previous Fiscal Year (to the extent
available), all reported on in a manner acceptable to the SEC by
independent public accountants of nationally recognized standing, which
report (x) shall state that such financial statements present fairly, in
all material respects, the consolidated financial position of Vencor and
its Consolidated Subsidiaries as of the date of such financial statements
and their consolidated results of operations and cash flows for the period
covered by such financial statements in conformity with GAAP and (y) shall
not contain any Qualification;
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(b) as soon as available and in any event within 45 days after the
end of each of the first three Fiscal Quarters of each Fiscal Year, (i) an
unaudited condensed consolidated balance sheet of Vencor and its
Consolidated Subsidiaries and the related condensed consolidated statements
of operations for such Fiscal Quarter and for the portion of the Fiscal
Year ended at the end of such Fiscal Quarter and of cash flows for the
portion of the Fiscal Year ended at the end of such Fiscal Quarter, setting
forth in each case in comparative form the unaudited consolidated
statements of operations and cash flows (to the extent available) for the
corresponding Fiscal Quarter and the corresponding portion of the previous
Fiscal Year, all prepared in accordance with Rule 10-01 of Regulation S-X
of the General Rules and Regulations under the Securities Act of 1933, or
any successor rule that sets forth the manner in which interim financial
statements shall be prepared, and (ii) a certificate (subject to normal
year-end adjustments) of a Financial Officer as to the fairness of
presentation and consistency of such financial statements;
(c) simultaneously with the delivery of each set of financial
statements referred to in Sections 5.01(a) and (b), a certificate of a
Financial Officer, substantially in the form of Exhibit D hereto, (i)
setting forth in reasonable detail such calculations as are required to
establish whether Vencor was in compliance with the requirements of Article
6 and Section 7.07 on the date of such financial statements, (ii) stating
whether any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action that
Vencor is taking or proposes to take with respect thereto, (iii) stating
whether, since the date of the Most Recent Financial Statements, an event
has occurred or condition arisen which has had a Material Adverse Effect
which is not reflected in the financial statements delivered simultaneously
therewith and, if so, the nature of such Material Adverse Effect, and (iv)
stating whether, since the date of the Most Recent Financial Statements,
there has been a change in the GAAP applied in preparing the financial
statements then being delivered from those applied in preparing the Most
Recent Financial Statements which is material to the financial statements
then being delivered;
(d) simultaneously with the delivery of each set of annual financial
statements referred to in Section 5.01(a), a letter from the firm of
independent public accountants that reported on such statements stating (i)
whether anything has come to their attention in the course of their normal
audit procedures to cause them to believe that any Default existed on the
date of such financial statements and (ii) whether in their opinion the
calculations of compliance with the requirements of Article 6 and Section
7.07 set forth in the Financial Officer's certificate delivered
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simultaneously therewith pursuant to Section 5.01(c), to the extent derived from
data contained in the accounting records of the Vencor Companies, have been
determined in accordance with the relevant provisions of this Agreement;
(e) within 45 days after the end of each Fiscal Quarter ending on or after
September 30, 1998, a certificate signed by a Financial Officer setting forth
the Pricing Level applicable during the Rate Period that begins 46 days after
the end of such Fiscal Quarter and in reasonable detail the calculations
required to establish that such Pricing Level will be applicable; provided that
(x) in the case of the last Fiscal Quarter of any Fiscal Year, such certificate
may set forth only Vencor's estimate of the applicable Pricing Level (it being
understood that, if Vencor in good faith cannot determine with reasonable
certainty which of two Pricing Levels applies, Vencor may, in view of the
provisions of Section 2.18(b), appropriately estimate that the lower of such
Pricing Levels applies), and (y) if such certificate sets forth only an
estimated Pricing Level, Vencor will, within 90 days after the end of such
Fiscal Year, deliver a further certificate signed by a Financial Officer setting
forth the calculations contemplated by this clause (e) and either confirming
that such estimated Pricing Level applies or, if not, setting forth the Pricing
Level that does apply during the relevant Rate Period and requesting the
Administrative Agent to determine the amounts of any additional interest and/or
additional fees payable by Vencor pursuant to Section 2.18(b);
(f) within five Domestic Business Days after any Executive Officer or
Financial Officer obtains knowledge of any Default, if such Default is then
continuing, a certificate of a Financial Officer setting forth the details
thereof and the action that Vencor is taking or proposes to take with respect
thereto;
(g) within five Domestic Business Days after any Executive Officer or
Financial Officer obtains knowledge of any failure by a Vencor Company to comply
with the provisions of any Master Lease Agreement, Third Party Lease or
Management Contract in any material respect, if such failure is then continuing,
a certificate of a Financial Officer setting forth the details thereof and the
action that such Vencor Company is taking or proposes to take with respect
thereto;
(h) promptly after the mailing thereof to Vencor's shareholders generally,
copies of all financial statements, reports and proxy statements so mailed;
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(i) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and annual, quarterly or current reports that any
Vencor Company shall have filed with the SEC;
(j) promptly after any member of the ERISA Group (i) gives or is required
to give notice to the PBGC of any "reportable event" (as defined in Section 4043
of ERISA) with respect to any Plan which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, a copy of the notice of such reportable event given or
required to be given to the PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice that any Multiemployer
Plan is in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent
to terminate, impose liability (other than for premiums under Section 4007 of
ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of
such notice; (iv) applies for a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code, a copy of such application; (v) gives
notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of
such notice and other information filed with the PBGC; (vi) gives notice of
withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such
notice; or (vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or makes any amendment to any Plan which has resulted or
could result in the imposition of a Lien or the posting of a bond or other
security, a certificate of a Financial Officer setting forth details as to such
occurrence and the action, if any, which Vencor or the applicable member of the
ERISA Group is required or proposes to take;
(k) as soon as reasonably practicable after any Executive Officer obtains
knowledge of the commencement of an action, suit or proceeding against any
Vencor Company before any court or arbitrator or any governmental body, agency
or official in which there is a reasonable possibility of an adverse decision
which could have a Material Adverse Effect or which in any manner questions the
validity of any Financing Document, a certificate of a Financial Officer setting
forth the nature of such action, suit or proceeding and such additional
information as may be reasonably requested by any Lender;
(l) promptly upon Vencor's receipt from its independent public accountants
of any management letter which indicates a material weakness in the reporting
practices of any Vencor Company, a description of such material weakness and any
action being taken with respect thereto;
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(m) promptly upon their becoming available, copies of all press
releases and other statements made available generally by any Vencor
Company to the public concerning material developments in its business; and
(n) from time to time such additional information regarding the
financial position, results of operations or business of any Vencor Company
as any Lender may reasonably request through the Documentation Agent or the
Administrative Agent.
Information required to be delivered pursuant to clauses (a), (b), (h), (i) or
(m) of this Section shall be deemed to have been delivered on the date on which
Vencor provides notice to the Lenders that such information has been posted on
Vencor's website on the Internet at the website address listed on the signature
pages hereof, at sec.gov/edaux/searches.htm or at another website identified in
such notice and accessible by the Lenders without charge; provided that (i) such
notice may be included in a certificate delivered pursuant to subsection (c) of
this Section and (ii) Vencor shall deliver paper copies of the information
referred to in subsections (a) (b), (h), (i) or (m) of this Section to any
Lender that requests such delivery.
Section 5.02. Maintenance of Property. Each Vencor Company will keep all
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted. Each Vencor Company will maintain
all property leased to it and all property operated by it under a management
contract as required by the provisions of the applicable lease or management
contract.
Section 5.03. Insurance. (a) Each Vencor Company will maintain insurance
with responsible companies in such amounts and against such risks as is usually
carried by owners of similar businesses and properties in the same general areas
in which it operates. In addition, each Vencor Company will insure all property
leased to it and all property operated by it under a management contract as
required by the provisions of the applicable lease or management contract.
(b) If any Vencor Company fails to maintain any insurance policy required
to be maintained under this Section, the Collateral Agent shall have the right
to maintain such policy or obtain a comparable policy, and in either case pay
the premiums therefor. If the Collateral Agent maintains or obtains any such
policy and pays the premiums therefor, the Borrower will reimburse the
Collateral Agent upon demand for its expenses in connection therewith, including
interest thereon for each day at a rate per annum equal to the sum of 2% plus
the rate applicable to Basic Base Rate Loans for such day.
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Section 5.04. Compliance with Law. Each Vencor Company will comply in all
material respects with all applicable laws, ordinances, rules, regulations and
requirements of governmental authorities (including Environmental Laws and ERISA
and the rules and regulations thereunder), except where (i) the necessity of
compliance therewith is contested in good faith by appropriate proceedings, in
which case adequate and reasonable reserves will be established in accordance
with GAAP, or (ii) failures to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Section 5.05. Maintenance of Existence, Rights, Etc.. Each Vencor Company
will preserve, renew and keep in full force and effect its existence and its
rights, privileges, licenses and franchises necessary or desirable in the normal
conduct of business; provided that nothing in this Section shall prohibit (i)
any merger or consolidation permitted by Section 7.05, (ii) the termination of
the existence of any Subsidiary if (A) Vencor determines that such termination
is in its best interest and (B) such termination is not adverse in any material
respect to the Lenders, or (iii) the loss of any rights, privileges, licenses
and franchises if the loss thereof, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
Section 5.06. Use of Proceeds and Letters of Credit. (a) The proceeds of
the Loans will be used by the Borrower (i) to purchase assets from Vencor on the
Closing Date and (ii) for general corporate purposes of the Vencor Companies.
Vencor will use the proceeds received by it as consideration for the sale of
such assets to purchase and retire Existing Subordinated Notes and repay other
debt of Old Vencor assumed by Vencor in consideration of the transfer of assets
by Old Vencor to it.
(b) The Existing Letters of Credit were used, and the Additional Letters
of Credit will be used, for general corporate purposes.
Section 5.07. Completion of Reorganization Transaction. To the extent that
the Reorganization Transactions (other than the Spin-Off) are not completed on
the Closing Date:
(i) Vencor and the Borrower will exercise all reasonable efforts
to cause the Ventas Companies to comply with the provisions of the
Reorganization Agreements relating to the completion thereof, to cause all
necessary governmental and other consents to be obtained, and to cause such
Reorganization Transactions to be completed, in each case as promptly as
practicable after the Closing Date;
(ii) upon the inclusion of each additional Healthcare Facility
under a Master Lease Agreement after the Closing Date (including,
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without limitation, (A) any Deferred Master Lease Property, (B) any
Development Property purchased from and leased back to a Vencor Company
pursuant to the Development Agreement and (C) any Healthcare Facility
leased by a Ventas Company to a Vencor Company pursuant to the
Participation Agreement), the Borrower will promptly:
(w) deliver to the Collateral Agent a copy of the applicable
Master Lease Agreement (if not previously delivered) or the applicable
lease supplement adding such Healthcare Facility to such Master Lease
Agreement, as the case may be;
(x) cause an appropriate memorandum of lease to be duly recorded
with respect to such Master Lease Agreement or lease supplement;
(y) sign and deliver to the Collateral Agent a Leasehold Mortgage
with respect to the lease of such Healthcare Facility and cause such
Leasehold Mortgage to be duly recorded (and any related intangibles,
mortgage recording or similar taxes to be paid); and
(z) deliver to the Documentation Agent such evidence of the due
authorization, execution and delivery of such Leasehold Mortgage, the
recordation of such memorandum of lease and Leasehold Mortgage, the
payment of such taxes and any other matters relevant thereto as the
Documentation Agent may reasonably request.
Section 5.08. Designation of Material Subsidiaries. (a) The Borrower's
Material Subsidiaries as of the Closing Date are listed in Parts I and II of
Schedule 4 hereto. After the Closing Date, the Borrower shall, by notice to the
Agents, designate additional Wholly-Owned Subsidiaries as Material Subsidiaries
if and when required so that the sum of the total assets of every Subsidiary
that is not an Insurance Subsidiary or a Material Subsidiary (or, if any such
Subsidiary itself has Subsidiaries, the consolidated total assets of such
Subsidiary and its Consolidated Subsidiaries), in each case determined as of the
date of the Most Recent Financial Statements, does not exceed 5% of the
consolidated total assets of Vencor and its Consolidated Subsidiaries at such
date; provided that the Atria Shares shall be excluded from the foregoing
calculation so long as they constitute Margin Stock.
(b) The Borrower may from time to time, by notice to the Agents, terminate
the status of any Subsidiary as a Material Subsidiary; provided that,
immediately after such notice is given and after giving effect thereto, (i) no
Default shall have occurred and be continuing and (ii) the conditions specified
in
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subsection (a) of this Section would have been satisfied as of the date of the
Most Recent Financial Statements.
Section 5.09. Guarantees by Future Material Subsidiaries. Within five
Domestic Business Days after any Person becomes a Material Subsidiary, the
Borrower shall (i) cause such Material Subsidiary to guarantee the Borrower's
obligations hereunder pursuant to a Subsidiary Guaranty Agreement and (ii)
deliver to the Documentation Agent such legal opinions and other documents as
the Documentation Agent may reasonably request relating to the existence of such
Material Subsidiary, the corporate or other authority for and validity of its
Subsidiary Guaranty Agreement and any other matters relevant thereto, all in
form and substance satisfactory to the Documentation Agent.
Section 5.10. Future Assets to be Added to Collateral. (a) Within five
Domestic Business Days after any Person becomes a Material Subsidiary or an
Insurance Subsidiary, the Borrower shall cause all Equity Interests in such
Person owned by the Vencor Companies to be pledged under the Security Agreement;
provided that, if regulatory consent is required to permit any such pledge of
Equity Interests in an Insurance Subsidiary, (i) such pledge shall not be
required unless such regulatory consent is reasonably obtainable and (ii) if
such regulatory consent is reasonably obtainable, the Borrower shall exercise
all reasonable efforts to obtain it and shall not be required to pledge such
Equity Interests until it is obtained.
(b) If, at any time after the Closing, a Vencor Company (i) owns a
Material Real Property that is not included in the Collateral or (ii) leases a
Material Real Property under a lease with respect to which its leasehold
interest is not included in the Collateral, the Documentation Agent may (and if
it is requested to do so by the Required Lenders it shall) request the Borrower
to cause such Material Real Property or leasehold interest to be added to the
Collateral. Within 30 days after it receives any such request, the Borrower
shall cause such Material Real Property or leasehold interest to be added to the
Collateral by delivering to the Collateral Agent a mortgage or leasehold
mortgage with respect thereto and the appropriate UCC form for the related
fixture filing, all in form and substance reasonably satisfactory to the
Documentation Agent. The Borrower shall attempt in good faith to cause any such
lease of a Material Real Property to contain provisions for the benefit of a
leasehold mortgagee comparable to those contained in the Master Lease Agreements
and to obtain a non-disturbance agreement with respect to such lease on
customary terms. Notwithstanding the foregoing, this subsection shall not apply
to the Third Party Leases or to the Master Lease Properties (as to which Section
5.07(ii) applies).
(c) Within five Domestic Business Days after any Person becomes a Material
Subsidiary, the Borrower will (i) cause such Material Subsidiary to sign
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and deliver a Security Agreement Supplement granting a Lien or Liens on
substantially all the personal property included in its assets (with the
exceptions set forth in the proviso at the end of Section 3 of the Security
Agreement and such other exceptions as the Agents shall have approved in
writing) to the Collateral Agent to secure its Secured Obligations and (ii)
cause such Material Subsidiary to comply with the provisions thereof and of the
Security Agreement.
(d) Whenever any Equity Interest, Material Real Property or other asset is
added to the Collateral pursuant to this Section, the Borrower shall deliver to
the Documentation Agent such legal opinions and other documents as the
Documentation Agent may reasonably request relating to the existence of the
relevant Lien Grantor, the corporate or other authority for and validity of the
Collateral Documents applicable thereto, the creation and perfection (or due
recordation) of the Lien purportedly created thereby and any other matters
relevant thereto, all in form and substance satisfactory to the Documentation
Agent
Section 5.11. Hedging Facilities. The Borrower will enter into and
maintain in full force and effect interest rate hedging arrangements reasonably
satisfactory to the Agents to the extent, if any, required so that at least 40%
of Consolidated Debt for Borrowed Money (excluding Guarantees referred to in
clause (z) of the definition of "Consolidated Debt for Borrowed Money") will be
either fixed rate debt or floating rate debt hedged to a fixed rate by such
hedging arrangements.
Section 5.12. Compliance with Material Agreements. The Vencor Companies
shall comply in all material respects with the provisions of the Reorganization
Agreements, the Third Party Leases and the Management Contracts.
Section 5.13. Casualty Events. (a) All Casualty Proceeds received by the
Collateral Agent or any Vencor Company shall be deposited in the appropriate
Casualty Proceeds Account established pursuant to Section 7(b) of the Security
Agreement and applied as follows:
(i) such Casualty Proceeds will be released by the Collateral
Agent from time to time, in accordance with Section 18(e) of the Security
Agreement, to restore, repair, replace or rebuild the asset in respect of
which such Casualty Proceeds were received; and
(ii) if within 270 days after such Casualty Proceeds are received,
the relevant Vencor Company shall not have expended or committed to expend
the full amount of such Casualty Proceeds to restore, repair, replace or
rebuild the asset in respect of which such Casualty Proceeds
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were received (the excess of the amount of such Casualty Proceeds over the
amount of such expenditures and commitments, being "Excess Casualty
Proceeds"), then such Excess Casualty Proceeds shall be applied to prepay
Loans pursuant to Section 213(e) within two Domestic Business Days after
the end of such 270-day period.
(b) If any Condemnation Event occurs with respect to property owned or
leased by any Vencor Company, or if any negotiation or proceeding is commenced
which might result in such a Condemnation Event, or if any such Condemnation
Event is proposed or threatened, such Vencor Company (i) will, promptly after
receiving notice or obtaining knowledge thereof, do all things deemed necessary
or appropriate by it to preserve its interest in such property and promptly make
claim for awards payable with respect thereto and diligently pursue to
conclusion such claim and any suit, action or other proceeding necessary or
appropriate to obtain payment thereof and (ii) will not settle any such claim,
negotiation or proceeding without the consent of the Collateral Agent if an
Enforcement Notice is in effect.
ARTICLE 6
Financial Covenants
Each of the Borrower and Vencor agrees that, so long as any Lender has any
Credit Exposure hereunder or any interest or fee accrued hereunder remains
unpaid:
Section 6.01. Total Leverage Ratio. (a) On and after September 30, 1998,
the ratio of (x) Adjusted Consolidated Debt for Borrowed Money to (y)
Consolidated EBITDAR for the four consecutive Fiscal Quarters then most recently
ended will not, at any date during any period set forth below, exceed the ratio
set forth below opposite such period:
Period Ratio
------ -----
September 30, 1998 through December 30, 1998 6.50 to 1
December 31, 1998 through June 29, 1999 6.25 to 1
June 30, 1999 through September 29, 1999 6.10 to 1
September 30, 1999 through December 30, 1999 6.00 to 1
December 31, 1999 through June 29, 2000 5.75 to 1
June 30, 2000 through December 30, 2000 5.50 to 1
December 31, 2000 through March 30, 2002 5.00 to 1
March 31, 2002 through March 30, 2003 4.75 to 1
March 31, 2003 and thereafter 4.50 to 1
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provided that (i) for dates prior to June 30, 1999, Consolidated EBITDAR shall
be determined as of the end of the then most recently ended Fiscal Quarter on an
Annualized Basis and (ii) if the Borrower sells any Atria Shares after the
Closing Date, each of the first four ratios listed above shall forthwith be
reduced by 0.25 (e.g., 6.50 shall be reduced to 6.25).
(b) For purposes of calculating the foregoing ratio, if any corporation or
other entity shall have been acquired by any Vencor Company during the period
for which Consolidated EBITDAR is to be calculated, Consolidated EBITDAR shall
be calculated as if such corporation or other entity had been acquired at the
beginning of such period, to the extent that the relevant financial information
with respect to it for the portion of such period prior to such acquisition can
be determined with reasonable accuracy.
Section 6.02. Senior Leverage Ratio. (a) Prior to September 30, 1998,
Adjusted Consolidated Senior Debt for Borrowed Money shall not at any time
exceed an amount equal to the sum of (i) $1,000,000,000 and (ii) the then
outstanding aggregate principal amount of any Continuing Existing Obligations
less (iii) the aggregate principal amount of the Loans theretofore required to
be prepaid pursuant to Section 2.13.
(b) On and after September 30, 1998, the ratio of (x) Adjusted
Consolidated Senior Debt for Borrowed Money to (y) Consolidated EBITDAR for the
four consecutive Fiscal Quarters then most recently ended will not, at any date
during any period set forth below, exceed the ratio set forth below opposite
such period:
Period Ratio
------ -----
September 30, 1998 through December 30, 1998 6.00 to 1
December 31, 1998 through March 30, 1999 5.85 to 1
March 31, 1999 through June 29, 1999 5.75 to 1
June 30, 1999 through December 30, 1999 5.65 to 1
December 31, 1999 through June 29, 2000 5.25 to 1
June 30, 2000 through December 30, 2000 5.00 to 1
December 31, 2000 through March 30, 2001 4.75 to 1
March 31, 2001 through March 30, 2002 4.40 to 1
March 31, 2002 through March 30, 2003 4.25 to 1
March 31, 2003 and thereafter 4.00 to 1
provided that (i) for dates prior to June 30, 1999, Consolidated EBITDAR shall
be determined as of the end of the then most recently ended Fiscal Quarter on an
Annualized Basis and (ii) if the Borrower sells any Atria Shares after the
Closing Date, each of the first four ratios listed above shall forthwith be
reduced by 0.25 (e.g., 6.00 shall be reduced to 5.75).
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(c) For purposes of calculating the foregoing ratio, if any corporation or
other entity shall have been acquired by any Vencor Company during the period
for which Consolidated EBITDAR is to be calculated, Consolidated EBITDAR shall
be calculated as if such corporation or other entity had been acquired at the
beginning of such period, to the extent that the relevant financial information
with respect to it for the portion of such period prior to such acquisition can
be determined with reasonable accuracy.
Section 6.03. Fixed Charge Coverage Ratio. At each Quarterly Measurement
Date on or after September 30, 1998, the ratio of (i) Consolidated EBITDAR for
the four consecutive Fiscal Quarters then ended to (ii) the sum of Consolidated
Interest Expense plus Consolidated Rental Expense plus the aggregate principal
amount of long term Debt of the Vencor Companies scheduled to be amortized plus
dividends on the Management Preferred Stock, in each case for the same four
Fiscal Quarters, will not be less than the ratio set forth below opposite the
period in which such Quarterly Measurement Date falls:
Period Ratio
------ -----
September 30, 1998 through December 31, 1998 1.30 to 1
March 31, 1999 through June 30, 1999 1.35 to 1
September 30, 1999 through December 31, 1999 1.40 to 1
March 31, 2000 through June 30, 2000 1.45 to 1
September 30, 2000 and thereafter 1.50 to 1
provided that, at any Quarterly Measurement Date prior to June 30, 1999, the
foregoing amounts shall be calculated for the period from the end of the month
in which the Closing Date occurs to such Quarterly Measurement Date.
Section 6.04. Minimum Consolidated Net Worth. Consolidated Net Worth will
at no time be less than the Minimum Compliance Level. The "Minimum Compliance
Level" means, at any date (the "date of determination"), an amount equal to the
sum of (i) $840,000,000 plus (ii) for each Fiscal Quarter ending after the
Closing Date and on or prior to the date of determination for which Consolidated
Net Income is a positive number, an amount equal to 75% of such positive number
plus (iii) 100% of each amount by which Consolidated Net Worth shall have been
increased after the Closing Date and on or prior to the date of determination as
a result of (x) any issuance or sale of Equity Securities of Vencor, (y) any
conversion of convertible Debt of Vencor or (z) any gain on the sale of Equity
Interests owned by any Vencor Company. The Minimum Compliance Level shall not be
reduced if Consolidated Net Income for any Fiscal Quarter is a negative number.
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ARTICLE 7
NEGATIVE COVENANTS APPLICABLE TO THE BASIC FACILITIES
Each of the Borrower and Vencor agrees that, so long as any Basic Lender
has any Credit Exposure hereunder or any interest or fee accrued under any Basic
Facility remains unpaid:
Section 7.01. Limitation on Debt of Vencor. Vencor will not incur or be
liable with respect to (i) any Debt of a type described in clause (i), (ii) or
(iv) of the definition of "Debt" in Section 1.01 or (ii) any Guarantee of any
such Debt, except:
(a) Continuing Existing Obligations assumed by Vencor and immediately
thereafter assigned to or otherwise assumed by its Subsidiaries;
(b) any portion of the Existing Subordinated Notes assumed by Vencor on
the Closing Date and not tendered pursuant to Old Vencor's offer to
purchase the Existing Subordinated Notes;
(c) the Vencor Guaranty;
(d) Vencor's guaranty of the 1998 Subordinated Notes; provided that
such guaranty is subordinated to the Vencor Guaranty by subordination
provisions substantially similar to the subordination provisions by which
the 1998 Subordinated Notes are subordinated to the Borrower's obligations
under this Agreement;
(e) Permitted Intercompany Debt; and
(f) guaranties of the Borrower's obligations in respect of interest
rate hedging arrangements entered into pursuant to Section 5.11.
Section 7.02. Limitation on Debt of the Borrower. The Borrower will not
incur or be liable with respect to (i) any Debt of a type described in clause
(i), (ii) or (iv) of the definition of "Debt" in Section 1.01 or (ii) any
Guarantee of any such Debt, except:
(a) Debt outstanding under this Agreement;
(b) the 1998 Subordinated Notes;
(c) Permitted Intercompany Debt;
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(d) Continuing Existing Obligations assumed by the Borrower; provided
that the aggregate outstanding principal amount of all Continuing Existing
Obligations permitted by this clause (d) and Section 7.03(C) shall not
exceed $38,000,000;
(e) Debt incurred after the Closing Date and Guarantees of Debt entered
into after the Closing Date; provided that (i) the Debt so incurred or
Guaranteed is incurred in exchange for or to repay, prepay, repurchase,
redeem, defease, retire or refinance ("refinance") outstanding Debt of the
Borrower permitted by clauses (d) to (h), inclusive, of this Section 7.02
or outstanding Debt of Subsidiaries permitted by clauses (c) to (e),
inclusive, of Section 7.03; (ii) the principal amount of the Debt so
incurred or Guaranteed shall not exceed the unpaid principal amount of the
Debt so exchanged or refinanced, (iii) the aggregate principal amount of
the Debt so incurred or Guaranteed that is required to be repaid, on a
cumulative basis, through any date (a "date of determination") prior to
April 30, 2005 shall not exceed the aggregate principal amount of the Debt
so exchanged or refinanced that would have been required to have been
repaid, on a cumulative basis, after the date of the relevant exchange or
refinancing and on or before the same date of determination and (iv) no
restriction is imposed on any Vencor Company in connection with the Debt so
incurred or Guaranteed that is more restrictive than the provisions of this
Agreement (or, if more restrictive, the provisions of the documents
applicable to the Debt so exchanged or refinanced);
(f) Debt incurred after the Closing Date and Guarantees of Debt entered
into after the Closing Date; provided that the Debt so incurred or
Guaranteed:
(i) matures after April 30, 2005;
(ii) is not subject to any prepayment, installment payment,
sinking fund, repurchase or other similar requirement for the retirement
thereof (either mandatory or at the option of the holder thereof) at any
time on or before April 30, 2005 (except pursuant to a change of control
provision that imposes such a requirement only under circumstances when
an Event of Default would exist under Section 9.02(l)); and
(iii) does not impose any restriction on any Vencor Company that
is more restrictive than the provisions of this Agreement;
(g) Guarantees of Debt of Subsidiaries permitted by Section 7.03;
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(h) Debt assumed by the Borrower after the Closing Date or Guaranteed by
the Borrower after the Closing Date in connection with the acquisition of
one or more healthcare facilities or other businesses; provided in each
case that (i) such Debt was outstanding before such facility or other
business was acquired and was not incurred in contemplation of such
acquisition and (ii) any such Guarantee by the Borrower of subordinated
debt shall be subordinated to the Borrower's obligations under the
Financing Documents and any Designated Interest Rate Agreements by
subordination provisions reasonably satisfactory to the Documentation
Agent;
(i) Debt incurred or assumed after the Closing Date for the purpose of
financing all or any part of the cost of acquiring or constructing an asset
of the Borrower; provided that (i) such Debt is secured by a Lien on such
asset that is permitted by Section 7.04(e) and (ii) the aggregate
outstanding principal amount of all Debt permitted by this clause (i) and
Section 7.03(g) shall not at any time exceed $25,000,000; and
(j) any other Debt incurred by the Borrower after the Closing Date and
any other Guarantees entered into by the Borrower after the Closing Date;
provided that the aggregate outstanding principal amount of all Debt
incurred or Guaranteed pursuant to this clause (j) shall not at any time
exceed $10,000,000.
Section 7.03. Limitation on Debt of Subsidiaries. The Borrower will not
permit any of its Subsidiaries, at any time after the Closing Date, to incur or
be liable with respect to (i) any Debt of a type described in clause (i), (ii)
or (iv) of the definition of "Debt" in Section 1.01 or (ii) any Guarantee of any
such Debt, except:
(a) Guarantees outstanding under a Subsidiary Guaranty Agreement;
(b) Permitted Intercompany Debt;
(c) Continuing Existing Obligations; provided that the aggregate
outstanding principal amount of all Continuing Existing Obligations
permitted by this clause (c) shall not exceed $15,000,000;
(d) Debt incurred after the Closing Date and Guarantees of Debt entered
into after the Closing Date; provided that (i) the Debt so incurred or
Guaranteed is incurred in exchange for or to repay, prepay, repurchase,
redeem, defease, retire or refinance ("refinance") any outstanding Debt of
Subsidiaries permitted by clauses (c) to (e), inclusive, of this Section;
(ii)
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the principal amount of the Debt so incurred or Guaranteed shall not exceed
the unpaid principal amount of the Debt so exchanged or refinanced, (iii)
the aggregate principal amount of the Debt so incurred or Guaranteed that
is required to be repaid, on a cumulative basis, through any date (a "date
of determination") prior to April 30, 2005 shall not exceed the aggregate
principal amount of the Debt so exchanged or refinanced that would have
been required to have been repaid, on a cumulative basis, after the date of
the relevant exchange or refinancing and on or before the same date of
determination and (iv) no restriction is imposed on any Vencor Company in
connection with the Debt so incurred or Guaranteed that is more restrictive
than the provisions of this Agreement (or, if more restrictive, the
provisions of the documents applicable to the Debt so exchanged or
refinanced);
(e) Debt of any Person that becomes a Subsidiary after the Closing Date
and any other Debt assumed by a Subsidiary after the Closing Date in
connection with the acquisition of one or more Healthcare Facilities or
other businesses; provided that (i) in each case such Debt was outstanding
before such Person became a Subsidiary or such Healthcare Facility or
business was acquired, as the case may be, and was not incurred in
contemplation thereof and (ii) the aggregate outstanding principal amount
of all Debt permitted by this clause (e) shall not at any time exceed
$50,000,000;
(f) letters of credit issued for the account of Cornerstone Insurance
Company; provided that its obligations to reimburse the issuing banks are
not Guaranteed by any other Vencor Company;
(g) Debt incurred or assumed after the Closing Date for the purpose of
financing all or any part of the cost of acquiring or constructing an asset
of such Subsidiary; provided that (i) such Debt is secured by a Lien on
such asset that is permitted by Section 7.04(e) and (ii) the aggregate
outstanding principal amount of all Debt permitted by this clause (g) and
Section 7.02(i) shall not at any time exceed $25,000,000; and
(h) any other Debt incurred by such Subsidiary after the Closing Date or
any other Guarantees entered into by such Subsidiary after the Closing
Date; provided that the aggregate outstanding principal amount of all Debt
incurred or Guaranteed by Subsidiaries pursuant to this clause (h) shall
not at any time exceed $5,000,000.
Section 7.04. Negative Pledge. No Vencor Company (other than an Insurance
Subsidiary) will create, assume or suffer to exist any Lien on any asset
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now owned or hereafter acquired by it (or any income therefrom or any right to
receive income therefrom), except:
(a) Liens created pursuant to the Collateral Documents;
(b) Liens existing on the Closing Date (other than Liens permitted by
clause (a) above) securing Debt outstanding on the Closing Date in an
aggregate principal amount not exceeding $18,000,000;
(c) any Lien existing on any asset prior to the acquisition thereof by a
Vencor Company and not created in contemplation of such acquisition;
(d) any Lien existing on any asset of any Person at the time such Person
becomes a Subsidiary of Vencor or merges into any of its Subsidiaries;
provided that such Lien was not created in contemplation of such event;
(e) any Lien on any asset securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring or
constructing such asset, provided that (i) such Lien attaches to such asset
concurrently with or within 180 days after the acquisition or completion of
construction thereof and attaches to no asset other than such asset so
financed and (ii) the aggregate outstanding principal amount of all Debt
secured pursuant to this clause (e) shall not exceed $25,000,000;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that the principal amount of such Debt is
not increased and such Debt is not secured by any additional assets;
(g) Permitted Encumbrances;
(h) any mortgage or other Lien on real property leased to a Vencor
Company, to which its leasehold interest therein is at any time subject;
provided that such Vencor Company has obtained (in the case of the Master
Lease Properties) or used its best efforts to obtain (in the case of other
properties) the benefit of a non-disturbance agreement with respect thereto
on customary terms;
(i) Liens arising in the ordinary course of business (other than Liens
of the types described in the definition of "Permitted Encumbrances") which
(i) do not secure Debt, (ii) do not secure any single
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obligation (or series of related obligations) in an amount exceeding
$5,000,000; provided that the limitation in this clause (ii) shall not
apply to Liens securing worker's compensation, unemployment insurance and
other types of social security, and (iii) do not in the aggregate
materially detract from the value of the assets of the Vencor Companies,
taken as a whole, or materially impair the use thereof in the operation of
their business;
(j) other Liens securing Debt of the Borrower not exceeding $5,000,000
in aggregate outstanding principal amount; and
(k) other Liens securing Debt of Subsidiaries of the Borrower not
exceeding $5,000,000 in aggregate outstanding principal amount.
Section 7.05. Consolidations, Mergers and Asset Sales. (a) No Vencor
Company will consolidate or merge with or into, or sell, lease or otherwise
dispose of all or substantially all of its assets to, any other Person, except
that:
(i) Vencor may merge with any Person (other than the Borrower) if
Vencor is the surviving corporation and, immediately after such merger (and
giving effect thereto), no Default shall have occurred and be continuing;
(ii) the Borrower may merge with any Person (other than Vencor) if the
Borrower is the surviving corporation and, immediately after such merger
(and giving effect thereto), no Default shall have occurred and be
continuing; and
(iii) any Subsidiary (other than the Borrower) may merge or consolidate
with or into, or transfer all or substantially all of its assets to, any
Person if, immediately after such transaction (and giving effect thereto),
no Default shall have occurred and be continuing and either (A) the
surviving corporation or transferee is the Borrower or a Subsidiary or (B)
such merger, consolidation or transfer of all or substantially all assets
is in conjunction with a disposition by the Vencor Companies of their
entire investment in such Subsidiary and such disposition is not prohibited
by any provision of the Financing Documents (other than this subsection
(a)).
(b) No merger, consolidation or transfer of all or substantially all of
the assets of any Subsidiary Guarantor shall be permitted under this
Section 7.05 unless:
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(i) the surviving corporation or transferee is the Borrower or
a Subsidiary Guarantor;
(ii) the Required Lenders shall have consented to such
transaction; or
(iii) immediately after such transaction is consummated, the
aggregate book value of all assets disposed of in transactions permitted
by this clause (iii) during the period of 365 days then ended (whether
disposed of directly or by means of a merger, consolidation or transfer
of Equity Interests) would not exceed 5% of Consolidated Net Worth as
shown on the Most Recent Financial Statements.
For purposes of the foregoing clause (iii), the book value of the assets
disposed of in each transaction shall be the book value of such assets on
the books of the relevant Subsidiary immediately before such disposition.
(c) If the Vencor Companies dispose of their entire investment in any
Subsidiary as permitted by subsection (a) or (b) above, the Documentation
Agent shall at Vencor's request instruct the Collateral Agent, concurrently
with or at any time after such disposition, to release all security
interests in Equity Interests in such Subsidiary granted by the Vencor
Companies to the Collateral Agent. If such Subsidiary is a Subsidiary
Guarantor, (i) its Subsidiary Guaranty shall be automatically released and
it shall cease to be a party to the Security Agreement, in each case
concurrently with such disposition, and (ii) the Documentation Agent shall
at Vencor's request instruct the Collateral Agent, concurrently with or at
any time after such disposition, to release all security interests granted
by such Subsidiary to secure its Subsidiary Guaranty and return to such
Subsidiary any of its assets held by the Collateral Agent under the
Collateral Documents.
(d) Notwithstanding the foregoing, this Section 7.05 shall not apply to
the following transactions:
(i) any sale or other disposition of Atria Shares or BHC
Shares;
(ii) any sale or other disposition of any Development Property
to a Ventas Company; or
(iii) any transfer of assets required to complete the
Reorganization Transactions;
and the foregoing transactions shall be excluded in calculating from
calculations under clause (iii) of subsection (b) of this Section.
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Section 7.06. Limitations on Investments. (a) Vencor will not make or
hold any Investment other than (i) Vencor's Investment in the Borrower and
(ii) Temporary Cash Investments.
(b) After the Closing, neither the Borrower nor any of its Subsidiaries
(other than Insurance Subsidiaries) will make, acquire or hold any
Investment, except:
(i) Investments existing on the Closing Date which become
Investments of the Borrower and its Subsidiaries pursuant to the
Reorganization Transactions;
(ii) Investments by the Borrower in any of its Subsidiaries and
Investments by any Subsidiary of the Borrower in the Borrower or any
other Subsidiary of the Borrower; provided that the aggregate
unrecovered amount of all such Investments made by the Borrower and its
Subsidiaries in the Insurance Subsidiaries after the Closing shall not
exceed $75,000,000;
(iii) loans to officers of the Borrower not exceeding
$16,000,000 in aggregate amount to finance 90% of the purchase price of
the Management Preferred Stock on a recourse basis;
(iv) payments made pursuant to a Guarantee of Debt of Minority-
Owned Affiliates, provided that such Guarantee is not prohibited by
Section 7.02 or 7.03;
(v) working capital loans to Minority-Owned Affiliates not at
any time exceeding $10,000,000 in aggregate outstanding principal
amount;
(vi) Temporary Cash Investments; and
(vii) any other Investments made after the Closing Date;
provided that, immediately after each such Investment is made, the
aggregate amount of all Investments made after the Closing Date and not
permitted by the foregoing clauses of this Section does not exceed 5% of
Consolidated Net Worth.
For purposes of clause (vii) above, the amount of each Investment shall be
deemed to be the original amount invested less any principal repaid or
capital returned, but not less than zero.
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Section 7.07. Limitation on Capital Expenditures. (a) Consolidated
Capital Expenditures will not, for any Fiscal Year listed below, exceed the
amount indicated for such Fiscal Year:
Fiscal Year Amount
----------- ------------
1998 $315,000,000
1999 $200,000,000
2000 $150,000,000
Each Fiscal Year Thereafter $125,000,000
The amount shown above for 1998 includes capital expenditures made by Old
Vencor and its Subsidiaries prior to the Closing Date.
(b) If Consolidated Capital Expenditures for any Fiscal Year are less
than the amount indicated for such Fiscal Year in subsection (a) above, the
unused amount may be carried forward and used during the first six months
of the next Fiscal Year. Consolidated Capital Expenditures during the first
six months of the next Fiscal Year, up to the amount so carried forward,
shall be excluded from Consolidated Capital Expenditures for the next
Fiscal Year for purposes of subsection (a) above.
Section 7.08. Limitations on Transactions with Affiliates. (a) Before
the Spin-Off is consummated, no Vencor Company will (i) enter into any
material agreement (except the Reorganization Agreements) with any Ventas
Company that will be binding on any Vencor Company after the Spin-Off is
consummated or (ii) participate in any transaction with any Ventas Company
that would be materially inconsistent with the description of the
Reorganization Transactions or the description of the Vencor Companies
(after giving effect to the Reorganization Transactions), in each case as
described in the Proxy Statement.
(b) After the Spin-Off is consummated, no Vencor Company will, directly
or indirectly, pay any funds to or for the account of, make any Investment
in, lease, sell, transfer or otherwise dispose of any assets, tangible or
intangible, to, or participate in, or effect any transaction in connection
with any joint enterprise or other joint arrangement with, any Affiliate;
provided that the foregoing provisions of this subsection (b) shall not
prohibit:
(i) any Vencor Company from performing its obligations under
the Existing Affiliate Agreements;
(ii) the Borrower from making loans to its officers not
exceeding $16,000,000 in aggregate amount to finance 90% of the purchase
price of the Management Preferred Stock;
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(iii) any Vencor Company from making any Investment in
Minority-Owned Affiliates permitted by Section 7.06;
(iv) any Vencor Company from making sales to or purchases from
any Affiliate and, in connection therewith, extending credit or making
payments, or from making payments for services rendered by any
Affiliate, if such sales or purchases are made or such services are
rendered in the ordinary course of business and on terms and conditions
at least as favorable to such Vencor Company as the terms and conditions
which would apply in a similar transaction with a Person not an
Affiliate;
(v) any Vencor Company from making payments of principal,
interest and premium on any of its Debt held by an Affiliate if the
terms of such Debt are substantially as favorable to such Vencor Company
as the terms which could have been obtained at the time of the creation
of such Debt from a lender which was not an Affiliate;
(vi) any Vencor Company from participating in, or effecting
any transaction in connection with, any joint enterprise or other joint
arrangement with any Affiliate if such Vencor Company participates in
the ordinary course of its business and on a basis no less advantageous
than the basis on which such Affiliate participates;
(vii) any Vencor Company from maintaining, entering into or
adopting any executive or employee incentive or compensation plan,
contract or other arrangement (including any loans or extensions of
credit in connection therewith), or any arrangement to terminate any of
the foregoing, if such plan, contract, or arrangement has been or is
approved either (x) at any time by the shareholders of Vencor in
accordance with such voting requirements as may be applicable or (y) at
any time by the board of directors of Vencor (or a duly constituted
committee of such board) at a meeting at which a quorum of disinterested
directors is present; or
(viii) any Vencor Company from making any loan, guarantee or
other accommodation in accordance with Vencor's policies and practices
concerning employee relocation in the ordinary course of its business.
Section 7.09. Limitation on Restrictions Affecting Subsidiaries. No
Vencor Company will enter into, or suffer to exist, any agreement (other
than the Financing Documents) which prohibits or limits the ability of any
Subsidiary of the Borrower (except an Insurance Subsidiary) to (i) pay
dividends or make other distributions or pay any Debt owed to any Vencor
Company, (ii) make loans or advances to any Vencor Company or (iii) create,
incur, assume or suffer to exist
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any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, to secure the obligations of any Vencor Company under any
Financing Document; provided that the foregoing shall not prohibit any such
prohibition or limitation contained in:
(a) the Tenet Guarantee Reimbursement Agreement, insofar as the
provisions thereof in effect immediately before the Closing Date limit
grants to other Persons of Liens on assets of any Vencor Company that was
formerly a Subsidiary of The Hillhaven Corporation;
(b) any document relating to Debt secured by a Lien permitted by
Section 7.04, insofar as the provisions thereof limit grants of junior
liens on the assets securing such Debt;
(c) any operating lease or capital lease, insofar as the provisions
thereof limit grants of a security interest in, or other assignments of,
the related leasehold interest to any other Person; and
(d) if a Person becomes a Subsidiary of Vencor after the date hereof,
any agreement that is binding on such Person and was not entered into in
contemplation of its becoming a Subsidiary of Vencor, insofar as such
agreement limits such Person's ability to take any action described in
clause (i), (ii) or (iii) of this Section, provided that either:
(1) such limitation is terminated within 60 days after such
Person becomes a Subsidiary of Vencor or
(2) not more than 5% of Consolidated EBITDAR for any period
of four consecutive Fiscal Quarters is attributable, in the
aggregate, to Persons that become Subsidiaries of Vencor after
the date hereof and remain subject to such limitations more than
60 days after becoming Subsidiaries of Vencor.
Section 7.10. Restricted Payments. No Vencor Company will declare or make
any Restricted Payment on or after the Closing Date, except that Vencor may pay
dividends at a rate not to exceed 6% per annum in respect of the Management
Preferred Stock if, immediately before and after giving effect thereto, no
Default shall have occurred and be continuing.
Section 7.11. No Modification of Certain Documents Without Consent. (a) No
Vencor Company will consent to or solicit any amendment or supplement to, or any
waiver or other modification of, any Existing Affiliate Agreement if the effect
thereof would be to materially increase the amount, or materially accelerate
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the date of payment, of any obligation of any of the Vencor Companies
thereunder.
(b) No Vencor Company will consent to or solicit any amendment or
supplement to, or any waiver or other modification of, any Reorganization
Agreement, Third Party Lease or Management Contract if the effect thereof could
be adverse in any material respect to a Vencor Company or to the Lenders.
Section 7.12. No Change of Fiscal Periods. Vencor will not change the date
on which any of its Fiscal Years or Fiscal Quarters ends, unless the Required
Lenders shall have consented to such change (which consent may be conditioned on
the amendment of any covenant herein that would be affected by such change to
eliminate the effect thereof).
Section 7.13. Limitation of Designated Interest Rate Agreements. Vencor
will not designate any interest rate swap agreement or any interest rate cap and
floor agreement as a Secured Obligation for purposes of the Security Agreement
or as a Designated Interest Rate Agreement for purposes of the Guaranty
Agreements if, immediately after giving effect to such designation, the
aggregate notional principal amount of all such agreements then in effect which
are Secured Obligations and/or Designated Interest Rate Agreements would exceed
$600,000,000.
Section 7.14. 1998 Subordinated Notes. (a) So long as any 1998
Subordinated Notes are outstanding, the Borrower will comply with all of the
financial covenants and other restrictive agreements set forth in the 1998
Subordinated Note Indenture as if such covenants and other restrictive
agreements (and the definitions of the terms used therein) were set forth in
full herein.
(b) No Vencor Company will purchase or offer to purchase any 1998
Subordinated Notes pursuant to any provision of the 1998 Subordinated Note
Indenture requiring it to do so unless the Borrower shall have first (i) repaid
all the outstanding Loans, Swingline Loans and LC Reimbursement Obligations,
(ii) terminated the Revolving Credit Commitments and (iii) cash collateralized
each outstanding Letter of Credit in a manner satisfactory to the relevant LC
Issuing Bank.
(c) Without the prior written consent of the Required Lenders, the
Borrower will not modify or amend, or waive or solicit any waiver of, any
provision of the 1998 Subordinated Note Indenture in any manner that could
reasonably be expected to be adverse to the interest of the Lenders under the
Financing Documents.
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Section 7.15. No Voluntary Prepayments of Other Debt. No Vencor Company
will (i) defease, prepay, repurchase or otherwise retire any Debt (except Debt
outstanding under this Agreement) before the date on which it is required to do
so under the contractual provisions applicable to such Debt or (ii) amend any
such contractual provision to require any such Debt to be defeased, prepaid,
repurchased or otherwise retired at an earlier date; provided that this Section
will not apply to (x) Debt assumed as permitted by Section 7.02(h) or Section
7.03(e) in connection with acquisitions of Healthcare Facilities or other
businesses and (y) other Debt not exceeding $5,000,000 in aggregate principal
amount.
Section 7.16. Margin Stock. (a) None of the proceeds of the Loans or the
Letters of Credit will be used in violation of any applicable law or regulation
and, without limiting the generality of the foregoing, no use of any such
proceeds or Letters of Credit will include any use thereof, directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
buying or carrying any Margin Stock.
(b) So long as any Vencor Company owns any Margin Stock directly or
indirectly, such Vencor Company will hold such Margin Stock through a Subsidiary
(other than a Material Subsidiary) and will not permit such Subsidiary to incur
any debt or to engage in any business other than holding Margin Stock and
activities related thereto. The capital stock of such Subsidiary will be owned
by a Lien Grantor and pledged under the Collateral Documents. Nothing in this
Section shall in any way restrict such Vencor Company's right or ability to
cause such Margin Stock to be sold or otherwise disposed of.
Section 7.17. Limitation on Business. (a) Vencor will at all times own
100% of the outstanding capital stock of the Borrower and will not engage in any
activities other than owning such capital stock and financing activities and
other activities reasonably related to such ownership.
(b) Not more than 10% of the consolidated assets of the Vencor Companies
shall be used in any business or businesses other than the business of owning,
operating or managing Healthcare Facilities (including accepting risk for the
cost of long term care) and not more than 10% of their consolidated revenues in
any Fiscal Quarter shall be attributable to such other businesses.
Section 7.18. Leases. No Vencor Company shall lease or sublease any
facility pursuant to any lease agreement entered into after the Closing Date
except on arm's length terms; provided that this Section shall not apply to (i)
any lease or sublease of any Deferred Master Lease Property under a Master Lease
Agreement at rentals to be determined as provided therein, (ii) any lease or
sublease of any Development Property under a Master Lease Agreement at rentals
to be determined as provided in the Development Agreement, (iii) any lease or
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sublease from the Borrower to any Guarantor or (iv) any lease or sublease from
any Guarantor to the Borrower or to another Guarantor.
Section 7.19. Cash Consideration for Asset Sales. (a) No Vencor Company
will (i) sell any Atria Shares or BHC Shares or (ii) make any other Asset Sale
or series of related Asset Sales for which the aggregate consideration received
by the Vencor Companies exceeds $5,000,000, unless in each case:
(x) the consideration to be received by the Vencor Companies is, in
the opinion of a Financial Officer, not less than the fair market value of
the assets (including any Atria Shares or BHC Shares) being sold; and
(y) at least 75% of such consideration is paid in cash at the closing
of such Asset Sale;
provided that, for purposes of this provision, the amount of (A) any
liabilities (as shown on the Most Recent Financial Statements or in the notes
thereto) that are assumed by the transferee of any such assets and (B) any
securities or other obligations received from such transferee that are
immediately converted by such Vencor Company into cash (or as to which such
Vencor Company has received, at or before the consummation of such sale, a
commitment (which may be subject to customary conditions) from a nationally
recognized investment, merchant or commercial bank to convert such securities or
other obligations into cash within 90 days after the consummation of such sale
and which are thereafter actually converted into cash within such 90-day period)
will be deemed to be cash (but will not be deemed to be Net Cash Proceeds until
converted to cash).
Section 7.20. Limitation on Cash Not Held in Collateral Accounts or
Concentration Accounts. The Borrower will not permit the aggregate amount of
all collected funds and Temporary Cash Investments held by the Vencor Companies
(other than the Insurance Subsidiaries) in accounts, other than the Collateral
Accounts and the Concentration Accounts, to exceed $2,000,000 at the close of
business on any two consecutive Domestic Business Days.
ARTICLE 8
Negative Covenants Applicable to the Facility B Loans
Each of the Borrower and Vencor agrees that, so long as any Facility B
Lender has any Credit Exposure hereunder or any interest accrued under Facility
B remains unpaid, the Borrower and Vencor will comply with their respective
covenants set forth in Exhibit P hereto, which covenants (together with the
related
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definitions set forth in Exhibit P) are incorporated herein by reference as if
set forth in full in this Article 8.
ARTICLE 9
Defaults
Section 9.01. Bankruptcy Events of Default. If one or more of the
following events (each, an "Event of Default") shall have occurred and be
continuing:
(a) any Vencor Company shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to
the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or shall make a
general assignment for the benefit of creditors, or shall fail generally to
pay its debts as they become due, or shall take any corporate action to
authorize any of the foregoing; or
(b) an involuntary case or other proceeding shall be commenced
against any Vencor Company seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of
a trustee, receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60 days;
or an order for relief shall be entered against it under the Federal
bankruptcy laws as now or hereafter in effect;
then, and in every such event:
(i) if requested by the Required Revolving Credit Lenders, the
Documentation Agent shall by notice to the Borrower terminate the Revolving
Credit Commitments and the Swingline Commitment and they shall thereupon
terminate;
(ii) if requested by the Required Revolving Credit Lenders, the
Documentation Agent shall by notice to each LC Issuing Bank instruct such
LC Issuing Bank (x) not to extend the expiry date of any outstanding
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Letter of Credit and/or (y) in the case of any Evergreen Letter of Credit,
to give notice to the beneficiary thereof terminating such Letter of Credit
as soon as is permitted by the provisions thereof, whereupon such LC
Issuing Bank shall deliver notice to that effect promptly (or as soon
thereafter as is permitted by the provisions of the relevant Letter of
Credit) to the beneficiary of each such Letter of Credit and to the
Borrower;
(iii) if requested by the Required Basic Lenders, the Documentation
Agent shall by notice to the Borrower declare the Basic Loans and the
Swingline Loans (in each case together with accrued interest thereon) to
be, and they shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; and
(iv) if requested by the Required Facility B Lenders, the
Documentation Agent shall by notice to the Borrower declare the Facility B
Loans (together with accrued interest thereon) to be, and they shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower;
provided that, if any event specified above occurs with respect to the Borrower,
Vencor or any Material Subsidiary, then without any notice to the Borrower or
any other act by the Documentation Agent or the Lenders, the Revolving Credit
Commitments and the Swingline Commitment shall thereupon terminate and all the
Loans and Swingline Loans (in each case together with accrued interest thereon)
shall become immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower.
Section 9.02. Other Events of Default Applicable to Basic Facilities. If
one or more of the following events (each, an "Event of Default") shall have
occurred and be continuing:
(a) any principal of any Basic Loan, Swingline Loan or LC
Reimbursement Obligation shall not be paid when due, or any interest
thereon or any fee or other amount payable hereunder to or for the account
of the Basic Lenders shall not be paid within three Domestic Business Days
after the due date thereof; or
(b) Vencor or the Borrower shall fail to observe or perform any
covenant contained in Section 5.01(f), Section 5.01(g), Article 6 and
Article 7; or
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(c) any Vencor Company shall fail to observe or perform any of its
covenants or agreements contained in the Financing Documents (other than those
covered by clause (a) or (b) above) for 30 days after written notice thereof has
been given to the Borrower by the Documentation Agent at the request of any
Basic Lender; or
(d) any representation, warranty, certification or statement made by any
Vencor Company in any Financing Document or in any certificate, financial
statement or other document delivered pursuant thereto shall prove to have been
incorrect in any material respect when made; or
(e) the Vencor Companies shall fail to make one or more payments in
respect of Material Debt when due or within any period of grace applicable to
such payments; or
(f) any event or condition shall occur that (i) results in the
acceleration of the maturity of any Financial Accommodation or (ii) enables (or,
with the giving of notice or lapse of time or both, would enable) the holder or
holders of such Financial Accommodation or any Person acting on behalf of such
holder or holders to accelerate the maturity thereof, and the aggregate amount
that would be payable by the Vencor Companies upon the acceleration of all
Financial Accommodations referred to in clauses (i) and (ii) above equals or
exceeds $5,000,000; or
(g) any Master Lease Agreement is terminated; or the Leased Property (as
defined in any Master Lease Agreement) is surrendered to or repossessed by the
lessor;
(h) any Event of Default (as defined in any Master Lease Agreement) occurs
and is not cured or waived within 30 days after written notice thereof has been
given to the Borrower by the Documentation Agent at the request of Basic Lenders
having at least 15% of the aggregate amount of the Credit Exposures of the Basic
Lenders at such time (or within a longer period, if such Event of Default is not
cured during said 30-day period, but is capable of being cured during such
longer period, and the relevant Vencor Company is taking the actions necessary
to cure such Event of Default as soon as reasonably practicable); or
(i) one or more events or conditions shall occur that result (or, with the
giving of notice or lapse of time or both could result) in (i) the termination
of one or more Third Party Leases, or the surrender or repossession of the
property leased thereunder, prior to the scheduled termination thereof or (ii)
the termination of one or more Management Contracts prior to the scheduled
termination thereof; provided that (x) this
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clause (i) shall not apply to any voluntary termination of a Third Party Lease
or Management Contract by a Vencor Company at a time when no default by it
thereunder exists or is reasonably likely to occur and (y) no Event of Default
shall exist under this clause (i) at any time, unless the EBITDA attributable to
all Healthcare Facilities then subject to a termination, surrender or
repossession (or potential termination, surrender or repossession) covered by
this clause (i) and the EBITDA attributable to all Healthcare Facilities with
respect to which such a termination, surrender or repossession occurred during
the preceding 12 months exceed, in the aggregate, 12% of Consolidated EBITDA
(the EBITDA attributable to each such Healthcare Facility to be calculated for
the most recent 12 months of full operation thereof for which the necessary
financial information is available and Consolidated EBITDA to be calculated for
the most recently ended period of four consecutive Fiscal Quarters for which the
necessary financial information is available, in each case annualized if such
financial information is not available for a full 12 months or a full four
Fiscal Quarters, as the case may be); or
(j) any member of the ERISA Group shall fail to pay when due an amount or
amounts aggregating in excess of $1,000,000 which it shall have become liable to
pay under Title IV of ERISA; or notice of intent to terminate a Material Plan
shall be filed under Title IV of ERISA by any member of the ERISA Group, any
plan administrator or any combination of the foregoing; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate, to impose liability
(other than for premiums under Section 4007 of ERISA) in respect of, or to cause
a trustee to be appointed to administer any Material Plan; or a condition shall
exist by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall occur a
complete or partial withdrawal from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which
could cause one or more members of the ERISA Group to incur a current payment
obligation in excess of $1,000,000; or
(k) one or more Enforceable Judgments for the payment of money aggregating
in excess of $20,000,000 shall be rendered against one or more of the Vencor
Companies and shall not have been satisfied; or
(l) any Person or group of Persons (within the meaning of Section 13 or 14
of the Securities Exchange Act) shall have acquired beneficial ownership (within
the meaning of Rule 13d-3 promulgated by the SEC under said Act) of 35% or more
of the outstanding shares of common stock of Vencor; or, during any period of 24
consecutive calendar months, individuals who were members of the board of
directors of
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Vencor on the first day of such period (or, if the first day of such period
was before the Closing, were members of the board of directors of Old
Vencor on such day) shall cease to constitute a majority of the board of
directors of Vencor; or
(m) any Lien created by any of the Collateral Documents shall at any
time fail to constitute a valid and perfected Lien on all of the Collateral
purported to be subject to such Lien, subject to no prior or equal Lien, or
any Vencor Company shall so assert in writing; or
(n) any provision of any Guaranty Agreement shall cease to be in full
force and effect (except as permitted by Section 7.05(c)) or any Vencor
Company, or any Person acting on behalf of any Vencor Company, shall so
assert in writing; or
(o) the 1998 Subordinated Notes shall, for any reason, not be or
cease to be validly subordinated as provided in the 1998 Subordinated Note
Indenture to the monetary obligations of the Borrower under the Financing
Documents or Vencor's guaranty of the 1998 Subordinated Notes shall, for
any reason, not be or cease to be validly subordinated to the Vencor
Guaranty as provided in the 1998 Subordinated Note Indenture; or
(p) the Facility B Loans shall have been declared immediately due and
payable pursuant to Section 9.03 or an Event of Default described in
Section 9.03 shall have occurred and be continuing;
then, and in every such event:
(i) if requested by the Required Revolving Credit Lenders, the
Documentation Agent shall by notice to the Borrower terminate the Revolving
Credit Commitments and the Swingline Commitment and they shall thereupon
terminate;
(ii) if requested by the Required Revolving Credit Lenders, the
Documentation Agent shall by notice to each LC Issuing Bank instruct such
LC Issuing Bank (x) not to extend the expiry date of any outstanding Letter
of Credit and/or (y) in the case of any Evergreen Letter of Credit, to give
notice to the beneficiary thereof terminating such Letter of Credit as soon
as is permitted by the provisions thereof, whereupon such LC Issuing Bank
shall deliver notice to that effect promptly (or as soon thereafter as is
permitted by the provisions of the relevant Letter of Credit) to the
beneficiary of each such Letter of Credit and the Borrower; and
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(iii) if requested by the Required Basic Lenders, the Documentation
Agent shall by notice to the Borrower declare the Basic Loans and the
Swingline Loans (in each case together with accrued interest thereon) to
be, and they shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower.
Section 9.03. Other Events of Default Applicable to Facility B. If one or
more of the following events (each, an "Event of Default") shall have occurred
and be continuing:
(a) any principal of (or prepayment premium on) any Facility B Loan
shall not be paid when due; or
(b) any interest on any Facility B Loan or any other amount payable
hereunder to or for the account of the Facility B Lenders shall not be paid
within three Domestic Business Days after the due date thereof; or
(c) Vencor or the Borrower shall fail to observe or perform any
covenant contained in Sections 2, 3 and 4 of Exhibit P hereto; or
(d) Vencor or the Borrower shall fail to observe or perform any
covenant contained in Exhibit P hereto (other than those covered by clause
(c) above) for 30 days after written notice thereof has been given to the
Borrower by the Documentation Agent at the request of any Facility B
Lender; or
(e) Vencor or the Borrower shall fail to observe or perform any
covenant contained in Article 6 for 20 Domestic Business Days after the
Borrower has notified the Documentation Agent in writing of such failure
pursuant to Section 5.01(f); provided that such failure shall not
constitute a Default under this clause (e) if it is cured by the Vencor
Companies or waived by the Required Basic Lenders for purposes of Section
9.02 before the end of said period of 20 Domestic Business Days; or
(f) Vencor or the Borrower shall fail to observe or perform any
covenant contained in Article 5 for 45 days after the Borrower has notified
the Documentation Agent in writing of such failure pursuant to Section
5.01(f); provided that such failure shall not constitute a Default under
this clause (f) if it is cured by the Vencor Companies or waived by the
Required Basic Lenders for purposes of Section 9.02 before the end of said
period of 45 days; or
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(g) at any time when no Basic Lender has any Credit Exposure hereunder and
all interest and fees accrued for the account of the Basic Lenders hereunder
have been paid in full, Vencor or the Borrower shall fail to observe or perform
any of its covenants or agreements contained in the Financing Documents (other
than those covered by clause (a), (b) or (c) above) for 30 days after written
notice thereof has been given to the Borrower by the Documentation Agent at the
request of any Facility B Lender; or
(h) any default shall occur under any mortgage, indenture or instrument
(other than the Financing Documents) under which there may be issued, or by
which there may be secured or evidenced, any Debt for money borrowed by Vencor,
the Borrower or any Significant Subsidiary (or the payment of which is
Guaranteed by Vencor, the Borrower or any Significant Subsidiary), which default
either (i) constitutes a Payment Default or (ii) results in the acceleration of
such Debt before its express maturity and, in each case, the outstanding
principal amount of such Debt, together with the outstanding principal amount of
any other such Debt with respect to which there has been a Payment Default or
that has been so accelerated, aggregates $25,000,000 or more; or
(i) Vencor, the Borrower or any of the Significant Subsidiaries shall fail
to pay a final judgment or final judgments entered by a court or courts of
competent jurisdiction against Vencor, the Borrower or any of the Significant
Subsidiaries, if such final judgment or judgments aggregate more than
$25,000,000 and remain unpaid or undischarged for a period (during which
execution shall not be effectively stayed) of 60 days after their entry; or
(j) any Lien created by any of the Collateral Documents shall at any time
fail to constitute a valid and perfected Lien on all of the Collateral purported
to be subject to such Lien, subject to no prior or equal Lien, or any Vencor
Company shall so assert in writing; or
(k) any provision of any Guaranty Agreement shall cease to be in full
force and effect (except as permitted by Section 7.05(c)) or any Vencor Company,
or any Person acting on behalf of any Vencor Company, shall so assert in
writing; or
(l) the Basic Loans shall have been declared immediately due and payable
pursuant to Section 9.02 or a Payment Default shall have occurred and be
continuing with respect to any Basic Loans; or
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(m) any Person or group of Persons (within the meaning of Section
13 or 14 of the Securities Exchange Act) shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 promulgated by the SEC under
said Act) of 35% or more of the outstanding shares of common stock of
Vencor; or, during any period of 24 consecutive calendar months,
individuals who were members of the board of directors of Vencor on the
first day of such period (or, if the first day of such period was before
the Closing, were members of the board of directors of Old Vencor on such
day) shall cease to constitute a majority of the board of directors of
Vencor;
then, and in every such event, if requested by the Required Facility B Lenders,
the Documentation Agent shall by notice to the Borrower declare the Facility B
Loans (together with accrued interest thereon) to be, and they shall thereupon
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower.
Section 9.04. Notice of Default. The Documentation Agent shall give
notice to the Borrower (i) under Section 9.02(c) promptly upon being requested
to do so by any Basic Lender and (ii) under Section 9.03(d) promptly upon being
requested to do so by any Facility B Lender, and in either case shall thereupon
notify all the Lenders thereof.
Section 9.05. Enforcement Notice. If the Documentation Agent is (i)
instructed to do so by the Required Basic Lenders or the Required Facility B
Lenders at any time after the Loans become immediately due and payable pursuant
to Section 9.01, (ii) instructed to do so by the Required Basic Lenders at any
time after the Basic Loans and Swingline Loans have been declared due and
payable pursuant to Section 9.02 or (iii) instructed to do so by the Required
Facility B Lenders at any time after the Facility B Loans have been declared due
and payable pursuant to Section 9.03, the Documentation Agent shall deliver to
the Collateral Agent an Enforcement Notice directing the Collateral Agent to
exercise one or more specific remedies under the Collateral Documents.
Concurrently with the delivery of any such Enforcement Notice to the Collateral
Agent, all outstanding Loans not theretofore declared due and payable shall
automatically become immediately due and payable.
Section 9.06. Cash Cover. The Borrower agrees that, if any Event of
Default specified in Section 9.02 shall have occurred and be continuing, the
Borrower shall, if requested by the Documentation Agent upon instruction from
the Required Revolving Credit Lenders, pay (and, if any Event of Default
specified in Section 901 occurs with respect to the Borrower, Vencor or any
Material Subsidiary, forthwith, without any demand or the taking of any other
action by the Documentation Agent or any Lender, it shall pay) to the Collateral
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Agent an amount in immediately available funds equal to the then aggregate
amount available for subsequent drawings under all outstanding Letters of Credit
to be held for the benefit of the Revolving Credit Lenders and the LC Issuing
Banks in accordance with the Collateral Documents to secure the payment of all
LC Reimbursement Obligations arising from subsequent drawings under such Letters
of Credit.
ARTICLE 10
THE AGENTS
Section 10.01. Appointment and Authorization. (a) Each Lender irrevocably
appoints the Documentation Agent to act as its agent in connection herewith and
authorizes the Documentation Agent to take such action as agent on such Lender's
behalf and to exercise such powers under the Financing Documents as are
delegated to the Documentation Agent by the terms thereof, together with all
such powers as are reasonably incidental thereto.
(b) Each Lender irrevocably appoints the Administrative Agent to act as
its agent in connection herewith and authorizes the Administrative Agent to take
such action as agent on such Lender's behalf and to exercise such powers under
the Financing Documents as are delegated to the Administrative Agent by the
terms thereof, together with all such powers as are reasonably incidental
thereto.
(c) Each of the Lenders, the LC Issuing Banks, the Documentation Agent and
the Administrative Agent authorizes the Collateral Agent to execute the
Collateral Documents and irrevocably appoints and authorizes the Collateral
Agent to take such action as agent on its behalf and to exercise such powers
under the Collateral Documents as are delegated to the Collateral Agent by the
terms thereof, together with all such powers as are reasonably incidental
thereto.
Section 10.02. Agents and Affiliates. Each of Morgan and NationsBank
shall have the same rights and powers under the Financing Documents as any other
Lender and may exercise or refrain from exercising the same as though it were
not one of the Agents. Each of Morgan and NationsBank and their respective
affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with any of the Vencor Companies or their Affiliates as if it
were not one of the Agents.
Section 10.03. Action by Agents. The obligations of each of the Agents
under the Financing Documents are only those expressly set forth therein with
respect to it. Without limiting the generality of the foregoing, none of the
Agents
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shall be required to take any action with respect to any Default, except as
expressly provided in Article 9 hereof and in the Collateral Documents.
Section 10.04. Consultation with Experts. Each of the Agents may consult
with legal counsel (who may be counsel for any Vencor Company), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
Section 10.05. Liability of Agents. None of the Agents or their
respective affiliates or their respective directors, officers, agents or
employees shall be liable for any action taken or not taken by it in connection
with the Financing Documents (A) with the consent or at the request of the
Required Lenders or (B) in the absence of its own gross negligence or willful
misconduct. None of the Agents or their respective affiliates or their
respective directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into or verify (i) any statement, warranty
or representation made in connection with any Financing Document or any Credit
Event; (ii) the performance or observance of any of the covenants or agreements
of any Vencor Company under any Financing Document; (iii) the satisfaction of
any condition specified in Article 3 except, in the case of the Documentation
Agent, receipt of items required to be delivered to it; (iv) the validity,
effectiveness or genuineness of any Financing Document or any other instrument
or writing furnished in connection therewith; or (v) the existence, genuineness
or value of any of the Collateral or the validity, perfection, recordation,
priority or enforceability of any Lien on any of the Collateral. None of the
Agents shall incur any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex,
facsimile copy or similar writing) believed by it to be genuine or to be signed
by the proper party or parties.
Section 10.06. Indemnification. The Lenders shall, ratably in accordance
with their respective Credit Exposures, indemnify each Agent, their respective
affiliates and their respective directors, officers, agents and employees (to
the extent not reimbursed by the Vencor Companies) against any cost, expense
(including reasonable counsel fees and disbursements), claim, demand, action,
loss or liability (except such as result from such indemnitee's gross negligence
or willful misconduct) that such indemnitee may suffer or incur in connection
with the Financing Documents or any action taken or omitted by such indemnitees
thereunder.
Section 10.07. Credit Decision. Each Lender acknowledges that it has,
independently and without reliance on the Agents or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
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acknowledges that it will, independently and without reliance upon the Agents or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under the Financing Documents.
Section 10.08. Agents' Fees. The Borrower will pay fees to each Agent in
the amounts and at the times agreed to by the Borrower and such Agent.
Section 10.09. Successor Agents. Any Agent may resign at any time (a
"Retiring Agent") by giving notice thereof to the Lenders, the other Agents and
the Borrower. Upon any such resignation, the Required Lenders shall have the
right to appoint a successor for the Retiring Agent (a "Successor Agent"). If
no Successor Agent shall have been so appointed by the Required Lenders, and
shall have accepted such appointment, within 30 days after the Retiring Agent
gives notice of resignation, then the Retiring Agent may, on behalf of the
Lenders, appoint a Successor Agent, which shall be a Lender or any other
commercial bank organized or licensed under the laws of the United States or any
State thereof and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of its appointment as a Successor Agent, such
Successor Agent shall thereupon succeed to and become vested with all the rights
and duties of the Retiring Agent, and the Retiring Agent shall be discharged
from its duties and obligations hereunder. After any Retiring Agent resigns as
an Agent hereunder, the provisions of this Article 10 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was one of the
Agents.
Section 10.10. Collateral Agent. (a) As to any matters not expressly
provided for in the Collateral Documents (including the timing and methods of
realization upon the Collateral), the Collateral Agent shall act or refrain from
acting in accordance with written instructions from the Required Lenders or, in
the absence of such instructions, in accordance with its discretion; provided
that the Collateral Agent shall not be obligated to take any action if the
Collateral Agent believes that such action is or may be contrary to any
applicable law or might cause the Collateral Agent to incur any loss or
liability for which it has not been indemnified to its satisfaction.
(b) The Collateral Agent shall not be responsible for the existence,
genuineness or value of any of the Collateral or for the validity, perfection,
priority or enforceability of any Lien on any of the Collateral, whether
impaired by operation of law or by reason of any action or omission to act on
its part under the Collateral Documents. The Collateral Agent shall have no
duty to ascertain or inquire as to the performance or observance of any of the
terms of the Collateral Documents by the Vencor Companies.
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Section 10.11. Obligations of Senior Managing Agents, Managing Agents and
Co-Agents. The Senior Managing Agents, Managing Agents and Co-Agents, in their
capacities as such, shall have no duties, obligations or liabilities of any kind
hereunder.
ARTICLE 11
CHANGES IN CIRCUMSTANCES
Section 11.01. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any Euro-Dollar Loan
or CD Loan:
(a) the Administrative Agent is unable to determine the applicable
London Interbank Offered Rate or Adjusted CD Base Rate for such Interest
Period, or
(b) Lenders holding Notes evidencing 50% or more of the aggregate
outstanding principal amount of the Loans to which such Interest Period
will apply advise the Administrative Agent that the London Interbank
Offered Rate or the Adjusted CD Base Rate, as the case may be, as
determined by the Administrative Agent will not adequately and fairly
reflect the cost to such Lenders of funding their Euro-Dollar Loans or CD
Loans, as the case may be, for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Lenders, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Lenders to make Euro-Dollar Loans or CD Loans, as the case
may be, or to convert outstanding Loans to Euro-Dollar Loans or CD Loans, as the
case may be, shall be suspended and (ii) each outstanding Euro-Dollar Loan or CD
Loan, as the case may be, shall be converted into a Base Rate Loan on the last
day of the then current Interest Period applicable thereto. Unless the Borrower
notifies the Administrative Agent at least two Domestic Business Days before the
date of any affected Borrowing for which a Notice of Borrowing has previously
been given that it elects not to borrow on such date, such Borrowing shall
instead be made as a Base Rate Borrowing.
Section 11.02. Illegality. If, on or after the date hereof, the adoption
of any applicable law, rule or regulation, or any change in any applicable law,
rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
(or its
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Euro-Dollar Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for any Lender (or its Euro-Dollar Lending
Office) to make, maintain or fund its Euro-Dollar Loans and such Lender shall so
notify the Administrative Agent, the Administrative Agent shall forthwith give
notice thereof to the other Lenders and the Borrower, whereupon until such
Lender notifies the Borrower and the Administrative Agent that the circumstances
giving rise to such suspension no longer exist, the obligation of such Lender to
make Euro-Dollar Loans, or to convert outstanding Base Rate Loans or CD Loans
into Euro-Dollar Loans, shall be suspended. Before giving any notice to the
Administrative Agent pursuant to this Section, such Lender shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need for
giving such notice and will not, in the judgment of such Lender, be otherwise
disadvantageous to such Lender. If such notice is given, each Euro-Dollar Loan
of such Lender then outstanding shall be converted to a Base Rate Loan either
(i) on the last day of the then current Interest Period applicable to such Euro-
Dollar Loan if such Lender may lawfully continue to maintain and fund such Loan
to such day or (ii) immediately if such Lender shall determine that it may not
lawfully continue to maintain and fund such Loan to such day.
Section 11.03. Increased Cost and Reduced Return. (a) If, on or after the
date hereof, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender Party (other than the Agents) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency, shall impose, modify or deem
applicable any reserve, special deposit, insurance assessment or similar
requirement (including any such requirement imposed by the Board of Governors of
the Federal Reserve System but excluding (i) with respect to any Euro-Dollar
Loan, any such requirement included in an applicable Euro-Dollar Reserve
Percentage and (ii) with respect to any CD Loan, any such requirement included
in an applicable Domestic Reserve Percentage) against assets of, deposits with
or for the account of, or credit extended by, any Lender Party (other than the
Agents) or shall impose on any Lender Party (other than the Agents) or the
London interbank market or the United States market for certificates of deposit
any other condition affecting its Fixed Rate Loans, its Note, its obligation to
make Fixed Rate Loans or Swingline Loans, or its obligation to participate in
any Letter of Credit, and the result of any of the foregoing is to increase the
cost to such Lender Party of making or maintaining its Fixed Rate Loans or
participating in any Letter of Credit or increase the cost to the Swingline Bank
of maintaining the Swingline Commitment or to reduce the amount of any sum
received or receivable by such Lender Party under this Agreement or under its
Note with respect thereto, by an
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amount deemed by such Lender Party to be material, then, within 15 days after
demand by such Lender Party (with a copy to the Administrative Agent), the
Borrower shall pay to such Lender Party such additional amount or amounts as
will compensate such Lender Party for such increased cost or reduction; provided
that the Borrower shall not be liable to any Lender Party in respect of any such
increased cost or reduction with respect to any period of time more than three
months before the Borrower receives the notice required by the first sentence of
Section 11.03(c) or more than six months before the Borrower receives the
relevant certificate referred to in the second sentence of Section 11.03(c).
(b) If any Lender Party (other than the Agents) shall have determined
that, after the date hereof, the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change in any such law, rule or
regulation, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on capital of such Lender Party (or its Parent) as a consequence
of such Lender Party's obligations hereunder to a level below that which such
Lender Party (or its Parent) could have achieved but for such adoption, change,
request or directive (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by such Lender Party to be material, then
from time to time, within 15 days after demand by such Lender Party (with a copy
to the Administrative Agent), the Borrower shall pay to such Lender Party such
additional amount or amounts as will compensate it for such reduction; provided
that the Borrower shall not be liable to any Lender Party in respect of any such
reduction with respect to any period of time more than three months prior to the
date of the notice required by the first sentence of Section 11.03(c).
(c) Each Lender Party (other than the Agents) will promptly notify the
Borrower and the Administrative Agent of any event of which it has knowledge,
occurring after the date hereof, which will entitle it to compensation pursuant
to this Section and will designate a different Applicable Lending Office or LC
Office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the judgment of such Lender Party, be
otherwise disadvantageous to it. A certificate of any such Lender Party
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder, showing the calculation thereof in
reasonable detail, shall be conclusive in the absence of manifest error. In
determining such amount, such Lender Party may use any reasonable averaging and
attribution methods.
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Section 11.04. Taxes. (a) Any and all payments by the Vencor Companies
to or for the account of any Lender Party under any Financing Document shall be
made free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Lender Party, taxes imposed
on its net income, and franchise or similar taxes imposed on it, by (i) the
jurisdiction under the laws of which it is organized or any political
subdivision thereof, (ii) in the case of each Lender or the Swingline Bank, the
jurisdiction of its Applicable Lending Office or any political subdivision
thereof and (iii) in the case of each LC Issuing Bank, the jurisdiction of its
LC Office or any political subdivision thereof (all such non-excluded taxes,
duties, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If any Vencor Company shall be required by
law to deduct any Taxes from or in respect of any sum payable under any
Financing Document to any Lender Party, (i) the sum payable shall be increased
as may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 11.04) such
Lender Party receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the relevant Vencor Company shall make such
deductions, (iii) such Vencor Company shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law, and (iv) such Vencor Company shall furnish to the Administrative Agent, at
its address specified in or pursuant to Section 12.01, the original or a
certified copy of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, or charges or similar
levies which arise from any payment made hereunder or under any other Financing
Document or from the execution or delivery of, or otherwise with respect to, any
Financing Document (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Lender Party for the full amount
of Taxes or Other Taxes (including any Taxes or Other Taxes imposed or asserted
by any jurisdiction on amounts payable under this Section 11.04) paid by such
Lender Party and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto. This indemnification shall be made
within 15 days from the date such Lender Party makes demand therefor.
(d) Each Lender Party organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender Party listed on the signature pages hereof
and on or prior to the date on which it becomes a Lender Party in the case of
each other Lender Party, and from time to time thereafter if requested in
writing by the Borrower (but only so long as such Lender Party remains lawfully
able to do so),
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shall provide the Borrower and the Administrative Agent with (i) Internal
Revenue Service form 1001 or 4224, as appropriate, or any successor form
prescribed by the Internal Revenue Service, certifying that such Lender Party is
entitled to benefits under an income tax treaty to which the United States is a
party which reduces the rate of withholding tax on payments of interest under
the Financing Documents or certifying that the income receivable pursuant to the
Financing Documents is effectively connected with the conduct of a trade or
business in the United States or (ii) if such Lender is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Internal Revenue Code, Internal Revenue
Service form W-8 or any successor form prescribed by the Internal Revenue
Service claiming complete exemption from, or a reduced rate of, withholding tax
on payments of interest under the Financing Documents. If the form provided by a
Lender Party at the time such Lender Party first becomes a party to this
Agreement indicates a United States interest withholding tax rate in excess of
zero, withholding tax at such rate shall be excluded from "Taxes" as defined in
Section 11.04(a).
(e) For any period with respect to which a Lender Party has failed to
provide the Borrower and the Administrative Agent with the appropriate form
pursuant to Section 11.04(d) (unless such failure is due to a change in treaty,
law or regulation occurring subsequent to the date on which a form originally
was required to be provided), such Lender Party shall not be entitled to
indemnification under Section 11.04(a) with respect to Taxes imposed by the
United States; provided that should a Lender Party, which is otherwise exempt
from or subject to a reduced rate of withholding tax, become subject to Taxes
because of its failure to deliver a form required hereunder, the relevant Vencor
Company shall take such steps as such Lender Party shall reasonably request to
assist such Lender Party to recover such Taxes.
(f) If any Vencor Company is required to pay additional amounts to or for
the account of any Lender Party pursuant to this Section 11.04, then such Lender
Party will change the jurisdiction of its Applicable Lending Office or LC
Office, as the case may be, so as to eliminate or reduce any such additional
payment which may thereafter accrue if such change, in the sole judgment of such
Lender Party, is not otherwise disadvantageous to such Lender Party.
(g) Without prejudice to the survival of any other agreement of the
Borrower or Vencor hereunder, the agreements and obligations of the Vencor
Companies contained in this Section 11.04 (as set forth herein and incorporated
by reference in the Guaranty Agreements) shall survive the payment in full of
the principal of and interest on the Loans, the Swingline Loans and the LC
Reimbursement Obligations.
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Section 11.05. Base Rate Loans Substituted for Affected Euro-Dollar Loans.
If (x) the obligation of any Lender to make or maintain Euro-Dollar Loans has
been suspended pursuant to Section 11.02 or (y) any Lender has demanded
compensation under Section 11.03 or 11.04 with respect to its Euro-Dollar Loans
and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice
to such Lender through the Administrative Agent, have elected that the
provisions of this Section 1105 shall apply to such Lender, then, unless and
until such Lender notifies the Borrower that the circumstances giving rise to
such suspension or demand for compensation no longer exist, all Loans which
would otherwise be made by such Lender as (or continued as or converted into)
Euro-Dollar Loans shall instead be Base Rate Loans (on which interest and
principal shall be payable contemporaneously with the related Euro-Dollar Loans
of the other Lenders under the same Facility). If such Lender notifies the
Borrower that the circumstances giving rise to such notice no longer apply, the
principal amount of each such Base Rate Loan shall be converted into a Euro-
Dollar Loan on the first day of the next succeeding Interest Period applicable
to the related Euro-Dollar Loans of the other Lenders under the same Facility.
Section 11.06. Substitution of Lenders. (a) If any Lender (a "Selling
Lender") (i) gives notice pursuant to Section 11.02 that it is unlawful or
impossible for such Lender to make, maintain or fund its Euro-Dollar Loans or
(ii) demands compensation under Section 11.03 or 11.04, the Borrower shall have
the right, with the assistance of the Documentation Agent and the Administrative
Agent, to seek one or more banks or other institutions (collectively, the
"Purchasing Lenders") willing to purchase the outstanding Loans of the Selling
Lender, and if the Selling Lender is a Revolving Credit Lender, to purchase its
participation in any outstanding LC Reimbursement Obligations and to assume its
Revolving Credit Commitment and its participation in any outstanding Letters of
Credit on the terms specified in this Section 11.06; provided that any such
purchase and assumption by a Purchasing Lender that is not already a Lender
shall be subject to the consent of the Administrative Agent and each LC Issuing
Bank (which consents shall not be unreasonably withheld). The Selling Lender
shall be obligated to sell its outstanding Loans and, if it is a Revolving
Credit Lender, its participation in any outstanding LC Reimbursement Obligations
to such Purchasing Lender or Lenders (which may include one or more of the
Lenders) within 15 days after receiving notice from the Borrower requiring it to
do so, at an aggregate price equal to the outstanding principal amount thereof
plus unpaid interest accrued thereon up to but excluding the date of sale.
(b) In connection with any such sale, and as a condition thereof, the
Borrower shall pay to the Selling Lender all commitment fees and letter of
credit fees accrued for its account hereunder to but excluding the date of such
sale, plus, if demanded by the Selling Lender at least two Domestic Business
Days prior to such sale, (i) the amount of any compensation which would be due
to the Selling
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Lender under Section 2.17 if the Borrower had prepaid the outstanding Euro-
Dollar Loans and CD Loans of the Selling Lender on the date of such sale and
(ii) any additional compensation accrued for its account under Section 11.03 to
but excluding said date.
(c) Upon any such sale, if the Selling Lender is not a Revolving Credit
Lender, the Selling Lender, as assignor, such Purchasing Lender, as assignee,
and the Administrative Agent shall enter into an appropriate assignment and
assumption agreement and, upon payment of the purchase price to be paid pursuant
thereto, (i) such Purchasing Lender shall become the holder of the Loans
assigned to it pursuant thereto and (ii) if such Purchasing Lender is not
already one of the Lenders, it shall become a Lender party to this Agreement.
(d) Upon any such sale, if the Selling Lender is a Revolving Credit Lender,
the Selling Lender, as assignor, each Purchasing Lender, as assignee, the
Administrative Agent and each LC Issuing Bank shall enter into an appropriate
assignment and assumption agreement and, upon payment of the purchase price to
be paid pursuant thereto, (i) the Purchasing Lender or Lenders shall assume the
Selling Lender's Revolving Credit Commitment and its participation in any
outstanding Letters of Credit, and the Selling Lender shall be released from its
obligations hereunder to a corresponding extent and either (ii) if such
Purchasing Lender is already one of the Lenders, its Revolving Credit Commitment
shall be increased by an amount equal to its ratable share of the Selling
Lender's Revolving Credit Commitment and its participations in the outstanding
Letters of Credit shall be increased by its ratable share of the Selling
Lender's participations therein or (iii) if such Purchasing Lender is not
already one of the Lenders, it shall become a Lender party to this Agreement,
shall be deemed to be an Assignee hereunder and shall have all the rights and
obligations of a Lender with a Revolving Credit Commitment equal to its ratable
share of the Selling Lender's Revolving Credit Commitment and with a
participation in the outstanding Letters of Credit equal to its ratable share of
the Selling Lender's participation in such Letters of Credit.
(e) Upon the consummation of any sale pursuant to this Section 11.06, the
Selling Lender, the Administrative Agent and the Borrower shall make appropriate
arrangements so that, if required, each Purchasing Lender receives a new Note
complying with the provisions of Section 2.04.
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ARTICLE 12
MISCELLANEOUS
Section 12.01. Notices. Unless otherwise specified herein, all notices,
requests and other communications to any party under any Financing Document
shall be in writing (including bank wire, facsimile copy or similar writing) and
shall be given to such party at its address or facsimile number set forth on the
signature pages hereof (or, in the case of any Lender, in its Administrative
Questionnaire) or such other address or facsimile number as such party may
hereafter specify for the purpose by notice to the Agents and the Borrower. Each
such notice, request or other communication shall be effective (i) if given by
facsimile transmission, when transmitted to the facsimile number specified in or
pursuant to this Section 12.01 and confirmation of receipt is received, (ii) if
given by mail, ten days after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid, or (iii) if given by any
other means, when delivered at the address specified in or pursuant to this
Section 12.01, provided that notices and requests to the Documentation Agent or
the Administrative Agent under Article 2, 9 or 11 shall not be effective until
received.
Section 12.02. No Waiver. No failure or delay by the Lender Parties, or any
of them, in exercising any right, power or privilege under any Financing
Document shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies provided in the
Financing Documents shall be cumulative and not exclusive of any rights or
remedies provided by law.
Section 12.03. Expenses; Indemnification. (a) The Borrower shall pay on
demand (i) all reasonable out-of-pocket expenses of the Agents (including
reasonable fees and disbursements of Davis Polk & Wardwell, special counsel for
the Agents) in connection with the preparation and administration of the
Financing Documents, any waiver, consent or amendment of any provision thereof,
or any Default or alleged Default hereunder and (ii) if any Event of Default
occurs, all out-of-pocket expenses incurred by any Lender Party, including fees
and disbursements of counsel (including internal charges reasonably allocated to
services performed by in-house counsel), in connection with such Event of
Default and collection, bankruptcy, insolvency and other enforcement proceedings
resulting therefrom, including the negotiation of any restructuring or "workout"
of the Borrower's obligations under the Financing Documents.
(b) The Borrower shall indemnify each Lender Party, their respective
affiliates and the respective directors, officers, agents and employees of the
foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and
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against any and all liabilities, losses, damages, costs and expenses of any kind
(including the reasonable fees and disbursements of counsel for any Indemnitee
in connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitee shall be designated a party thereto, and any
Environmental Liabilities) which may be incurred by any Indemnitee relating to
or arising out of any Financing Document or any actual or proposed use of the
proceeds of the Loans or the Letters of Credit; provided that no Indemnitee
shall have the right to be indemnified hereunder for its own gross negligence or
willful misconduct as determined by a court of competent jurisdiction.
Section 12.04. Sharing of Set-offs. (a) Each Lender agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest then
due (or overdue) with respect to the Loans and participations in LC
Reimbursement Obligations (if any) held by it which is greater than the
proportion received by any other Lender in respect of the aggregate amount of
principal and interest then due (or overdue) with respect to the Loans and
participations in LC Reimbursement Obligations (if any) held by such other
Lender, the Lender receiving such proportionately greater payment shall purchase
such participations in the Loans and participations in LC Reimbursement
Obligations (if any) held by the other Lenders, and such other adjustments shall
be made, as may be required so that all such payments of principal and interest
with respect to the Loans and participations in LC Reimbursement Obligations
held by the Lenders shall be shared by the Lenders pro rata.
(b) Nothing in this Section 12.04 shall impair the right of any Lender to
exercise any right of set-off or counterclaim it may have and to apply the
amount subject to such exercise to the payment of indebtedness of the relevant
Vencor Company other than its indebtedness in respect of the Loans and LC
Reimbursement Obligations.
(c) The Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any holder of a participation in a Loan or LC
Reimbursement Obligation, whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of set-off or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of the Borrower in the amount of such participation.
Section 12.05. Amendments and Waivers. (a) Neither this Agreement nor any
other Financing Document, nor any terms hereof or thereof, may be amended,
supplemented or modified except in accordance with the provisions of this
Section.
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(b) Except as set forth in the succeeding subsections of this Section, the
Required Basic Lenders (or the Administrative Agent with their written consent)
may from time to time (i) enter into written amendments, supplements or
modifications of any Financing Document (which shall not be effective unless
signed by each Vencor Company party thereto) for the purpose of adding any
provisions to such Financing Document or changing in any manner the rights of
the parties hereunder or thereunder or (ii) waive, on such terms and conditions
as the Required Basic Lenders (or the Administrative Agent with their written
consent) may specify in such instrument, any of the requirements of any
Financing Document or any Default or Event of Default and its consequences (any
such amendment, supplement, modification or waiver, a "Specified Change");
provided that
(1) without the written consent of the relevant LC
Issuing Bank, no Specified Change shall amend, supplement or
otherwise modify any Letter of Credit or any provision of
this Agreement governing the rights or obligations of such
LC Issuing Bank ;
(2) without the written consent of the Swingline Bank,
no Specified Change shall amend, modify or waive any
provision of Section 2.08 or any other provision of this
Agreement governing the rights or obligations of the
Swingline Bank;
(3) without the written consent of the then Agents, no
Specified Change shall amend, modify or waive any provision
of Article 10 or any other provision of this Agreement
governing the rights or obligations of the Agents;
(4) without the written consent of all the Basic
Lenders, no Specified Change shall reduce the percentage
specified in the definition of "Required Basic Lenders";
(5) without the written consent of all the Revolving
Credit Lenders, no Specified Change shall reduce the
percentage specified in the definition of "Required
Revolving Credit Lenders"; and
(6) without the written consent of all the Bridge
Lenders, no Specified Change shall reduce the percentage
specified in the definition of "Required Bridge Lenders" or
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change any provision of Section 211 requiring certain amounts to
be applied to prepay the Bridge Loans.
(c) Without the written consent of the Required Facility B Lenders, no
Specified Change shall (i) waive any Default or Event of Default under Section
9.03 and its consequences or (ii) amend, supplement or otherwise modify any
provision of Article 8, Section 9.03 or Exhibit P hereto.
(d) Without the written consent of all the Facility B Lenders, no Specified
Change shall reduce the percentage specified in the definition of "Required
Facility B Lenders."
(e) Without the written consent of the Required Lenders, no Specified
Change shall (i) waive any of the conditions precedent set forth in Section 3.01
(except that the making of a Loan by any Lender on the Closing Date shall be
deemed to constitute a waiver of such conditions precedent by such Lender), (ii)
waive any Default or Event of Default under Section 9.01 and its consequences or
(iii) amend, supplement or otherwise modify any provision of Section 9.01.
(f) Without the written consent of the Super-Majority Lenders, no Specified
Change shall take any action which has the effect of releasing all or
substantially all of the Collateral, releasing Vencor from its obligations under
the Vencor Guaranty Agreement or releasing all or substantially all of the
Subsidiary Guarantors from their obligations under the Subsidiary Guaranty
Agreements, except in each case as expressly provided in this Agreement or any
Collateral Document.
(g) Without the written consent of all the Lenders, no Specified Change
shall (i) consent to the assignment or transfer by either Vencor or the Borrower
of any of its rights and obligations under the Financing Documents, (ii) reduce
the percentage specified in the definition of "Required Lenders" or "Super-
Majority Lenders" or (iii) increase the aggregate amount of the Credit Exposures
under any Facility or include, as indebtedness under this Agreement, any
indebtedness of the Vencor Companies other than the Borrower's indebtedness
under the Facilities.
(h) Without the written consent of each Lender directly affected thereby,
no Specified Change shall reduce the amount or extend the scheduled date of
maturity of any Loan or reduce the amount or extend the scheduled date for
payment of any installment amount required to be paid pursuant to Section 2.12,
or reduce the stated rate of any interest or fee payable hereunder or extend the
scheduled date of any payment thereof, or increase the amount or extend the
expiration date of any Commitment or amend, modify or waive any provision of
this subsection.
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(i) Without the written consent of each Lender directly affected thereby,
no Specified Change shall change the manner in which prepayments of Term Loans
pursuant to Section 2.13 are allocated between Facility A and Facility B or
change any provision hereof requiring payments to be allocated on a pro rata
basis among the Lenders participating in any Facility.
(j) Any such waiver and any such amendment, supplement or modification
shall apply equally to each of the Lenders and shall be binding upon the
Lenders, the Agents, all future holders of the Loans, the Borrower, Vencor and
the Subsidiary Guarantors.
(k) Without the written consent of a Designated Lender or its Designating
Lender, no Specified Change shall subject such Designated Lender to any
additional obligation or affects its rights hereunder (unless the rights of all
Bridge Lenders, Revolving Credit Lenders, Facility A Lenders or Facility B
Lenders, as the case may be, hereunder are similarly affected).
Section 12.06. Successors and Assigns. (a) The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign or
otherwise transfer any of its rights under this Agreement without the prior
written consent of all the Lenders, the LC Issuing Banks and the Swingline Bank.
Any attempted assignment or transfer in contravention of the foregoing shall be
null and void.
(b) Any Lender may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in any or all of its
Loans and/or, in the case of a Revolving Credit Lender, its Revolving Credit
Commitment or its LC Exposure. If any Lender grants a participating interest to
a Participant, whether or not upon notice to the Vencor Companies and the
Agents, such Lender shall remain responsible for the performance of its
obligations hereunder, and the Borrower and the Agents shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under the Financing Documents. Any agreement pursuant to which any
Lender may grant such a participating interest shall provide that such Lender
shall retain the sole right and responsibility to enforce the obligations of the
Vencor Companies or any other party under the Financing Documents, including the
right to approve any amendment, modification or waiver of any provision of the
Financing Documents; provided that such participation agreement may provide that
(A) such Lender will not agree to any modification, amendment or waiver of this
Agreement described in Section 12.05(h) without the consent of the Participant
and (B) such Lender will agree to vote the Participant's participating interest
with respect to any matter requiring a vote of the Super-Majority Lenders under
the Security Agreement as the Participant may direct. The Borrower and
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Vencor each agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Section 2.07(l) and
Article
11 with respect to its participating interest. An assignment or other transfer
which is not permitted by Section 12.06(c) or (d) shall be given effect for
purposes of this Agreement only to the extent of a participating interest
granted in accordance with this subsection (b).
(c) Any Lender may at any time on or after the Closing Date assign to one
or more banks or other institutions (each an "Assignee") all, or a ratable
portion of all, of its rights and obligations under any one or more of the
Facilities, and such Assignee shall assume such rights and obligations, with
(and subject to) the consent of the Borrower and the Administrative Agent and,
in the case of the Revolving Credit Facility, each LC Issuing Bank and the
Swingline Bank; provided that:
(i) any assignment of only a ratable portion of the transferor Lender's
rights and obligations under any Facility shall be equivalent, in the case of
each Assignee, to an initial Commitment of not less than $5,000,000;
(ii) none of the foregoing consents shall be unreasonably withheld or
delayed;
(iii) no such consent shall be required if (x) the Assignee is an affiliate
or Related Fund of such transferor Lender, (y) the Assignee is already a Lender
immediately prior to such assignment or (z) an Event of Default shall have
occurred and be continuing when such assignment is made; provided that in each
of the foregoing cases (A) written notice of such assignment shall be given to
the Administrative Agent, the Documentation Agent and the Borrower and (B) the
consent of the LC Issuing Banks and the Swingline Bank shall be required for any
assignment of a Revolving Credit Commitment or a participation in outstanding
Letters of Credit to an Assignee that is not an Eligible Revolving Credit
Lender;
(iv) such assignment may be made to an Assignee that is already a Lender,
or made by a Lender to one of its Related Funds, without regard to the foregoing
minimum assignment amount;
(v) the parties to each such assignment shall execute and deliver to the
Administrative Agent an appropriate instrument of assignment for its acceptance
and recording in the Register; and
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(vi) the Assignee under each such assignment (unless it is already a
Lender) shall deliver to the Administrative Agent a completed
Administrative Questionnaire.
When (A) such an instrument of assignment (together with an Administrative
Questionnaire, if required) has been delivered to the Administrative Agent, (B)
such assignment has been recorded in the Register, and (C) such Assignee has
paid to such transferor Lender an amount equal to the purchase price agreed
between them, such Assignee shall be a Lender party to this Agreement and shall
have all the rights and obligations of a Lender with outstanding Loans and/or a
Revolving Credit Commitment (as the case may be) as set forth in such instrument
of assignment, and the transferor Lender shall be released from its obligations
hereunder to a corresponding extent, and no further consent or action by any
party shall be required. Upon the consummation of any assignment pursuant to
this subsection (c), (x) the Administrative Agent shall notify the Documentation
Agent thereof and (y) the transferor Lender, the Administrative Agent and the
Borrower shall make appropriate arrangements so that, if required, a new Note
complying with the provisions of Section 2.04 is issued to the Assignee. In
connection with any such assignment, the transferor Lender shall pay to the
Administrative Agent an administrative fee for processing such assignment in the
amount of $2,500. If the Assignee is organized under the laws of a jurisdiction
outside the United States, it shall deliver to the Borrower and the
Administrative Agent certification as to exemption from deduction or withholding
of United States federal income taxes in accordance with Section 11.04.
(d) Any Lender may at any time assign all or any portion of its Loans or
its Note as security to a Federal Reserve Bank. Any Facility B Lender may pledge
any of its Facility B Loans or its Note to any trustee with respect to a pool of
collateralized loan obligations which includes such Facility B Loans; provided
that any foreclosure or similar action by such trustee shall be subject to the
provisions of this Section concerning assignments and shall be void unless it
complies with such provisions. No such assignment or pledge shall release the
transferor Lender from its obligations hereunder.
(e) The Administrative Agent (acting, for this purpose only, as agent for
the Borrower) shall maintain at its address at which notices are to be given to
it pursuant to Section 12.01 a copy of each instrument of assignment delivered
to it pursuant to subsection (c) of this Section and a register for the
recordation of the names and addresses of the Lenders, their respective
Commitments and the principal amounts of their respective Loans outstanding from
time to time (the "Register"). The entries in the Register shall be conclusive,
in the absence of manifest error; and the Borrower, the Guarantors, the Agents
and the Lenders may treat each Person whose name is recorded in the Register as
a Lender for all purposes of this Agreement. The Register shall be available for
inspection by the
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Borrower or any Lender Party at any reasonable time and from time to time
upon reasonable prior notice.
(f) No Assignee, Participant or other transferee of any Lender's rights
shall be entitled to receive any greater payment under Section 2.07(l), 11.03
or 11.04 than such Lender would have been entitled to receive with respect to
the rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 11.02, 11.03 or 11.04
requiring such Lender to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
Section 12.07. Designated Lenders. (a) Subject to the provisions of this
subsection, any Lender may from time to time elect to designate an Eligible
Lending Designee to provide all or a portion of the Loans to be made by such
Lender pursuant to this Agreement; provided that such designation shall not be
effective unless the Borrower and the Administrative Agent consent thereto. When
a Lender and its Eligible Lending Designee shall have signed an agreement
substantially in the form of Exhibit O hereto (a "Designation Agreement") and
the Borrower and the Administrative Agent shall have signed their respective
consents thereto, such Eligible Lending Designee shall become a Designated
Lender for purposes of this Agreement. The Designating Lender shall thereafter
have the right to permit such Designated Lender to provide all or a portion of
the Loans to be made by such Designating Lender pursuant to this Agreement and
the making of such Loans or portions thereof shall satisfy the obligation of the
Designating Lender to the same extent, and as if, such Loans or portion thereof
were made by the Designating Lender. As to any Loans or portion thereof made by
it, each Designated Lender shall have all the rights that a Lender making such
Loans or portion thereof otherwise would have had under the Financing Documents;
provided that (x) its voting rights under this Agreement shall be exercised
solely by its Designating Lender and (y) its Designating Lender shall remain
solely responsible to the other parties hereto for the performance of its
obligations under this Agreement, including its obligations in respect of the
Loans or portion thereof made by it. No additional Note shall be required to
evidence Loans or portions thereof made by a Designated Lender; and the
Designating Lender shall be deemed to hold its Note as agent for its Designated
Lender to the extent of the Loans or portion thereof funded by such Designated
Lender. Each Designating Lender shall act as administrative agent for its
Designated Lender and give and receive notices and other communications on its
behalf. Any payments for the account of any Designated Lender shall be paid to
its Designating Lender as administrative agent for such Designated Lender and
neither the Borrower nor the Administrative Agent shall be responsible for any
Designating Lender's application of such payments. In addition, any Designated
Lender may with notice to, but without the prior written consent of the Borrower
130
<PAGE>
or the Administrative Agent, assign all or portions of its interest in any Loans
to its Designating Lender or to any financial institutions consented to by the
Borrower and the Administrative Agent providing liquidity and/or credit
facilities to or for the account of such Designated Lender to support the
funding of Loans or portions thereof made by such Designated Lender and
disclose on a confidential basis any non-public information relating to its
Loans or portions thereof to any rating agency, commercial paper dealer or
provider of any guarantee, surety, credit or liquidity enhancement to such
Designated Lender.
(b) Each party to this Agreement agrees that it will not institute
against, or join any other Person in instituting against, any Designated Lender
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceeding or other proceeding under any federal or state bankruptcy or similar
law, for one year and a day after all outstanding senior indebtedness of such
Designated Lender is paid in full. The Designating Lender for each Designated
Lender agrees to indemnify, save, and hold harmless each other party hereto for
any loss, cost, damage and expense arising out of its inability to institute any
such proceeding against such Designated Lender. This subsection (b) shall
survive the termination of this Agreement.
Section 12.08. Margin Stock. Each of the Lenders represents to the Agents
and each of the other Lenders that it in good faith is not relying upon any
Margin Stock as collateral in the extension or maintenance of the credit
provided for in this Agreement.
Section 12.09. Failure of Revolving Credit Lender to Satisfy Minimum Rating
Condition. If at any time any Revolving Credit Lender fails to satisfy the
Minimum Rating Condition, such Revolving Credit Lender (a "Non-Complying
Lender") shall (i) promptly notify the Borrower, the Documentation Agent, the
Administrative Agent and the LC Issuing Banks thereof and (ii) assist the
Borrower in seeking one or more Eligible Revolving Credit Lenders to purchase
its outstanding Loans and its participation in any outstanding LC Reimbursement
Obligations and to assume its Revolving Credit Commitment and its participation
in any outstanding Letters of Credit. If such a sale and assumption has not been
effected within 60 days after such Non-Complying Lender first fails to satisfy
the Minimum Rating Condition, then, for so long as such failure continues, such
Non-Complying Lender shall cause Eligible Collateral to be pledged, or letters
of credit to be issued by one or more Eligible Revolving Credit Lenders, in
favor of each of the LC Issuing Banks, in each case in an amount at least equal
from time to time to such Non-Complying Lender's Commitment Percentage of the
aggregate amount that is (or may thereafter become) available for drawing under
all Letters of Credit issued by such LC Issuing Bank and otherwise on terms
satisfactory to such LC Issuing Bank.
131
<PAGE>
For purposes of this Section 12.09:
(i) the "Minimum Rating Condition" is satisfied by a Revolving Credit
Lender at any time if (A) the issuer rating of such Revolving Credit Lender
or its Parent is then at least "C" by Thompson BankWatch, Inc. (or its
successors) (or, in the case of any Revolving Credit Lender organized under
the laws of any jurisdiction outside the United States, the individual
rating of such Revolving Credit Lender or its Parent is then at least "C"
by IBCA Limited (or its successors)), (B) the scoring of such Revolving
Credit Lender or its Parent is then at least "2" by Thompson BankWatch,
Inc. (or its successors) or (C) long-term unsecured public debt of such
Revolving Credit Lender or its Parent is then rated at least "BBB-" by S&P
and at least "Baa3" by Moody's;
(ii) "Eligible Revolving Credit Lender" means any bank or other
financial institution whose (or whose Parent's) long-term unsecured public
debt is rated at least "BBB+" by S&P and at least "Baa1" by Moody's; and
(iii) "Eligible Collateral" means (A) cash, (B) direct obligations of
the United States or any agency thereof, or obligations guaranteed by the
United States or any agency thereof, and (C) debt securities of an issuer
incorporated under the laws of the United States or any state thereof which
are rated at least "A" by S&P or "A1" by Moody's, in each case (except in
the case of cash) maturing not more than one year after such obligation or
security is pledged pursuant to this Section 12.09.
Section 12.10. Governing Law; Submission to Jurisdiction. This Agreement,
each Note and the Swingline Note shall be governed by and construed in
accordance with the laws of the State of New York. The Borrower and Vencor each
hereby submits to the nonexclusive jurisdiction of the United States District
Court for the Southern District of New York and of any New York State court
sitting in New York City for purposes of all legal proceedings arising out of or
relating to any of the Financing Documents or the transactions contemplated
thereby. The Borrower and Vencor each irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
Section 12.11. Counterparts; Integration. This Agreement and any amendment
to this Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto were
upon the same instrument. This Agreement (together with the other Financing
132
<PAGE>
Documents) constitutes the entire agreement and understanding among the parties
hereto and supersedes any and all prior agreements and understandings, oral or
written, relating to the subject matter hereof.
Section 12.12. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THE FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER FINANCING DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 12.12.
Section 12.13. Confidentiality. Each Lender Party agrees to keep the
information contained in the Information Memorandum and any other non-public
information delivered or made available by Old Vencor or any Vencor Company to
it confidential and to use such information only for the purpose of evaluating,
approving, structuring and administering the Loans, Swingline Loans and Letters
of Credit; provided that nothing herein shall prevent any Lender Party from
disclosing such information (i) to Persons employed or retained by such Lender
Party who are engaged or expected to be engaged in evaluating, approving,
structuring or administering the Loans, Swingline Loans and Letters of Credit,
(ii) to any other Person if reasonably incidental to the administration of the
Loans, Swingline Loans or Letters of Credit, (iii) to any other Lender Party,
(iv) pursuant to any subpoena or express direction of any court or other
authorized government agency or as otherwise required by law, (v) upon the
request or demand of any bank regulatory agency, bank examiner or comparable
authority, (vi) which has theretofore been publicly disclosed or is otherwise
available to such Lender Party on a non-confidential basis from a source that is
not, to its knowledge, subject to a confidentiality agreement with Old Vencor or
any Vencor Company, (vii) in connection with any litigation to which any Lender
Party or its subsidiaries or Parent may be a party, (viii) to the extent
necessary in connection with the exercise of any remedy hereunder, (ix) to such
Lender Party's affiliates, legal counsel and independent auditors, (x) to any
actual or proposed Participant or Assignee that has signed a written agreement
containing provisions substantially similar to this Section 12.13 or (xi) any
other Person approved by the Borrower in writing. Any Lender Party that
discloses confidential information to other Persons as contemplated by clause
(i), (ii) or (ix) of the foregoing proviso shall
133
<PAGE>
inform such other Persons of the confidential nature of such information and
shall instruct them to keep such information confidential (except for
disclosures permitted by the foregoing proviso). Before any Lender Party
discloses confidential information pursuant to clause (iv) or (vii) of the
foregoing proviso, such Lender Party shall, to the extent permitted by law, use
its best efforts to advise Vencor of such proposed disclosure so that Vencor
may, in its discretion, seek an appropriate protective order. If and to the
extent requested to do so by the Borrower, the Administrative Agent may deliver
copies of information supplied to it pursuant to Section 5.01 to any Person
referred to in clause (x) or (xi) of the foregoing proviso.
134
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
VENCOR HEALTHCARE, INC.
(to be renamed Vencor, Inc.)
By: /s/ W. Earl Reed III
------------------------------------------
Title: Chief Financial Officer
Address: Vencor, Inc.
3300 Aegon Center
Louisville, KY 40202
Attention: General Counsel
Facsimile: 502-596-4075
with a copy to:
Address: Vencor, Inc.
3300 Aegon Center
400 West Market Street.
Louisville, KY 40202
Attention: Director of Finance
Facsimile: 502-596-4170
VENCOR OPERATING, INC
By: /s/ W. Earl Reed III
------------------------------------------
Title: Chief Financial Officer
Address: Vencor Operating, Inc.
3300 Aegon Center
Louisville, KY 40202
Attention: General Counsel
Facsimile: 502-596-4075
with a copy to:
Address: Vencor Operating, Inc.
3300 Aegon Center
400 West Market Street.
Louisville, KY 40202
Attention: Director of Finance
Facsimile: 502-596-4170
<PAGE>
AGENTS:
------
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Documentation Agent and a Lender
By: /s/ Diana H. Imhof
--------------------------------
Title: Vice President
Address: 60 Wall Street
New York, NY 10260
Attention: Diana H. Imhof
Facsimile: (212) 648-5018
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as
Collateral Agent
By: /s/ Diana H. Imhof
--------------------------------
Title: Vice President
Address: 500 Stanton Christiana Road
Newark, Delaware 19713
Attention: Asset Finance Group
Facsimile: (302) 634-5490
<PAGE>
NATIONSBANK, N.A., as Administrative
Agent, Swingline Bank and a Lender
By: /s/ Ashley M. Crabtree
-------------------------------------
Title: Senior Vice President
For Wire Transfers:
------------------
ABA #053000196
Attention: Corporate Credit Services
Account No. 136621-22506
Reference: Vencor
Notices Relating to Operations:
-------------------------------
101 North Tryon Street
NC1-001-15-04
Charlotte, NC 20255
Attention: Corporate Credit Services
Tel: 704-388-3916
Fax: 704-386-9923
All Other Communications:
-------------------------
1 NationsBank Plaza, 7th Floor
Nashville, TN 37239-1697
Attention: Ashley Crabtree
Tel: 615-749-3524
Fax: 615-749-4640
<PAGE>
SENIOR MANAGING AGENTS:
----------------------
BANQUE PARIBAS
By: /s/ Russell Pomerantz
-------------------------------------
Title: Vice President
By: /s/ David R. Laffey
-------------------------------------
Title: Director
THE BANK OF NOVA SCOTIA
By: /s/ W. J. Brown
-------------------------------------
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Farboud Tavangar
-------------------------------------
Title: First Vice President
CREDIT SUISSE FIRST BOSTON
By: /s/ Robert N. Finney
-------------------------------------
Title: Managing Director
By: /s/ Thomas G. Muoio
-------------------------------------
Title: Vice President
<PAGE>
FLEET NATIONAL BANK
By: /s/ Ginger Stolzenthaler
-------------------------------------
Title: Senior Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
NEW YORK BRANCH
By: /s/ J. Kenneth Biegen
-------------------------------------
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Benjamin A. Willingham
-------------------------------------
Title: Vice President
SOCIETE GENERALE
By: /s/ J. Staley Stewart
-------------------------------------
Title: Vice President
TORONTO-DOMINION (TEXAS), INC.
By: /s/ Debbie Greene
-------------------------------------
Title: Vice President
WACHOVIA BANK, N.A.
By: /s/ John B. Tibe
-------------------------------------
Title: Assistant Vice President
<PAGE>
MANAGING AGENTS:
---------------
ABN AMRO BANK N.V.
By: /s/ Louis K. McLinden, Jr.
----------------------------------------
Title: Vice President
By: /s/ Carrie A. Pence
----------------------------------------
Title: Vice President
BANK ONE, KENTUCKY, NA
By: /s/ Dennis P. Heishman
----------------------------------------
Title: Senior Vice President
COMERICA BANK
By: /s/ Colleen M. Murphy
----------------------------------------
Title: Assistant Vice President
DEUTSCHE BANK AG, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
By: /s/ Susan L. Pearson
----------------------------------------
Title: Director
By: /s/ Robert Wood
----------------------------------------
Title: Director
<PAGE>
NATIONAL CITY BANK OF KENTUCKY
By: /s/ Deroy Scott
----------------------------------------
Title: Vice President
CO-AGENTS
---------
BANK OF AMERICA NT & SA
By: /s/ J. Gregory Seibly
----------------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Edward J. Dougherty III
----------------------------------------
Title: Vice President
U.S. Commercial Banking
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Cindy A. Herzog
----------------------------------------
Title: Authorized Agent
U.S. BANK
By: /s/ Arnold J. Conrad
----------------------------------------
Title: Vice President
UNION BANK OF CALIFORNIA
By: /s/ Virginia Hart
----------------------------------------
Title: Vice President
<PAGE>
OTHER LENDERS:
-------------
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ John G. Taylor
----------------------------------------
Title: Senior Associate
By: /s/ Robert M. Biringer
----------------------------------------
Title: Executive Vice President
STAR BANK, N.A.
By: /s/ Toby B. Rau
----------------------------------------
Title: Assistant Vice President
AMSOUTH BANK
By: /s/ Keith S. Law
----------------------------------------
Title: Vice President
FIRST AMERICAN NATIONAL BANK
By: /s/ Kent D. Wood
----------------------------------------
Title: Vice President
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ Joseph H. Towell
----------------------------------------
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED
By: /s/ Hiroshi Kitada
----------------------------------------
Title: Deputy General Manager
BANK OF LOUISVILLE
By: /s/ Roy L. Johnson, Jr.
----------------------------------------
Title: Senior Vice President
FIFTH THIRD BANK
By: /s/ Judy R. Semaria
----------------------------------------
Title: Assistant Vice President
MICHIGAN NATIONAL BANK
By: /s/ Draga Palincas
----------------------------------------
Title: Commercial Relationship Manager
<PAGE>
THE BANK OF NEW YORK,
as Trustee on behalf of NATS Loan Trust 15 and not
in its individual capacity
By: /s/ Betty A. Cocozza
----------------------------------------
Title: Assistant Vice President
BANK OF MONTREAL
By: /s/ Eric Scoffield
----------------------------------------
Title: Director
KZH-ING-2 CORPORATION
By: /s/ Virginia Conway
----------------------------------------
Title: Authorized Agent
OCTAGON LOAN TRUST
By: Octagon Credit Investors as Manager
By: /s/ James P. Ferguson
----------------------------------------
Title: Managing Director
UNION CENTRAL INSURANCE & INVESTMENTS
By: /s/ Gary Rodmaker
----------------------------------------
Title: Second Vice President
<PAGE>
KZH-CNC CORPORATION
By: /s/ Virginia Conway
----------------------------------------
Title: Authorized Agent
ORIX USA CORPORATION
By: /s/ Hiroyuki Miyauchi
----------------------------------------
Title: Executive Vice President
<PAGE>
FRANKLIN FLOATING RATE TRUST
By: /s/ Chauncey Lufkin
----------------------------------------
Title: Vice President
<PAGE>
COMMITMENT SCHEDULE
<TABLE>
<CAPTION>
====================================================================================================================================
Lender Bridge Revolving Facility A Facility B Total
Commitment Credit Commitment Commitment
Commitment
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Morgan Guaranty Trust Company of New York $ 24,750,000 $ 37,125,000 $ 30,937,500 $ 8,333,334 $ 101,145,834
- ------------------------------------------------------------------------------------------------------------------------------------
NationsBank, N.A. $ 15,000,000 $ 22,500,000 $ 18,750,000 $184,375,000 $ 240,625,000
- ------------------------------------------------------------------------------------------------------------------------------------
Banque Paribas $ 8,125,000 $ 12,187,500 $ 10,156,250 $ 4,166,667 $ 34,635,417
- ------------------------------------------------------------------------------------------------------------------------------------
The Bank of Nova Scotia $ 8,125,000 $ 12,187,500 $ 10,156,250 $ 30,468,750
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Lyonnais New York Branch $ 8,125,000 $ 12,187,500 $ 10,156,250 $ 30,468,750
- ------------------------------------------------------------------------------------------------------------------------------------
Credit Suisse First Boston $ 8,125,000 $ 12,187,500 $ 10,156,250 $ 30,468,750
- ------------------------------------------------------------------------------------------------------------------------------------
Fleet National Bank $ 8,125,000 $ 12,187,500 $ 10,156,250 $ 30,468,750
- ------------------------------------------------------------------------------------------------------------------------------------
The Industrial Bank of Japan, Limited, New York Branch $ 8,125,000 $ 12,187,500 $ 10,156,250 $ 30,468,750
- ------------------------------------------------------------------------------------------------------------------------------------
PNC Bank, National Association $ 8,125,000 $ 12,187,500 $ 10,156,250 $ 30,468,750
- ------------------------------------------------------------------------------------------------------------------------------------
Societe Generale $ 8,125,000 $ 12,187,500 $ 10,156,250 $ 30,468,750
- ------------------------------------------------------------------------------------------------------------------------------------
The Toronto-Dominion Bank $ 8,125,000 $ 12,187,500 $ 10,156,250 $ 30,468,750
- ------------------------------------------------------------------------------------------------------------------------------------
Wachovia Bank, N.A. $ 8,125,000 $ 12,187,500 $ 10,156,250 $ 30,468,750
- ------------------------------------------------------------------------------------------------------------------------------------
ABN Amro Bank N.V. $ 6,250,000 $ 9,375,000 $ 7,812,500 $ 23,437,500
- ------------------------------------------------------------------------------------------------------------------------------------
Bank One, Kentucky, NA $ 6,250,000 $ 9,375,000 $ 7,812,500 $ 23,437,500
- ------------------------------------------------------------------------------------------------------------------------------------
Comerica Bank $ 6,250,000 $ 9,375,000 $ 7,812,500 $ 23,437,500
- ------------------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, New York Branch and/or Cayman Islands $ 6,250,000 $ 9,375,000 $ 7,812,500 $ 23,437,500
Branch
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Lender Bridge Revolving Facility A Facility B Total
Commitment Credit Commitment Commitment
Commitment
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
National City Bank of Kentucky $ 6,250,000 $ 9,375,000 $ 7,812,500 $ 23,437,500
- ------------------------------------------------------------------------------------------------------------------------------------
Bank of America NT & SA $ 5,000,000 $ 7,500,000 $ 6,250,000 $ 18,750,000
- ------------------------------------------------------------------------------------------------------------------------------------
The Bank of New York $ 5,000,000 $ 7,500,000 $ 6,250,000 $ 18,750,000
- ------------------------------------------------------------------------------------------------------------------------------------
The First National Bank of Chicago $ 5,000,000 $ 7,500,000 $ 6,250,000 $ 18,750,000
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Bank $ 5,000,000 $ 7,500,000 $ 6,250,000 $ 18,750,000
- ------------------------------------------------------------------------------------------------------------------------------------
Union Bank of California $ 5,000,000 $ 7,500,000 $ 6,250,000 $ 18,750,000
- ------------------------------------------------------------------------------------------------------------------------------------
Creditanstalt Corporate Finance, Inc. $ 3,750,000 $ 5,625,000 $ 4,687,500 $ 14,062,000
- ------------------------------------------------------------------------------------------------------------------------------------
Star Bank, N.A. $ 3,750,000 $ 5,625,000 $ 4,687,500 $ 14,062,000
- ------------------------------------------------------------------------------------------------------------------------------------
Amsouth Bank $ 2,500,000 $ 3,750,000 $ 3,125,000 $ 9,375,000
- ------------------------------------------------------------------------------------------------------------------------------------
First American National Bank $ 2,500,000 $ 3,750,000 $ 3,125,000 $ 9,375,000
- ------------------------------------------------------------------------------------------------------------------------------------
First Union National Bank $ 2,500,000 $ 3,750,000 $ 3,125,000 $ 9,375,000
- ------------------------------------------------------------------------------------------------------------------------------------
The Long-Term Credit Bank of Japan, Limited $ 2,500,000 $ 3,750,000 $ 3,125,000 $ 9,375,000
- ------------------------------------------------------------------------------------------------------------------------------------
Bank of Louisville $ 2,125,000 $ 3,187,500 $ 2,656,250 $ 7,968,750
- ------------------------------------------------------------------------------------------------------------------------------------
Fifth Third Bank $ 1,875,000 $ 2,812,500 $ 2,343,750 $ 7,031,250
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan National Bank $ 1,250,000 $ 1,875,000 $ 1,562,500 $ 4,687,500
- ------------------------------------------------------------------------------------------------------------------------------------
The Bank of New York, as Trustee on behalf of NATS Loan $ 12,500,000 $ 12,500,000
Trust and not in its individual capacity
- ------------------------------------------------------------------------------------------------------------------------------------
Bank of Montreal $ 8,333,333 $ 8,333,333
- ------------------------------------------------------------------------------------------------------------------------------------
KZH-ING-2 Corporation $ 8,333,333 $ 8,333,333
- ------------------------------------------------------------------------------------------------------------------------------------
Octagon Loan Trust $ 8,333,333 $ 8,333,333
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Lender Bridge Revolving Facility A Facility B Total
Commitment Credit Commitment Commitment
Commitment
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Union Central Insurance & Investments $ 7,291,667 $ 7,291,667
- ------------------------------------------------------------------------------------------------------------------------------------
KZH-CNC Corporation $ 4,166,667 $ 4,166,667
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Floating Rate Trust $ 2,083,333 $ 2,083,333
- ------------------------------------------------------------------------------------------------------------------------------------
ORIX USA Corporation $ 2,083,333 $ 2,083,333
====================================================================================================================================
TOTAL $200,000,000 $300,000,000 $250,000,000 $250,000,000 $1,000,000,000
====================================================================================================================================
</TABLE>
3
<PAGE>
PRICING SCHEDULE
Each of "Basic Euro-Dollar Margin", "Facility B Euro-Dollar Margin", "CD
Margin", "Basic Base Rate Margin", "Facility B Base Rate Margin", "Commitment
Fee Rate" and "LC Fee Rate" means:
(i) for any day before November 15, 1998, the rate set forth below in the
row opposite such term and in the column headed "Level VIII"; and
(ii) for any day on or after November 15, 1998, the rate set forth below
in the row opposite such term and in the column corresponding to the "Pricing
Level" that applies on such day:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Pricing Level Level Level Level Level Level Level Level Level
I II III IV V VI VII VIII
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Euro-
Dollar Margin 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50%
- -----------------------------------------------------------------------------------
Facility B Euro-
Dollar Margin 2.25% 2.25% 2.25% 2.50% 2.50% 2.75% 3.00% 3.00%
- -----------------------------------------------------------------------------------
CD Margin 0.875% 1.125% 1.375% 1.625% 1.875% 2.125% 2.375% 2.625%
- -----------------------------------------------------------------------------------
Basic Base
Rate Margin 0.00% 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50%
- -----------------------------------------------------------------------------------
Facility B Base
Rate Margin 1.25% 1.25% 1.25% 1.50% 1.50% 1.75% 2.00% 2.00%
- -----------------------------------------------------------------------------------
Commitment
Fee Rate 0.25% 0.25% 0.30% 0.3125% 0.375% 0.50% 0.50% 0.50%
- -----------------------------------------------------------------------------------
LC Fee Rate 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50%
===================================================================================
</TABLE>
Terms defined in the Agreement and not otherwise defined herein have, as
used herein, the respective meanings provided for therein. For purposes of this
Pricing Schedule, the following additional terms, as used herein, have the
following respective meanings:
"Level I Pricing" applies during any Rate Period if, at the end of the
Preceding Fiscal Quarter, the Leverage Ratio was less than or equal to 3.0 to 1.
"Level II Pricing" applies during any Rate Period if, at the end of the
Preceding Fiscal Quarter, the Leverage Ratio was greater than 3.0 to 1 and not
greater than 3.5 to 1.
<PAGE>
"Level III Pricing" applies during any Rate Period if, at the end of the
Preceding Fiscal Quarter, the Leverage Ratio was greater than 3.5 to 1 and not
greater than 4.0 to 1.
"Level IV Pricing" applies during any Rate Period if, at the end of the
Preceding Fiscal Quarter, the Leverage Ratio was greater than 4.0 to 1 and not
greater than 4.5 to 1.
"Level V Pricing" applies during any Rate Period if, at the end of the
Preceding Fiscal Quarter, the Leverage Ratio was greater than 4.5 to 1 and not
greater than 5.0 to 1.
"Level VI Pricing" applies during any Rate Period if, at the end of the
Preceding Fiscal Quarter, the Leverage Ratio was greater than 5.0 to 1 and not
greater than 5.5 to 1.
"Level VII Pricing" applies during any Rate Period if, at the end of the
Preceding Fiscal Quarter, the Leverage Ratio was greater than 5.5 to 1 and not
greater than 6.0 to 1.
"Level VIII Pricing" applies during any Rate Period if, at the end of the
Preceding Fiscal Quarter, the Leverage Ratio was greater than 6.0 to 1.
"Leverage Ratio" means, at the end of any Fiscal Quarter, the ratio of (x)
Adjusted Consolidated Debt for Borrowed Money at the end of such Fiscal Quarter
to (y) Consolidated EBITDAR for the period of four consecutive Fiscal Quarters
then ended; provided that, at the end of any Fiscal Quarter ending before June
30, 1999 Consolidated EBITDAR shall be determined on an Annualized Basis.
"Preceding Fiscal Quarter" means, with respect to any Rate Period, the most
recent Fiscal Quarter ended before such Rate Period begins.
"Pricing Level" refers to the determination of which of Level I Pricing,
Level II Pricing, Level III Pricing, Level IV Pricing, Level V Pricing, Level VI
Pricing, Level VII Pricing or Level VIII Pricing applies on any day. Pricing
Levels are referred to in ascending order (e.g., Level III Pricing is a higher
Pricing Level than Level II Pricing).
"Rate Period" means any period from and including the 46th day of a Fiscal
Quarter to and including the 45th day of the immediately succeeding Fiscal
Quarter; provided that the first Rate Period shall begin on and include November
15, 1998.
2
<PAGE>
CROSS-REFERENCE TARGET LIST
===========================
NOTE: Due to the number of targets some target names may not appear in the
target pull-down list. (This list is for the use of the wordprocessor only, is
not a part of this document and may be discarded.)
<TABLE>
<CAPTION>
ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME
=============== =========== =============== ===========
<S> <C> <C> <C>
1............................................definitions.art 3.............................................conditions.art
1.01.........................................definitions.sec 3.01.................................................closing
1.02.............................................acctg.terms 3.01(b).......................................exec.bor.notes
1.03........................................types.of.brrwngs 3.01(c)..................................exec.swingline.note
1.04...............................................other.def 3.02.............................................cred.events
2.............................................facilities.art 4...............................................rep.warr.art
2.01...............................................comm.lend 4.01.........................................corp.ex.pow.rep
2.01(a)....................................acquisition.loans 4.02.......................................corp.gov.auth.rep
2.01(b)................................general.purpose.loans 4.03..........................................bind.eff.liens
2.01(c)........................................c.fac.a.loans 4.04.......................................liens.collat.docs
2.01(d)........................................d.fac.b.loans 4.05.................................................fin.inf
2.02.............................................method.borr 4.05(a).......................................cons.bal.sheet
2.02(a)........................................method.borrow 4.05(b)...................................unaud.pf.consol.bs
2.03(a).................................ad.agent.inform.bank 4.05(c).......................................resp.date.info
2.03(b).................................make.avail.rat.share 4.06...................................................litig
2.04...................................................notes 4.07.............................................compl.erisa
2.04(b)........................................separate.note 4.08..............................................taxes.repr
2.05...............................................int.rates 4.09.........................................compl.laws.repr
2.05(a)..................................int.on.base.rate.ln 4.10..............................................inv.co.act
2.05(b).......................................int.on.cd.note 4.11................................................env.matt
2.05(c)....................................int.on.euro$.loan 4.11(b).............................................env.liab
2.05(d).................................ovrd.prin.on.eur$.ln 4.12...............................................merge.agt
2.06...........................................meth.elec.int 4.13............................................eff.merg.out
2.06(a).....................................rate.of.interest 4.14..............................................full.discl
2.06(c).........................notice.of.interest.rate.elec 4.15.........................................material.subsid
2.07...........................................letter.credit 4.17.......................................timing.cert.reorg
2.07(a)...................................exist.ltrs.of.crdt
2.07(b)..........................................iss.add.loc 5................................................affirm.cove
2.07(c)..........................................expir.dates 5.01...................................................infor
2.07(d)......................................prop.iss.notice 5.01(a).....................................venc.con.bal.sht
2.07(e)..........................................cond.to.iss 5.01(b).....................................fisc.qtr.bal.sht
2.07(f).....................................inf.exp.date.ext 5.01(c)........................................fin.ofr.ctfct
2.07(h).................................................fees 5.01(e).......................................prcng.lvl.cert
2.07(i).............................................drawings 5.01(f).........................................cert.default
2.07(j).........................................reimb.by.bwr 5.01(g)....................................fail.cont.certif.
2.07(k)(i).....................................fail.to.reimb 5.02..............................................maint.prop
2.07(l)......................................lc.inc.cost.red 5.03...................................................insur
2.07(o).....................................indem.by.ech.bwr 5.04....................................compl.laws.covenants
2.08..........................................swingline.loan 5.05.........................................maint.ex.rights
2.08(a).....................................swingline.commit 5.06...........................................use.proc.ltrs
2.08(b)..............................notice.of.swngln.brrwng 5.07(a)(ii)...............................upon.inclus.health
2.08(d).......................................swingline.note 5.08...........................................desig.mat.sub
2.08(e).............................................interest 5.08(b)......................................term.sub.status
2.08(g)................................mand.prepay.swingloan ?..........................................guar.fut.material
2.08(h)...............................maturity.of swingloans 5.11........................................hedge.facilities
2.08(i)................................refnd.unpd.swngln.lns
2.09............................................facility.fee ?....................................cas.events.all.proceeds
2.10.......................................repay.prepay.loan 6.01...............................................lev.ratio
2.11.....................................mand.prepay.br.loan 6.02.................................................sr.debt
2.12....................................sch.amort.term.loans ?............................................fixed.cov.ratio
2.12(a)...........................................sch.amor.a 6.04..........................................min.consol.net
2.12(b)...........................................sch.amor.b 6..................................................fin.coven
2.12(c)........................................eff.unsch.Pre
2.12(d)....................................each.pre.interest 7...............................................neg.cove.app
2.13.......................................un.man.prpy.loans 7.01.........................................lim.debt.vencor
2.13(a)..........................................asset.sales 7.02...........................................debt.lim.brwr
2.13(e)...................................ex.casual.proceeds ?..........................................debt.&.guarantees
2.13(g).......................................allo.of.prepay 7.02(f)........................................debt.incurred
2.13(i)........................................notice.prepay 7.02(h)......................................debt.assum.borr
2.13(j).................................fac.b.lndr.not.accpt ?............................................debt.owed.louis
2.13(h).......................................interst.prepay 7.02(i)....................................post-closing.debt
2.14..............................................opt.prepay 7.03............................................lim.debt.sub
2.14(a)...............................prepay.base.rate.loans ?................................................debt.&.guar
2.15............................................term.red.com 7.03(c).....................................cont.exist.oblig
2.16............................................gen.prov.pay 7.03(e).......................................debt.of.person
2.17...............................................fund.loss 7.03(g)......................................ass.constr.debt
2.18..........................................compu.int.fees 7.04..............................................neg.pledge
2.18(b)..............................notice.of.interest.rate 7.04(e)..................................lien.on.ass.sec.dbt
2.19..............................................reg.d.comp 7.05..........................................con.merg.asset
<CAPTION>
ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME
=============== =========== =============== ===========
<S> <C> <C> <C>
7.05(c).......................................venc.comp.disp 12.07(a)...................................eligible.designee
7.06.............................................lim.inv.min 12.07(b)...........................................each.part
7.06(b).........................................aft.clsg.brw 12.08.............................................marg.stock
7.07..........................................lim.cap.expend 12.09..............................................fail.bank
7.08...............................................trans.aff 12.10........................................gov.law.sub.jur
7.09.............................................lim.res.sub 12.11..........................................count.int.eff
7.09(d)..................................agt.binding.on.sbsd 12.12.........................................waiv.jur.trial
7.10...............................................restr.pay 12.13.................................................confid
7.11..............................................no.mod.doc
7.12........................................no.change.fiscal
7.13.........................................limit.designate
?.............................................restr.merg.sub
7.14............................................perm.hy.debt
7.14(a)............................permit.high.yield.so.long
7.14(b)........................................permit.vencor
7.14(c)..........................................permit.writ
8..............................................covenants.art
9...............................................defaults.art
9.01..............................................bnk.ev.def
9.02........................................other.ev.def.brd
9.02(c)...................................venc.borr.fail.obs
9.02(k)......................................one.more.enforc
9.02(l).....................................pers.grp.acq.own
9.03......................................other.ev.def.fac.b
9.03(c)....................................venc.brw.fail.obs
9.03(d)...................................venc.borrower.fail
9.04.................................................not.def
9.05......................................enforcement.notice
9.06................................................cash.cov
10................................................agents.art
10.01..............................................appt.auth
10.02.............................................agents.aff
10.03..........................................action.agents
10.04.............................................consul.exp
10.05............................................liab.agents
10.06..................................................indem
10.07.............................................credit.dec
10.08............................................agents.fees
10.09............................................succ.agents
10.10.............................................coll.agent
11...........................................changes.cir.art
11.01..........................................basis.def.int
11.01(a).......................................adm.agent.adv
11.02..................................................illeg
11.03...........................................inc.cost.red
11.03(c)...............................des.diff.app.lndg.off
11.04..........................................taxes.changes
11.04(a)......................................clear.of.taxes
11.04(d).......................................irs.form.1001
11.05........................................base.rate.loans
11.06..............................................sub.banks
12..................................................misc.art
12.01................................................notices
12.02..............................................no.waiver
12.03..............................................exp.indem
12.03(b)....................................indemnitee.hrmls
12.04..........................................shar.set.offs
12.05.............................................amend.waiv
12.05(h)...................................without.writ.cons
12.06...........................................succ.assigns
12.06(b)......................................part.interests
12.06(c).....................................ratable.portion
12.06(d).......................................fed.rsrv.bank
12.06(e).............................assig.instr.notic.regis
12.07......................................designated.lender
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME
=============== =========== =============== ===========
<S> <C> <C> <C>
<CAPTION>
ARTICLE/SECTION TARGET NAME ARTICLE/SECTION TARGET NAME
=============== =========== =============== ===========
<S> <C> <C> <C>
</TABLE>
2
<PAGE>
Exhibit 10.23
VENCOR, INC.
1998 INCENTIVE COMPENSATION PLAN
--------------------------------
ARTICLE 1. PURPOSE
The purpose of this 1998 Incentive Compensation Plan ("Plan") is to advance
the interest of Vencor, Inc. (formerly Vencor Healthcare, Inc.), a Delaware
corporation ("Company"), and its stockholders by encouraging employees who will
largely be responsible for the long-term success and development of the Company.
The Plan is also intended to provide flexibility to the Company in attracting,
retaining and motivating employees and promoting their efforts on behalf of the
Company. In addition, this Plan covers certain options assumed as provided in
the Employee Benefits Agreement, dated as of April 30, 1998, between Vencor,
Inc. and Vencor Healthcare, Inc. (the "Employee Benefits Agreement"), duly
executed in connection with the spinoff of Vencor Healthcare, Inc. by Vencor,
Inc. to its shareholders.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by such
definitions, and the terms set forth below shall have the following meanings (in
either case, such terms shall apply equally to both the singular and plural
forms of the terms defined):
(a) "Award" shall mean, individually or collectively, a grant under the
Plan of Options, Restricted Stock, SARs, Performance Units, stock awards and
cash awards.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean, unless otherwise defined in an agreement
evidencing an Award, a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a Participant's willful
misconduct or dishonesty, any of which is determined by the Committee to be
directly and materially harmful to the business or reputation of the Company or
its Subsidiaries.
(d) A "Change in Control" shall mean any of the following events:
(1) An acquisition (other than directly from the Company) of any
voting securities of the Company ("Voting Securities") by any Person immediately
after which such Person has beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) ("Beneficial Ownership and/or
Beneficially Owned") of 20% or more of the combined voting power of the
Company's then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition (as hereinafter defined) shall not
constitute
<PAGE>
an acquisition which would cause a Change in Control. A Non-Control Acquisition
shall mean an acquisition by (i) the Company or any Subsidiary, (ii) an employee
benefit plan (or a trust forming a part thereof) maintained by the Company or
any Subsidiary, or (iii) any Person in connection with a Non-Control Transaction
(as hereinafter defined);
(2) The individuals who, as of May 1, 1998, are members of the Board
("Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that if the election, or nomination for election
by the Company's stockholders, of any new director was approved by a vote of at
least a majority of the Incumbent Board, such new director shall, for purposes
of the Plan, be considered as a member of the Incumbent Board; provided,
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened election contest (as described in Rule 14a-11
promulgated under the Exchange Act) ("Election Contest") or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board ("Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(3) Approval by stock-holders of the Company of:
(A) A merger, consolidation or reorganization involving the
Company, unless such is a Non-Control Transaction. For purposes of the Plan, the
term "Non-Control Transaction" shall mean a merger, consolidation or
reorganization of the Company in which:
(i) the stockholders of the Company, immediately before
such merger, consolidation or reorganization, own, directly or indirectly
immediately following such merger, consolidation or reorganization, at least a
majority of the combined voting power of the voting securities of the
corporation resulting from such merger or consolidation or reorganization
("Surviving Corporation") over which any Person has Beneficial Ownership in
substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization;
(ii) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least a majority of the
members of the board of directors of the Surviving Corporation; and
(iii) no Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof) maintained by the
Company, the Surviving Corporation, or any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial Ownership of 20% or more
of the then outstanding Voting Securities) has Beneficial Ownership of 20% or
more of the combined voting power of the Surviving Corporation's then
outstanding voting securities;
2
<PAGE>
(B) A complete liquidation or dissolution of the Company; or
(C) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
(4) Any other event that the Committee shall determine constitutes an
effective Change in Control of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person ("Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company which, by reducing
the number of Voting Securities outstanding, increases the proportional number
of shares Beneficially Owned by the Subject Person; provided, however, that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Voting Securities which increases the percentage of the
then outstanding Voting Securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
(f) "Committee" shall mean the committee described in Section 3.1.
(g) "Disability" shall mean the total disability as determined by the
Committee in accordance with standards and procedures similar to those under the
Company's long-term disability plan, or, if none, a physical or mental infirmity
which the Committee determines impairs the Participant's ability to perform
substantially his or her duties for a period of 180 consecutive days.
(h) "Employee" shall mean an individual who is a full-time employee of
the Company, a Subsidiary or a partnership or limited liability company in which
the Company or its Subsidiaries own a majority interest.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(j) "Fair Market Value" of the Shares shall mean, unless the Committee
provides otherwise, as of any applicable date, the closing sale price of the
Shares on the New York Stock Exchange or any national or regional stock exchange
in which the Shares are traded, or if no such reported sale of the Shares shall
have occurred on such date, on the next preceding date on which there was such a
reported sale. If there shall be any material
3
<PAGE>
alteration in the present system of reporting sale prices of the Shares, or if
the Shares shall no longer be listed on the New York Stock Exchange or a
national or regional stock exchange, the fair market value of the Shares as of a
particular date shall be determined by such method as shall be determined by the
Committee.
(k) "ISOs" shall have the meaning given such term in Section 6.1.
(l) "NQSOs" shall have the meaning given such term in Section 6.1.
(m) "Option" shall mean an option to purchase Shares granted pursuant to
Article 6.
(n) "Option Agreement" shall mean an agreement evidencing the grant of an
Option as described in Section 6.2.
(o) "Option Exercise Price" shall mean the purchase price per Share
subject to an Option, which shall not be less than the Fair Market Value of the
Share on the date of grant (110% of Fair Market Value in the case of an ISO
granted to a Ten Percent Shareholder).
(p) "Participant" shall mean any Employee selected by the Committee to
receive an Award under the Plan.
(q) "Performance Goals" shall have the meaning given such term in Section
8.4.
(r) "Performance Period" shall have the meaning given such term in
Section 8.3.
(s) "Performance Unit" shall mean the right to receive a payment from the
Company upon the achievement of specified Performance Goals as set forth in a
Performance Unit Agreement.
(t) "Performance Unit Agreement" shall mean an agreement evidencing a
Performance Unit Award, as described in Section 8.2.
(u) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
(v) "Plan" shall mean this Vencor, Inc. 1998 Incentive Compensation Plan
as the same may be amended from time to time.
(w) "Restriction Period" shall mean the period determined by the
Committee during which the transfer of Shares is limited in some way or Shares
are otherwise restricted or subject to forfeiture as provided in Article 7.
4
<PAGE>
(x) "Restricted Stock" shall mean Shares granted pursuant to Article 7 as
to which the restrictions have not expired.
(y) "Restricted Stock Agreement" shall mean an agreement evidencing a
Restricted Stock Award, as described in Section 7.2.
(z) "Retirement" shall mean retirement by a Participant after the
attainment of either (i) age 55 with ten years of service with the Company, or
(ii) age 62.
(aa) "Shares" shall mean the shares of the Company's common stock, par
value $.25 per share.
(ab) "Subsidiary" shall mean, with respect to any company, any corporation
or other Person of which a majority of its voting power, equity securities, or
equity interest is owned directly or indirectly by such company.
(ac) "Ten Percent Shareholder" shall mean an Employee who, at the time an
ISO is granted, owns (within the meaning of Section 422(b)(6) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company.
2.2 Gender and Number. Except where otherwise indicated by the context,
reference to the masculine gender shall include the feminine gender, the plural
shall include the singular and the singular shall include the plural.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by a Committee
appointed by the Board consisting of three or more directors of the Company or
the entire Board of the Company. Members of the Committee shall be "outside
directors" within the meaning of Section 162(m) of the Code (or any successor
provision thereto). The Committee shall meet at such times and places as it
determines and may meet through a telephone conference call. The members of the
Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board.
3.2 Authority of the Committee. Subject to the provisions of the Plan,
the Committee shall have full authority to:
(a) select Participants to whom Awards are granted;
5
<PAGE>
(b) determine the size, types and frequency of Awards granted under
the Plan;
(c) determine the terms and conditions of Awards, including any
restrictions or conditions to the Award, which need not be identical;
(d) cancel or modify, with the consent of the Participant,
outstanding Awards and to grant new Awards in substitution therefor;
(e) accelerate the exercisability of any Award, for any reason;
(f) construe and interpret the Plan and any agreement or instrument
entered into under the Plan, including, but not limited to, whether any
Participant shall be considered to have incurred a termination of employment for
purposes of the Plan;
(g) establish, amend and rescind rules and regulations for the Plan's
administration; and
(h) amend the terms and conditions of any outstanding Award to the
extent such terms and conditions are within the discretion of the Committee as
provided in the Plan.
The Committee shall make all determinations which may be necessary or
advisable for the administration of the Plan. The Committee may delegate its
authority as identified hereunder; provided, however, that such delegation is
permitted by law and Rule 16b-3 promulgated under the Exchange Act and that such
delegation would not jeopardize compliance with the "outside directors"
requirements (or any other applicable requirement) under Section 162(m) of the
Code.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan, and all related orders or
resolutions of the Board, shall be final, conclusive and binding upon all
persons, including the Company, its stockholders, Employees, Participants and
their estates and beneficiaries.
3.4 Section 16 Compliance; Bifurcation of Plan. It is the intention of
the Company that the Plan and the administration of the Plan comply in all
respects with Section 16(b) of the Exchange Act and the rules and regulations
promulgated thereunder. If any Plan provision, or any aspect of the
administration of the Plan, is found not to be in compliance with Section 16(b)
of the Exchange Act, the provision or administration shall be deemed null and
void, and in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3 promulgated under the Exchange Act. Notwithstanding
anything in the Plan to the contrary, the Board or the Committee, in its
discretion, may bifurcate the Plan so as to restrict, limit or condition the use
of any provision of the Plan to Participants who are subject to Section 16 of
the Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other Participants.
6
<PAGE>
ARTICLE 4. SHARES AVAILABLE UNDER THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.2,
the number of Shares reserved for issuance upon the exercise of Awards and the
payment of benefits in connection with Awards granted hereunder is 6,000,000
Shares, plus 5,645,309 Shares required for delivery upon the exercise of any
assumed options in accordance with the Employee Benefits Agreement. Any Shares
issued under the Plan may consist, in whole or in part, of authorized and
unissued Shares or treasury Shares. If and to the extent an Award shall expire
or terminate for any reason without having been exercised in full (including a
cancellation and regrant of an Option), or shall be forfeited, the Shares
(including Restricted Stock) associated with such Awards shall again become
available for Awards under the Plan.
4.2 Adjustments in Authorized Shares and Outstanding Awards. In the event
of a merger, reorganization, consolidation, recapitalization, reclassification,
split-up, spin-off, separation, liquidation, stock dividend, stock split,
reverse stock split, property dividend, share repurchase, share combination,
share exchange, issuance of warrants, rights or debentures, or other change in
the corporate structure of the Company affecting the Shares, the Committee may
substitute or adjust the total number and class of Shares or other stock or
securities which may be issued under the Plan, and the number, class and/or
price of Shares subject to outstanding Awards, as it determines to be
appropriate and equitable to prevent dilution or enlargement of the rights of
Participants and to preserve, without exceeding, the value of any outstanding
Awards; and further provided, that the number of Shares subject to any Award
shall always be a whole number. In the case of ISOs, such adjustments shall be
made in such a manner so as not to constitute a "modification" within the
meaning of Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
All Employees are eligible to receive Awards under the Plan. In selecting
Employees to receive Awards under the Plan, as well as in determining the number
of Shares subject to, and the other terms and conditions applicable to, each
Award, the Committee shall take into consideration such factors as it deems
relevant in promoting the purposes of the Plan, including the duties of the
Employees, their present and potential contribution to the success of the
Company and their anticipated number of years of active service as employees.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
the Committee may grant Options to Participants at any time and from time to
time, in the form of options which are intended to qualify as incentive stock
options within the meaning of Section 422 of the Code ("ISOs"), Options which
are not intended to so qualify ("NQSOs") or a combination thereof. All ISOs must
be granted within ten years from the date on which
7
<PAGE>
the Plan was adopted by the Board, and may be granted only to employees of the
Company or any subsidiary corporation (within the meaning of Section 422(f)).
The maximum number of Shares with respect to which Options may be granted to any
Participant during any calendar year shall be 500,000, subject to adjustment as
provided in Section 4.2.
6.2 Option Agreement. Each Option shall be evidenced by an Option
Agreement that shall specify the Option Exercise Price, the duration of the
Option, the number of Shares to which the Option relates and such other
provisions as the Committee may determine or which are required by the Plan. The
Option Agreement shall also specify whether the Option is intended to be an ISO
or an NQSO and shall include such provisions applicable to the particular type
of Option granted.
6.3 Duration of Options. Each Option shall expire at such time as is
determined by the Committee at the time of grant; provided, however, that no
Option shall be exercised later than the tenth anniversary of its grant (fifth
anniversary in the case of an ISO granted to a Ten Percent Shareholder).
6.4 Exercise of Options. Options shall be exercisable at such times and
be subject to such restrictions and conditions as the Committee shall approve at
the time of grant, which need not be the same for each grant or for each
Participant. The Committee may accelerate the exercisability of any Option.
Options shall be exercised, in whole or in part, by delivery to the Company of a
written notice of exercise, setting forth the number of Shares with respect to
which the Option is to be exercised and accompanied by full payment of the
Option Exercise Price and all applicable withholding taxes.
6.5 Payment of Option Exercise Price. The Option Exercise Price for
Shares as to which an Option is exercised shall be paid to the Company in full
at the time of exercise either (a) in cash in the form of currency or other cash
equivalent acceptable to the Company, (b) by tendering Shares having a Fair
Market Value (determined as of the close of the business day immediately
preceding the day on which the Option is exercised) equal to the Option Exercise
Price (provided, however, that such Shares have been held by the Participant for
at least six months prior to their tender, if such Shares were acquired pursuant
to option exercises or any compensation plan maintained by the Company) or (c)
by such other method as the Committee may deem appropriate. The Committee may
permit the cashless exercise of Options as described in Regulation T promulgated
by the Federal Reserve Board, subject to applicable securities law restrictions,
or by any other means which the Committee determines to be consistent with the
Plan's purpose and applicable law.
6.6 Vesting Upon Change in Control. Upon a Change in Control, any then
outstanding Options held by Participants shall become fully vested and
immediately exercisable. Furthermore, if provided in an Option Agreement, the
Participant shall have the right to sell the Option back to the Company for an
amount generally equal to the excess of the Fair Market Value of the Shares
subject to the Option over the Option Price, provided
8
<PAGE>
that such payment does not adversely affect the ability of the Company to use
the pooling-of-interests accounting method in respect of any proposed
transaction in connection with a Change in Control.
6.7 Termination of Employment. If the employment of a Participant is
terminated for Cause, all then outstanding Options of such Participant, whether
or not exercisable, shall terminate immediately. If the employment of a
Participant is terminated for any reason other than for Cause, death, Disability
or Retirement, to the extent then outstanding Options of such Participant are
exercisable, such Options may be exercised by such Participant or such
Participant's personal representative at any time prior to the expiration date
of the Options or within 90 days after the date of such termination of
employment, whichever is earlier. In the event of the Retirement of a
Participant, to the extent then outstanding Options of such Participant are
exercisable, such Options may be exercised by the Participant (a) in the case of
NQSOs, within two years after the date of Retirement and (b) in the case of
ISOs, within 90 days after Retirement; provided, however, that no such Options
may be exercised on a date subsequent to their expiration. In the event of the
death or Disability of a Participant while employed by the Company or a
Subsidiary, all then outstanding Options of such Participant shall become fully
vested and immediately exercisable, and may be exercised at any time (a) in the
case of NQSOs, within two years after the date of death or determination of
Disability and (b) in the case of ISOs, within one year after the date of death
or determination of Disability; provided, however, that no such Options may be
exercised on a date subsequent to their expiration. In the event of the death of
a Participant, the Option may be exercised by the person or persons to whom
rights pass by will or by the laws of descent and distribution, or if
appropriate, the legal representative of the deceased Participant's estate. In
the event of the Disability of a Participant, Options may be exercised by the
Participant, or if such Participant is incapable of exercising the Options, by
such Participant's legal representative.
6.8 Transferable Options. The Committee may, in its discretion by
appropriate provision in the Participant's Option Agreement, authorize all or a
portion of any NQSOs to be granted to a Participant be on terms which permit
transfer by such Participant to (i) the spouse, children or grandchildren of the
Participant ("Immediate Family Members"), (ii) a trust or trusts for the
exclusive benefit of such Participant and/or his Immediate Family Members, or
(iii) a partnership or limited liability company in which such Participant
and/or his Immediate Family Members are the only partners or members, as
applicable; provided that (a) there may be no consideration for any such
transfer, (b) the Option Agreement must expressly provide for transferability in
a manner consistent with this Section and (c) subsequent transfers of
transferable NQSOs shall be prohibited except by will or the laws of descent and
distribution. Following transfer, any such NQSOs shall continue to be subject to
the same terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of this Article 6 (excluding Section 6.7) the term
"Participant" shall be deemed to refer to the transferee. The events of
termination of employment as set forth in Section 6.7 shall continue to be
applied with respect to the original Participant. Any
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transferred NQSOs shall be exercisable by the transferee only to the extent, and
for the periods, specified in the Option Agreement.
6.9 Repurchase. Upon approval of the Committee, the Company may
repurchase a previously granted Option from a Participant by mutual agreement
before such Option has been exercised by payment to the Participant of an amount
equal to the amount by which (i) the Fair Market Value of the Shares subject to
the Option on the date immediately preceding the date of repurchase exceeds (ii)
the Option Exercise Price of such Shares.
6.10 Certificate Legend. For any Shares issued upon exercise of an ISO,
the Company may legend such Shares as it deems appropriate.
ARTICLE 7. RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee may grant shares of Restricted Stock to Participants at any
time and from time to time and upon such terms and conditions as it may
determine.
7.2 Restricted Stock Agreement. Each grant of Restricted Stock shall be
evidenced by a Restricted Stock Agreement which shall specify the Restriction
Period, the number of shares of Restricted Stock granted and such other
provisions as the Committee may determine and which are required by the Plan.
7.3 Non-Transferability of Restricted Stock. Except as provided in this
Article 7, shares of Restricted Stock may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated until the end of the applicable
Restriction Period as specified in the Restricted Stock Agreement, or upon
earlier satisfaction of any other conditions determined at the time of grant
specified in the Restricted Stock Agreement.
7.4 Other Restrictions. The Committee may impose such other restrictions
on any shares of Restricted Stock as it may deem advisable, including, without
limitation, restrictions based upon the achievement of Performance Goals, years
of service and/or restrictions under applicable Federal or state securities
laws. The Committee may provide that any share of Restricted Stock shall be
held (together with a stock power executed in blank by the Participant) in
custody by the Company until any or all restrictions thereon shall have lapsed.
7.5 Reacquisition of Restricted Stock. Committee shall determine and set
forth in a Participant's Restricted Stock Agreement such events upon which a
Participant's shares of Restricted Stock shall be reacquired by the Company,
which may include, without limitation, the termination of a Participant's
employment during the Restriction Period or the nonachievement of Performance
Goals. Any such forfeited shares of Restricted Stock held by a Participant
which are to be reacquired by the Company shall be immediately returned
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to the Company by the Participant, and the Participant shall only receive the
amount, if any, paid by the Participant for such Restricted Stock.
7.6 Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 7.4, each certificate representing shares of Restricted
Stock shall bear the following legend:
"The sale or other transfer of the shares represented by this
Certificate, whether voluntary, involuntary or by operation of
law, is subject to certain restrictions on transfer as set forth
in the Vencor, Inc. 1998 Incentive Compensation Plan, and in the
related Restricted Stock Agreement. A copy of the Plan and such
Restricted Stock Agreement may be obtained from the Secretary of
Vencor, Inc."
7.7 Lapse of Restrictions Generally. Except as otherwise provided in this
Article 7, shares of Restricted Stock shall be delivered to the Participant and
no longer subject to reacquisition after the last day of the Restriction Period;
provided, however, that if the restriction relates to the achievement of a
Performance Goal, the Restriction Period shall not end until the Committee has
certified in writing that the Performance Goal has been met. Once the shares of
Restricted Stock are released from their restrictions, the Participant shall be
entitled to have the legend required by Section 7.6 removed from the
Participant's share certificate, which certificate shall thereafter represent
Shares free from any and all restrictions under the Plan.
7.8 Lapse of Restrictions Upon Change in Control. Upon a Change in
Control, any restrictions and other conditions pertaining to then outstanding
shares of Restricted Stock held by Participants, including, but not limited to,
vesting requirements, shall lapse and such Shares shall thereafter be
immediately free from any and all restrictions under the Plan.
7.9 Voting Rights; Dividends and Other Distributions. Unless the
Committee exercises its discretion as provided in Section 7.10, during the
Restriction Period, Participants holding shares of Restricted Stock may exercise
full voting rights, and shall be entitled to receive all dividends and other
distributions paid, with respect to such Restricted Stock. If any dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions as the shares of Restricted Stock with respect to which they were
paid.
7.10 Treatment of Dividends. At the time shares of Restricted Stock are
granted to a Participant, the Committee may, in its discretion, determine that
the payment of dividends, or a specified portion thereof, declared or paid on
such Shares shall be deferred until the lapse of the restrictions with respect
to such Shares, in which event such deferred dividends shall be held by the
Company for the account of the Participant. In the event of such deferral,
there may be credited at the end of each year (or portion thereof) interest on
the amount of the account during the year at a rate per annum as the Committee,
in its discretion, may
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determine. Deferred dividends, together with interest accrued thereon, if any,
shall be (i) paid to the Participant upon the lapse of restrictions on the
shares of Restricted Stock as to which the dividends related or (ii) revert to
the Company upon the reacquisition of such Shares.
7.11 Termination of Employment. If the employment of a Participant is
terminated for any reason other than death or Disability prior to the expiration
of the Restriction Period applicable to any shares of Restricted Stock then held
by the Participant, such Shares shall thereupon be immediately reacquired by and
returned to the Company, and the Participant shall receive only the amount, if
any, paid by the Participant for such Restricted Stock. If the employment of a
Participant is terminated as a result of death or Disability prior to the
expiration of the Restriction Period applicable to any Shares of Restricted
Stock then held by the Participant, any restrictions and other conditions
pertaining to such Shares then held by the Participant, including, but not
limited to, vesting requirements, shall immediately lapse and such Shares shall
thereafter be immediately transferable and nonforfeitable. Notwithstanding
anything in the Plan to the contrary, except in the case of Restricted Stock for
which a Performance Goal must be achieved, the Committee may determine, in its
sole discretion, in the case of any termination of a Participant's employment
other than for Cause, that the restrictions on some or all of the shares of
Restricted Stock awarded to a Participant shall immediately lapse and such
Shares shall thereafter be immediately transferable and nonforfeitable.
ARTICLE 8. PERFORMANCE UNITS
8.1 Grant of Performance Units. The Committee may, from time to time and
upon such terms and conditions as it may determine, grant Performance Units
which will become payable to a Participant upon certification in writing by the
Committee that the Performance Goals related thereto have been achieved. The
maximum number of Performance Units which may be awarded to a Participant during
any calendar year shall be 100,000 units, subject to adjustment as provided in
Section 4.2. If the Performance Goals are achieved in full and the Participant
remains employed with the Company as of the end of the relevant Performance
Period, the Participant will be allocated Shares equal to the number of
Performance Units initially awarded to the Participant for the relevant
Performance Period. Each award of Performance Units may provide for the
allocation of fewer Performance Units in the event of partial fulfillment of
Performance Goals.
8.2 Performance Unit Agreement. Each Performance Unit grant shall be
evidenced by a Performance Unit Agreement that shall specify the Performance
Goals, the Performance Period and the number of Performance Units to which it
pertains.
8.3 Performance Period. The period of performance ("Performance Period")
with respect to each Performance Unit shall be such period of time, which shall
not be less than
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six months, nor more than five years, as determined by the Committee, for the
measurement of the extent to which Performance Goals are attained.
8.4 Performance Goals. The goals ("Performance Goals") that are to be
achieved with respect to each Performance Unit, (or Restricted Stock, stock
award or cash award subject to a requirement that Performance Goals be
achieved), shall be those objectives established by the Committee as it deems
appropriate, and which may be expressed in terms of (a) earnings per Share, (b)
Share price, (c) pre-tax profit, (d) net earnings, (e) return on equity or
assets, (f) revenues, (g) any combination of the foregoing, or (h) such other
goals as the Committee may determine. Performance Goals may be in respect of
the performance of the Company and its Subsidiaries (which may be on a
consolidated basis), a Subsidiary, a division or other operating unit of the
Company. Performance Goals may be absolute or relative and may be expressed in
terms of a progression within a specified range. The Committee shall establish
Performance Goals applicable to a particular fiscal year within 90 days of the
commencement of such fiscal year, provided that the outcome of the Performance
Goal is substantially uncertain at the time of its adoption. The Performance
Goals with respect to a Performance Period shall be established by the Committee
in order to comply with Section 162(m) of the Code. The Committee shall
determine the target levels of performance that must be achieved with respect to
each criteria that is identified in a Performance Goal in order for a
Performance Goal to be treated as attained in whole or in part. In the event
that the Performance Goals are based on more than one business criteria, the
Committee may determine to make a grant of an Award upon attainment of the
Performance Goal relating to any one or more of such criteria.
8.5 Termination of Employment. If the employment of a Participant shall
terminate prior to the expiration of the Performance Period for any reason other
than for death or Disability, the Performance Units then held by the Participant
shall terminate. In the case of termination of employment by reason of death or
Disability of a Participant prior to the expiration of the Performance Period,
then all Performance Units which are potentially available under an outstanding
Award and which have not been issued shall be fully vested in, paid and issued
to Participant or, in the case of Participant's death, shall be vested in, paid
and issued to Participant's estate, as of the date of the Participant's death.
8.6 Payment Upon Change In Control. Upon a Change in Control, any and all
outstanding Performance Units which are potentially available under any
outstanding Award shall become fully vested and immediately payable.
8.7 Payment of Performance Units. Subject to such terms and conditions as
the Committee may impose, and unless otherwise provided in the Performance Unit
Agreement, Performance Units shall be payable within 90 days following the end
of the Performance Period during which the Participant attained at least the
minimum acceptable level of achievement under the Performance Goals, or 90 days
following a Change in Control, as applicable. The Committee, in its discretion,
may determine at the time of payment required
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in connection with a Performance Unit whether such payment shall be made (a)
solely in cash, (b) solely in Shares (valued at the Fair Market Value of the
Shares on the date of payment) or (c) a combination of cash and Shares;
provided, however, that if a Performance Unit becomes payable upon a Change in
Control, the Performance Unit shall be paid solely in cash.
8.8 Designation of Beneficiary. Each Participant may, from time to time,
name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom the right to receive payments under a Performance Unit is
to be paid in case of the Participant's death before receiving any or all such
payments. Each such designation shall revoke all prior designations by the
Participant, shall be in a form prescribed by the Company and shall be effective
only when filed by the Participant in writing with the Committee during the
Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate.
8.9 No Rights as Stockholder. The award of Performance Units to a
Participant shall not create any rights in such Participant as a stockholder of
the Company, until the payment of any Shares associated with such Performance
Units.
ARTICLE 9. STOCK APPRECIATION RIGHTS
9.1 Grant of Stock Appreciation Rights. An SAR is a right to receive,
without payment to the Company, a number of Shares, cash or any combination
thereof, the amount of which is determined pursuant to the formula set forth in
Section 9.5. An SAR may be granted (a) with respect to any Option granted under
the Plan, either concurrently with the grant of such Option or at such later
time as determined by the Committee (as to all or any portion of the Shares
subject to the Option) or (b) alone, without reference to any Option.
9.2 Number of SARs. Each SAR granted to any Participant shall relate to
such number of Shares as the Committee shall determine, subject to adjustment as
provided in Section 4.2. If an SAR is granted in conjunction with an Option,
the number of Shares to which the SAR pertains shall be reduced by the same
number for which the holder of the Option exercises the related Option. The
maximum number of SARs which may be granted to any Participant during any
calendar year shall be 100,000, subject to adjustment as provided in Section
4.2.
9.3 Duration. Subject to early termination as herein provided, the term
of each SAR shall be as determined by the Committee, but shall not exceed ten
years from the date of grant. Unless otherwise provided by the Committee, each
SAR shall become exercisable at such time or times, to such extent and upon such
conditions as the Option, if any, to which it relates is exercisable.
Notwithstanding the above, no SAR may be exercised during the first six months
of its term. Subject to the foregoing sentence, the Committee may, in its
discretion, accelerate the exercisability of any SAR.
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9.4 Exercise. A holder may exercise an SAR, in whole or in part, by
giving written notice to the Company, specifying the number of SARs which such
Participant wishes to exercise. Upon receipt of such written notice, the
Company shall deliver, within 90 days thereafter, to the exercising holder,
certificates for the Shares or cash or both as determined by the Committee, to
which the Participant is entitled pursuant to Section 9.5.
9.5 Payment.
(a) Number of Shares. Subject to the right of the Committee to deliver
----------------
cash in lieu of Shares (which, as it pertains to officers and directors of the
Company, shall comply with all requirements of the Exchange Act and regulations
adopted thereunder), the number of Shares which shall be issuable upon the
exercise of an SAR shall be determined by dividing (i) the number of Shares to
which the SAR is exercised multiplied by the amount of the appreciation in such
Shares (for this purpose, the "appreciation" shall be the amount by which the
Fair Market Value of the Shares subject to the SAR on the date of exercise
exceeds (x) in the case of an SAR related to an Option, the Option Exercise
Price of the Shares under the Option or (y) in the case of an SAR granted alone
without reference to a related Option, an amount that the Committee determined
at the time of grant to be the Fair Market Value of a Share, subject to
adjustment as provided in Section 4.2) by (ii) the Fair Market Value of a Share
on the exercise date.
(b) Cash. In lieu of issuing Shares upon the exercise of an SAR, the
----
Committee may elect, in its sole discretion, to pay the holder of the SAR cash
equal to the Fair Market Value on the exercise date of any or all of the Shares
which would otherwise be issuable. No fractional Shares shall be issued upon
exercise of an SAR; instead, the holder of the SAR shall be entitled to receive
a cash adjustment equal to the same fraction of the Fair Market Value of a Share
on the exercise date or to purchase the portion necessary to make a whole Share
at its Fair Market Value on the date of exercise.
9.5 SAR Agreement. Each SAR shall be evidenced by an SAR Agreement that
shall further specify the terms and conditions of such Award. Any terms and
conditions of the Award shall be consistent with the terms of the Plan.
ARTICLE 10. STOCK AND CASH AWARDS
A stock award consists of the transfer by the Company to a Participant of
Shares, without other payment therefor, as additional compensation for services
to the Company. A cash award consists of a monetary payment made by the Company
to a Participant as additional compensation for services to the Company. The
Committee shall determine, in its sole discretion, the amount of any stock or
cash award. Stock and cash awards may be subject to the terms and conditions,
which may vary from time to time and among Participants, as the Committee deems
appropriate. The maximum amount of a cash award which may be granted to a
Participant during any calendar year under the Plan shall not be
15
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greater than $1,000,000. Payment of a stock or cash award will normally depend
on meeting Performance Goals. Each award of stock or cash may provide for lesser
payment in the event of partial fulfillment of Performance Goals.
ARTICLE 11. AMENDMENT, MODIFICATION AND TERMINATION
11.1 Effective Date. The Plan shall become effective upon adoption by the
Board.
11.2 Termination Date. The Plan shall terminate on the earliest to occur
of (a) the tenth anniversary of the adoption of the Plan by the Board, (b) the
date when all Shares available under the Plan shall have been acquired pursuant
to the exercise of Awards and the payment of all benefits in connection with
Performance Unit Awards has been made or (c) such other date as the Board may
determine in accordance with Section 11.3.
11.3 Amendment, Modification and Termination. The Board may, at any time,
amend, modify or terminate the Plan; provided that such actions may not be taken
without the approval of the Company's stockholders if such approval is required
by any applicable law or the rules of any national securities exchange or system
on which the Shares are then listed or reported.
11.4 Awards Previously Granted. Except as otherwise provided herein, no
amendment, modification or termination of the Plan shall in any manner
materially adversely affect any outstanding Award without the written consent of
the Participant holding such Award.
ARTICLE 12. NON-TRANSFERABILITY
Except as expressly provided in the Plan, a Participant's rights under the
Plan may not be assigned, pledged or otherwise transferred other than by will or
the laws of descent and distribution, except that upon a Participant's death,
the Participant's rights to payment pursuant to a Performance Unit may be
transferred to a beneficiary designated in accordance with Section 8.8. Except
as expressly provided in the Plan, during a Participant's lifetime, an Award may
be exercised only by such Participant.
ARTICLE 13. NO GRANTING OF EMPLOYMENT RIGHTS
Neither the Plan, nor any action taken under the Plan, shall be construed
as giving any Employee the right to become a Participant, nor shall an Award
under the Plan be construed as giving a Participant any right with respect to
continuance of employment by the Company. The Company expressly reserves the
right to terminate, whether by dismissal, discharge or otherwise, a
Participant's employment at any time, with or without Cause, except as may
otherwise be provided by any written agreement between the Company and the
Participant.
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ARTICLE 14. WITHHOLDING
14.1 Tax Withholding. A Participant shall remit to the Company an amount
sufficient to satisfy Federal, state and local taxes (including the
Participant's FICA and Medicare obligation) required by law to be withheld with
respect to any grant, exercise or payment made under or as a result of the Plan.
14.2 Share Withholding. If the Company has a withholding obligation upon
the issuance of Shares under the Plan, a Participant may, subject to the
discretion of the Committee, elect to satisfy the withholding requirement, in
whole or in part, by having the Company withhold Shares having a Fair Market
Value on the date the withholding tax is to be determined equal to the amount
required to be withheld under applicable law. Notwithstanding the foregoing,
the Committee may, by the adoption of rules or otherwise, modify the provisions
of this Section 14.2 or impose such other restrictions or limitations on such
elections as may be necessary to ensure that such elections will be exempt
transactions under Section 16(b) of the Exchange Act.
ARTICLE 15. INDEMNIFICATION
No member of the Board or the Committee, nor any officer or Employee acting
on behalf of the Board or the Committee, shall be personally liable for any
action, determination or interpretation taken or made with respect to the Plan,
and all members of the Board, the Committee and each officer or Employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination or interpretation.
ARTICLE 16. SUCCESSORS
All obligations of the Company with respect to Awards granted under the
Plan shall be binding on any successor to the Company, whether the existence of
such successor is a result of a direct or indirect purchase, merger,
consolidation or otherwise, of all or substantially all of the business and/or
assets of the Company.
ARTICLE 17. GOVERNING LAW
To the extent not preempted by Federal law, the Plan, and all agreements
under the Plan, shall be governed by, and construed in accordance with, the laws
of the State of Delaware without regard to its conflict of laws rules.
Furthermore, the Plan and all Option Agreements relating to ISOs shall be
interpreted so as to qualify as incentive stock options under the Code.
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IN WITNESS WHEREOF, this Vencor, Inc. 1998 Incentive Compensation Plan has
been executed by the Company as of April 30, 1998.
VENCOR, INC.
By:
-------------------------------
Title:
----------------------------
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VENCOR, INC. Exhibit 10.24
1998 STOCK OPTION PLAN FOR
NON-EMPLOYEE DIRECTORS
----------------------
ARTICLE 1. PURPOSE
The purpose of this 1998 Stock Option Plan for Non-Employee Directors is to
promote the interests of Vencor, Inc. (formerly Vencor Healthcare, Inc.), its
subsidiaries and stockholders, by allowing the Company to attract and retain
highly qualified non-employee directors by permitting them to obtain or increase
their proprietary interest in the Company through grants of Restricted Stock and
Options. In addition, this Plan covers certain options assumed as provided in
the Employee Benefits Agreement, dated as of April 30, 1998, between Vencor,
Inc. and Vencor Healthcare, Inc. (the "Employee Benefits Agreement"), duly
executed in connection with the spinoff of Vencor Healthcare, Inc. by Vencor,
Inc. to its shareholders.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by such
definitions, and the terms set forth below shall have the following meanings (in
either case, such terms shall apply equally to both the singular and plural
forms of the terms defined):
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean, unless otherwise defined in an Option Agreement or
a Restricted Stock Agreement, a felony conviction of a Non-Employee Director or
the failure of a Non-Employee Director to contest prosecution for a felony, or a
Non-Employee Director's willful misconduct or dishonesty, any of which is
determined by the Committee to be directly and materially harmful to the
business or reputation of the Company or its Subsidiaries.
(c) "Change in Control" shall have the meaning ascribed to such term in
the Company's 1998 Incentive Compensation Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(e) "Committee" shall mean the Committee provided for in Section 6.1.
(f) "Company" shall mean Vencor, Inc., a Delaware corporation.
<PAGE>
(g) "Disability" shall mean the total disability as determined by the
Committee in accordance with standards and procedures similar to those under the
Company's long-term disability plan, or, if none, a physical or mental infirmity
which the Committee determines impairs the Participant's ability to perform
substantially his or her duties for a period of 180 consecutive days.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(i) "Fair Market Value" of the Shares shall mean, unless the Committee
determines otherwise, as of any applicable date, the closing sale price of the
Shares on the New York Stock Exchange or any national or regional stock exchange
in which the Shares are traded, or if no such reported sale of the Shares shall
have occurred on such date, on the next preceding date on which there was such a
reported sale. If there shall be any material alteration in the present system
of reporting sale prices of the Shares, or if the Shares shall no longer be
listed on the New York Stock Exchange or a national or regional stock exchange,
the fair market value of the Shares as of a particular date shall be determined
by such method as shall be determined by the Committee.
(j) "Non-Employee Director" shall mean a member of the Board who is not an
employee of the Company or any Subsidiary.
(k) "Option" shall mean an option granted to an Optionee pursuant to the
Plan.
(l) "Option Agreement" shall mean a written agreement between the Company
and an Optionee evidencing the granting of an Option and containing terms and
conditions concerning the exercise of the Option.
(m) "Optionee" shall mean a Non-Employee Director who has been granted an
Option or the personal representative, heir or legatee of an Optionee who has
the right to exercise the Option upon the death of the Optionee.
(n) "Participant" shall mean a Non-Employee Director who has received a
grant of an Option or Restricted Stock under the Plan.
(o) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
(p) "Plan" shall mean this 1998 Stock Option Plan for Non-Employee
Directors, as the same may be amended from time to time.
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(q) "Restricted Stock" shall mean Shares granted pursuant to Article 5 as
to which the restrictions have not expired.
(r) "Restricted Stock Agreement" shall mean an agreement evidencing a
grant of Restricted Stock pursuant to Article 5.
(s) "Restriction Period" shall mean the period determined by the Committee
during which the transfer of Shares is limited in some way or Shares are
otherwise restricted or subject to forfeiture as provided in Article 5.
(t) "Shares" shall mean the shares of the Company's common stock, par
value $.25 per share.
(u) "Subsidiary" shall mean, with respect to any company, any corporation
or other Person of which a majority of its voting power, equity securities or
equity interest is owned directly or indirectly by such company.
2.2 Gender and Number. Except where otherwise indicated by the context,
reference to the masculine gender shall include the feminine gender, the plural
shall include the singular and the singular shall include the plural.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE 3. SHARES SUBJECT TO THE PLAN
The stock to be offered under the Plan shall be the Shares, which Shares
may be unissued Shares or treasury Shares. Subject to the adjustments provided
for in Section 7, the aggregate number of Shares to be delivered upon exercise
of all Options granted and in respect of grants of Restricted Stock under the
Plan shall not exceed 200,000 Shares, plus 98,073 Shares required for delivery
upon the exercise of any assumed options in accordance with the Employee
Benefits Agreement. Shares subject to, but not delivered under, an Option
terminating or expiring for any reason prior to its exercise in full shall be
deemed available for Options to be granted thereafter during the term of the
Plan.
ARTICLE 4. TERMS AND CONDITIONS OF OPTIONS
4.1 Non-Discretionary Grants. On May 1, 1998, each Non-Employee Director
of the Company shall receive a grant of an Option for 5,000 Shares. In
addition, on January 1 of each year during the term of the Plan, each Non-
Employee Director who is elected a director at the preceding annual meeting of
shareholders and who is acting as a director on
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January 1, shall receive a grant of an Option for 3,000 Shares. Each Option
granted under the Section 4.1 shall have the following terms and conditions:
(a) The exercise price of the Option shall be equal to 100% of the Fair
Market Value of the Shares on the date the Option is granted.
(b) The term of the Option shall be ten years from the date of grant
unless sooner terminated as provided herein.
(c) The Option shall be exercisable in four equal annual installments,
with the first installment becoming exercisable on the first anniversary of the
date of grant of the Option. Notwithstanding the provisions of this Section
4.1, upon a Change in Control or the retirement of the director, the Optionee
shall have the right to exercise the Option in full as to all Shares subject to
the Option.
4.2 Termination of Option. Except as otherwise provided by the Committee:
(a) If the Optionee ceases to be a director of the Company for any
reason other than death, Disability, retirement or removal for Cause, the Option
shall terminate three months after the Optionee ceases to be a director of the
Company (unless the Optionee dies during such period), or on the Option's
expiration date, if earlier, and shall be exercisable during such period after
the Optionee ceases to be a director of the Company only with respect to the
number of Shares which the Optionee was entitled to purchase on the day
preceding the day on which the Optionee ceased to be a director.
(b) If the Optionee ceases to be a director of the Company because of
removal for Cause, the Option shall terminate on the date of the Optionee's
removal.
(c) In the event of the Optionee's death, Disability or retirement
while a director of the Company, or the Optionee's death within three months
after the Optionee ceases to be a director (other than by reason of removal for
Cause), the Option shall terminate upon the earlier to occur of (A) 12 months
after the date of the Optionee's death, Disability or retirement, or (B) the
Option's expiration date. The Option shall be exercisable during such period
after the Optionee's death or Disability with respect to the number of Shares as
to which the Option shall have been exercisable on the date preceding the
Optionee's death or Disability, as the case may be. In the event of the
retirement of the director, the Option shall be fully exercisable during such
period.
4.3 Restrictions on Transferability of Option. The Option shall not be
transferable by the Optionee otherwise than by bequest or the laws of descent
and distribution, and shall be exercisable during the Optionee's lifetime only
by the Optionee; provided, however, that the Optionee may, subject to any
restrictions under Section 16(b) of the Exchange Act, transfer the Options to
(i) the Optionee's spouse or lineal descendants ("Immediate Family
4
<PAGE>
Members"), (ii) trusts for the exclusive benefit of such Optionee and/or his
Immediate Family Members, or (iii) a partnership or limited liability company in
which such Optionee and/or his Immediate Family Members are the only partners or
members, as applicable; provided that (a) there may be no consideration for any
such transfer and (b) subsequent transfers of any transferred Option shall be
prohibited other than by bequest or the laws of descent and distribution.
Following transfer, any such Option shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer, provided
that for purposes of the Plan (excluding Section 4.2) the term "Optionee" shall
be deemed to refer to the transferee. Notwithstanding the above, the provisions
of Section 4.2 concerning the termination of an Option shall continue to be
applied with respect to the original Optionee. Any transferred Option shall be
exercisable by the transferee only to the extent, and for the periods, specified
in the Option Agreement.
4.4 Payment of Exercise Price. The exercise price shall be paid in cash
at the time of exercise, except that in lieu of all or part of the cash, the
Optionee may tender to the Company Shares already owned by the Optionee having a
Fair Market Value equal to the exercise price, less any cash paid. The Fair
Market Value of such tendered Shares shall be determined as of the close of the
business day immediately preceding the day on which the Option is exercised.
4.5 Option Agreement. Each Option shall be evidenced by an Option
Agreement which shall set forth the number of Shares for which the Option was
granted, the provisions set forth in this Article 4 relating to the Option and
such other terms and conditions consistent with the Plan.
ARTICLE 5. RESTRICTED STOCK
5.1 Grant of Restricted Stock. On May 1, 1998, each Non-Employee Director
of the Company shall receive a grant of 2,000 Shares of Restricted Stock, in
respect of which the restrictions will lapse in four equal annual installments,
beginning on the first anniversary of the date of grant. In addition, and
subject to the terms and provisions of the Plan, the Committee may grant shares
of Restricted Stock to Participants at any time and from time to time and upon
such terms and conditions as it may determine.
5.2 Restricted Stock Agreement. Each grant of Restricted Stock shall be
evidenced by a Restricted Stock Agreement which shall specify the Restriction
Period, the number of shares of Restricted Stock granted and such other
provisions as the Committee may determine and which are required by the Plan.
5.3 Non-Transferability of Restricted Stock. Except as provided in this
Article 5, shares of Restricted Stock may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated until the end of the applicable
Restriction Period as specified in
5
<PAGE>
the Restricted Stock Agreement, or upon earlier satisfaction of any other
conditions determined at the time of grant specified in the Restricted Stock
Agreement.
5.4 Other Restrictions. The Committee may impose such other restrictions
on any shares of Restricted Stock as it may deem advisable, including, without
limitation, restrictions based upon the achievement of performance goals, years
of service and/or restrictions under applicable Federal or state securities
laws. The Committee may provide that any share of Restricted Stock shall be
held (together with a stock power executed in blank by the Participant) in
custody by the Company until any or all restrictions thereon shall have lapsed.
5.5 Reacquisition of Restricted Stock. Committee shall determine and set
forth in a Participant's Restricted Stock Agreement such events upon which a
Participant's shares of Restricted Stock shall be reacquired by the Company,
which may include, without limitation, the termination of a Participant's
services during the Restriction Period or the nonachievement of performance
goals. Any such forfeited shares of Restricted Stock held by a Participant
which are to be reacquired by the Company shall be immediately returned to the
Company by the Participant, and the Participant shall only receive the amount,
if any, paid by the Participant for such Restricted Stock.
5.6 Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 5.4, each certificate representing shares of Restricted
Stock shall bear the following legend:
"The sale or other transfer of the shares represented by this
Certificate, whether voluntary, involuntary or by operation of
law, is subject to certain restrictions on transfer as set
forth in the Vencor, Inc. 1998 Stock Option Plan for Non-
Employee Directors, and in the related Restricted Stock
Agreement. A copy of the Plan and such Restricted Stock
Agreement may be obtained from the Secretary of Vencor, Inc."
5.7 Lapse of Restrictions Generally. Except as otherwise provided in this
Article 5, shares of Restricted Stock shall be delivered to the Participant and
no longer subject to reacquisition after the last day of the Restriction Period;
provided, however, that if the restriction relates to the achievement of a
performance goal, the Restriction Period shall not end until the Committee has
certified in writing that the performance goal has been met. Once the shares of
Restricted Stock are released from their restrictions, the Participant shall be
entitled to have the legend required by Section 5.6 removed from the
Participant's share certificate, which certificate shall thereafter represent
Shares free from any and all restrictions under the Plan.
5.8 Lapse of Restrictions Upon Change in Control. Upon a Change in
Control, any restrictions and other conditions pertaining to then outstanding
shares of Restricted Stock
6
<PAGE>
held by Participants, including, but not limited to, vesting requirements, shall
lapse and such Shares shall thereafter be immediately free from any and all
restrictions under the Plan.
5.9 Voting Rights; Dividends and Other Distributions. Unless the
Committee exercises its discretion as provided in Section 5.10, during the
Restriction Period, Participants holding shares of Restricted Stock may exercise
full voting rights, and shall be entitled to receive all dividends and other
distributions paid, with respect to such Restricted Stock. If any dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions as the shares of Restricted Stock with respect to which they were
paid.
5.10 Treatment of Dividends. At the time shares of Restricted Stock are
granted to a Participant, the Committee may, in its discretion, determine that
the payment of dividends, or a specified portion thereof, declared or paid on
such Shares shall be deferred until the lapse of the restrictions with respect
to such Shares, in which event such deferred dividends shall be held by the
Company for the account of the Participant. In the event of such deferral,
there may be credited at the end of each year (or portion thereof) interest on
the amount of the account during the year at a rate per annum as the Committee,
in its discretion, may determine. Deferred dividends, together with interest
accrued thereon, if any, shall be (i) paid to the Participant upon the lapse of
restrictions on the shares of Restricted Stock as to which the dividends related
or (ii) revert to the Company upon the reacquisition of such Shares.
5.11 Termination of Services. If the Participant ceases to be a director
of the Company for any reason other than death or Disability prior to the
expiration of the Restriction Period applicable to any shares of Restricted
Stock then held by the Participant, such Shares shall thereupon be immediately
reacquired by and returned to the Company, and the Participant shall receive
only the amount, if any, paid by the Participant for such Restricted Stock. If
the Participant ceases to be a director as a result of death or Disability prior
to the expiration of the Restriction Period applicable to any Shares of
Restricted Stock then held by the Participant, any restrictions and other
conditions pertaining to such Shares then held by the Participant, including,
but not limited to, vesting requirements, shall immediately lapse and such
Shares shall thereafter be immediately transferable and nonforfeitable.
Notwithstanding anything in the Plan to the contrary, except in the case of
Restricted Stock for which a performance goal must be achieved, the Committee
may determine, in its sole discretion, if a Participant ceases to be a director
of the Company for any reason other than removal for Cause, that the
restrictions on some or all of the shares of Restricted Stock awarded to a
Participant shall immediately lapse and such Shares shall thereafter be
immediately transferable and nonforfeitable.
7
<PAGE>
ARTICLE 6. ADMINISTRATION
6.1 The Committee. The Plan is designed to operate automatically and not
require any significant administration. To the extent administration is
required, the Plan shall be administered by a Committee appointed by the Board
which shall include two or more directors of the Company or the entire Board.
The Committee shall meet at such times and places as it determines and may meet
through a telephone conference call. A majority of its members shall constitute
a quorum, and the decision of the majority of those present at any meeting at
which a quorum is present shall constitute the decision of the Committee. Any
decision reduced to writing and signed by a majority of the members of the
Committee shall be fully effective as if it had been made by a majority at a
meeting duly held. No discretion concerning decisions under the Plan shall be
afforded to a person who is not a "disinterested person." All decisions,
determinations and selections made by the Committee pursuant to the provisions
of the Plan shall be final. To the extent required by law and Rule 16b-3
promulgated under the Exchange Act, the Committee may delegate its authority
hereunder.
6.2 Section 16 Compliance. It is the intention of the Company that the
Plan and the administration of the Plan comply in all respects with Section
16(b) of the Exchange Act and the rules and regulations promulgated thereunder.
If any Plan provision, or any aspect of the administration of the Plan, is found
not to be in compliance with Section 16(b) of the Exchange Act, the provision or
administration shall be deemed null and void, and in all events the Plan shall
be construed in favor of its meeting the requirements of Rule 16b-3 promulgated
under the Exchange Act.
ARTICLE 7. ADJUSTMENTS UPON CHANGE IN CAPITALIZATION
Notwithstanding the limitations set forth in Article 3, in the event of a
merger, reorganization, consolidation, recapitalization, reclassification,
split-up, spin-off, separation, liquidation, stock dividend, stock split,
reverse stock split, property dividend, share repurchase, share combination,
share exchange, issuance of warrants, rights or debentures or other change in
corporate structure of the Company affecting the Shares, the Committee shall
make an appropriate and equitable adjustment in the maximum number of Shares
available under the Plan or to any one individual and in the number, kind and
exercise price of Shares subject to Options and Restricted Stock granted under
the Plan to prevent dilution or enlargement of the rights of Non-Employee
Directors under the Plan and outstanding Options and grants of Restricted Stock.
ARTICLE 8. AMENDMENTS AND DISCONTINUANCE
8.1 In General. The Board may, at any time, amend, modify or terminate
the Plan; provided that such actions may not be taken without the approval of
the Company's stockholders if such approval is required by any applicable law or
the rules of any national securities exchange or system on which the Shares are
then listed or reported.
8
<PAGE>
8.2 No Effect on Outstanding Awards. No amendment, modification or
termination of the Plan shall in any manner materially adversely affect any
outstanding Option or grant of Restricted Stock without the written consent of
the Participant.
ARTICLE 9. MERGER, CONSOLIDATION, ETC.
9.1 Conversion on Certain Mergers. In the event the Company merges or
consolidates with another corporation or all or substantially all of the
Company's capital stock or assets are acquired by another corporation, and the
surviving or acquiring corporation issues shares of its stock to the Company's
stockholders in connection with the merger, consolidation or acquisition, the
surviving or acquiring corporation shall adopt the Plan. Following such
adoption, the Optionee shall, at no additional cost (other than the exercise
price), be entitled to receive upon the exercise of an Option, in lieu of the
number of Shares to which such Option is then exercisable, the number and class
of stock or other securities to which the Optionee would have been entitled
pursuant to the terms of the merger, consolidation or acquisition if immediately
prior thereto the Optionee had been the holder of record of a number of Shares
equal to the number of Shares as to which the Option shall then be exercisable.
9.2 No Conversion on Other Mergers. In the event that the Company merges
or consolidates with another corporation, or all or substantially all of the
Company's capital stock or assets are acquired by another corporation, and the
surviving or acquiring corporation does not issue shares of its stock to the
Company's stockholders in connection with the merger, consolidation or
acquisition, then, notwithstanding any other provision of the Plan to the
contrary, no Option may be exercised after the effective date of the merger,
consolidation or acquisition.
ARTICLE 10. EFFECTIVE DATE AND TERMINATION OF THE PLAN
10.1 Effective Date. The Plan shall become effective upon adoption by the
Board.
10.2 Termination Date. The Plan shall terminate on the earliest to occur
of (i) the date when all of the Shares available under the Plan shall have been
acquired through the granting of Restricted Stock and the exercise of Options
granted under the Plan; (ii) 10 years after the date of adoption of the Plan by
the Board; or (iii) such earlier date as the Board may determine.
ARTICLE 11. NO RIGHT TO REELECTION
Neither the Plan, nor any action taken under the Plan, shall be construed
as conferring upon a Non-Employee Director any right to continue as a director
of the Company, to be renominated by the Board or reelected by the stockholders
of the Company.
9
<PAGE>
ARTICLE 12. INDEMNIFICATION
No member of the Board or the Committee, nor any officer or employee acting
on behalf of the Board or the Committee, shall be personally liable for any
action, determination or interpretation taken or made with respect to the Plan,
and all members of the Board, the Committee and each officer or employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination or interpretation.
ARTICLE 13. GOVERNING LAW
The provisions of the Plan shall be construed, administered and enforced
according to the laws of the State of Delaware without regard to its conflict of
laws rules.
10
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IN WITNESS WHEREOF, this 1998 Stock Option Plan for Non-Employee Directors
has been executed by the Company as of April 30, 1998.
VENCOR, INC.
By:
----------------------------
Title:
-------------------------
11
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Exhibit 10.25
THE VENCOR, INC.
DEFERRED COMPENSATION PLAN
Effective April 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS.............................................. 1
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY....................... 5
2.1 Selection by Committee........................................ 5
2.2 Enrollment Requirements....................................... 5
2.3 Eligibility; Commencement of Participation.................... 6
ARTICLE 3
DEFERRAL COMMITMENTS/INTEREST CREDITING.................. 6
3.1 Minimum and Maximum Deferral.................................. 6
3.2 Company Contribution.......................................... 6
3.3 Election to Defer; Effect of Election Form.................... 7
3.4 Withholding of Deferral Amounts............................... 7
3.5 Interest Crediting Prior to Distribution...................... 7
3.6 Installment Distributions..................................... 8
3.7 FICA and Other Taxes.......................................... 8
ARTICLE 4
UNFORESEEABLE FINANCIAL EMERGENCIES...................... 9
ARTICLE 5
RETIREMENT BENEFIT....................................... 9
5.1 Retirement Benefit............................................ 9
5.2 Payment of Retirement Benefits................................ 9
5.3 Death Prior to Completion of Retirement Benefits.............. 9
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT.......................... 9
6.1 Pre-Retirement Survivor Benefit............................... 9
6.2 Payment of Pre-Retirement Survivor Benefits................... 10
ARTICLE 7
TERMINATION BENEFIT...................................... 10
7.1 Termination Benefits.......................................... 10
7.2 Payment of Termination Benefit................................ 10
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ARTICLE 8
DISABILITY WAIVER AND BENEFIT............................ 11
8.1 Disability Waiver............................................. 11
8.2 Disability Benefit............................................ 11
ARTICLE 9
BENEFICIARY DESIGNATION.................................. 11
9.1 Beneficiary................................................... 11
9.2 Beneficiary Designation; Change; Spousal Consent.............. 12
9.3 Receipt by Committee.......................................... 12
9.4 No Beneficiary Designation.................................... 12
9.5 Doubt as to Beneficiary....................................... 12
9.6 Discharge of Obligations...................................... 12
ARTICLE 10
LEAVE OF ABSENCE......................................... 13
10.1 Paid Leave of Absence......................................... 13
10.2 Unpaid Leave of Absence....................................... 13
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION................... 13
11.1 Termination................................................... 13
11.2 Termination on Change of Control Event........................ 14
11.3 Amendment..................................................... 14
11.4 Effect of Payment............................................. 14
ARTICLE 12
ADMINISTRATION........................................... 14
12.1 Committee Duties.............................................. 14
12.2 Agents........................................................ 15
12.3 Binding Effect of Decisions................................... 15
12.4 Indemnity of Committee........................................ 15
12.5 Employer Information.......................................... 15
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS............................ 15
ARTICLE 14
CLAIMS PROCEDURES........................................ 15
14.1 Presentation of Claim......................................... 15
14.2 Notification of Decision...................................... 16
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14.3 Review of a Denied Claim...................................... 16
14.4 Decision on Review............................................ 17
14.5 Legal Action.................................................. 17
ARTICLE 15
TRUST.................................................... 17
15.1 Establishment of the Trust.................................... 17
15.2 Interrelationship of the Plan and the Trust................... 17
ARTICLE 16
MISCELLANEOUS............................................ 17
16.1 Unsecured General Creditor.................................... 17
16.2 Employer's Liability.......................................... 18
16.3 Nonassignability.............................................. 18
16.4 Not a Contract of Employment.................................. 18
16.5 Furnishing Information........................................ 18
16.6 Terms......................................................... 19
16.7 Captions...................................................... 19
16.8 Governing Law................................................. 19
16.9 Notice........................................................ 19
16.10 Successors.................................................... 19
16.11 Spouse's Interest............................................. 19
16.12 Incompetent................................................... 20
16.13 Court Order................................................... 20
16.14 Distribution in the Event of Taxation......................... 20
16.15 Legal Fees to Enforce Rights After a Change of Control Event.. 20
16.16 Taxes and Withholding......................................... 21
16.17 Severability.................................................. 21
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<PAGE>
THE VENCOR, INC.
DEFERRED COMPENSATION PLAN
Effective April 30, 1998
Purpose
The purpose of this Plan is to provide specified benefits to a select group
of management or highly compensated Employees who contribute materially to the
continued growth, development and future business success of Vencor, Inc.
(formerly Vencor Healthcare, Inc.), a Delaware corporation, and its subsidiaries
and affiliates. This Plan shall be unfunded for tax purposes and for purposes
of Title I of ERISA. This Plan also provides benefits with respect to certain
liabilities and obligations under the Vencor, Inc. Deferred Compensation Plan,
assumed pursuant to the Employee Benefits Agreement, dated as of April 30, 1998,
between Vencor, Inc. (predecessor of Ventas, Inc.) and Vencor Healthcare, Inc.
(the "Employee Benefits Agreement"), duly executed in connection with the
spinoff of Vencor Healthcare, Inc. by Vencor, Inc. to its shareholders.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context,
the following phrases or terms shall have the following indicated meanings:
1.1 "Account Balance" shall mean with respect to a Participant the sum of (i)
his or her Deferral Amount, plus (ii) his or her company contributions,
contributed under Section 3.2 hereof plus (iii) interest credited in
accordance with all the applicable interest crediting provisions of this
Plan, less (iv) all distributions. This account shall be a bookkeeping
entry only and shall be utilized solely as a device for the measurement and
determination of the amounts to be paid to a Participant pursuant to this
Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual
Salary, paid annually to a Participant and designated as an "Annual Bonus"
under rules adopted by the Committee.
1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base
Annual Salary and/or Annual Bonus to be paid during a Plan Year that a
Participant elects to have and is deferred in accordance with Article 3,
for any one Plan Year. In the event of a Participant's Retirement,
Disability (if deferrals cease in accordance with Section 8.1), death or a
Termination of Employment prior to the end of a
<PAGE>
Plan Year, such year's Annual Deferral Amount shall be the actual amount
deferred and withheld prior to such event.
1.4 "Base Annual Salary" shall mean the annual compensation, including
commissions, and incentive payments (other than amounts considered part of
the Annual Bonus), but excluding overtime, severance pay, compensation
received as a result of deferral any equity-based compensation and fringe
benefits (including but not limited to relocation expenses, non-monetary
awards, directors fees and other fees, automobile, educational, uniform,
professional dues, and employee expense allowances), paid to a Participant
for employment services rendered to any Employer before reduction for
compensation deferred pursuant to all qualified, non-qualified and Code
Section 125 plans of any Employer. Notwithstanding the foregoing, the
Company may elect to permit directors fees to be included in the
definition of Base Annual Salary by written notice to affected
Participants.
1.5 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.6 "Beneficiary Designation Form" shall mean the form established from time
to time by the Committee that a Participant completes, signs and returns
to the Committee to designate one or more Beneficiaries.
1.7 "Board" shall mean the board of directors of the Company.
1.8 For purposes of the Plan, a "Change of Control Event" shall occur upon the
occurrence of a "Change in Control" as defined in the Company's 1998
Incentive Compensation Plan.
1.9 "Claimant" shall have the meaning set forth in Section 14.1.
1.10 "Code" shall mean the Internal Revenue Code of 1986, as may be amended
from time to time.
1.11 "Committee" shall mean the committee described in Article 12.
1.12 "Company" shall mean Vencor, Inc., a Delaware corporation.
1.13 "Crediting Rate" shall mean an interest rate determined and announced by
the Committee before the Plan Year for which it is to be used that is
equal to 100% of the Moody's Rate. The Moody's Rate for a Plan Year shall
be an interest rate that
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is published in Moody's Bond Record under the heading of "Moody's
Corporate Bond Yield Baa Average" for the month of October which precedes
the Plan Year for which the rate is to be used.
1.14 "Deferral Amount" shall mean the sum of all of a Participant's Annual
Deferral Amounts.
1.15 "Deduction Limitation" shall mean the following described limitation on
the annual benefit that may be distributed pursuant to the provisions of
this Plan. The limitation shall be applied to distributions under this
Plan as set forth in this Plan. If the Company determines in good faith
prior to a Change of Control Event that there is a reasonable likelihood
that any compensation paid to a Participant for a taxable year of the
Company would not be deductible by the Company solely by reason of the
limitation under Code Section 162(m), then to the extent deemed necessary
by the Company to ensure that the entire amount of any distribution to the
Participant pursuant to this Plan prior to the Change of Control Event is
deductible, the Company may defer all or any portion of the distribution.
Any amounts deferred pursuant to this limitation shall continue to be
credited with interest in accordance with Section 3.5 below. The amounts
so deferred and interest thereon shall be distributed to the Participant
or his or her Beneficiary (in the event of the Participant's death) at the
earliest possible date, as determined by the Company in good faith, on
which the deductibility of compensation paid or payable to the Participant
for the taxable year of the Company during which the distribution is made
will not be limited by Section 162(m), or if earlier, the effective date
of a Change of Control Event.
1.16 "Disability" shall mean a period of disability during which a Participant
qualifies for benefit payments under the Participant's Employer's long-
term disability plan.
1.17 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.18 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the Committee
to make an election under the Plan.
1.19 "Employee" shall mean a person who is an employee of any Employer.
1.20 "Employer(s)" shall mean the (i) the Company, and all of the legal
entities that are part of a controlled group or affiliated service group
with Company pursuant to the provisions of Code Sections 414(b), (c), or
(m); (ii) partnerships in which the Company or a wholly-owned subsidiary
owns an interest; (iii) any entity that has entered into a contract with
the Company or a subsidiary for the receipt of
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<PAGE>
management services at one or more facilities owned by such entity if the
entity has been selected by the Committee to participate in the Plan; and
(iv) any entity which with the consent of the Board becomes a sponsoring
Employer hereunder. Obligations of each Employer hereunder shall be
separate except where Vencor, Inc. has by specific action of its Board of
Directors or other written agreement executed by a duly authorized officer
agreed that it and/or its wholly-owned subsidiaries will undertake joint
and several liability.
1.21 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.22 Participant shall mean any Employee (i) who is selected to participate in
the Plan; (ii) who elects to participate in the Plan; (iii) who signs a
Plan Agreement and an Election Form; (iv) whose signed Plan Agreement and
Election Form are received by the Committee; (v) who commences
participation in the Plan; and (vi) whose Plan Agreement has not
terminated. A Participant shall also include a former Employee who has an
Account Balance hereunder. By addendum to this Plan, the Board or the
Committee may permit directors of any of the Employers to become
Participants hereunder regardless of whether they are Employees.
1.23 "Plan" shall mean the Company's Deferred Compensation Plan, which shall be
evidenced by this instrument and, with respect to each Participant, by his
or her one or more Plan Agreements, as may be amended from time to time.
1.24 "Plan Agreement" shall mean a written agreement which is entered into by
and between the Company and a Participant. A Participant may be required
to enter into more than one Agreement depending on the entity employing
him or her any time and the manner in which the Company and another
Employer have agreed to allocate and assume responsibility for liabilities
accrued hereunder.
1.25 "Years of Plan Participation" shall mean the total number of full Plan
Years a Participant has been a Participant in the Plan. For purposes of a
Participant's first Plan Year of participation only, any partial Plan Year
of participation shall be treated as a full Plan Year.
1.26 "Plan Year" shall be the calendar year.
1.27 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.28 "Retirement", "Retires" or "Retired" shall mean severance from employment
with all Employers or retirement from directorship for any reason other
than a leave of absence, death or Disability on or after the attainment of
age 65.
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<PAGE>
1.29 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.30 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.31 "Termination of Employment" shall mean the ceasing of employment with all
Employers voluntarily or involuntarily, for any reason other than death;
provided, that the Committee shall have the discretion to determine
whether under certain circumstances a Termination of Employment has
occurred.
1.32 "Trust" shall mean a grantor, or "rabbi" trust, within the meaning of Code
Section 671.
1.33 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency
that is caused by an event beyond the control of the Participant that
would result in severe financial hardship to the Participant resulting
from (i) a sudden and unexpected illness or accident of the Participant or
a dependent of the Participant, (ii) a loss of the Participant's property
due to casualty, or (iii) such other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant, all as determined in the sole discretion of the Committee.
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
2.1 Selection by Committee. Participation in the Plan shall be limited to a
----------------------
select group of management or highly compensated Employees. From that
group, the Committee shall select, in its sole discretion, Employees to
participate in the Plan.
2.2 Enrollment Requirements. Individuals may commence participation as soon
-----------------------
as they complete, execute and return to the Committee a Plan Agreement and
Election Form provided such documents are returned within 30 days of
notification of eligibility to participate. In addition the Committee may
establish from time to time such other enrollment requirements as it
determines, in its sole discretion, are necessary.
2.3 Eligibility; Commencement of Participation. Participation in this Plan
------------------------------------------
shall commence on the first day of the month following the month in which
the Employee completes all enrollment requirements. If an Employee fails
to meet in a timely fashion all such requirements then he or she shall not
be eligible to participate in the Plan until the first day of the Plan
Year following the delivery to and receipt by the Committee of the
required documents.
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ARTICLE 3
DEFERRAL COMMITMENTS/INTEREST CREDITING
3.1 Minimum and Maximum Deferral. For each Plan Year, a Participant may
----------------------------
elect to defer Base Annual Salary and Annual Bonus that would otherwise be
received during a Plan Year. The Committee may permit a separate election
to be applied to Annual Bonus. The following minimum and maximum amounts
shall apply to the deferral election:
---------------------------------
Minimum Amount 1%
---------------------------------
Maximum Amount 50%
---------------------------------
If no election is made for a particular Plan Year, the amount deferred for
each type of compensation on the most recent preceding election shall
control. All amounts deferred under this Section 3.1(a) shall at all times
be fully vested and nonforfeitable.
3.2 Company Contribution.
--------------------
(a) Subject to amendment or termination of the Plan and applicable
limitations herein, as of the last day of each pay period, each
Employer shall credit to the account of each Participant in its employ
as of the last day of such pay period an amount equal to (1) 100% of
the Participant's Annual Deferral Amount for the pay period, not in
excess of the first 3% of the Participant's Base Annual Salary and
Annual Bonus received during such pay period less; (2) the maximum
Employer matching contribution to which the Participant would be
entitled under the 401(k) Plan for which he or she is eligible without
regard to the Participant's completed years of service. In order to
receive Employer contributions hereunder, a Participant must elect to
make elective deferrals under the Code Section 401(k) Plan for which
he or she is eligible in an amount equal to the lesser of (i) the
amount which would result in the maximum Employer match, or (ii) the
maximum amount permitted under the nondiscrimination rules applicable
to elective deferrals.
(b) Subject to Section 3.2(c), all amounts deferred under Section 3.2(a)
shall at all times be fully vested and nonforfeitable.
(c) Notwithstanding any other provision of this Plan including Section
3.2(b), the Committee shall have the right in its sole discretion to
cause any or all of the Employer contributions credited to an Account
Balance, including earnings, to be forfeited if the Committee at any
time determines that:
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(i) The Participant has divulged Employer confidential
information to the competitors of the Employer which is detrimental to
the Employer; or
(ii) The Participant has engaged in criminal conduct which is
detrimental to the Employer.
3.3 Election to Defer; Effect of Election Form. In connection with a
------------------------------------------
Participant's commencement of participation in the Plan, the Participant
shall make a deferral election by delivering to the Committee a completed
and signed Election Form, which election and form must be accepted by the
Committee for valid election to exist. For each succeeding Plan Year, a
new Election Form must be delivered to the Committee, in accordance with
its rules and procedures, before the end of the Plan Year preceding the
Plan Year for which the election is made in order to increase, decrease or
terminate a contribution election. If no Election Form is timely delivered
for a Plan Year, the prior year's deferral election shall remain in effect.
Any Election Forms for a Participant currently in effect as of the date
hereof under the Deferred Compensation Plan maintained by the predecessor
of Ventas, Inc. shall be effective with respect to this Plan until modified
or otherwise revised by such Participant.
3.4 Withholding of Deferral Amounts. For each Plan Year, the Base Annual
-------------------------------
Salary portion of the Annual Deferral Amount shall be withheld each payroll
period in accordance with the Participant's election as a percentage of
Base Annual Salary. The Annual Bonus portion of the Annual Deferral Amount
shall be withheld at the time the Annual Bonus is or otherwise would be
paid to the Participant.
3.5 Interest Crediting Prior to Distribution. Prior to any distribution of
----------------------------------------
benefits under Articles 4, 5, 6, 7 or 8, interest shall be credited and
compounded annually on a Participant's Account Balance as though the
Participant's Annual Deferral Amount and Employer contributions were made
in two installments, one-half on the first day of the year and the balance
on the last day of the year. The rate of interest for crediting shall be
the Crediting Rate.
3.6 Installment Distributions. In the event a benefit is paid in
-------------------------
installments under Articles 5, 6, 7, 8 or 11, installment payment amounts
shall be determined in the following manner:
(a) Interest Rate. The interest rate to be used to calculate installment
-------------
payment amounts shall be a fixed interest rate that is equal to the
Crediting Rate for the Plan Year preceding the Plan Year in which
installment payments commence.
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(b) "Deemed" Installment Payments. For purposes of calculating
-----------------------------
installment payment amounts only (and notwithstanding the fact that
installment payments shall be paid monthly), installment payments for
each 3 month period, starting with the date that the Participant
became eligible to receive a benefit under this Plan (the "Eligibility
Date") and continuing thereafter for each additional 3 month period
until the Participant's Account Balance is paid in full, shall be
deemed to have been paid in one sum as of the first day of each such 3
month period.
(c) Amortization. Based on the interest rate determined in accordance
------------
with Section 3.6(a) above and the "deemed" form of installment
payments determined in accordance with Section 3.6(b) above, the
Participant's Account Balance shall be amortized in equal quarterly
installment payments over the term of the specified payment period
(starting as of the Eligibility Date and stated in quarters rather
than months).
(d) Monthly Payments. The quarterly installment payment determined in
----------------
Section 3.6(c) above shall be divided by 3, and the resulting number
shall be the monthly installment payment that is to be paid each month
during the specified monthly installment payment period in accordance
with the other terms and conditions of this Plan.
3.7 FICA and Other Taxes. For each Plan Year in which an Annual Deferral
--------------------
Amount is being withheld, the Participant's Employer(s) shall ratably
withhold from that portion of the Participant's Base Annual Salary that is
not being deferred, the Participant's share of FICA and other employment
taxes. If necessary, the Committee shall reduce the Annual Deferral Amount
in order to comply with this Section 3.7.
ARTICLE 4
UNFORESEEABLE FINANCIAL EMERGENCIES
If the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (i) suspend any deferrals required to
be made by a Participant and/or (ii) receive a partial or full payout from the
Plan. The petition shall be accompanied by such documentation in support of the
existence of the Unforeseeable Financial Emergency as the Committee shall
require. The payout shall not exceed the lesser of the Participant's Account
Balance, calculated as if such Participant were receiving a Termination Benefit,
or the amount reasonably needed to satisfy the Unforeseeable Financial
Emergency. If, subject to the sole discretion of the Committee, the petition for
a suspension and/or payout is approved, suspension shall take effect upon the
date of approval and any payout shall be made within 90 days of the date of
approval.
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ARTICLE 5
RETIREMENT BENEFIT
5.1 Retirement Benefit. Subject to the Deduction Limitation, a Participant
------------------
who Retires shall receive, as a Retirement Benefit, his or her Account
Balance.
5.2 Payment of Retirement Benefits. A Participant, in connection with his or
------------------------------
her commencement of participation in the Plan, shall elect on an Election
Form to receive the Retirement Benefit in a lump sum or in equal monthly
payments (the latter determined in accordance with Section 3.6 above) over
a period of 5, 10, or 15 years. The lump sum payment shall be made, or
installment payments shall commence, no later than 90 days after the date
the Participant Retires. A Participant shall be permitted to modify the
manner of distribution provided that any such Election Form containing such
modification shall not be effective unless executed more than one calendar
year prior to the year in which distributions are to commence.
5.3 Death Prior to Completion of Retirement Benefits. If a Participant dies
------------------------------------------------
after Retirement but before the Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and shall
be paid to the Participant's Beneficiary over the remaining number of
months and in the same amounts as that benefit would have been paid to the
Participant had the Participant survived.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
6.1 Pre-Retirement Survivor Benefit. Subject to the Deduction Limitation, if
-------------------------------
a Participant dies before he or she Retires, experiences a Termination of
Employment or suffers a Disability, the Participant's Beneficiary shall
receive a Pre-Retirement Survivor Benefit equal to the Participant's
Account Balance.
6.2 Payment of Pre-Retirement Survivor Benefits. A Participant, in
-------------------------------------------
connection with his or her commencement of participation in the Plan shall
elect on an Election Form whether the Pre-Retirement Survivor Benefit shall
be received by his or her Beneficiary in a lump sum or in equal monthly
payments (the latter determined in accordance with Section 3.6 above) over
a period of 60, 120 or 180 months. The Participant may change this
election to an allowable alternative payout period by submitting a new
Election Form to the Committee, which form must be accepted by the
Committee in its sole discretion. The Election Form most recently accepted
by the Committee prior to the Participant's death shall govern the payout
of the Participant's Pre-Retirement Survivor Benefit. Despite the
foregoing, if the
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Participant's Account Balance at the time of his or her death is less than
$50,000, payment of the Pre-Retirement Survivor Benefit may be made, in the
sole discretion of the Committee, in a lump sum or in installment payments
that do no exceed five years in duration. The lump sum payment shall be
made, or installment payments shall commence, no later than 90 days after
the date the Committee is provided with proof that is satisfactory to the
Committee of the Participant's death. In no event may the Beneficiary
select the manner of payment either before or after the Participant's
death.
ARTICLE 7
TERMINATION BENEFIT
7.1 Termination Benefits. Subject to the Deduction Limitation, if a
--------------------
Participant experiences a Termination of Employment prior to his or her
Retirement, death or Disability, the Participant shall receive a
Termination Benefit, which shall be equal to the Participant's vested
Account Balance, with interest credited in the manner provided in Section
3.5 above.
7.2 Payment of Termination Benefit. The Termination Benefit shall be paid
------------------------------
commencing within 90 days of the Termination of Employment as follows:
(a) A Termination Benefit of $50,000 or less shall be paid in a lump sum.
(b) A Termination Benefit in excess of $50,000 shall be paid in 60
approximately equal monthly installments.
(b) Notwithstanding (b), the Committee in its sole discretion may
authorize a lump sum payment or installments over a period of less
than five years.
If payment is made in installments, the interest rate to be credited to the
Account Balance during the installment payout shall be the otherwise
applicable rate determined in accordance with Section 3.6.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
8.1 Disability Waiver.
-----------------
(a) Eligibility. By participating in the Plan, all Participants are
-----------
eligible for this waiver.
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(b) Waiver of Deferral. A Participant who qualifies for Disability
------------------
payments under the Participant's Employer's long-term disability plan
shall, if the Disability originated while the Participant was employed
by an Employer, be excused from fulfilling that portion of the Annual
Deferral Amount commitment that would otherwise have been withheld
from a Participant's Base Annual Salary or Annual Bonus for the Plan
Year during which the Participant first suffers a Disability. During
the period of Disability, the Participant shall not be allowed to make
any additional deferral elections.
(c) Return to Work. If a Participant returns to employment with an
--------------
Employer after a Disability ceases, the Participant may elect to defer
an Annual Deferral Amount for the Plan Year of his or her return to
employment or service and for every Plan Year thereafter while a
Participant in the Plan; provided such deferral elections are
otherwise allowed and an Election Form is delivered to and accepted by
the Committee for each such election in accordance with Section 3.3
above.
8.2 Disability Benefit. A Participant suffering a Disability shall, for all
------------------
purposes under this Plan, continue to be considered to be employed by an
Employer and shall be eligible for the benefits provided for in Articles 4,
5, 6 or 7 in accordance with the provisions of those Articles.
Notwithstanding the above, the Committee shall have the right, in its sole
and absolute discretion and for purposes of this Plan only, to treat the
Participant as terminated at any time after such Participant is determined
to be permanently disabled under the Participant Employer's long-term
disability plan.
ARTICLE 9
BENEFICIARY DESIGNATION
9.1 Beneficiary. Each Participant shall have the right, at any time, to
-----------
designate his or her Beneficiary(ies) (both primary as well as contingent)
to receive any benefits payable under the Plan to a beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan may be
the same as or different from the Beneficiary designation under any other
plan of an Employer in which the Participant participates.
9.2 Beneficiary Designation; Change; Spousal Consent. A Participant shall
------------------------------------------------
designate his or her Beneficiary by completing and signing the Beneficiary
Designation Form, and returning it to the Committee or its designated
agent. A Participant shall have the right to change a Beneficiary by
completing, signing, and otherwise complying with the terms of the
Beneficiary Designation Form and the Committee's rules and procedures, as
in effect from time to time. If the
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Participant names someone other than his or her spouse as a Beneficiary, a
spousal consent, in the form designated by the Committee, must be signed by
that Participant's spouse and returned to the Committee. Upon the
acceptance by the Committee of a new Beneficiary Designation Form, all
Beneficiary designations previously filed shall be cancelled. The Committee
shall be entitled to rely on the last Beneficiary Designation Form filed by
the Participant and accepted by the Committee prior to his or her death.
9.3 Receipt by Committee. No designation or change in designation of a
--------------------
Beneficiary shall be effective until received by the Committee or its
designated agent. The Committee may reject a designation in its discretion
for any reason.
9.4 No Beneficiary Designation. If a Participant fails to designate a
--------------------------
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the Participant's
designated Beneficiary shall be deemed to be his or her surviving spouse.
If the Participant has no surviving spouse, the benefits remaining under
the Plan to be paid to a Beneficiary shall be payable to the executor or
personal representative of the Participant's estate.
9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the proper
-----------------------
Beneficiary to receive payments pursuant to this Plan, the Committee shall
have the right, exercisable in its discretion, to cause the Participant's
Employer to withhold such payments until this matter is resolved to the
Committee's satisfaction.
9.6 Discharge of Obligations. The payment of benefits under the Plan to a
------------------------
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall terminate upon
such full payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
10.1 Paid Leave of Absence. If a Participant is authorized by the
---------------------
Participant's Employer for any reason to take a paid leave of absence from
the employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Annual Deferral Amount shall
continue to be withheld during such paid leave of absence in accordance
with Article 3. Notwithstanding the foregoing, a Participant who incurs
undue hardship as a result of continued deferrals may petition the
Committee for a suspension of deferrals during the paid
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leave of absence, which suspension may be granted by the Committee in its
sole discretion.
10.2 Unpaid Leave of Absence. If a Participant is authorized by the
-----------------------
Participant's Employer for any reason to take an unpaid leave of absence
from the employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Participant shall be excused
from making deferrals until the earlier of the date the leave of absence
expires or the Participant returns to a paid employment status. Upon such
expiration or return, deferrals shall resume for the remaining portion of
the Plan Year in which the expiration or return occurs, based on the
deferral election, if any, made for that Plan Year. If no election was
made for that Plan Year, no deferral shall be withheld.
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
11.1 Termination. Any Employer reserves the right to terminate the Plan at
-----------
any time with respect to its participating Employees by the action of its
board of directors. Upon the termination of the Plan, all Plan Agreements
of a Participant shall terminate and his or her Account Balance, determined
as if he or she had experienced a Termination of Employment on the date of
Plan termination or, if Plan termination occurs after the date upon which
the Participant was eligible to Retire, the Participant had Retired on the
date of Plan termination, shall be paid to the Participant in the
discretion of the Employer (a) in a lump sum, or (b) in monthly
installments up to 15 years. The Employer shall have the right in its sole
discretion to accelerate installment payments at any time and pay the
Participant's remaining Account Balance in one lump sum amount. Except as
provided above, the termination of the Plan shall not adversely affect any
Participant or Beneficiary who has become entitled to the payment of any
benefits under the Plan as of the date of termination.
11.2 Termination on Change of Control Event. Upon the occurrence of a Change
--------------------------------------
of Control Event, the Plan shall immediately terminate and the Account
Balance of each Participant shall be paid to the Participant in a lump sum
as soon as administratively possible.
11.3 Amendment. Any Employer may, at any time, amend or modify the Plan in
---------
whole or in part with respect to that Employer by the action of its board
of directors; provided, however, that no amendment or modification shall be
effective to decrease or restrict the value of a Participant's Account
Balance in existence at the time the amendment or modification is made,
calculated as if the Participant had experienced a Termination of
Employment as of the effective date of the
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amendment or modification; or, if the amendment or modification occurs
after the date upon which the Participant was eligible to Retire, the
Participant had Retired as of the effective date of the amendment or
modification. The amendment or modification of the Plan shall not affect
any Participant or Beneficiary who has become entitled to the payment of
benefits under the Plan as of the date of the amendment or modification;
provided, however, that the Employer shall have the right to accelerate
installment payments by paying Participant's remaining Account Balance in
one lump sum amount.
11.4 Effect of Payment. The full payment of the applicable benefit under
-----------------
Articles 5, 6, or 7 of the Plan shall completely discharge all obligations
to a Participant and his or her designated Beneficiaries under this Plan
and the Participant's Plan Agreement shall terminate.
ARTICLE 12
ADMINISTRATION
12.1 Committee Duties. This Plan shall be administered by the Executive
----------------
Compensation Committee of the Board. An Employee who is a member of the
Committee may be a Participant under this Plan. The Committee shall have
the authority in its sole and unfettered discretion to (i) make, amend,
interpret, and enforce all appropriate rules and regulations for the
administration of this Plan; and (ii) decide or resolve any and all
questions including claims for benefits and interpretations of this Plan,
as may arise in connection with the Plan. Notwithstanding the foregoing,
the Committee may in its discretion delegate to the Retirement Committee of
Vencor, Inc. as defined in the Vencor, Inc. Retirement Savings Plan any or
all of its responsibilities hereunder, in which event the actions of such
Retirement Committee shall have the same force and effect as if taken by
the Committee.
12.2 Agents. In the administration of this Plan, the Committee may, from time
------
to time, employ agents and delegate to them such administrative duties as
it sees fit (including acting through a duly appointed representative) and
may from time to time consult with counsel who may be counsel to any
Employer.
12.3 Binding Effect of Decisions. The decision or action of the Committee
---------------------------
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
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<PAGE>
12.4 Indemnity of Committee. All Employers shall indemnify and hold harmless
----------------------
the members of the Committee, and in the event of delegation of
responsibility to the Retirement Committee of Vencor, Inc., the members of
that Committee, against any and all claims, losses, damages, expenses or
liabilities arising from any action or failure to act with respect to this
Plan, except in the case of willful misconduct by the Committee or any of
its members.
12.5 Employer Information. To enable the Committee to perform its functions,
--------------------
each Employer shall supply full and timely information to the Committee on
all matters relating to the compensation of its Participants, the date and
circumstances of the Retirement, Disability, death or Termination of
Employment of its Participants, and such other pertinent information as the
Committee may reasonably require.
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS
The benefits provided for a Participant and Participant's Beneficiary under
the Plan are in addition to any other benefits available to such Participant
under any other plan or program for employees of the Participant's Employer.
The Plan shall supplement and shall not supersede, modify or amend any other
such plan or program except as may otherwise be expressly provided.
ARTICLE 14
CLAIMS PROCEDURES
14.1 Presentation of Claim. Any Participant or Beneficiary of a deceased
---------------------
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice
received by the Claimant, the claim must be made within 60 days after such
notice was received by the Claimant. The claim must state with
particularity the determination desired by the Claimant. All other claims
must be made prior to the expiration of the applicable statute of
limitations for bringing an action in respect of such claim under the laws
of the Commonwealth of Kentucky. The claims must state with particularity
the determination desired by the Claimant.
14.2 Notification of Decision. The Committee shall consider a Claimant's
------------------------
claim within a reasonable time, and shall notify the Claimant in writing:
(a) that the Claimant's requested determination has been made, and that
the claim has been allowed in full; or
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(b) that the Committee has reached a conclusion contrary, in whole or in
part, to the Claimant's requested determination, and such notice must
set forth in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any part
of it;
(ii) specific references(s) to pertinent provisions of the Plan upon
which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is necessary;
and
(iv) an explanation of the claim review procedure set forth in
Section 14.3 below.
14.3 Review of a Denied Claim. Within 60 days after receiving a notice from
------------------------
the Committee that a claim has been denied, in whole or in part, a Claimant
(or the Claimant's duly authorized representative) may file with the
Committee a written request for a review of the denial of the claim.
Thereafter, but not later than 120 days after the review procedure began,
the Claimant (or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole discretion,
may grant.
14.4 Decision on Review. The Committee shall render its decision on review
------------------
promptly, and not later than 60 days after the filing of a written request
for review of the denial, unless a hearing is held or other special
circumstances require additional time, in which case the Committee's
decision must be rendered within 120 days after such date. Such decision
must be written in a manner calculated to be understood by the Claimant,
and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which the
decision was based; and
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(c) such other matters as the Committee deems relevant.
14.5 Legal Action. A Claimant's compliance with the foregoing provisions of
------------
this Article 14 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under this
Plan.
ARTICLE 15
TRUST
15.1 Establishment of the Trust. The Company may establish a Trust and in
--------------------------
that event the Employers shall transfer over to the Trust such assets as
the Employers determine, in their sole discretion, are necessary to assist
in providing funds to meet the Employers' liabilities created hereunder.
15.2 Interrelationship of the Plan and the Trust. If the Company establishes
-------------------------------------------
a Trust, the provisions of the Plan and the Plan Agreement shall govern the
rights of a Participant to receive distributions pursuant to the Plan. The
provisions of the Trust shall govern the rights of the Employers,
Participants and the creditors of the Employers to the assets transferred
to the Trust. Each Employer shall at all times remain liable to carry out
its obligations under the Plan. Each Employer's obligations under the Plan
may be satisfied with Trust assets distributed pursuant to the terms of the
Trust, and any such distribution shall reduce the Employer's obligations
under this Agreement.
ARTICLE 16
MISCELLANEOUS
16.1 Unsecured General Creditor. Participants and their Beneficiaries, heirs,
--------------------------
successors and assigns shall have no legal or equitable rights, interests
or claims in any property or assets of any Employer. Any and all of
Employers' assets shall be, and remain, the general, unpledged unrestricted
assets of the Employers. An Employer's obligation under the Plan shall be
merely that of an unfunded and unsecured promise to pay money in the future
and a Participant shall have only an unsecured contractual right to the
amounts, if any, payable hereunder, against the Company or a particular
Employer, as reflected in the Participant's one or more Plan Agreements.
16.2 Employer's Liability. An Employer's liability for the payment of
--------------------
benefits shall be defined only by the Plan and the Plan Agreement, as
entered into between the Employer and a Participant. An Employer shall
have no obligation to a Participant under the Plan except as expressly
provided in the Plan and his or her Plan Agreement.
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16.3 Nonassignability. Neither a Participant nor any other person shall have
----------------
any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate or convey in advance of actual
receipt, the amounts, if any, payable hereunder, or any part thereof, which
are, and all rights to which are expressly declared to be, unassignable and
non-transferable. No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the payment of any
debts, judgments, alimony or separate maintenance owed by a Participant or
any other person, nor be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
16.4 Not a Contract of Employment. The terms and conditions of this Plan
----------------------------
shall not be deemed to constitute a contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged to be
an "at will" employment relationship that can be terminated at any time for
any reason, with or without cause, unless expressly provided in a written
employment agreement. Nothing in this Plan shall be deemed to give a
Participant the right to be retained in the service of any Employer, either
as an Employee or a Director, or to interfere with the right of any
Employer to discipline or discharge the Participant at any time.
16.5 Furnishing Information. A Participant or his or her Beneficiary will
----------------------
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be requested
in order to facilitate the administration of the Plan and the payments of
benefits hereunder, including but not limited to taking such physical
examinations as the Committee may deem necessary.
16.6 Terms. Whenever any words are used herein in the masculine, they shall
-----
be construed as though they were also in the feminine in all cases where
they would so apply; and whenever any words are used herein in the singular
or in the plural, they shall be construed as though they were used in the
plural or the singular, as the case may be, in all cases where they would
so apply.
16.7 Captions. The captions of the articles, sections and paragraphs of this
--------
Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
16.8 Governing Law. Subject to ERISA, the provisions of this Plan shall be
-------------
construed and interpreted according to the laws of the State of Kentucky
without regard to its conflicts of laws principles.
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<PAGE>
16.9 Notice. Any notice or filing required or permitted to be given to the
------
Committee under this Plan shall be sufficient if in writing and hand-
delivered, or sent by registered or certified mail, to the address below:
General Counsel
Vencor, Inc.
3300 Providian Center
400 West Market Street
Louisville, KY 40202
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or
sent by mail, to the last known address of the Participant.
16.10 Successors. The provisions of this Plan shall bind and inure to the
----------
benefit of the Participant's Employer and its successors and assigns and
the Participant and the Participant's designated Beneficiaries.
16.11 Spouse's Interest. Any interest in the benefits hereunder of a spouse
-----------------
of a Participant who has predeceased the Participant shall automatically
pass to the Participant and shall not be transferable by such spouse in
any manner, including but not limited to such spouse's will, nor shall
such interest pass under the laws of intestate succession.
16.12 Incompetent. If the Committee determines in its discretion that a
-----------
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of that
person's property, the Committee may direct payment of such benefit to the
guardian, legal representative or person having the care and custody of
such minor, incompetent or incapable person. The Committee may require
proof of minority, incompetency, incapacity or guardianship, as it may
deem appropriate prior to distribution of the benefit. Any payment of a
benefit shall be a payment for the account of the Participant and the
Participants' Beneficiary, as the case may be, and shall be a complete
discharge of any liability under the Plan for such payment amount.
16.13 Court Order. The Committee is authorized to make any payments directed
-----------
by court order in any action in which the Plan or the Committee has been
named as a party.
-19-
<PAGE>
16.14 Distribution in the Event of Taxation.
-------------------------------------
(a) General. If, for any reason, all or any portion of a Participant's
-------
benefit under this Plan becomes taxable to the Participant prior to
receipt, a Participant may petition the Committee for a distribution
of that portion of his or her benefit that has become taxable. Upon
the grant of such a petition, which grant shall not be unreasonably
withheld, a Participant's Employer shall distribute to the
Participant immediately available funds in an amount equal to the
taxable portion of his or her benefit (which amount shall not exceed
a Participant's unpaid vested Account Balance under the Plan). If the
petition is granted, the tax liability distribution shall be made
within 90 days of the date when the Participant's petition is
granted. Such a distribution shall affect and reduce the benefits to
be paid under this Plan.
(b) Trust. If the Company establishes a Trust, the Trust terminated, and
-----
benefits are distributed from the Trust to a Participant, the
Participant's benefits under this Plan shall be reduced to the extend
of such distributions.
16.15 Legal Fees to Enforce Rights After a Change of Control Event. The
------------------------------------------------------------
Company is aware that upon the occurrence of a Change of Control Event,
the Board (which might then be composed of new members) or a shareholder
of the Company, or of any successor corporation might then cause or
attempt to cause the Company or such successor to refuse to comply with
its obligations under the Plan and might cause or attempt to cause the
Company to institute, or may institute, litigation seeking to deny
Participants the benefits intended under the Plan. In these circumstances,
the purpose of the Plan could be frustrated. Accordingly, if, following a
Change of Control Event, it should appear to any Participant that the
Company or the Trustee has failed to comply with any of its obligations
under the Plan or any agreement thereunder or, if the Company or any other
person takes any action to declare the Plan void or unenforceable or
institutes any litigation or other legal action designated to deny,
diminish or to recover from any Participant the benefits intended to be
provided, then the Participants may retain counsel to represent such
Participant in connection with the initiation or defense of any
litigation, whether by or against the Company or any director, officer,
shareholder or other person affiliated with the Company or any successor
thereto in any jurisdiction. Company shall then indemnify Participant for
the cost of such litigation and reasonable attorney's fees if the
Participant prevails in such litigation.
-20-
<PAGE>
16.16 Taxes and Withholding. The Participant's Employer(s), or the trustee
---------------------
of the Trust if the Company established a Trust, may withhold from any
distribution under this Plan any and all employment and income taxes that
are required to be withheld under applicable law.
16.17 Severability. If and to the extent any provision hereof is held to be
------------
void or unenforceable, the Plan shall remain in full force and effect with
such provision severed as though such provision had not been included in
the original Plan.
IN WITNESS WHEREOF, the Company has executed this Plan document as of
April 30, 1998.
VENCOR, INC., a Delaware corporation
By:
------------------------------------
Title:
---------------------------------
-21-
<PAGE>
VENCOR, INC. Exhibit 10.26
NON-EMPLOYEE DIRECTORS DEFERRED
COMPENSATION PLAN
ARTICLE 1
PURPOSES
1.1 PURPOSES. The purposes of this Non-Employee Directors Deferred
--------
Compensation plan ("Plan") of Vencor, Inc. (formerly Vencor Healthcare, Inc.), a
Delaware corporation ("Company"), are to encourage the Company's non-employee
directors to invest in the future of the Company through ownership of an
interest in the Company and to provide flexibility to the Company in attracting
and retaining directors. This Plan also provides benefits with respect to
certain liabilities and obligations under the Vencor, Inc. Non-Employee
Directors Deferred Compensation Plan, assumed pursuant to the Employee Benefits
Agreement, dated as of April 30, 1998, between Vencor, Inc. (predecessor of
Ventas, Inc.) and Vencor Healthcare, Inc. (the "Employee Benefits Agreement"),
duly executed in connection with the spinoff of Vencor Healthcare, Inc. by
Vencor, Inc. to its shareholders.
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 ELIGIBILITY. Any director of the Company who is not an employee of
-----------
the Company or a subsidiary of the Company ("Director") is eligible to
participate in the Plan.
2.2 PARTICIPATION. A Director shall become a participant in the Plan
-------------
("Participant") by filing an Election Form in accordance with the provisions of
Section 5.1.a . A Participant shall remain a Participant until such time as the
Participant has received all payments to which the Participant is entitled under
the terms of the plan.
ARTICLE 3
SHARES SUBJECT TO PLAN
3.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 3.2,
----------------
the number of shares of the company's common stock, par value $0.25 per share
("Common Stock"), reserved for issuance under the Plan is 30,000 shares. Any
Common
<PAGE>
Stock issued under the Plan may consist, in whole or in part, of authorized and
unissued shares or treasury shares.
3.2 ADJUSTMENTS. In the event of a merger, reorganization, consolidation,
-----------
recapitalization, reclassification, split-up, spin-off, separation, liquidation,
stock dividend, stock split, reverse stock split, share combination, share
exchange or other change in the corporate structure of the Company affecting the
Common Stock, the Committee (as hereinafter defined) shall substitute or adjust
the total number and class of stock or securities which may be issued under the
Plan and which are credited to a Participant's Deferred Stock Account as it
determines to be appropriate and equitable to prevent dilution or enlargement of
the rights of Participants.
ARTICLE 4
ADMINISTRATION
4.1 THE COMMITTEE. The Plan shall be administered by the Executive
-------------
Compensation Committee of the Board of Directors of the Company ("Board"), or by
any other committee ("Committee') appointed by the Board consisting of two or
more directors of the Company who are "disinterested persons" within the meaning
of Rule 16b-3 (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended ("Exchange Act").
4.2 AUTHORITY OF THE COMMITTEE. The Committee shall have sole discretion
--------------------------
to make all determinations which may be necessary or advisable for the
administration of the Plan. To the extent permitted by law and Rule 16b-3
promulgated under the Exchange Act, the Committee may delegate its authority as
identified hereunder. All determinations and decisions made by the Committee
pursuant to the provisions of the plan, and all related orders or resolutions of
the Board, shall be final, conclusive and binding upon all persons, including
the Company, Participants and their estates and beneficiaries.
4.3 SECTION 16 COMPLIANCE. It is the intention of the company that the
---------------------
Plan and the administration of the Plan comply in all respects with Section
16(b) of the Exchange Act and the rules and regulations promulgated thereunder.
If any Plan provision, or any aspect of the administration of the Plan, is found
not to be in compliance with Section 16(b) of the Exchange Act, the provision or
administration shall be deemed null and void, and in all events the Plan shall
be construed in favor of its meeting the requirements of Rule 16b-3 promulgated
under the Exchange Act.
-2-
<PAGE>
ARTICLE 5
DEFERRAL ELECTION
5.1 MAKING OF ELECTION.
------------------
a. Each director may elect in writing, in the manner and on the form
("Election Form") prescribed by the committee, to defer payment of all, but not
less than all, of the fees which would otherwise be paid to such Director by the
Company for the services on the Board and committees thereof. An election shall
be effective with respect to amounts which would otherwise be paid to the
Participant beginning on or after the first day of the calendar quarter
following the making of the election; provided, however, that in the case of
-------- -------
those persons who are Directors on the date hereof, the initial election shall
become effective as of July 1, 1998. Once an election has been made, it shall
remain in effect with respect to all future amounts which would otherwise be
paid to the Participant as a Director until changed by the filing of a new
election in the manner provided in Section 5.1.b.
b. In the case of those persons who are Directors on the date hereof,
the initial election, if any, to participate in the Plan shall be made by May
31, 1998. In the case of Directors elected or reelected at an annual meeting of
the Company, an election or change in an existing election may only be made
within 30 days following the annual meeting. In the case of a Director elected
at other than an annual meeting, the initial election to participate in the Plan
may only be made within 30 days following the Director's election to the Board.
At the time of making any such election or change in an existing election, the
Participant shall further elect, in accordance with procedures adopted by the
Committee, (i) to have either 100% or 50% of the amount of such deferred fees be
deemed invested in Common Stock ("Share Election", or (ii) to have either 100%
or 50% of such deferred fees deemed invested with interest ("Cash Election");
provided, however, that in no event shall a Share Election be effective until
six months after the date of the Share Election, with the result that during
such six-month period, the Participant shall be deemed to have made a Cash
Election. Any elections currently in effect as of the date hereof under the
Non-Employee Directors Deferred Compensation Plan maintained by the predecessor
of Ventas, Inc. shall be effective with respect to this Plan until modified or
otherwise revised by a Director.
5.2 PARTICIPANT ACCOUNT. A Participant Account shall be established for
-------------------
each participant. Deferred compensation will be credited to the Participant's
Participant Account as of the date such compensation would otherwise be payable
to the Participant. A participant Account shall include a Deferred Cash
Account, if a Cash Election has been made, and/or a Deferred Stock Account, if a
Share Election has been made.
-3-
<PAGE>
5.3 DEFERRED CASH ACCOUNT. Each Deferred Cash Account shall be credited
---------------------
with the amounts deferred on behalf of a participant plus annual interest
thereon as provided in Section 7.1.
5.4 DEFERRED STOCK ACCOUNT. Each Deferred Stock Account shall be credited
----------------------
with 110% of the amounts deferred to the Deferred Stock Account on behalf of a
Participant. Deferred Stock Accounts shall also be credited as of the payment
date for dividends on Common Stock in an amount equal to the dividends
attributable to the number of shares of Common Stock credited to the
participant's Deferred Stock Account as of the record date set by the Board for
the payment of dividends (the amounts referred to in the first two sentences of
this Section 5.4 are hereinafter referred to as the "Cash Credits"). As of the
last day of March, June, September and December of each year, there shall be
credited to Participant's Deferred Stock Account a number of shares of Common
Stock equal to that whole number obtained by dividing (i) the amount of Cash
Credits in the Deferred Stock Account as of such date, by (ii) the fair market
value of the Common Stock (determined as provided in Section 6.1) on such date.
Any amount of the Deferred Stock Account in excess of the number of sharers of
Common Stock credited to the Deferred Stock Account shall be treated as a Cash
Credit and held in the Deferred Stock Account until the end of the following
quarterly crediting date.
ARTICLE 6
FAIR MARKET VALUE
6.1 FAIR MARKET VALUE. For purposes of this Plan, the fair market value
-----------------
of the Common Stock on any date shall be (i) if the Common Stock is listed on a
national or regional exchange, or on the NASDAQ National Market System or a
comparable market, the closing price of the Common Stock on such date, or (ii)
if (i) above does not apply, the value determined by the Committee.
ARTICLE 7
INTEREST
7.1 INTEREST ON DEFERRED CASH ACCOUNT. Interest will be credited to each
---------------------------------
Deferred Cash Account at the announced prime rate of First National Bank of
Louisville as the same shall exist from time to time, changing with each change
in such announced prime rate. This assumed interest shall be compounded
annually and treated as earned from the date deferred compensation is credited
to the Deferred Cash Account to the date of withdrawal.
-4-
<PAGE>
ARTICLE 8
PAYMENT OF DEFERRED AMOUNTS
8.1 LIMITATION ON PAYMENT OF DEFERRED AMOUNTS. No payment may be made
-----------------------------------------
from any Participant Account except as provided in this Article 8.
8.2 TIME FOR PAYMENT OF DEFERRED AMOUNTS.
------------------------------------
a. Payment of the amount in a Participant Account shall be made upon
the earlier to occur of (i) 60 days following the date the Participant ceases to
be a Director, (ii) the date selected by the Participant at the time of making a
Cash Election or Share Election (which date may be different for the Cash
Election and Stock Election) or (iii) 60 days following a Change in Control (as
defined in Section 8.2.b). Payment shall be made in the form of a lump sum, with
payment from a Deferred Cash Account made in cash, and payment from a Deferred
Stock Account made in Common Stock (except for any Cash Credits remaining in the
Participant's Deferred Stock Account, which shall be paid in cash).
b. For purposes of the plan, a Change in Control shall have the
meaning ascribed to such term in the Company's 1998 Incentive Compensation Plan.
ARTICLE 9
MISCELLANEOUS
9.1 ASSIGNABILITY. No right to receive payments hereunder shall be
-------------
transferable or assignable by a Participant except by will or by the laws of
descent and distribution.
9.2 AMENDMENT OR TERMINATION. The Plan may be amended, modified or
------------------------
terminated by the Board at any time or from time to time; provided that such
actions may not be taken without the approval of the Company's stockholders if
such approval is required by any applicable law or the rules of any national
securities exchange or system on which the Shares are then listed or reported.
Except as otherwise provided herein, no amendment, modification or termination
of the Plan shall in any manner
-5-
<PAGE>
materially adversely affect any Participant's rights under the Plan without the
consent of such Participant.
9.3 FUTURE DIRECTOR TERMS. Nothing in the Plan, nor any action taken
---------------------
under the Plan, shall be construed as giving any Participant a right to continue
as a Director or require the Company to nominate or cause the nomination of a
Participant for a future term as a Director.
9.4 PARTICIPANT'S RIGHTS UNSECURED. The right of any Participant to
------------------------------
receive payment of deferred amounts under the provisions of the Plan shall be an
unsecured claim against the general assets of the Company. The maintenance of
individual Participant Accounts is for bookkeeping purposes only. The Company
is not obligated to acquire or set aside any particular assets for the discharge
of its obligations, nor shall any Participant have any property rights in any
particular assets held by the company, whether or not held for the purposes of
funding the Company's obligations hereunder.
9.5 GOVERNING LAW. To the extent not preempted by Federal Law, this Plan
-------------
shall be governed by, and construed in accordance with, the laws of the state of
Delaware without regard to its conflict of laws rules.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused the Plan to be executed by the
Board as of April 30, 1998.
VENCOR, INC.
By:
---------------------------------
W. Bruce Lunsford
Chairman of the Board
-7-
<PAGE>
EXHIBIT 10.27
VENCOR, INC.
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
Effective January 1, 1998,
as amended February 20, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 1 - Statement of Purpose......................................... 1
Section 2 - Definitions.................................................. 1
2.1 Acquisition............................................... 1
2.2 Agreement................................................. 1
2.3 Beneficiary............................................... 1
2.4 Bonus..................................................... 1
2.5 Committee................................................. 2
2.6 Change in Control Event................................... 2
2.7 Compensation.............................................. 3
2.8 Date of Employment........................................ 3
2.9 Disability................................................ 3
2.10 Early Retirement.......................................... 4
2.11 Employee.................................................. 4
2.12 Employment or Service..................................... 4
2.13 Maximum Normal Retirement Benefit......................... 4
2.14 Normal Retirement......................................... 4
2.15 Participant............................................... 4
2.16 Salary.................................................... 4
2.17 Surviving Spouse.......................................... 4
2.18 Termination of Employment................................. 4
2.19 Vesting Percentage........................................ 4
2.20 Year...................................................... 4
2.21 Years of Service.......................................... 5
Section 3 - Retirement Benefits.......................................... 5
3.1 Normal Retirement Benefit................................. 5
3.2 Early Retirement Benefit.................................. 6
3.3 Termination of Employment................................. 6
3.4 Disability................................................ 7
3.5 Percent Value............................................. 7
3.6 Change in Control......................................... 7
Section 4 - Payment...................................................... 8
4.1 Commencement of Payments.................................. 8
4.2 Withholding: Unemployment Taxes............................ 8
</TABLE>
<PAGE>
TABLE OF CONTENTS
(CONT'D)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 5 - Conditions Related to Benefits................................ 8
5.1 Administration of Plan..................................... 8
5.2 No Right to Assets......................................... 8
5.3 No Employment Rights....................................... 8
5.4 Right to Terminate or Amend................................ 8
5.5 Condition Precedent........................................ 9
5.6 Reimbursement of Expenses and Settlement of Disputes....... 9
Section 6 - Miscellaneous................................................. 9
6.1 Nonassignability........................................... 9
6.2 Gender and Number.......................................... 9
6.3 Notice..................................................... 9
6.4 Validity................................................... 9
6.5 Applicable Law............................................. 10
6.6 Successors in Interest..................................... 10
</TABLE>
<PAGE>
________________________________________________________________________________
VENCOR, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE JANUARY 1, 1998, AS AMENDED FEBRUARY 20, 1998
SECTION 1 - STATEMENT OF PURPOSE
The Supplemental Executive Retirement Plan (the "Plan") was adopted by
Vencor, Inc. (together with its subsidiaries and its affiliates, the "Company")
to provide compensation to its senior executives which is competitive in the
marketplace in order to attract, motivate and retain talented executives.
SECTION 2 - DEFINITIONS
2.1 Acquisition. "Acquisition" refers to a company of which
-----------
substantially all of its assets or a majority of its capital stock are acquired
by, or which is merged with or into the Company.
2.2 Agreement. "Agreement" means the written agreement between the
---------
Company and a Participant which serves as notice of selection to participate in
the Plan.
2.3 Beneficiary. "Beneficiary" means the person or persons so
-----------
designated on the Participant's beneficiary designation form attached to the
Participant's Plan Agreement. A Participant may name a new Beneficiary at any
time by filing a new beneficiary designation form with the Committee. If a
Participant has not completed said form, benefits otherwise payable to a
Beneficiary shall be paid first to a Surviving Spouse; if there is no Surviving
Spouse, then per stirpes to the Participant's children. If there is no Surviving
Spouse or children, such benefits shall be paid to the estate of the
Participant.
2.4 Bonus. "Bonus" means the greater of (i) the target annual
-----
incentive cash bonus in respect of the year in which occurs the Participant's
death or Termination of Employment, as applicable, or, if earlier, a Change in
Control, and (ii) the average annual incentive cash bonus earned by the
Participant and awarded by the Company with respect to the three performance
years in immediately preceding the year in which occurs the Participant's death
or Termination of Employment, as applicable, or, if earlier, a Change in
Control; provided, that if a Participant has less than three full Years of
--------
Service with the Company, clause (ii) shall equal the product of (x) 12 and (y)
the quotient obtained by dividing (a) the aggregate annual incentive cash
bonuses earned by the Participant and awarded by the Company with respect to the
Participant's period of employment with the Company, by (b) the number of full
months of the Participant's employment with the Company during such period.
1
<PAGE>
2.5 Committee. "Committee" means the Executive Compensation
----------
Committee of the Board of Directors of the Company.
2.6 Change in Control. A "Change in Control" shall be deemed to
-----------------
occur if any of the following events has occurred:
(a) An acquisition (other than directly from the Company) of any
voting securities of the Company ("Voting Securities") by any Person immediately
after which such Person has beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) ("Beneficial Ownership and/or
Beneficially Owned") of 20% or more of the combined voting power of the
Company's then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A Non-Control
Acquisition shall mean an acquisition by (i) the Company or any Subsidiary, (ii)
an employee benefit plan (or a trust forming a part thereof) maintained by the
Company or any Subsidiary, or (iii) any Person in connection with a Non-Control
Transaction (as hereinafter defined);
(b) The individuals who, as of December 31, 1996, are members of
the Board ("Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that if the election, or nomination
for election by the Company's stockholders, of any new director was approved by
a vote of at least a majority of the Incumbent Board, such new director shall,
for purposes of the Plan, be considered as a member of the Incumbent Board;
provided, further, however, that no individual shall be considered a member of
the Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened election contest (as described in Rule 14a-11
promulgated under the Exchange Act) ("Election Contest") or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board ("Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(c) Approval by stockholders of the Company of:
(1) A merger, consolidation or reorganization involving the
Company, unless such is a Non-Control Transaction. For purposes of the Plan, the
term "Non-Control Transaction" shall mean a merger, consolidation or
reorganization of the Company in which:
(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own, directly or indirectly
immediately following such merger, consolidation or reorganization, at least a
majority of the combined voting power of the voting securities of the
corporation resulting from such merger or consolidation or reorganization
("Surviving Corporation") over which any Person has Beneficial Ownership in
substantially the same proportion as their ownership of the Voting Securities
immediately before such merger, consolidation or reorganization;
2
<PAGE>
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least a majority of the members of
the board of directors of the Surviving Corporation; and
(C) no Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof) maintained by the
Company, the Surviving Corporation, or any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial Ownership of 20% or more
of the then outstanding Voting Securities) has Beneficial Ownership of 20% or
more of the combined voting power of the Surviving Corporation's then
outstanding voting securities;
(2) A complete liquidation or dissolution of the Company; or
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
(d) Any other event that the Committee shall determine constitutes an
effective Change in Control of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any Person ("Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person; provided, however,
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of Voting Securities by the Company, and after
such share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional Voting Securities which increases the percentage of the
then outstanding Voting Securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur.
2.7 Compensation. "Compensation" means the sum of a Participant's Salary
------------
and Bonus.
2.8 Date of Employment. "Date of Employment" means the date on which a
------------------
person became an Employee of the Company. If a Participant was employed by an
entity that was acquired by the Company through an Acquisition, "Date of
Employment" means the date on which the Participant began to perform services
for the acquired entity.
2.9 Disability. "Disability" means any cessation of Services during the
----------
life of a Participant and prior to Normal Retirement or Early Retirement by
reason of a Participant's total and permanent disability, as determined by the
Committee. A Participant, who makes application for and qualifies for disability
benefits under the Company's Group
3
<PAGE>
Long-Term Disability Plan shall qualify for Disability under this Plan. A
Participant who fails to qualify for disability benefits under the LTD Plan may
be deemed to be totally and permanently disabled under this Plan, if the
Committee so determines, based upon the opinion of a qualified physician or
medical clinic selected by the Committee.
2.10 Early Retirement. "Early Retirement" means any Termination of
----------------
Employment prior to Normal Retirement and after the Participant attains age 55
and has completed ten Years of Service.
2.11 Employee. "Employee" means any person who regularly performs
--------
Services on a full-time basis for the Company and receives a salary plus
employee benefits normally made available to persons of similar status.
2.12 Employment or Service. "Employment" or "Service" means any
---------------------
continuous period during which an Employee is actively engaged in performing
services for the Company, plus the term of any leave of absence approved by the
Committee; provided, however, that Service with an entity prior to its becoming
acquired through an Acquisition shall be determined by the Committee and
credited for purposes of this Plan in its absolute discretion.
2.13 Maximum Normal Retirement Benefit. "Maximum Normal Retirement
---------------------------------
Benefit" means the benefit described in Section 3.1 herein.
2.14 Normal Retirement. "Normal Retirement" means any Termination of
-----------------
Employment on or after the date on which the Participant attains age 62.
2.15 Participant. "Participant" means any Employee selected to
-----------
participate in this Plan by the Committee, in its sole and absolute discretion
and who completes a Plan Agreement with the Company.
2.16 Salary. "Salary" means the highest monthly base salary paid to
------
the Participant by the Company, multiplied by 12, regardless of whether such
salary is the Participant's final salary upon Termination of Employment.
2.17 Surviving Spouse. "Surviving Spouse" means the person legally
----------------
married to a Participant at the time of the Participant's death.
2.18 Termination of Employment. "Termination of Employment" means the
-------------------------
ceasing of the Participant's Employment for any reason, whether voluntary or
involuntary, other than the death of the Participant.
2.19 Vesting Percentage. "Vesting Percentage" means the retirement
------------------
benefit accrued through Years of Service as described in Section 3.1.
2.20 Year. A "Year" is a period of twelve consecutive calendar months.
----
4
<PAGE>
2.21 Years of Service. "Years if Service" means the number of
----------------
complete Years (up to a maximum of 20) of continuous Service as an Employee of
the Company beginning with the Date of Employment. Years of Service shall be
deemed to have begun as of the first day of the calendar month of Employment and
to have ceased on the last day of the calendar month of Employment.
SECTION 3 - RETIREMENT BENEFITS
3.1 Normal Retirement Benefit.
-------------------------
(a) Upon a Participant's Normal Retirement, the Company agrees
to pay to the Participant a monthly retirement benefit for the Participant's
lifetime in an amount equal to the product of (i) the Participant's Maximum
Normal Retirement Benefit, (ii) the Participant's Compensation, and (iii) the
Participant's Vesting Percentage; and then divided by 12, as shown below in the
example:
MAXIMUM NORMAL RETIREMENT BENEFIT
---------------------------------
PARTICIPANT CATEGORY MAXIMUM NORMAL RETIREMENT BENEFIT
--------------------
AS A PERCENT OF COMPENSATION
----------------------------
Chief Executive Officer 100%
Executive Committee Member 70%
Vice President 50%
* If a Plan Participant is eligible for more than one category, the larger
Maximum Normal Retirement Benefit shall be used.
VESTING PERCENTAGE
------------------
YEARS OF SERVICE VESTING PERCENTAGE
---------------- ------------------
Less than 5 0%
5 25%
6 30%
7 35%
8 40%
9 45%
10 50%
11 55%
12 60%
13 65%
14 70%
15 75%
16 80%
17 85%
18 90%
19 95%
20 100%
5
<PAGE>
For example, assume a member of the Executive Committee with a Compensation of
$150,000 retires at Normal Retirement with 18 Years of Service. The
Participant's Normal Retirement benefit payable monthly in the form of a single
life annuity would be calculated as follows:
(1) 70% (Maximum Retirement Benefit) X $150,000 (Compensation) = $105,000
(2) $105,000 X 90% (Vesting Percentage) = $94,500
(3) $94,500/12 = $7,875 (monthly benefit)
(b) A Participant may elect to receive (under any provision of
the Plan) in lieu of a single life annuity an actuarially equivalent benefit
payable as a 50% joint and survivor benefit (limited to the Participant and a
Surviving Spouse), a ten-year certain benefit, or an amount equal to the lump
sum Present Value of such single life annuity. Actuarial equivalence shall be
determined using the factors set forth in Section 3.5. Such election must be
designated on the Participant's Plan Agreement.
(c) Notwithstanding any election by the Participant to the
contrary, if a Participant dies while an Employee of the Company after attaining
age 62, the benefit payable to such Participant's Beneficiary shall be
determined as if the Participant had retired on the day before death and such
Participant had elected to receive a lump sum benefit.
3.2 Early Retirement Benefit.
------------------------
(a) Upon a Participant's Early Retirement, the Company shall
pay the Participant an Early Retirement benefit commencing on the first day of
the calendar month following the date of Early Retirement. The benefit shall be
calculated in accordance with Sections 3.1(a) and 3.1(b), then reduced by 5% per
year, linearly interpolated for each month that Early Retirement occurs prior to
age 62.
(b) Notwithstanding any election by the Participant to the
contrary, if a Participant who is eligible for Early Retirement dies while an
Employee of the Company and prior to attaining age 62, the benefit payable to
such Participant's Beneficiary shall be determined as if the Participant had
retired on the day before death and such Participant had elected to receive a
lump sum benefit.
3.3 Termination of Employment. Upon any Termination of Employment
-------------------------
of the Participant before Normal Retirement or Early Retirement for reasons
other than death or Disability, the Company shall pay to the Participant,
commencing at age 62, a retirement benefit calculated in accord with Section
3.1(a) and 3.1(b). Notwithstanding any election by the Participant to the
contrary, if a Participant who is eligible to receive a benefit under this
Section 3.3 dies prior to attaining age 62, such Participant's Beneficiary shall
be paid (in accordance with section 4.1) an immediate lump sum benefit equal to
the Present Value as of the date of death of the benefit that otherwise would
have been payable to the Participant.
6
<PAGE>
3.4 Disability. Any Participant who is under Disability upon
----------
reaching age 62 will be paid the Normal Retirement Benefit in accordance with
Section 3.1.
Upon a Participant's Disability while an Employee of the Company,
the Participant will continue to accrue Years of Service during Disability
until the earliest of:
(a) Recovery from Disability,
(b) Attainment of age 62, or
(c) Death.
A Participant receiving disability payments from the Company's
Group Long-Term Disability Plan shall not be entitled to receive an Early
Retirement Benefit.
3.5 Present Value. Except as provided in Section 3.6, the present
-------------
value ("Present Value") of any stream of payments shall be determined under the
following assumptions:
(a) Mortality - The 1994 Group Annuity Mortality Table (50%
males/50% females).
(b) Discount Rate - The three-month rolling average of the yield
on U.S. Treasury 10-year notes determined for the three months preceding the
month of distribution.
3.6 Change in Control. In the event of a Change in Control, and
-----------------
notwithstanding provisions to the contrary in Sections 3.1, 3.2, 3.3, and 4.1,
all Participants (except for those Participants that have incurred a Termination
of Employment prior to such Change in Control ("Terminated Participants")) shall
be deemed (i) to have 20 Years of Service and a Vesting Percentage of 100%, and
(ii) to be eligible for and have elected Normal Retirement, notwithstanding that
a Participant may not have attained age 62 as of the date of the Change in
Control. The Company shall pay each Participant (including Terminated
Participants, whether or not currently receiving payment under the Plan) an
amount equal to the lump sum value of such Participant's benefit within 20 days
subsequent to such Change in Control. For purposes of the immediately preceding
sentence, each Terminated Participant currently receiving payments under the
Plan shall be paid the lump sum value of the remaining payments payable under
the Plan (and such payment shall be in lieu of any remaining payments under the
Plan). For purposes of this Section 3.6, the "lump sum value" for each
Participant shall equal the present value of such Participant's benefit
determined as of the date of the Change in Control in accordance with the
provisions of this Section 3.6, assuming (i) commencement at age 62 (or
immediate commencement if such Participant has already attained age 62), without
any reduction for payment prior to age 62 (except in the case of a Terminated
Participant who is not currently receiving benefits and who (without giving
effect to this Section 3.6) would otherwise be entitled to receive a benefit
under Section 3.3, in
7
<PAGE>
which case such Terminated Participant's benefit shall be reduced 5% per year,
linearly interpolated, for each month that the payment date procedes age 62, but
in no event shall such total reduction exceed 35%); (ii) mortality (applied
post-age 62 only) in accordance with the table in Section 3.5(a); and (iii) a
discount rate equal to the lower of (x) 6.0% and (y) the rate determined under
Section 3.5(b).
Section 4- Payment
4.1 Commencement of Payments. Subject to Sections 3.3 and 3.6 as
------------------------
applicable, payments under this Plan shall begin no later than the first day of
the calendar month following the occurrence of an event which entitles a
Participant (or a beneficiary) to payments under this Plan.
4.2 Withholding Unemployment Taxes. To the extent required by the
------------------------------
law in effect at the time payments are made, the Company shall withhold from
payments made hereunder any taxes required to be withheld by the Federal or any
state or local government.
SECTION 5- CONDITIONS RELATED TO BENEFITS
5.1 Administration of Plan. The Committee is hereby authorized to
----------------------
administer the Plan and is given the authority in its sole discretion to
interpret, construe and apply its provisions in accordance with its terms. The
Committee shall administer the Plan and shall establish, adopt or revise such
rules and regulations as it may deem necessary or advisable for the
administration of the Plan. All decisions of the Committee shall be by vote or
written consent of the majority of its members and shall be final and binding.
5.2 No Right to Assets. Neither a Participant nor any other person
------------------
shall acquire by reason of the Plan any right in or title to any assets, funds
or property of the Company, including any specific funds or assets which the
Company may set aside in anticipation of a liability hereunder.
5.3 No Employment Rights. Nothing herein shall constitute a contract
--------------------
of continuing employment or in any manner obligate the Company to continue the
Service of a Participant.
5.4 Right to Terminate or Amend. Except during the 90-day period
---------------------------
after any Change in Control, the Company reserves the sole right to terminate
the Plan at any time. In the event of termination of the Plan, a Participant
shall be entitled to only the vested portion of benefits under Section 3 of the
Plan as of the time of the termination of the Plan. All further vesting and
benefit accrual shall cease on the date of Plan termination. Benefit payments
shall be in the amounts specified and shall commence at the time specified in
Section 3 or Section 4 as appropriate. The Company further reserves the right in
its sole discretion to amend the Plan in any respect except that Plan benefits
cannot be reduced during the 90-day period after any Change in Control. No
amendment of the Plan (whether there has or has not been a Change in Control)
that reduces the value of the benefits theretofore accrued by and
8
<PAGE>
vested with respect to any Participant shall be effective without the consent of
such Participant.
5.5 Condition Precedent. Nothwithstanding any provision in this Plan
-------------------
to the contrary, no benefits will be payable hereunder to any Participant whose
Employment with the Company is terminated because of gross negligence in the
performance of duties or because of the conviction of a felony crime against the
Company.
5.6 Reimbursement of Expenses and Settlement of Disputes. If any
----------------------------------------------------
contest or dispute shall arise under this Plan involving the failure or refusal
of the Company to perform fully in accordance with the terms hereof, the Company
shall reimburse the Participant on a current basis, for all reasonable legal
fees and expenses, if any, reasonably incurred by the Participant in connection
with such contest or dispute (regardless of the result thereof), provided that,
if it is determined by a court or by arbitration that the Participant had not
entered into the contest or dispute in good faith, the Participant shall be
obligated to return to the Company such reimbursed fees and expenses. All
disputes hereunder shall be settled exclusively by arbitration in Louisville,
Kentucky in accordance with the Labor Arbitration rules and procedures of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitration award in any court having jurisdiction. The Company shall bear all
costs and expenses in connection with the retention of the arbitration panel for
any proceeding.
SECTION 6 - MISCELLANEOUS
6.1 Nonassignability. Neither a Participant nor any other person
----------------
shall have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate or convey in advance any
provision hereunder, or any part thereof, which are, and all rights to which
are, expressly declared to be unassignable and non-transferable. No part of the
amounts payable shall, prior to actual payment, be subject to seizure or
sequestration for the payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be transferable by
operation of law in the event of a Participant's or any person's bankruptcy or
insolvency.
6.2 Gender and Number. Wherever appropriate herein, the masculine
-----------------
may mean the feminine and the singular may mean the plural or vice versa.
6.3 Notice. Any notice given to the Committee under the Plan shall
------
be sufficient if in writing and hand delivered, or sent by registered or
certified mail, to the principal office of the Company, directed to the
attention of the Secretary of the Committee. Such notice shall be deemed given
as of the date of delivery or, if delivery is made by mail, as of the date shown
on the postmark or on the receipt for registration or certification.
6.4 Validity. In the event any provision of this Plan is invalid,
--------
void or unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provision of this Plan.
9
<PAGE>
6.5 Applicable Law. This Plan shall be governed and construed in
--------------
accordance with the laws of the Commonwealth of Kentucky.
6.6 Successors in Interest. This Plan shall inure to the benefit of, be
----------------------
binding upon, and be enforceable by, any corporate successor to the Company or
successor to substantially all of the assets of the Company.
IN WITNESS WHEREOF, Vencor, Inc. has executed this instrument effective
January 1, 1998.
VENCOR, INC.
By: /s/ W. Bruce Lunsford
----------------------------------
W. Bruce Lunsford
Title: Chairman of the Board,
President and Chief Executive Officer
10
<PAGE>
Exhibit 10.28
CHANGE-IN-CONTROL SEVERANCE AGREEMENT
-------------------------------------
THIS CHANGE-IN-CONTROL SEVERANCE AGREEMENT (the "Agreement") is made as of
May 1, 1998, by and between VENCOR OPERATING, INC., a Delaware corporation, (the
"Company") and ____________________, (the "Employee").
RECITALS:
--------
A. The Employee is employed by the Company, a wholly owned subsidiary of
Vencor, Inc. (the "Parent").
B. The Company recognizes that the Employee's contribution to the
Company's growth and success has been and continues to be significant.
C. The Company wishes to encourage the Employee to remain with and devote
full time and attention to the business affairs of the Company and wishes to
provide income protection to the Employee for a period of time in the event of a
Change in Control.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT:
---------
1. DEFINITIONS.
-----------
a. "BASE SALARY" shall mean the Employee's regular annual rate of base
-----------
pay in gross as of the date in question as elected under Paragraph 3(a).
b. "CAUSE" shall mean the Employee's (i) conviction of or plea of nolo
-----
contendere to a crime involving moral turpitude; or (ii) willful and material
breach by Employee of his duties and responsibilities, which is committed in bad
faith or without reasonable belief that such breaching conduct is in the best
interests of the Company, but with respect to (ii) only if the Board of
Directors of Parent (the "Board") adopts a resolution by a vote of at least 75%
of its members so finding after giving the Employee and his attorney an
opportunity to be heard by the Board.
c. "CHANGE IN CONTROL" The term "Change in Control" shall mean any one
-----------------
of the following events:
<PAGE>
(i) An acquisition (other than directly from Parent) of any voting
securities of Parent (the "Voting Securities") by any "Person" (as defined in
Paragraph 1(f) hereof) immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 under the 1934 Act) of 20% or more
of the combined voting power of Vencor, Inc.'s then outstanding Voting
Securities; provided, however, that in determining whether a Change in Control
has occurred, Voting Securities which are acquired in an acquisition by (i)
Parent or any of its subsidiaries, (ii) an employee benefit plan (or a trust
forming a part thereof) maintained by Parent or any of its subsidiaries or (iii)
any Person in connection with an acquisition referred to in the immediately
preceding clauses (i) and (ii) shall not constitute an acquisition which would
cause a Change in Control.
(ii) The individuals who, as of May 1, 1998, constituted the Board of
Directors of Parent (the "Incumbent Board") cease for any reason to constitute
over 50% of the Board; provided, however, that if the election, or nomination
for election by Vencor Inc.'s stockholders, of any new director was approved by
a vote of over 50% of the Incumbent Board, such new director shall, for purposes
of this Section 1(c)(ii), be considered as though such person were a member of
the Incumbent Board; provided, further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the 1934 Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board of Directors of Parent (a "Proxy Contest"), including by reason
of any agreement intended to avoid or settle any Election Contest or Proxy
Contest.
(iii) Consummation of a merger, consolidation or reorganization
involving Parent, unless each of the following events occurs in connection with
such merger, consolidation or reorganization:
(A) the stockholders of Parent, immediately before such merger,
consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, over 50% of the combined
voting power of all voting securities of the corporation resulting from such
merger or consolidation or reorganization (the "Surviving Company") over which
any Person has Beneficial Ownership in substantially the same proportion as
their ownership of the Voting Securities immediately before such merger,
consolidation or reorganization;
(B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute over 50% of the members of the board
of directors of the Surviving Company; and
(C) no Person (other than Parent, any of its subsidiaries, any
employee benefit plan (or any trust forming a part thereof) maintained by
Parent, the Surviving Company or any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial Ownership of 20% or more
of the then outstanding Voting Securities) has Beneficial
-2-
<PAGE>
Ownership of 20% or more of the combined voting power of the Surviving Company's
then outstanding voting securities.
(iv) Approval by Parent's stockholders of a complete liquidation or
dissolution of Parent.
(v) Approval by Parent's stockholders of an agreement for the sale or
other disposition of all or substantially all of the assets of Parent to any
Person (other than a transfer to a subsidiary of Parent).
(vi) Any other event that the Board shall determine constitutes an
effective Change in Control of Parent.
(vii) Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by Parent which,
by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person; provided
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of Voting Securities by Parent, and after such
share acquisition by Parent, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
d. "CHANGE-IN-CONTROL DATE" shall mean the date immediately prior to
----------------------
the effectiveness of the Change in Control.
e. "GOOD REASON" The Employee shall have good reason to terminate
-----------
employment with the Company if (i) the Employee's title, duties,
responsibilities or authority is reduced or diminished from those in effect on
the Change-in-Control Date without the Employee's written consent; (ii) the
Employee's compensation is reduced; (iii) the Employee's benefits are reduced,
other than pursuant to a uniform reduction applicable to all managers of the
Company; or (iv) the Employee is asked to relocate his office to a place more
than 30 miles from his business office on the Change-in-Control Date.
f. "PERSON" shall have the meaning ascribed to such term in Section
------
3(a)(9) of the Securities Exchange Act of 1934 and used in Sections 13(d) and
14(d) thereof, including a "group" as defined in Section 13(d).
g. "TARGET BONUS" shall mean the full amount of bonuses and/or
------------
performance compensation (other than Base Salary and awards under Parent's 1998
Incentive Compensation Plan (including assumed awards granted under the Vencor,
Inc. 1987 Incentive Compensation Program and the Vencor, Inc. 1997 Incentive
Compensation Plan)) that would be payable to the Employee, assuming all
performance criteria on which such bonus and/or performance
-3-
<PAGE>
compensation are based were deemed to be satisfied, in respect of services for
the calendar year in which the date in question occurs.
h. "TERMINATION OF EMPLOYMENT" shall mean (i) the termination of the
-------------------------
Employee's employment by the Company other than such a termination in connection
with an offer of immediate reemployment by a successor or assign of the Company
or a purchaser of the Company or its assets under terms and conditions which
would not permit the Employee to terminate his employment for Good Reason or
otherwise during any Window Period; or (ii) the Employee's termination of
employment with the Company for Good Reason or during any Window Period.
i. "WINDOW PERIOD" shall mean either of two 30-day periods of time
-------------
commencing 30 days after (i) a Change in Control and (ii) one year after a
Change in Control.
2. TERM. The initial term of this Agreement shall be for a three-year
----
period commencing on May 1, 1998 (the "Effective Date"). The Term shall be
automatically extended by one additional day for each day beyond the Effective
Date that the Employee remains employed by the Company until such time as the
Company elects to cease such extension by giving written notice of such election
to the Employee. In such event, the Agreement shall terminate on the third
anniversary of the effective date of such election notice. Notwithstanding the
foregoing, this Agreement shall automatically terminate if and when the Employee
terminates his employment with the Company or two years after the Change-in-
Control Date, whichever first occurs.
3. SEVERANCE BENEFITS. If at any time following a Change in Control and
------------------
continuing for two years thereafter, the Company terminates the Employee without
Cause, or the Employee terminates employment with the Company either for Good
Reason or during any Window Period, then as compensation for services previously
rendered the Employee shall be entitled to the following benefits:
a. CASH PAYMENT. The Employee shall be paid cash equal to three times
------------
the greater of:
(i) the sum of (x) the Employee's Base Salary and Target Bonus as of
the Termination of Employment, and (y) the fair market value (determined as of
the Termination of Employment) of the targeted number of performance shares
authorized to be issued to the Employee pursuant to a Performance Share Award
Agreement in respect of the year in which such Termination of Employment occurs
(without regard to any acceleration of the award for such year), assuming for
such purpose that all performance criteria applicable to such award with respect
to the year in which such Termination of Employment occurs were deemed to be
satisfied, or
(ii) the sum of (x) the Employee's Base Salary and Target Bonus as of
the Change-in-Control Date, and (y) the fair market value (determined as of the
Change-in-Control Date) of the targeted number of performance shares authorized
to be issued to the Employee
-4-
<PAGE>
pursuant to a Performance Share Award Agreement in respect of the year in which
such Change-in-Control Date occurs (without regard to any acceleration of the
award for such year), assuming for such purpose that all performance criteria
applicable to such award with respect to the year in which such Change-in-
Control Date occurs were deemed to be satisfied.
For purposes of this Agreement, "fair market value" shall have the meaning
ascribed to such term under the Parent's 1998 Incentive Compensation Plan.
Payment shall be made in a single lump sum upon the Employee's effective date of
termination.
b. CONTINUATION OF BENEFITS.
------------------------
(i) For a period of three years following the Termination of
Employment, the Employee shall be treated as if he or she had continued to be an
employee for all purposes under Parent's Health Insurance Plan and Dental
Insurance Plan; or if the Employee is prohibited from participating in such
plan, the Company or Parent shall otherwise provide such benefits. Following
this continuation period, the Employee shall be entitled to receive continuation
coverage under Part 6 of Title I or ERISA ("COBRA Benefits") treating the end of
this period as a termination of the Employee's employment if allowed by law.
(ii) For a period of three years following the Termination of
Employment, Parent shall maintain in force, at its expense, the Employee's life
insurance in effect under Parent's Voluntary Life Insurance Benefit Plan as of
the Change-in-Control Date or as of the date of Termination of Employment,
whichever coverage limits are greater.
(iii) For a period of three years following the Employee's
Termination of Employment, the Company or Parent shall provide short-term and
long-term disability insurance benefits to Employee equivalent to the coverage
that the Employee would have had had he remained employed under the disability
insurance plans applicable to Employee on the date of Termination of Employment,
or, at the Employee's election, the plans applicable to Employee as of the
Change-in-Control Date. Should Employee become disabled during such period,
Employee shall be entitled to receive such benefits, and for such duration, as
the applicable plan provides.
c. RETIREMENT SAVINGS PLAN. To the extent not already vested pursuant
-----------------------
to the terms of such plan, the Employee's interests under the Parent's
Retirement Savings Plan shall be automatically fully (i.e., 100%) vested,
without regard to otherwise applicable percentages for the vesting of employer-
matching contributions based upon the Employee's years of service with the
Company.
D. PLAN AMENDMENTS. Parent shall adopt such amendments to its employee
---------------
benefit plans, if any, as are necessary to effectuate the provisions of this
Agreement.
E. FRINGE BENEFITS. Following the Employee's Termination of
---------------
Employment, the Employee shall receive the computer which Employee is utilizing
as of the date of such Termination of Employment. In addition, for a period of
one year following Employee's Termination of Employment, Employee shall be
entitled to be reimbursed for any legal or accounting services
-5-
<PAGE>
utilized by Employee to minimize any personal income tax obligations arising
from the Change in Control, in an amount not to exceed $5,000.
-6-
<PAGE>
4. GOLDEN PARACHUTE TAX REIMBURSEMENT. Whether or not any payments are
----------------------------------
made pursuant to Section 3 above, if a Change in Control occurs at any time and
the Employee reasonably determines that any payment or distribution by the
Company or any of its affiliates to or for the benefit of the Employee, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise pursuant to or by reason of any other agreement, policy,
plan, program or arrangement, including without limitation any restricted stock,
stock option, stock appreciation right or similar right, or the lapse or
termination of any restriction on or the vesting or exercisablility of any of
the foregoing (individually and collectively, the "Payment"), would be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code") (or any successor provision thereto) by reason of being
considered "contingent on a change in ownership or control," within the meaning
of Section 280G of the Code (or any successor provision thereto), or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, being hereinafter collectively referred to
as the "Excise Tax"), then the Company or Parent shall pay to the Employee an
additional payment or payments (individually and collectively, the "Gross-Up
Payment"). The Gross-Up Payment shall be in an amount such that, after payment
by the Employee of all taxes required to be paid by the Employee with respect to
the receipt thereof under the terms of any federal, state or local government or
taxing authority (including any interest or penalties imposed with respect to
such taxes), including any Excise Tax imposed with respect to the Gross-Up
Payment, the Employee retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payment. The Gross-Up Payment shall be paid to the
Employee within 30 days of its receipt of written notice from the Employee that
such Excise Tax has been paid or will be payable at any time in the future.
5. NO MITIGATION REQUIRED OR SETOFF PERMITTED. In no event shall
------------------------------------------
Employee be obligated to seek other employment or take other action by way of
mitigation of the amounts payable to Employee under the terms of this Agreement,
and all such amounts shall not be reduced whether or not Employee obtains other
employment. Further, the Company's and Parent's obligations to make any
payments hereunder shall not be subject to or affected by any setoff,
counterclaims or defenses which the Company or Parent may have against Employee
or others.
6. WAIVER OF OTHER SEVERANCE BENEFITS. The benefits payable pursuant to
----------------------------------
this Agreement are in lieu of any other severance benefits which may otherwise
be payable by the Company or its affiliates to the Employee upon termination of
employment pursuant to a severance program of the Company or its affiliates
(including, without limitation, any benefits to which Employee might otherwise
be entitled under any other severance or change in control or similar agreement
previously entered into between Employee and the Company or any of its
affiliates).
7. EMPLOYMENT AT WILL. Notwithstanding anything to the contrary contained
------------------
herein, the Employee's employment with the Company is not for any specified term
and may be terminated by the Employee or by the Company at any time, for any
reason, with or without cause,
-7-
<PAGE>
without any liability, except with respect to the payments provided hereunder or
as required by law or any other contract or employee benefit plan.
8. DISPUTES. Any dispute or controversy arising under, out of, or in
--------
connection with this Agreement shall, at the election and upon written demand of
either party, be finally determined and settled by binding arbitration in the
City of Louisville, Kentucky, in accordance with the Labor Arbitration rules and
procedures of the American Arbitration Association, and judgment upon the award
may be entered in any court having jurisdiction thereof. The Company shall pay
all costs of the arbitration and all attorneys' and accountants' fees of the
Employee in connection therewith, including any litigation to enforce any
arbitration award.
9. SUCCESSORS; BINDING AGREEMENT. This Agreement shall not be terminated
-----------------------------
by the voluntary or involuntary dissolution of the Company or by any merger or
consolidation where the Company is not the surviving corporation, or upon any
transfer of all or substantially all of the Company's stock or assets. In the
event of such merger, consolidation or transfer, the provisions of this
Agreement shall be binding upon and shall inure to the benefit of the surviving
corporation or corporation to which such stock or assets of the Company shall be
transferred.
10. NOTICES. Any notice or other communication hereunder shall be in
-------
writing and shall be effective upon receipt (or refusal of receipt) if delivered
personally, or sent by overnight courier if signature for the receiving party is
obtained, or sent by certified or registered mail, postage prepaid, to the other
party at the address set forth below:
If to the Company: Vencor Operating, Inc.
Suite 3300, 400 West Market Street
Louisville, KY 40202
Attention: General Counsel
If to Employee: __________________________________
__________________________________
__________________________________
Either party may change its specified address by giving notice in
writing to the other.
11. INDEMNIFICATION. The Company shall indemnify, defend and hold the
---------------
Employee harmless from and against any liability, damages, costs and expenses
(including attorneys' fees) in connection with any claim, cause of action,
investigation, litigation or proceeding involving him by reason of his having
been an officer, director, employee or agent of the Company, except to the
extent it is judicially determined that the Employee was guilty of gross
negligence or willful misconduct in connection with the matter giving rise to
the claim for indemnification. This indemnification shall be in addition to and
shall not be substituted for any other indemnification or similar agreement or
arrangement which may be in effect between the Employee and the Company or may
otherwise exist. The Company also agrees to maintain
-8-
<PAGE>
adequate directors and officers liability insurance, if applicable, for the
benefit of Employee for the term of this Agreement and for five years
thereafter.
12. ERISA. Many or all of the employee benefits addressed in Paragraph
-----
3(b) and (c) exist under plans which constitute employee welfare benefit plans
("Welfare Plans") within the meaning of Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). Any payments pursuant to
this Agreement which could cause any of such Plans not to constitute a Welfare
Plan shall be deemed instead to be made pursuant to a separate "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA or a "top hat" plan
under Section 201(2) of ERISA as to which the applicable portions of the
document constituting the Welfare Plan shall be deemed to be incorporated by
reference. None of the benefits hereunder may be assigned in any way.
13. SEVERABILITY. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision, which other provision shall remain in full force and effect.
14. INTERPRETATION. The headings used herein are for convenience only and
--------------
do not limit or expand the contents of this Agreement. Use of any male gender
pronoun shall be deemed to include the female gender also.
15. NO WAIVER. No waiver of a breach of any provision of this Agreement
---------
shall be construed to be a waiver of any other breach of this Agreement. No
waiver of any provision of this Agreement shall be enforceable unless it is in
writing and signed by the party against whom it is sought to be enforced.
16. SURVIVAL. Any provisions of this Agreement creating obligations
--------
extending beyond the term of this Agreement shall survive the expiration or
termination of this Agreement, regardless of the reason for such termination.
17. AMENDMENTS. Any amendments to this Agreement shall be effective only
----------
if in writing and signed by the parties hereto.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
----------------
the parties with respect to the subject matter hereof.
19. GOVERNING LAW. This Agreement shall be interpreted in accordance with
-------------
and governed by the law of the State of Delaware.
20. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument.
21. CANCELLATION OF PRIOR AGREEMENT. The Employee hereby acknowledges and
-------------------------------
agrees that this Agreement is intended to and does hereby replace that certain
change-in-control
-9-
<PAGE>
severance agreement, dated as of _______, as amended, between Vencor, Inc. and
the Employee, and that such agreement is cancelled, terminated and of no further
force and effect.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
VENCOR OPERATING, INC.
---------------------------------
By: W. Bruce Lunsford
Chairman, President and Chief
Executive Officer
Solely for the purposes of
Sections 3, 4, 5 and 11:
VENCOR, INC.
---------------------------------
By: W. Bruce Lunsford
Chairman, President and Chief
Executive Officer
EMPLOYEE
---------------------------------
-11-
<PAGE>
Exhibit 10.29
PROMISSORY NOTE
---------------
$___________ Louisville, Kentucky
June 15, 1998
FOR VALUE RECEIVED, the undersigned ____________ (hereinafter referred
to as "Maker"), hereby promises and agrees to pay to the order of VENCOR, INC.
(hereinafter referred to as "Payee"), with an address of 3300 Aegon Center,
Louisville, Kentucky, the aggregate principal sum of
______________________________________________ DOLLARS ($_______), together with
interest thereon as hereinafter provided, in lawful money of the United States
of America, in the manner set forth herein, on or before June 15, 2008 (the
"Maturity Date").
Principal of this note (the "Note") shall bear interest on the unpaid
balance thereof at a rate of five and seventy-seven one hundredths percent
(5.77%) per annum. All interest on this Note shall be computed daily on the
basis of the actual number of days elapsed over a year assumed to consist of
three hundred sixty (360) days.
Principal on this Note shall be paid in ten (10) equal annual
installment of $62,350 each, commencing on the 15th day of June 1999, and
continuing on the 15th day of June of each successive year thereafter until
the 15th day of June 2008, on which date all of the remaining unpaid principal
of this Note shall be paid. Notwithstanding the above, upon a Change in Control
(as defined in the 1998 Incentive Compensation Plan of Vencor, Inc.) of Vencor,
Inc. any and all unpaid principal and interest on this Note shall be forgiven
and this Note shall be extinguished.
All accrued and unpaid interest shall be paid quarterly commencing on
the 15th day of September, 1998, and continuing on the 15th day of each
successive quarter thereafter, and on the Maturity Date and any other date that
the principal balance of this Note is paid in full. Notwithstanding the above,
each quarterly interest payment due and owing shall be forgiven as long as Maker
is employed by Payee on the date such quarterly interest payment is due.
All payments of principal and interest and any other sums due under
this Note shall be made to Payee at the address written above or to such other
person or at such other address as may be designated in writing by the holder of
this Note. All payments on this Note shall be applied first to the payment of
any expenses or charges payable hereunder, and next to accrued interest and then
to the principal balance hereof, or in such other order as Payee may elect in
Payee's sole discretion.
The occurrence of any one or more of the following events shall
constitute a default under this Note: [i] the failure of Maker to pay principal
or interest of this Note as and when due, or within five (5) days thereafter; or
[ii] the insolvency of, the appointment of a custodian or trustee for, or an
assignment for the benefit of creditors by or the filing of a petition under
bankruptcy, insolvency or debtor's relief law by or against, Maker.
Whenever there is a default under this Note the entire principal
balance of and all
<PAGE>
accrued interest on this Note, shall, at the option of the holder hereof, become
forthwith due and payable, without presentment, notice, protest or demand of any
kind (all of which are expressly waived by Maker). Upon the occurrence of any
such default, in addition, the rate of interest applicable to the entire unpaid
principal balance of this Note shall be increased by an increment of an
additional two percent (2%) per annum, unless such increase would exceed the
increment permitted under applicable law, in which case the rate of interest
applicable hereunder shall be increased by such lesser increment as is the
maximum permitted by law.
This Note is hereby expressly limited so that in no contingency or
event whatsoever, whether by reason of acceleration of the maturity hereof, or
otherwise, shall the amount paid or agreed to be paid to Payee for the use,
forbearance or detention of the money loaned hereunder, or advanced for the
performance or payment of any covenant or obligation contained herein or in any
other document evidencing, securing or pertaining to the indebtedness evidenced
hereby, exceed the maximum amount permissible under applicable law. If from any
circumstances whatsoever fulfillment of any provision hereof or of any such
other document, at the time performance of such provisions shall be due, shall
involve transcending the limit of validity prescribed by law, then ipso facto
----------
the obligation to be fulfilled shall be reduced to the limit of such validity,
and if from such circumstance the holder hereof shall ever receive anything of
value deemed by applicable law to be interest in any amount that would exceed
the highest lawful rate payable hereunder, an amount equal to any excessive
interest shall be applied to the reduction of the principal amount owing
hereunder and not to the payment of interest, and if the amount that would be
excessive interest exceeds the principal balance then owing, such excess shall
be refunded to the party paying same.
Failure of the holder of this Note to exercise any of such holder's
rights and remedies shall not constitute a waiver of the right to exercise the
same at that or any other time. All rights and remedies of the holder for
default under this Note shall be cumulative to the greatest extent permitted by
law. Time shall be of the essence in the payment of all accrued interest and
principal on this Note and the performance of Maker's other obligations under
this Note.
If there is any default under this Note, and this Note is placed in
the hands of an attorney for collection, or is collected through any court,
including any bankruptcy court, Maker promises to pay to the holder hereof such
holder's reasonable attorneys' fees and court costs incurred in collecting or
attempting to collect or securing or attempting to secure this Note or enforcing
the holder's rights in any collateral securing this Note, provided the same is
legally allowed by the laws of the Commonwealth of Kentucky or any state where
the collateral or any part thereof is situated.
This Note has been delivered in, and shall be governed by and
construed in accordance with the laws of the Commonwealth of Kentucky without
reference to its conflict of laws rules. This Note has substantial contacts
with the Commonwealth of Kentucky. All actions, suits or other proceedings with
respect to this Note shall be brought only in a court of competent jurisdiction
in Jefferson County, Kentucky. In any such action, suit or proceeding, such
court shall have personal jurisdiction over all of the parties hereto, and
service of process upon them under any
2
<PAGE>
applicable statutes, laws and rules shall be deemed valid and good.
Maker and any other party who is or may become primarily or
secondarily liable for any of the obligations of Maker hereunder hereby waive
presentment, demand, notice of dishonor, protest, notice of protest and
nonpayment, and further waive all exemptions to which they may now or hereafter
be entitled under the laws of this or any other state or of the United States,
and further agree that the holder of this Note shall have the right without
notice, to deal in any way, at any time, with Maker, or any guarantor of this
Note or with any other party who may become primarily or secondarily liable for
any of the obligations of Maker under this Note without waiving any rights the
holder of this Note may have hereunder or by virtue of the laws of the state of
Kentucky or any other state of the United States.
________________________________
COMMONWEALTH OF KENTUCKY )
: SS
COUNTY OF JEFFERSON )
The foregoing instrument was acknowledged before me this 15th day
of June, 1998, by ____________.
My commission expires: _________________________________.
____________________________________
Notary Public
[Affix Notary Seal]
3
<PAGE>
EXHIBIT 12
VENCOR, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------------
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- --------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income from operations
before income taxes... $36,358 $55,891 $224,466 $ 83,180 $ 32,364 $132,920 $ 79,065
Fixed charges,
exclusive of
capitalized interest.. 44,350 16,327 129,878 70,431 84,917 85,930 95,817
------- ------- -------- -------- -------- -------- --------
$80,708 $72,218 $354,344 $153,611 $117,281 $218,850 $174,882
------- ------- -------- -------- -------- -------- --------
Fixed charges:
Interest............... $37,195 $10,660 $102,736 $ 45,922 $ 60,918 $ 62,828 $ 73,559
Amortization of
deferred loan costs... - - - 1,538 2,073 1,054 950
Interest portion of
rent expense.......... 7,155 5,667 27,142 22,971 21,926 22,048 21,308
------- ------- -------- -------- -------- -------- --------
Fixed charges,
exclusive of
capitalized interest.. 44,350 16,327 129,878 70,431 84,917 85,930 95,817
Capitalization
interest.............. 2,719 2,367 9,388 2,788 1,100 918 690
------- ------- -------- -------- -------- -------- --------
$47,069 $18,694 $139,266 $ 73,219 $ 86,017 $ 86,848 $ 96,507
======= ======= ======== ======== ======== ======== ========
Ratio to earnings to
fixed charges.......... 1.7 3.9 2.5 2.1 1.4 2.5 1.8
======= ======= ======== ======== ======== ======== ========
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF
THE GUARANTOR
<TABLE>
<CAPTION>
Name Jurisdiction Owner Interest (%)
<S> <C> <C> <C>
Advanced Infusion Systems, Inc. California Medisave Pharmacies, Inc. 100%
American X-Rays, Inc. Louisiana Medisave Pharmacies, Inc. 100%
Atria Communities, Inc. Delaware Vencor Holdings, L.L.C. 43%
Behavioral Healthcare Corporation Transitional Hospitals 44%
Corporation (NV)
C.P.C. of Louisiana, Inc. Louisiana Transitional Hospitals 100%
Corporation (NV)
Colorado MEDtech, Inc. Colorado Vencor Operating, Inc. 39%
Community Behavioral Health System, Louisiana CPC Managed Care Health 100%
Inc. Services, Inc.
Caribbean Behavioral Health Systems, Nevada Interamericana Health Care Group 100%
Inc.
Community Psychiatric Centers of Arkansas Transitional Hospitals 100%
Arkansas, Inc. Corporation (NV)
Community Psychiatric Centers of California Transitional Hospitals 100%
California Corporation (NV)
Community Psychiatric Centers of Florida Transitional Hospitals 100%
Florida, Inc. Corporation (NV)
Community Psychiatric Centers of Idaho Transitional Hospitals 100%
Idaho, Inc. Corporation (NV)
Community Psychiatric Centers of Indiana Transitional Hospitals 100%
Indiana, Inc. Corporation (NV)
Community Psychiatric Centers of Kansas Transitional Hospitals 100%
Kansas, Inc. Corporation (NV)
Community Psychiatric Centers of Mississippi Transitional Hospitals 100%
Mississippi, Inc. Corporation (NV)
Community Psychiatric Centers of Missouri Transitional Hospitals 100%
Missouri, Inc. Corporation (NV)
Community Psychiatric Centers of North Carolina Transitional Hospitals 100%
North Carolina, Inc. Corporation (NV)
Community Psychiatric Centers of Oklahoma Transitional Hospitals 100%
Oklahoma, Inc. Corporation (NV)
Community Psychiatric Centers of Utah Transitional Hospitals 100%
Utah, Inc. Corporation (NV)
Community Psychiatric Centers California Community Psychiatric Centers 100%
Properties Incorporated of California
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction Owner Interest (%)
<S> <C> <C> <C>
Community Psychiatric Centers Oklahoma Transitional Hospitals 100%
Properties of Oklahoma, Inc. Corporation (NV)
Community Psychiatric Centers Texas Transitional Hospitals 100%
Properties of Texas, Inc. Corporation (NV)
Community Psychiatric Centers Utah Transitional Hospitals 100%
Properties of Utah, Inc. Corporation (NV)
Cornerstone Insurance Company Cayman Islands Vencor Operating, Inc. 100%
Courtland Gardens Health Center, Inc. Connecticut PersonaCare of Connecticut, Inc. 100%
CPC Investment Corp. California Community Psychiatric Centers 100%
Properties Incorporated
CPC of Georgia, Inc. Georgia Transitional Hospitals 100%
Corporation (NV)
CPC Managed Care Health Services, Delaware Transitional Hospitals 100%
Inc. Corporation (NV)
CPC Properties of Arkansas, Inc. Arkansas Transitional Hospitals 100%
Corporation (NV)
CPC Properties of Illinois, Inc. Illinois Community Psychiatric Centers 100%
Properties Incorporated
CPC Properties of Indiana, Inc. Indiana Transitional Hospitals 100%
Corporation (NV)
CPC Properties of Kansas, Inc. Kansas Transitional Hospitals 100%
Corporation (NV)
CPC Properties of Louisiana, Inc. Louisiana Transitional Hospitals 100%
Corporation (NV)
CPC Properties of Mississippi, Inc. Mississippi Transitional Hospitals 100%
Corporation (NV)
CPC Properties of Missouri, Inc. Missouri Community Psychiatric Centers 100%
Properties Incorporated
CPC Properties of North Carolina, North Carolina Transitional Hospitals 100%
Inc. Corporation (NV)
First Rehab, Inc. Delaware Medisave Pharmacies, Inc. 100%
Florida Hospital Properties Florida Transitional Hospitals 100%
Corporation (NV)
Gorgas International Medical Center, Delaware InteHgro Holdings, Ltd. 100%
LLC
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction Owner Interest (%)
<S> <C> <C> <C>
Health Care Holdings, Inc. Delaware TheraTx, Incorporated 100%
Health Care Technology, Inc. Delaware Health Care Holdings, Inc. 100%
Helian ASC of Northridge, Inc. California Helian Health Group, Inc. 100%
Helian Health Group, Inc. Delaware TheraTx, Incorporated 100%
Helian Recovery Corporation California Helian Health Group, Inc. 100%
Homestead Health Center, Inc. Connecticut PersonaCare of Connecticut, Inc. 100%
Horizon Healthcare Services, Inc. Georgia TheraTx, Incorporated 100%
InteHgro Holdings, Ltd. Cayman Islands Interamericana Health Care Group 100%
Interamericana Health Care Group Nevada Transitional Hospitals 100%
Corporation (NV)
JB Thomas Hospital, Inc. Massachusetts Transitional Hospitals 100%
Corporation (DE)
Lafayette Health Care Center, Inc. Georgia PersonaCare, Inc. 100%
Lectus, Inc. California Vencor Operating, Inc. 10%
Ledgewood Health Care Corporation Massachusetts Vencor Operating, Inc. 50%
MedEquities, Inc. California Helian ASC of Northridge, Inc. 100%
Medisave of Tennessee, Inc. Delaware Medisave Pharmacies, Inc. 100%
Medisave Pharmacies, Inc. Delaware Vencor Operating, Inc. 100%
New Vencor Hospitals East, L.L.C. Delaware Vencor Operating, Inc. 100%
NPPA of America, Inc. Delaware Vencor Operating, Inc. 51%
Old Orchard Hospital, Inc. Illinois Transitional Hospitals 100%
Corporation (NV)
Palo Alto Surgecenter Corporation California Helian Health Group, Inc. 100%
Peachtree-Parkwood Hospital, Inc. Georgia CPC of Georgia, Inc. 100%
PersonaCare, Inc. Delaware TheraTx, Incorporated 100%
PersonaCare of Bradenlon, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of Clearwater, Inc. Delaware PersonaCare, Inc. 100%
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction Owner Interest (%)
<S> <C> <C> <C>
PersonaCare of Connecticut, Inc. Connecticut PersonaCare, Inc. 100%
PersonaCare of Georgia, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of Huntsville, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of Ohio, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of Owensboro, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of Pennsylvania, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of Pompano East, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of Pompano West, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of Reading, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of San Antonio, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of San Pedro, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of Shreveport, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of St. Petersburg, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of Warner Robbins, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare of Wisconsin, Inc. Delaware PersonaCare, Inc. 100%
PersonaCare Living Center of Delaware PersonaCare, Inc. 100%
Clearwater, Inc.
PersonaCare Properties, Inc. Georgia PersonaCare, Inc. 100%
ProData Systems, Inc. Alabama Vencor Home Care & Hospice 100%
Indiana Partnership
Recovery Inns of America, Inc. California Helian Recovery Corporation 100%
Respiratory Care Services, Inc. Delaware TheraTx, Incorporated 100%
Stamford Health Facilities, Inc. Connecticut PersonaCare of Connecticut, Inc. 100%
THC - San Diego, Inc. California Transitional Hospitals 100%
Corporation (DE)
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction Owner Interest (%)
<S> <C> <C> <C>
THC - Orange County, Inc. California Transitional Hospitals 100%
Corporation (DE)
THC - Hollywood, Inc. Florida Transitional Hospitals 100%
Corporation (DE)
THC - North Shore, Inc. Illinois THC - Chicago, Inc. 100%
THC - Chicago, Inc. Illinois Transitional Hospitals 100%
Corporation (DE)
THC - Minneapolis, Inc. Minnesota Transitional Hospitals 100%
Corporation (DE)
THC - Houston, Inc. Texas Transitional Hospitals 100%
Corporation (DE)
THC - Seattle, Inc. Washington Transitional Hospitals 100%
Corporation (DE)
TheraTx, Incorporated Delaware Vencor Operating, Inc. 100%
TheraTx Management Services, Inc. California TheraTx, Incorporated 100%
TheraTx Medical Supplies, Inc. Delaware TheraTx, Incorporated 100%
TheraTx Health Services, Inc. Delaware TheraTx, Incorporated 100%
TheraTx Healthcare Management, Inc. Delaware TheraTx, Incorporated 100%
TheraTx Rehabilitation Services, Inc. Delaware TheraTx Health Services, Inc. 100%
TheraTx Staffing, Inc. Illinois TheraTx, Incorporated 100%
Transitional Hospitals Corporation Nevada Vencor Operating, Inc. 100%
Transitional Hospitals Corporation Delaware Transitional Hospitals 100%
Corporation (NV)
Transitional Hospitals Corporation Indiana Transitional Hospitals 100%
of Indiana, Inc. Corporation (DE)
Transitional Hospitals Corporation Louisiana Transitional Hospitals 100%
of Louisiana, Inc. Corporation (DE)
Transitional Hospitals Corporation Michigan Transitional Hospitals 100%
of Michigan, Inc. Corporation (NV)
Transitional Hospitals Corporation Nevada Transitional Hospitals 100%
of Nevada, Inc. Corporation (DE)
Transitional Hospitals Corporation New Mexico Transitional Hospitals 100%
of New Mexico, Inc. Corporation (DE)
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction Owner Interest (%)
<S> <C> <C> <C>
Transitional Hospitals Corporation Florida Transitional Hospitals 100%
of Tampa, Inc. Corporation (DE)
Transitional Hospitals Corporation Texas Transitional Hospitals 100%
of Texas, Inc. Corporation (DE)
Transitional Hospitals Corporation Wisconsin Transitional Hospitals 100%
of Wisconsin, Inc. Corporation (DE)
Tucker Nursing Center, Inc. Georgia PersonaCare, Inc. 100%
Tunstall Enterprises, Inc. Georgia Horizon Healthcare Services, 100%
Inc.
VC-OIA, Inc. Arizona Helian Health Group, Inc. 100%
VC-TOHC, Inc. Arizona Helian Health Group, Inc. 100%
VC-WM, Inc. Florida TheraTx, Incorporated 100%
Vencare, Inc. Delaware Vencor Operating, Inc. 100%
Vencor Facility Services, Inc. Delaware Vencor Operating, Inc. 100%
Vencor Home Care Services, Inc. Delaware Vencor Operating, Inc. 100%
Vencor Insurance Company Indiana Vencor Insurance Holdings, Inc. 100%
Vencor Insurance Holdings, Inc. Delaware Vencor Operating, Inc. 100%
Vencor Investment Company Delaware Vencor Operating, Inc. 100%
Vencor Holdings, L.L.C. Delaware Vencor Operating, Inc. 100%
Vencor Hospice, Inc. Kentucky Vencare, Inc. 100%
Vencor Hospitals West, L.L.C. Delaware Vencor Operating, Inc. 100%
Vencor Nevada, L.L.C. Delaware Vencor Operating, Inc. 100%
Vencor Nursing Centers East, L.L.C. Delaware Vencor Operating, Inc. 100%
Vencor Nursing Centers West, L.L.C. Delaware Vencor Operating, Inc. 100%
Vencor Operating, Inc. Delaware Vencor Healthcare, Inc. 100%
Vencor Nevada, L.L.C. Delaware Vencor Operating, Inc. 100%
Vencor Provider Network, Inc. Delaware Vencor Insurance Holdings, Inc. 100%
Vencor Pediatric Care, Inc. Delaware Vencor Operating, Inc. 100%
Ventech Systems, Inc. Delaware Vencor Operating, Inc. 100%
</TABLE>
-6-
<PAGE>
PARTNERSHIPS INTEREST OF
THE GUARANTOR AND SUBSIDIARIES
<TABLE>
<CAPTION>
Name Jurisdiction Owner Interest (%)
<S> <C> <C> <C>
California Respiratory Care California Advanced Infusion Systems, Inc. 51%
Partnership
CPS Sacramento California Advanced Infusion Systems, Inc. 60%
Foothill Nursing Company California Vencor Operating, Inc. 50%
Partnership
Fox Hill Village Partnership Massachusetts Vencor Operating, Inc. 50%
Hillhaven-MSC Partnership California Vencor Operating, Inc. 50%
Medilife Pharmacy Network Tennessee Medisave of Tennessee, Inc. 50%
Partnership
Northridge Surgery Center California MedEquities, Inc. 43%
Development, Ltd.
Northridge Surgery Center, California Helian ASC of Northbridge, Inc. 13%
Ltd. Helian Health Group, Inc. 13.5%
Helian ASC of Northridge, Inc. 6%
Pharmaceutical Infusion California Advanced Infusion Systems, Inc. 50.99%
Therapy
Recovery Inn of Menlo Park, California Recovery Inns of America, Inc. 12%
L.P.
Stamford Health Associates, Connecticut Stamford Health Facilities, Inc. 1%
L.P. PersonaCare, Inc. 99%
Starr Farm Partnership Vermont Vencor Operating, Inc. 50%
Vencor Hospitals Limited Delaware Vencor Operating, Inc. 99%
Partnership Vencor Nursing Centers Limited Partnership 1%
Vencor Nursing Centers Delaware Vencor Operating, Inc. 99%
Limited Partnership Vencor Hospitals Limited Partnership 1%
Visiting Nurse Advanced California Advanced Infusion Systems, Inc. 51.01%
Infusion Systems - Colton
Visiting Nurse Advanced California Advanced Infusion Systems, Inc. 50.01%
Infusion Systems - Anaheim
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction Owner Interest (%)
<S> <C> <C> <C>
Visiting Nurse Advanced California Advanced Infusion Systems, Inc. 51.01%
Infusion Systems - Newbury
Park
VNA/CPS Pharmaceutical California Advanced Infusion Systems, Inc. 46.29%
Services
</TABLE>
-8-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 26, 1998, with respect to the consolidated fi-
nancial statements and schedule of Vencor, Inc. included in the Registration
Statement (Form S-4) and related Prospectus of Vencor, Inc. for the registra-
tion of $300 million Guaranteed Senior Subordinated Notes and to the incorpora-
tion by reference therein of our report dated January 26, 1998, with respect to
the consolidated financial statements and schedule of Vencor, Inc. included in
its Annual Report (Form 10-K) for the year ended December 31, 1997, filed with
the Securities and Exchange Commission.
Ernst & Young LLP
Louisville, Kentucky
June 26, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Regis-
tration Statement on Form S-4 of Vencor, Inc. of our report dated January 24,
1997 relating to the financial statements of Transitional Hospitals Corporation
(formerly Community Psychiatric Centers) and its subsidiaries as of November
30, 1996 and 1995 and for the two years ended November 30, 1996, which appears
in such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the two years ended November 30, 1996 listed
under Item 21(b) of this Registration Statement when such schedule is read in
conjunction with the financial statements referred to in our report. The audits
referred to in such report also included this schedule. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
Price Waterhouse LLP
Los Angeles, California
June 26, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 27, 1995, with respect to the consolidated fi-
nancial statements of operations, shareholders' equity and cash flows and
schedule of Transitional Hospitals Corporation (formerly Community Psychiatric
Centers) for the year ended November 30, 1994 included in the Registration
Statement (Form S-4) and related Prospectus of Vencor, Inc. for the registra-
tion of $300 million Guaranteed Senior Subordinated Notes.
Ernst & Young LLP
Los Angeles, California
June 29, 1998
<PAGE>
Exhibit 25
Securities Act of 1933 File No. ______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
-----------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-----------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305 (b)(2) [ ]
-----------------------
PNC BANK, NATIONAL ASSOCIATION
------------------------------
(Exact name of trustee as specified in its charter)
NATIONAL BANKING ASSOCIATION 22-1146430
-------------------------------- -------------------
(State of Incorporation If Not a (I.R.S. Employer
National Bank) Identification No.)
500 W. Jefferson Street
Louisville, Kentucky 40202
- --------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
-----------------------
Martha A. Ziskind
Vice President
PNC Bank, N.A.
500 W. Jefferson Street
Louisville, Kentucky 40202
(502) 581-3231
(Name, address, and telephone number of agent for service)
------------------------
VENCOR OPERATING, INC.
------------------------
(Exact Name of Obligor as Specified in its Charter)
DELAWARE 52-2085484
----------------------- ------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
400 West Market St., Louisville, Kentucky 40202
- ------------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
9-7/8% GUARANTEED SENIOR SUBORDINATED NOTES DUE 2005
-----------------------------------------------------
(Title of the Indenture Securities)
<PAGE>
1. General information. Furnish the following information as Trustee:
--------------------
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency Washington, D.C.
Federal Deposit Insurance Corp. Washington, D.C.
Federal Reserve Bank of Cleveland Cleveland, OH
(b) Whether it is authorized to exercise corporate trust
powers.
Yes, the Trustee is authorized to exercise corporate
trust powers.
2. Affiliations with obligor and underwriters. If the obligor or any
-------------------------------------------
underwriters for the obligor is an affiliate of the Trustee, describe each such
affiliation.
Neither the obligor nor any underwriter for the obligor is an affiliate of
the trustee.
3. Voting Securities of the trustee. Furnish the following information as to
---------------------------------
each class of voting securities of the trustee.
Col. A Col. B
---------------- ----------------
(Title of Class) Amount Outstanding
---------------- ------------------
PNC Bank Corp.
Common Stock, par value $5 per share 300,807,500 shares
4. Trusteeships under other indentures. If the trustee is a trustee under
-----------------------------------
another indenture under which any other securities, or certificates of interest
or participation in any other securities, of the obligor are outstanding,
furnish the following information:
(a) Title of the securities outstanding under each such other indenture.
Not applicable.
(b) A brief statement of the facts relied upon as a basis for the claim that no
conflicting interest within the meaning of Section 310(b)(1) of the Act
arises as a result of the trusteeship under any such other indenture,
including a statement as to how the indenture securities will rank as
compared with the securities issued under other such other indenture.
Not applicable.
<PAGE>
5. Interlocking directorates and similar relationships with the obligor or
------------------------------------------------------------ ----------
underwriters. If the trustee or any of the directors or executive officers of
- ------------
the trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor, identify
each such person having any such connection and state the nature of each such
connection.
Not applicable.
6. Voting securities of the trustee owned by the obligor or its officials.
------------------------------------------------------------ ---------
Furnish the following information as to the voting securities of the trustee
owned beneficially by the obligor and each director, partner and executive
officer of the obligor:
Column A Column B Column C Column D
Percentage of
Voting Securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Column C
------------- -------------- ------------ ------------
Not applicable.
7. Voting securities of the trustee owned by underwriter or their officials.
-------------------------------------------------------------------------
Furnish the following information as to the voting securities of the trustee
owned beneficially by each underwriter for the obligor and each director,
partner, executive officer of each such underwriter:
Column A Column B Column C Column D
Percentage of
Voting Securities
Represented by
Amount Owned Amount Given
Name of Owner Title of Class Beneficially in Column C
------------- -------------- ------------ ------------
Not applicable.
8. Securities of the obligor owned or held by the trustee.
-------------------------------------------------------
Furnish the following information as to securities of the obligor owned
beneficially or held as collateral security for obligations in default by the
trustee.
Column A Column B Column C Column D
Amount Owned
Beneficially
Whether the or Held as
Securities are Collateral Percent of Class
Voting or Security for Represented by
Nonvoting Obligations Amount Given
Title of Class Securities in Default in Column C
------------------------ -------------------------- ---------------------
Not applicable.
<PAGE>
9. Securities of the underwriters owned or held by the trustee. If the trustee
-----------------------------------------------------------
owns beneficially of holds as collateral security for obligations in default any
securities of an underwriter for the obligor, furnish the following information
as to each class of securities of such underwriter any of which are so owned or
held by the trustee:
Column A Column B Column C Column D
Amount Owned
Beneficially
or Held as
Collateral Percent of Class
Title of Issuer Security for Represented by
and Amount Obligations Amount Given
Title of Class Outstanding in Default in Column C
- -------------- ----------- ------------ -----------
Not applicable.
10. Ownership or holdings by the trustee of voting securities of certain
------------------------------------------------------------ -------
affiliates or security holders of the obligor. If the trustee owns beneficially
- ---------------------------------------------
or holds collateral security for obligations in default voting securities of a
person who, to the knowledge of the trustee (1) owns 10% or more of the voting
securities of the obligor or (2) is an affiliate, other than a subsidiary, of
the obligor, furnish the following information as to the voting securities of
such person:
Column A Column B Column C Column D
Amount Owned
Beneficially
or Held as
Collateral Percent of Class
Title of Issuer Security for Represented by
and Amount Obligations Amount Given
Title of Class Outstanding in Default in Column C
- -------------- ----------- ------------ -----------
Not applicable.
<PAGE>
11. Ownership or holdings by the trustee of any securities of a person owning
-------------------------------------------------------------------------
50 percent or more of the voting securities of the obligor. If the trustee owns
- ----------------------------------------------------------
beneficially or holds as collateral security for obligations in default any
securities of a person who, to the knowledge of the trustee, owns 50 percent or
more of the voting securities of the obligor, furnish the following information
as to each class of securities of such person any of which are so owned or held
by the trustee:
Column A Column B Column C Column D
Amount Owned
Beneficially
or Held as
Collateral Percent of Class
Title of Issuer Security for Represented by
and Amount Obligations Amount Given
Title of Class Outstanding in Default in Column C
- -------------- ----------- ------------ -----------
Not applicable.
12. Indebtedness of the obligor to the trustee. Except as noted in the
------------------------------------------
instructions, if the obligor is indebted to the trustee, furnish the following
information:
Column A Column B Column C
Nature of Amount
Indebtedness Outstanding Due Date
- ------------------------ ---------------------- ---------
Participation in
Senior Credit Facility $30,500,000 commitment 3/31/2003
13. Defaults by the obligor.
-----------------------
(a) State whether there is or has been a default with respect to the securities
under this indenture. Explain the nature of any such default.
None.
(b) If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is the trustee for more than
one outstanding series of securities under the indenture, state whether
there has been a default under any such indenture or series, identify the
indenture or series affected, and explain the nature of any such default.
Not applicable.
<PAGE>
14. Affiliation with the Underwriters. If any underwriter is an
----------------------------------
affiliate of the trustee, describe each such affiliation.
Not applicable.
15. Foreign Trustee. Identify the order or rule pursuant to which the foreign
----------------
trustee is authorized to act as sole trustee under indentures qualified or to
be qualified under the Act.
Not applicable.
16. List of Exhibits. List below all exhibits filed as part of this statement
----------------
of eligibility.
1. Articles of Association of the Trustee, with all amendments thereto,
as presently in effect, filed as Exhibit 1 to Trustee's Statement of
Eligibility and Qualification, Registration Statement No. 33-58107 and
incorporated herein by reference.
2. Copy of Certificate of the Authority of the Trustee to commence
business, filed as Exhibit 2 to Trustee's Statement of Eligibility and
Qualification, Registration No. 2-58789 and incorporated herein by
reference.
3. Copy of Certificate as to Authority of the Trustee to exercise trust
powers, filed as Exhibit 3 to Trustee's Statement of Eligibility and
Qualification, Registration No. 2-58789 and incorporated herein by
reference.
4. The By-Laws of the trustee, filed as Exhibit 4 to Trustee's Statement
of Eligibility and Qualification, Registration No. 333-28711 and
incorporated herein by reference.
5. Copy of each indenture referred to in Item 4, if the obligor is in
default. Not applicable.
6. The consent of United States institutional trustees required by
Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is hereby incorporated by reference to its Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 and Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998 which were
previously filed with the Commission.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
PNC Bank, National Association, a national banking association, has duly caused
this statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Louisville and Commonwealth of
Kentucky on the 16th day of June, 1998.
PNC BANK, NATIONAL ASSOCIATION
/s/ David G. Metcalf
By: ____________________________
David G. Metcalf
Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM VENCOR, INC.'s
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 51,165
<SECURITIES> 0
<RECEIVABLES> 633,775
<ALLOWANCES> (68,428)
<INVENTORY> 27,683
<CURRENT-ASSETS> 836,173
<PP&E> 2,089,991
<DEPRECIATION> (518,895)
<TOTAL-ASSETS> 3,388,237
<CURRENT-LIABILITIES> 440,392
<BONDS> 1,920,901
0
0
<COMMON> 18,388
<OTHER-SE> 912,445
<TOTAL-LIABILITY-AND-EQUITY> 3,388,237
<SALES> 0
<TOTAL-REVENUES> 823,316
<CGS> 0
<TOTAL-COSTS> 580,551
<OTHER-EXPENSES> 120,064
<LOSS-PROVISION> 7,194
<INTEREST-EXPENSE> 37,195
<INCOME-PRETAX> 36,358
<INCOME-TAX> 17,477
<INCOME-CONTINUING> 18,881
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,881
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
VENCOR OPERATING, INC.
OFFER TO EXCHANGE ITS
9 7/8% GUARANTEED SENIOR SUBORDINATED NOTES DUE 2005,
WHICH ARE UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF
PRINCIPAL AND INTEREST BY VENCOR, INC.
(REGISTERED UNDER THE SECURITIES ACT OF 1933)
FOR ANY AND ALL OF ITS OUTSTANDING
9 7/8% GUARANTEED SENIOR SUBORDINATED NOTES DUE 2005,
WHICH ARE UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF
PRINCIPAL AND INTEREST BY VENCOR, INC.
PURSUANT TO THE PROSPECTUS
DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998, UNLESS THE OFFER IS EXTENDED.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By Mail: By Hand: By Overnight Delivery:
Tenders & Exchanges Tenders & Exchanges Tenders & Exchanges
P.O. Box 2569 c/o The Depository Trust Company 14 Wall Street, 8th
Suite 4660-Vencor 55 Water Street, DTC TAD Floor
Jersey City, New Jersey Vietnam Veterans Memorial Plaza Suite 4680
07303 New York, New York 10041 New York, New York 10005
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meanings
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes (as
defined below) either if Old Notes are to be forwarded herewith or if tenders
of Old Notes are to be made by book-entry transfer to an account maintained by
First Chicago Trust Company of New York (the "Exchange Agent") at The
Depository Trust Company ("DTC") pursuant to the procedures set forth in "The
Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old
Notes are not immediately available or who cannot deliver their certificates
and all other required documents to the Exchange Agent on or prior to the
Expiration Date (as defined in the Prospectus) or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus. SEE
INSTRUCTION 1. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO
THE EXCHANGE AGENT.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
DESCRIPTION OF OLD NOTES TENDERED
<TABLE>
- --------------------------------------------------------------------
<CAPTION>
NAME(S) AND ADDRESS(ES)
OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF OLD NOTES TENDERED
BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- --------------------------------------------------------------------
PRINCIPAL
AMOUNT OF
PRINCIPAL OLD NOTES
CERTIFICATE AMOUNT OF TENDERED
NUMBER(S) OLD NOTES (IF LESS THAN ALL)**
----------------
----------------
----------------
----------------
- --------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL AMOUNT TENDERED
- --------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000
and integral multiples thereof. All Old Notes held shall be deemed
tendered unless a lesser number is specified in this column.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution ________________________________________________
DTC Account Number ___________________________________________________________
Transaction Code Number ______________________________________________________
[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) _________________________________________________
Window Ticket Number (if any) ________________________________________________
Date of Execution of Notice of Guaranteed Delivery ___________________________
Name of Institution which Guaranteed Delivery ________________________________
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution ________________________________________________
DTC Account Number ___________________________________________________________
Transaction Code Number ______________________________________________________
[_]CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
[_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ________________________________________________________________________
Address: _____________________________________________________________________
______________________________________________________________________________
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Vencor Operating, Inc., a Delaware
corporation (the "Company"), and Vencor, Inc., a Delaware corporation (the
"Guarantor"), the above described aggregate principal amount of the Company's
9 7/8% Guaranteed Senior Subordinated Notes due 2005 (the "Old Notes"), which
have been irrevocably and unconditionally guaranteed (the "Guarantee") as to
payment of principal, premium, if any, and interest by the Guarantor, in
exchange for a like aggregate principal amount of the Company's 9 7/8%
Guaranteed Senior Subordinated Notes due 2005 (the "New Notes"), which also
have been irrevocably and unconditionally guaranteed pursuant to the Guarantee
as to payment of principal, premium, if any, and interest by the Guarantor,
upon the terms and subject to the conditions set forth in the Prospectus dated
, 1998 as the same may be amended or supplemented from time to time (the
"Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitute the "Exchange
Offer"). The Exchange Offer has been registered under the Securities Act of
1933, as amended (the "Securities Act").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes and the related Guarantee tendered herewith in
accordance with the terms and conditions of the Exchange Offer (including, if
the Exchange Offer is extended or amended, the terms and conditions of any
such extension or amendment), the undersigned hereby sells, assigns and
transfers to or upon the order of the Company all right, title and interest in
and to such Old Notes and the related Guarantee as are being tendered
herewith. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as its agent and attorney-in-fact (with full knowledge that the
Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes and the related
Guarantee, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), subject only to
the right of withdrawal described in the Prospectus, to (i) deliver
Certificates for Old Notes to the Company together with all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company,
upon receipt by the Exchange Agent, as the undersigned's agent, of the New
Notes to be issued in exchange for such Old Notes, (ii) present Certificates
for such Old Notes for transfer, and to transfer the Old Notes on the books of
the Company, and (iii) receive for the account of the Company all benefits and
otherwise exercise all rights of beneficial ownership of such Old Notes, all
in accordance with the terms and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES AND THE RELATED GUARANTEE TENDERED HEREBY AND THAT, WHEN THE SAME ARE
ACCEPTED FOR EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND
UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES
AND ENCUMBRANCES, AND THAT THE OLD NOTES AND THE RELATED GUARANTEE TENDERED
HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL,
UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENT DEEMED BY THE
COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE
EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES AND THE RELATED GUARANTEE
TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER
THE REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL
OF THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old Notes
tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered
by book-entry transfer, such Old Notes will be credited to an account
maintained at DTC), without expense to the tendering holder, promptly
following the expiration or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one of
the procedures described in "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus and in the instructions hereto will, upon the
<PAGE>
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Notes, that such New Notes be credited to the account
indicated above maintained at DTC. If applicable, substitute Certificates
representing Old Notes not exchanged or not accepted for exchange will be
issued to the undersigned or, in the case of a book-entry transfer of Old
Notes, will be credited to the account indicated above maintained at DTC.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please deliver New Notes to the undersigned at the address shown below the
undersigned's signature.
BY TENDERING OLD NOTES AND THE RELATED GUARANTEE AND EXECUTING THIS LETTER
OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE
UNDERSIGNED IS NOT AN "AFFILIATE" OF THE COMPANY, (II) ANY NEW NOTES AND THE
RELATED GUARANTEE TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE
ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED HAS NO ARRANGEMENT OR
UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE
MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE RECEIVED IN THE EXCHANGE
OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS
NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE
MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES. BY TENDERING OLD NOTES
PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A
HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT
WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF
CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD
PARTIES, THAT (A) SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A
NOMINEE, OR (B) SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES AND IT WILL
DELIVER THE PROSPECTUS MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN
CONNECTION WITH ANY RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO
ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE
DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS MAY BE USED BY A PARTICIPATING BROKER-DEALER
(AS DEFINED BELOW) IN CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN
EXCHANGE FOR OLD NOTES, WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH
PARTICIPATING BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING
OR OTHER TRADING ACTIVITIES, FOR A PERIOD ENDING 180 DAYS AFTER THE EXPIRATION
DATE (SUBJECT TO EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN
THE PROSPECTUS) OR, IF EARLIER, WHEN ALL SUCH NEW NOTES HAVE BEEN DISPOSED OF
BY SUCH PARTICIPATING BROKER-DEALER, IN THAT REGARD, EACH BROKER-DEALER WHO
ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER
TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD
NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF
NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY
FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE
PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO
OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS
CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES
UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN
OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE
PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE
<PAGE>
PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES
OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER
OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED,
AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF
THE NEW NOTES, IT SHALL EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE DURING
WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN
CONNECTION WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE
PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND
INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED
COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES
OF THE NEW NOTES OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN
NOTICE THAT THE SALE OF NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided
for on such Old Notes prior to the original issue date of the New Notes or, if
no such interest has been paid or duly provided for, will not receive any
accrued interest on such Old Notes, and the undersigned waives the right to
receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after April 30, 1998.
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
<PAGE>
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
(NOTE SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certifications and other information as may be required by the
Company or the Trustee for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an attorney-in-
fact, executor, administrator, trustee, guardian, officer of a corporation or
another acting in a fiduciary capacity or representative capacity, please set
forth the signer's full title. See Instruction 5.
..............................................................................
(SIGNATURE(S) OF HOLDER(S))
Date ..................................................................., 1998
Name(s) ......................................................................
..............................................................................
(PLEASE PRINT)
Address ......................................................................
..............................................................................
(INCLUDE ZIP CODE)
Area Code and Telephone Number ...............................................
..............................................................................
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
Authorized Signature .........................................................
Name .........................................................................
..............................................................................
(PLEASE PRINT)
Date .................................................................. , 1998
Capacity or Title ............................................................
Name of Firm .................................................................
Address ......................................................................
..............................................................................
(INCLUDE ZIP CODE)
Area Code and Telephone Number ...............................................
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6) (SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the New To be completed ONLY if the New
Notes are to be issued in the Notes are to be sent to someone
name of someone other than the other than the registered holder
registered holder of the Old of the Old Notes whose name(s)
Notes whose name(s) appear(s) appear(s) above, or to such
above. registered holder(s) at an
address other than that shown
above.
Issue New Notes to:
Name _____________________________ Mail New Notes to:
(PLEASE PRINT)
---------------------------------- Name _____________________________
(PLEASE PRINT)
Address __________________________ __________________________________
---------------------------------- Address __________________________
---------------------------------- __________________________________
(INCLUDE ZIP CODE) __________________________________
---------------------------------- (INCLUDE ZIP CODE)
(TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
SEE IMPORTANT INSTRUCTIONS
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of Letter of Transmittal and Certificates; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth in "The
Exchange Offer--Procedures for Tendering Old Notes" in the Prospectus.
Certificates, or timely confirmation of a book-entry transfer of such Old
Notes into the Exchange Agent's account at DTC, as well as this Letter of
Transmittal, properly completed and duly executed, with any required signature
guarantees, and any other documents required by this Letter of Transmittal,
must be received by the Exchange Agent at one of its addresses set forth
herein on or prior to the Expiration Date. Old Notes may be tendered in whole
or in part in the principal amount of $1,000 and integral multiples of $1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal and all other required documents to the Exchange Agent on or
prior to the Expiration Date or (iii) who cannot complete the procedures for
delivery by book-entry transfer on a timely basis, may tender their Old Notes
by properly completing and duly executing a Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering Old Notes" in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution
(as defined below); (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by the Company,
must be received by the Exchange Agent on or prior to the Expiration Date; and
(iii) the Certificates (or a book-entry confirmation (as defined in the
Prospectus)) representing all tendered Old Notes, in proper form for transfer,
together with a Letter of Transmittal, properly completed and duly executed,
with any required signature guarantees and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent within five
business days after the date of execution of such Notice of Guaranteed
Delivery, all as provided in "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
mail (or facsimile in the case of an Eligible Institution) to the Exchange
Agent, and must include a guarantee by an Eligible Institution in the form set
forth in such Notice. For Old Notes to be properly tendered pursuant to the
guaranteed delivery procedure, the Exchange Agent must receive a Notice of
Guaranteed Delivery on or prior to the Expiration Date. As used herein and in
the Prospectus, "Eligible Institution" means a firm or other entity identified
in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker,
dealer, municipal securities broker or dealer or government securities broker
or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal,
waives any right to receive any notice of the acceptance of such tender.
2. Guarantees of Signatures. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in DTC
whose name appears on a security position listing as the owner of the Old
Notes) of Old Notes tendered herewith, unless such holder(s) has completed
either the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
<PAGE>
3. Inadequate Space. If the space provided in the box captioned "Description
of Old Notes Tendered" is inadequate, the Certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. Partial Tenders and Withdrawal Rights. Tenders of Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples
thereof. If less than all the Old Notes evidenced by any Certificate submitted
are to be tendered, fill in the principal amount of Old Notes which are to be
tendered in the box entitled "Principal Amount of Old Notes Tendered (if less
than all)." If such case, new Certificate(s) for the remainder of the Old
Notes that were evidenced by your old Certificate(s) will only be sent to the
holder of the Old Note, promptly after the Expiration Date. All Old Notes
represented by Certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to
be effective on or prior to that time, a written, telegraphic or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth above or in the Prospectus on
or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Notes to be withdrawn, the
aggregate principal amount of Old Notes to be withdrawn, and (if Certificates
for Old Notes have been tendered) the name of the registered holder of the Old
Notes as set forth on the Certificate for the Old Notes, if different from
that of the person who tendered such Old Notes. If Certificates for the Old
Notes have been delivered or otherwise identified to the Exchange Agent, then
prior to the physical release of such Certificates for the Old Notes, the
tendering holder must submit the serial numbers shown on the particular Old
Notes to be withdrawn.
Certificates for the Old Notes to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution, except in
the case of Old Notes tendered for the account of an Eligible Institution. If
Old Notes have been tendered pursuant to the procedures for bookentry transfer
set forth in "The Exchange Offer--Procedures for Tendering Old Notes," the
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawal of Old Notes, in which case a notice of
withdrawal will be effective if delivered to the Exchange Agent by written or
telegraphic transmission. Withdrawals of tenders of Old Notes may not be
rescinded. Old Notes properly withdrawn will not be deemed validly tendered
for purposes of the Exchange Offer, but may be retendered at any subsequent
time on or prior to the Expiration Date by following any of the procedures
described in the Prospectus under "The Exchange Offer--Procedures for
Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all
parties. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Notes which have
been tendered but which are withdrawn will be returned to the holder thereof
without cost to such holder promptly after withdrawal.
5. Signatures on Letter of Transmittal, Assignments and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the
name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons'
authority to so act.
<PAGE>
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s)
or separate bond power(s) are required unless New Notes are to be issued in
the name of a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond owners, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information
as the Company or the Trustee for the Old Notes may require in accordance with
the restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution
which is a recognized member of a Medallion Signature Guarantee Program.
6. Special Issuance and Delivery Instructions. If New Notes are to be issued
in the name of a person other than the signer of this Letter of Transmittal,
or if New Notes are to he sent to someone other than the signer of this Letter
of Transmittal or to an address other than that shown above, the appropriate
boxes on this Letter of Transmittal should be completed. Certificates for Old
Notes not exchanged will be returned by mail or, if tendered by book-entry
transfer, by crediting the account indicated above maintained at DTC. See
Instruction 4.
7. Irregularities. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for any, may, in the view
of counsel to the Company, be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the
Exchange Offer set forth in the Prospectus under "The Exchange Offer--Certain
Conditions to the Exchange Offer" or any conditions or irregularity in any
tender of Old Notes of any particular holder whether or not similar conditions
or irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including this Letter of Transmittal and the instructions hereto) will
be final and binding. No tender of Old Notes will be deemed to have been
validly made until all irregularities with respect to such tender have been
cured or waived. Neither the Company, any affiliates or assigns of the
Company, the Exchange Agent, nor any other person shall be under any duty to
give notification of any irregularities in tenders or incur any liability for
failure to give such notification.
8. Questions, Requests for Assistance and Additional Copies. Questions and
requests for assistance may be directed to the Exchange Agent at its addresses
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% Backup Withholding; Substitute Form W-9. Under U.S. Federal income
tax law, a holder whose tendered Old Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Old Notes exchanged
pursuant to the Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 2 is checked, the holder or
other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN
is provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-
9. If the holder furnishes the Exchange Agent with its TIN within 60 days
after the date of the Substitute Form W-9, the amounts retained during the 60
day period will be remitted to the holder and no
<PAGE>
further amounts shall be retained or withheld from payments made to the holder
thereafter. If, however, the holder has not provided the Exchange Agent with
its TIN within such 60 day period, amounts withheld will be remitted to the
IRS as backup withholding. In addition, 31% of all payments made thereafter
will be withheld and remitted to the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Old Notes. If the Old Notes are registered in more
than one name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather, the
U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. Lost, Destroyed or Stolen Certificates. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify PNC Bank, National Association (telephone number: 502-581-
3231). The holder will then be instructed as to the steps that must be taken
in order to replace the Certificate(s). This Letter of Transmittal and related
documents cannot be processed until the procedures for replacing lost,
destroyed or stolen Certificate(s) have been followed.
11. Security Transfer Taxes. Holders who tender their Old Notes for exchange
will not be obligated to pay any transfer taxes in connection therewith.
If, however, New Notes are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered, or
if a transfer tax is imposed for any reason other than the exchange of Old
Notes in connection with the Exchange Offer, then the amount of any such
transfer tax (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment
of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE>
TO BE COMPLETED BY ALL
TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME:
PART 1--PLEASE PROVIDE YOUR Social Security Number
TIN IN THE BOX AT RIGHT AND or Employer
CERTIFY BY SIGNING AND Identification Number
DATING BELOW
----------------------
SUBSTITUTE
FORM W-9
DEPARTMENT OF
THE TREASURY --------------------------------------------------------
INTERNAL PART 2--CERTIFICATION--UNDER THE PENALTIES OF
REVENUE PERJURY, I CERTIFY THAT (1) the number shown on this
SERVICE form is my correct taxpayer identification number (or
I am waiting for a number to be issued to me), (2) I
am not subject to backup withholding either because
(i) I am exempt from backup withholding, (ii) I have
not been notified by the Internal Revenue Service
("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or
dividends, or (iii) the IRS has notified me that I am
no longer subject to backup withholding, and (3) any
other information provided on this form is true and
correct.
PAYER'S REQUEST FOR You must cross out item (iii) in Part PART 3 --
TAXPAYER IDENTIFICATION (2) above if you have been notified Awaiting
NUMBER ("TIN") AND by the IRS that you are subject to TIN [_]
CERTIFICATION backup withholding because of
underreporting interest or dividends
on your tax return and you have not
been notified by the IRS that you are
no longer subject to backup withhold-
ing.
--------------------------------------------------------
SIGNATURE ______________ DATE _______
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT
TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all payments made to me on account of the New Notes
shall be retained until I provide a taxpayer identification number to the
Exchange Agent and that, if I do not provide my taxpayer identification number
within 60 days, such retained amounts shall be remitted to the Internal
Revenue Service as backup withholding and 31% of all reportable payments made
to me thereafter will be withheld and remitted to the Internal Revenue Service
until I provide a taxpayer identification number.
Signature _______________________________________________ Date _______________
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
9 7/8% GUARANTEED SENIOR SUBORDINATED NOTES DUE 2005,WHICH ARE UNCONDITIONALLY
GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST BY VENCOR, INC.,
OF
VENCOR OPERATING, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's (as defined below) 9 7/8% Guaranteed Senior
Subordinated Notes due 2005 (the "Old Notes") are not immediately available,
(ii) Old Notes, the Letter of Transmittal and all other required documents
cannot be delivered to First Chicago Trust Company of New York (the "Exchange
Agent") on or prior to the Expiration Date (as defined in the Prospectus
referred to below) or (iii) the procedures for delivery by book-entry transfer
cannot be completed on a timely basis. This Notice of Guaranteed Delivery may
be delivered by hand, overnight courier or mail, or transmitted by facsimile
transmission, to the Exchange Agent. See "The Exchange Offer--Procedures for
Tendering Old Notes" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Hand: By Overnight Delivery:
Tenders & Exchanges P.O. Tenders & Exchanges Tenders & Exchanges 14
Box 2569Suite 4660- c/o The Depository Trust Company Wall Street, 8th Floor
Vencor Jersey City, New 55 Water Street, DTC TAD Suite 4680
Jersey 07303-2569 Vietnam Veterans Memorial Plaza New York, New York 10005
New York, New York 10041
</TABLE>
To Confirm by Telephone or for Information: (201) 324-0137
Facsimile Transmissions: (201) 222-4720
or
(201) 222-4721
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
1
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii)
a broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credited
union; (iv) a national securities exchange, registered securities association
or clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing
being referred to as an "Eligible Institution"), hereby guarantees to deliver
to the Exchange Agent, at one of its addresses set forth above, either the Old
Notes tendered hereby in proper form for transfer, or confirmation of the
book-entry transfer of such Old Notes to the Exchange Agent's account at The
Depository Trust Company ("DTC"), pursuant to the procedures for book-entry
transfer set forth in the Prospectus, in either case together with one or more
properly completed and duly executed Letter(s) of Transmittal and any other
required documents within five business days after the date of execution of
this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
Name of Firm: _______________________ _____________________________________
(Authorized Signature)
Address: ____________________________ Title: ______________________________
_____________________________________ Name: _______________________________
(Zip Code) (Please type or print)
Area Code and
Telephone Number: ___________________ Date: _______________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL
SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A
PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS.
2
<PAGE>
EXHIBIT 99.3
INSTRUCTION TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER
OF
VENCOR OPERATING, INC.
9 7/8% GUARANTEED SENIOR SUBORDINATED NOTES DUE 2005
WHICH ARE UNCONDITIONALLY GUARANTEED AS TO
PAYMENT OF PRINCIPAL AND INTEREST BY VENCOR, INC.
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated ,
1998 (the "Prospectus") of Vencor Operating, Inc., a Delaware corporation (the
"Company"), and Vencor, Inc., a Delaware corporation (the Guarantor"), and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), that
together constitute the Company's and the Guarantors's offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes and the Guarantee held by you for
the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$ of the 9 7/8% Guaranteed Senior Subordinated Notes due 2005.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] TO TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered (if
any)):
$ of the 9 7/8% Guaranteed Senior Subordinated Notes due 2005.
[_] NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes and the related
Guarantee held by you for the account of the undersigned, it is understood
that you are authorized to make, on behalf of the undersigned (and the
undersigned, by its signature below, hereby makes to you), the representation
and warranties contained in the Letter of Transmittal that are to be made with
respect to the undersigned as a beneficial owner, including but not limited to
the representations, that (i) the holder is not an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act of 1933, as amended
(the "Securities Act"), (ii) any New Notes and the related Guarantee to be
received by the holder are being acquired in the ordinary course of its
business, (iii) the holder has no arrangement or understanding with any person
to participate in a distribution (within the meaning of the Securities Act) of
New Notes to be received in the Exchange Offer, and (iv) if the holder is not
a broker-dealer, the holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New
Notes. If the undersigned is a broker-dealer (whether or not it is also an
"affiliate") that will receive New Notes for its own account in exchange for
Old Notes, it represents that such Old Notes were acquired as a result of
market-making or other trading activities, and it acknowledges that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes, the
undersigned is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
<PAGE>
SIGN HERE
Name of beneficial owner(s): ___________________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Telephone Number: ______________________________________________________________
Taxpayer identification or Social Security Number: _____________________________
Date: __________________________________________________________________________
<PAGE>
EXHIBIT 99.4
OFFER TO EXCHANGE
9 7/8% GUARANTEED SENIOR SUBORDINATED NOTES DUE 2005,
WHICH ARE UNCONDITIONALLY GUARANTEED AS TO
PAYMENT OF PRINCIPAL AND INTEREST BY VENCOR, INC.,
FOR ANY AND ALL OUTSTANDING
9 7/8% GUARANTEED SENIOR SUBORDINATED NOTES DUE 2005,
WHICH ARE UNCONDITIONALLY GUARANTEED AS TO
PAYMENT OF PRINCIPAL AND INTEREST BY VENCOR, INC.,
OF
VENCOR OPERATING, INC.
, 1998
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer by
Vencor Operating, Inc., a Delaware corporation (the "Company"), and Vencor,
Inc., a Delaware corporation (the "Guarantor"), to exchange the Company's 9
7/8% Guaranteed Senior Subordinated Notes due 2005 (the "New Notes"), which
have been irrevocably and unconditionally guaranteed (the "Guarantee") as to
payment of principal, premium, if any, and interest by the Guarantor, pursuant
to an offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of the Company's issued and
outstanding 9 7/8% Guaranteed Senior Subordinated Notes due 2005 (the "Old
Notes"), which also have been irrevocably and unconditionally guaranteed
pursuant to the Guarantee as to payment, premium, if any, and interest by the
Guarantor, upon the terms and subject to the conditions set forth in the
Company's and the Guarantor's Prospectus, dated , 1998, and the related
Letter of Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated , 1998;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner; and
5. Letter which may be sent to your clients for whose account you hold
Old Notes and the Guarantee in your name or in the name of your nominee, to
accompany the instruction form referred to in 4 above, for obtaining such
client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the Offer
will expire 5:00 p.m., New York City time, on , 1998, unless extended.
The Offer is not conditioned upon any minimum number of Old Notes being
tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes and the
related Guarantee will represent to the Company that (i) the holder is not an
"affiliate" of the Company, (ii) any New Notes and the related Guarantee to be
received by the holder are being acquired in the ordinary course of its
business, (iii) the holder has no arrangement or understanding with any person
to participate in a distribution (within the meaning of the Securities Act) of
New Notes to be received in the Exchange Offer, and (iv) if the holder is not
a broker-dealer, the holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New
Notes. If the tendering holder is a broker-dealer that will receive New Notes
for its own account in exchange for Old Notes, you will represent on behalf of
such broker-dealer that the Old Notes to be exchanged for the New Notes were
acquired by it as a result of market-making or other trading activities, and
1
<PAGE>
acknowledge on behalf of such broker-dealer that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such New Notes. By acknowledging that it will deliver and by delivering a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes, such broker-dealer is not deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The enclosed Instruction to Registered Holder and/or Book-Entry Transfer
Participant from Owner contains an authorization by the beneficial owners of
the Old Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or to
any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the
transfer of Old Notes to it, except as otherwise provided in Instructions of
the enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
FIRST CHICAGO TRUST COMPANY OF NEW YORK
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF VENCOR, INC., VENCOR OPERATING, INC. OR FIRST CHICAGO TRUST
COMPANY OF NEW YORK OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY
STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN
THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE>
EXHIBIT 99.5
OFFER TO EXCHANGE
9 7/8% GUARANTEED SENIOR SUBORDINATED NOTES DUE 2005,
WHICH ARE UNCONDITIONALLY GUARANTEED AS TO
PAYMENT OF PRINCIPAL AND INTEREST BY VENCOR, INC.,
FOR ANY AND ALL OUTSTANDING
9 7/8% GUARANTEED SENIOR SUBORDINATED NOTES DUE 2005,
WHICH ARE UNCONDITIONALLY GUARANTEED AS TO
PAYMENT OF PRINCIPAL AND INTEREST BY VENCOR, INC.,
OF
VENCOR OPERATING, INC.
To Our Clients:
We are enclosing herewith a Prospectus, dated , 1998, of Vencor
Operating, Inc., a Delaware corporation (the "Company"), and Vencor, Inc., a
Delaware corporation (the "Guarantor") and a related Letter of Transmittal
(which together constitute the "Exchange Offer") relating to the offer by the
Company and the Guarantor to exchange the Company's 9 7/8% Guaranteed Senior
Subordinated Notes due 2005 (the "New Notes"), which have been irrevocably and
unconditionally guaranteed (the "Guarantee") as to payment of principal,
premium, if any, and interest by the Guarantor, pursuant to an offering
registered under the Securities Act of 1933, as amended (the "Securities
Act"), for a like principal amount of the Company's issued and outstanding 9
7/8% Guaranteed Senior Subordinated Notes due 2005 (the "Old Notes"), which
also have been irrevocably and unconditionally guaranteed pursuant to the
Guarantee as to payment of principal, premium, if any, and interest by the
Guarantor, upon the terms and subject to the conditions set forth in the
Exchange Offer.
Please note that the Offer will expire at 5:00 p.m., New York City time, on
, 1998, unless extended.
The Offer is not conditioned upon any minimum number of Old Notes being
tendered.
We are the holder of record and/or participant in the book-entry transfer
facility of Old Notes and the related Guarantee held by us for your account. A
tender of such Old Notes and the related Guarantee can be made only by us as
the record holder and/or participant in the book-entry transfer facility and
pursuant to your instructions. The Letter of Transmittal is furnished to you
for your information only and cannot be used by you to tender Old Notes and
the related Guarantee held by us for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes and the related Guarantee held by us for your account pursuant to
the terms and conditions of the Exchange Offer. We also request that you
confirm that we may on your behalf make the representations contained in the
Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes and the
related Guarantee will represent to the Company that (i) the holder is not an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act of 1933, as amended (the "Securities Act"), (ii) any New Notes and the
related Guarantee to be received by the holder are being acquired in the
ordinary course of its business, (iii) the holder has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of New Notes to be received in the Exchange
Offer, and (iv) if the holder is not a broker-dealer, the holder is not
engaged in, and does not intend to engage in, a distribution (within the
meaning of the Securities Act) of such New Notes. If the tendering holder is a
broker-dealer (whether or not it is also an "affiliate") that will receive New
Notes for its own account in exchange for Old Notes, we will represent on
behalf of such broker-dealer that the Old Notes to be exchanged for the New
Notes were acquired by it as a result of market-making or other trading
activities, and acknowledge on behalf of such broker-dealer that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. By acknowledging that it will
deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes, such broker-
dealer is not deemed to admit that it is an "underwriter" within the meaning
of the Securities Act.
Very truly yours,
<PAGE>
EXHIBIT 99.6
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer Identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
- --------------------------------------------
<CAPTION>
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF --
- --------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more individuals The actual owner
(joint of the account
account) or, if combined
funds, the
first individual
on the
account(1)
3. Custodian account of a The minor(2)
minor
(Uniform Gift to Minors
Act)
4.a The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
5. Sole proprietorship The owner(3)
- --------------------------------------------
</TABLE>
<TABLE>
--
<CAPTION>
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
NUMBER OF --
--
<S> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, estate, The legal
or pension entity(4)
trust
8. Corporate The corporation
9. Association, club, The organization
religious,
charitable,
educational, or other
tax-exempt
organization account
10. Partnership The partnership
11. A broker or registered The broker or
nominee nominee
12. Account with the The public
Department of entity
Agriculture in the
name of a
public entity (such as
a State or
local government,
school district,
or prison) that
receives
agricultural program
payments
--
</TABLE>
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business
or "doing business as" name. You may use either your social security
number or your employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate or pension
trust. (Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding include the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), an individual
retirement plan or a custodial account under Section 403(b)(7) if the
account satisfies the requirements of section 401(f)(2).
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any political subdivision or instrumentality thereof.
. A foreign government or any political subdivision, agency or
instrumentality thereof.
. An international organization or any agency or instrumentality thereof.
. A dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An entity registered at all times during the tax year under the Investment
Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident alien partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Section 404(k) payments made by an ESOP.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Mortgage interest paid to you.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.-- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer.
Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
