VENCOR INC, DEF 14A, 1999-04-15

VENCOR INC
DEF 14A, 1999-04-15
NURSING & PERSONAL CARE FACILITIES

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<PAGE>

SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
REG. (S) 240.14A-101.

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.)

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement

[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12

Vencor, Inc.
----------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of filing fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined:)

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Account Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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<PAGE>

VENCOR, INC.
One Vencor Place
680 South Fourth Street
Louisville, Kentucky 40202-2412

April 15, 1999

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders to be
held at 9:00 a.m. on Wednesday, May 12, 1999, at the Seelbach Hotel, 500 South
Fourth Avenue, Louisville, Kentucky.

The Board of Directors appreciates your interest in the Company. Regardless
of whether you plan to attend the meeting, it is important that your shares be
represented. Please sign, date and mail the enclosed proxy in the envelope
provided at your earliest convenience.

Sincerely,

/s/ Edward L. Kuntz

Edward L. Kuntz
Chairman of the Board, Chief
Executive Officer and President
<PAGE>

VENCOR, INC.
One Vencor Place
680 South Fourth Street
Louisville, Kentucky 40202-2412

----------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held On May 12, 1999

To the Stockholders of VENCOR, INC.:

The Annual Meeting of Stockholders of Vencor, Inc. will be held on
Wednesday, May 12, 1999 at the Seelbach Hotel, 500 South Fourth Avenue,
Louisville, Kentucky, at 9:00 a.m. (EDT), for the following purposes:

(1) To elect two Class I Directors for a term of three years; and

(2) To transact such other business as may properly come before the
meeting.

Only stockholders of record at the close of business on March 19, 1999, will
be entitled to vote at the meeting and any adjournments thereof.

IT IS IMPORTANT THAT YOU VOTE YOUR SHARES. PLEASE SIGN AND DATE YOUR PROXY
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.

Edward L. Kuntz
Chairman of the Board, Chief
Executive Officer and President
<PAGE>

VENCOR, INC.
One Vencor Place
680 South Fourth Street
Louisville, Kentucky 40202-2412
(502) 596-7300

----------------

PROXY STATEMENT
for
Annual Meeting of Stockholders
May 12, 1999

GENERAL INFORMATION

The Annual Meeting of Stockholders (the "Annual Meeting") of Vencor, Inc.
(the "Company") will be held at 9:00 a.m., EDT on Wednesday, May 12, 1999, at
the Seelbach Hotel, 500 South Fourth Avenue, Louisville, Kentucky. This Proxy
Statement is being sent to you for the solicitation of proxies by the Board of
Directors of the Company to be used at the Annual Meeting and at any
adjournments thereof.

Only stockholders of record at the close of business on March 19, 1999 are
entitled to vote at the meeting or any adjournments thereof. A list of all
stockholders entitled to vote at the Annual Meeting will be available for
inspection by any stockholder for any purpose reasonably related to the Annual
Meeting during ordinary business hours. The list of stockholders will be
available for a period of ten days prior to the Annual Meeting at the
Company's principal executive offices at One Vencor Place, 680 South Fourth
Street, Louisville, Kentucky. At the record date, 70,388,934 shares of the
Company's common stock, par value $.25 per share ("Common Stock") were
outstanding. Each share of Common Stock entitles the owner to one vote. A
majority of the outstanding shares present in person or by proxy is required
to constitute a quorum to transact business at the meeting. Abstentions and
broker non-votes will be counted as present for purposes of determining
whether a quorum exists, but as not voted for purposes of determining the
approval of any matter submitted to the stockholders for a vote.

The Company intends to first distribute this Proxy Statement and the
materials accompanying it on or about April 20, 1999. The Annual Report of the
Company for the year ended December 31, 1998 accompanies this Proxy Statement.

If the proxy is properly signed, returned to the Company and not revoked, it
will be voted in accordance with the instructions contained therein. Unless
contrary instructions are given, the proxy will be voted (1) in favor of the
nominees for directors in Class I named in the Proxy Statement and (2) in the
discretion of the proxy holders on such other business as may properly come
before the Annual Meeting.

You may revoke the enclosed proxy at any time before it is exercised.
However, such revocation must be made in writing and received by the General
Counsel of the Company at the Company's principal executive offices at One
Vencor Place, 680 South Fourth Street, Louisville, Kentucky 40202-2412 at or
before the time and date of the Annual Meeting. A stockholder also may attend
the Annual Meeting and vote in person, in which event any prior proxy given by
the stockholder will be revoked automatically.

The cost of soliciting proxies by the Board of Directors will be borne by
the Company. Proxies may be solicited by mail, personally or by telephone by
directors, officers and employees of the Company, none of whom will receive
additional compensation for these services. The Company's regularly retained
investor relations firm, Corporate Communications, Inc., also may solicit
proxies by telephone and mail. Forms of proxies and proxy materials also will
be distributed through brokers, custodians and other like parties to the
beneficial owners of Common Stock. The Company will reimburse such parties for
their reasonable out-of-pocket expenses incurred in connection with the
distribution.
<PAGE>

ELECTION OF DIRECTORS

At the Annual Meeting, stockholders will vote to elect two persons to serve
in Class I of the Board of Directors. These directors will hold office for a
term of three years expiring at the 2002 Annual Meeting of Stockholders and
thereafter until their successors are duly elected and qualified. Directors
will be elected if they receive the vote of a plurality of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting.

The Restated Certificate of Incorporation of the Company provides that the
number of directors will be determined from time to time by resolution adopted
by the Board of Directors provided that the Board will be composed of not less
than three members. If no determination is made, the number of directors will
be eight. The Restated Certificate of Incorporation divides the Board of
Directors into three approximately equal classes, one of which is to be
elected annually. On March 22, 1999, the Board of Directors established the
number of directors at six with two directors in each of Class I, Class II and
Class III. To make the classes of directors equal in number, Mr. Kuntz was
appointed as a Class III director to fill a vacancy in Class III. Mr. Kuntz
had served previously as a Class II director.

At the Annual Meeting, the two persons named in the following table will be
nominated on behalf of the Board of Directors for election as directors in
Class I. The Board of Directors does not contemplate that any of the nominees
will be unable to serve as a director. However, in the event that one or both
of the nominees are unable or unwilling to serve, the persons named in the
proxies or their substitute will have the authority, according to their
judgment, to vote or refrain from voting for other individuals as directors.

Nominees for Election as Directors

Class I--Terms Expiring in 2002

<TABLE>
<CAPTION>
Principal Occupation and Other
Name and Age Directorships
------------ ------------------------------
<C> <S>
Ulysses L. Bridgeman, Jr., 45 Mr. Bridgeman has served as a director of
the Company since April 1998. He served
as a director of the Company's
predecessor from May 1997 to April 1998.
Since 1988, Mr. Bridgeman has been
President of Bridgeman Foods, Inc., a
franchisee of 78 Wendy's Old Fashioned
Hamburger Restaurants.

William H. Lomicka, 61 Mr. Lomicka has served as a director of
the Company since April 1998. He was a
director of the Company's predecessor
from 1987 to April 1998. Since 1989, he
has served as President of Mayfair
Capital, Inc., a private investment firm.
Mr. Lomicka serves as a director of
Pomeroy Computer Resources, Inc., a
computer network integrator, and Sabratek
Corporation, a company which designs,
produces and markets medical products for
the alternative site healthcare
marketplace.
</TABLE>

Shares of Common Stock of the Company covered by proxies executed and
received in the accompanying form will be voted for the election as directors
of both of the nominees listed above and on such other business as may
properly come before the Annual Meeting or any adjournments thereof, unless
otherwise specified on the proxy.

2
<PAGE>

Continuing Directors

The following table sets forth information relating to the Class II and
Class III directors of the Company who will continue to serve as directors
until the expiration of their respective terms of office.

Class II--Terms Expiring in 2000

<TABLE>
<CAPTION>
Principal Occupation and Other
Name and Age Directorships
------------ ------------------------------
<C> <S>
Stanley C. Gault, 72 Mr. Gault has served as a director of the
Company since July 1998. In July 1996,
Mr. Gault retired as Chairman of the
Board of the Goodyear Tire & Rubber
Company. He was Chairman and Chief
Executive Officer of Goodyear from 1991
to 1995. Previously, he served as
Chairman of the Board and Chief Executive
Officer of Rubbermaid Incorporated from
May 1980 to May 1991. Mr. Gault currently
serves on the boards of directors of Wal-
Mart Stores, Inc., Avon Products, Inc.,
and the Timken Company, a manufacturer of
anti-friction bearings and steel alloy
products. He is a past director of the
New York Stock Exchange, Inc., PPG
Industries, Inc., International Paper
Company, the Goodyear Tire & Rubber
Company, and Rubbermaid Incorporated.

Donna R. Ecton, 51 Ms. Ecton has served as director of the
Company since April 1998. She served as a
director of the Company's predecessor
from 1992 to April 1998. Ms. Ecton is
Chairman, President and Chief Executive
Officer of EEI Inc., consultants to
management and investors. Ms. Ecton
served as Chief Operating Officer and a
director of PETsMART, Inc., a pet
supplies retailer from 1996 to 1998. From
1995 to 1996, she was Chairman, President
and Chief Executive Officer of Business
Mail Express, Inc., an expedited 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, and
H&R Block, Inc.
</TABLE>

Class III--Terms Expiring in 2001

<TABLE>
<CAPTION>
Principal Occupation and Other
Name and Age Directorships
------------ ------------------------------
<C> <S>
Elaine L. Chao, 45 Ms. Chao has served as a director of the
Company since April 1998. She was a
director of the Company's predecessor
from May 1997 to April 1998. Ms. Chao is
a Distinguished Fellow of The Heritage
Foundation in Washington, 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.,
Protective Life Corporation and Millipore
Corporation, a manufacturer and seller of
products used to identify and purify
fluids.
</TABLE>

3
<PAGE>

Class III--Terms Expiring in 2001 (cont.)

<TABLE>
<CAPTION>
Principal Occupation and Other
Name and Age Directorships
------------ ------------------------------
<C> <S>
Edward L. Kuntz, 53 Mr. Kuntz, an attorney, has served as the
Chairman of the Board, Chief Executive
Officer and President of the Company
since January 1999. He served as
President, Chief Operating Officer and a
director of the Company since November
1998. Mr. Kuntz was Chairman and Chief
Executive Officer of Living Centers of
America, Inc., a leading provider of
long-term healthcare, from 1992 to 1997.
After leaving Living Centers, he served
as an advisor and consultant to a number
of healthcare services and investment
companies and was affiliated with Austin
Ventures, a venture capital firm. Mr.
Kuntz also served as Associate General
Counsel and later as Executive Vice
President of ARA Living Centers until the
formation of Living Centers of America in
1992.
</TABLE>

The information given in this Proxy Statement concerning the nominees and
continuing directors is based upon statements made by or on behalf of such
nominees and directors or confirmed by the Company, except to the extent
certain information appears in its records. Directors' ages are given as of
January 1, 1999.

Committees of the Board of Directors

From May 1, 1998 to December 31, 1998, the Board of Directors held three
regular meetings. The Board of Directors has established an Audit and
Compliance Committee, an Executive Compensation Committee and an Independent
Committee. Until March 1999, the Board also had an Executive Committee. The
Company does not have a nominating or similar committee.

Audit and Compliance Committee. The Audit and Compliance Committee held two
meetings during 1998. The Audit and Compliance Committee reviews the adequacy
of the Company's system of internal controls and accounting practices. In
addition, the Audit and Compliance Committee reviews the scope of the annual
audit of the Company's auditors, Ernst & Young LLP, prior to its commencement,
and reviews the types of services for which the Company retains Ernst & Young
LLP. The Audit and Compliance Committee also oversees the Company's adoption
and implementation of policies and procedures designed to ensure that the
Company and its employees comply with all applicable laws, regulations and
policies. The members of the Audit and Compliance Committee during 1998 were
Mr. Lomicka (Chairman), Ms. Chao, Ms. Ecton and Mr. Gault. The current members
of the Audit and Compliance Committee are Mr. Lomicka (Chairman),
Mr. Bridgeman, Ms. Chao, Ms. Ecton and Mr. Gault.

Executive Compensation Committee. The Executive Compensation Committee held
one meeting in 1998. The Executive Compensation Committee establishes annual
salary levels, approves fringe benefits and administers any special
compensation plans or programs for executive officers of the Company. The
members of the Executive Compensation Committee during 1998 were Mr. R. Gene
Smith (Chairman), Mr. Bridgeman and Ms. Chao. The current members of the
Executive Compensation Committee are Mr. Gault (Chairman), Mr. Bridgeman,
Ms. Chao, Ms. Ecton and Mr. Lomicka.

Independent Committee. The Independent Committee did not hold any meetings
in 1998. During 1998, the Independent Committee was charged with reviewing and
approving the following actions of the Board: (a) the entering into of any
agreements with Ventas, Inc. ("Ventas" or the "Company's predecessor") and its
affiliates, (b) the consummation of any transaction between the Company and
Ventas or its affiliates, including, but not limited to, the negotiation,
enforcement and renegotiation of the terms of any master lease agreement, and
(c) oversight and monitoring of existing agreements between the Company and
Ventas. The members of the Independent Committee during 1998 were Mr. Gault
(Chairman), Ms. Ecton and Mr. Lomicka. In March 1999, the Board of Directors
redefined the responsibilities of the Independent Committee to include (a)
reviewing and monitoring the Company's relationship with Ventas and (b)
advising the full Board of Directors regarding

4
<PAGE>

matters with Ventas, and, where appropriate, making recommendations to the
full Board of Directors. The current members of the Independent Committee are
Mr. Kuntz and Mr. Gault.

Executive Committee. The Executive Committee did not hold any meetings in
1998. Prior to being dissolved, the Executive Committee had the power of the
Board of Directors in directing the management of the business and affairs of
the Company in the intervals between meetings of the Board (except for certain
matters reserved for the Board). The members of the Executive Committee during
1998 were Mr. W. Bruce Lunsford (Chairman), Mr. Lomicka and Mr. Smith.

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS,
DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock and its 6% Series A Non-
Voting Convertible Preferred Stock (the "Preferred Stock"), as of January 1,
1999, by (a) each person known to the Company to be the beneficial owner of
more than five percent of the outstanding Common Stock, (b) each person who is
a director or nominee for director, (c) each of the Company's Named Executive
Officers (as defined herein), and (d) all of the persons who are directors and
executive officers of the Company, as a group.

<TABLE>
<CAPTION>
Preferred
Common Stock Percent Stock Percent
Name of Individual or Beneficially of Beneficially of
Number in Group Owned(1)(2) Class Owned(1)(2) Class
--------------------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Frank W. Anastasio................. 31,958(3) * 400 2.3%
Frank J. Battafarano............... 12,966 * 330 1.9%
Ulysses L. Bridgeman, Jr........... 4,500(4) * -- --
Elaine L. Chao..................... 4,500(5) * -- --
Richard E. Chapman................. 100,500 * 360 2.1%
Donna R. Ecton..................... 21,448(6) * -- --
Jill L. Force...................... 79,392(7) * 540 3.1%
Stanley C. Gault................... 150,000 * -- --
William H. Lomicka................. 100,974 * -- --
W. Bruce Lunsford.................. 1,803,997(8) 2.6% 4,543 26.1%
Michael R. Barr.................... 880,322(9) 1.2% 1,440 8.3%
W. Earl Reed, III.................. 690,938(10) 1.0% 1,100 6.3%
All executive officers and
directors as a group (14 persons). 2,829,457(11) 4.0% 7,033 40.3%
Brinson Partners, Inc. and UBS AG.. 5,711,833(12) 8.1% -- --
Franklin Mutual Advisers, Inc...... 6,264,400(13) 8.9% -- --
</TABLE>
- --------
(*) Less than 1%.
(1) Beneficial ownership of shares, for purposes of this Proxy Statement, as
determined in accordance with applicable Securities and Exchange
Commission (the "Commission") rules, includes shares as to which a person
has or shares voting power and/or investment power. Beneficial ownership
is given as of January 1, 1999, except as otherwise noted below.
(2) Except as set forth in the accompanying footnotes, the named persons have
sole voting power and sole investment power over the shares beneficially
owned by them. The number of shares of Common Stock shown does not include
interests of certain persons in shares held by family members in their own
right or in shares held for their benefit in the Company's 401(k) Plan.
The numbers shown include the shares of Common Stock which may be acquired
by them through the exercise of options, which are exercisable as of, or
within 60 days after, January 1, 1999, under the Company's stock option
plans as follows: Mr. Anastasio--4,219 shares; Mr. Bridgeman--1,500
shares; Ms. Chao--1,500 shares; Ms. Ecton--14,298 shares; Mr. Lomicka--
15,611 shares; Mr. Barr--364,944 shares; and Mr. Reed--314,456 shares.
(3) Includes 200 shares held in the name of Mr. Anastasio's stepsons.
(4) Excludes 4,849 phantom stock units held under the Company's Non-Employee
Directors Deferred Compensation Plan.
(5) Excludes 4,896 phantom stock units held under the Company's Non-Employee
Directors Deferred Compensation Plan.
(6) Excludes 3,755 phantom stock units held under the Company's Non-Employee
Directors Deferred Compensation Plan.
(7) Includes 1,400 shares held by Ms. Force's spouse as custodian for their
children and 7,000 shares held in her spouse's individual retirement
account. Ms. Force shares voting and investment power with her spouse with
regard to these shares.
(8) Includes 177,127 shares held by a private foundation with respect to which
Mr. Lunsford has sole voting power and shared investment power. Excludes
16,365 shares held in trust for the benefit of his children. See
"Severance Agreements."

5
<PAGE>

(9) Excludes 62,744 shares held in trust for Mr. Barr's minor children and
3,250 shares held in trust for other family members. See "Severance
Agreements."
(10) Includes 77,000 shares held in an individual retirement account and
20,000 shares held in the name of Mr. Reed's spouse. See "Severance
Agreements."
(11) This amount does not include the shares beneficially owned by Mr. Barr
and Mr. Reed.
(12) Based on a Schedule 13G/A jointly filed by Brinson Partners, Inc. ("BPI")
and UBS AG on February 16, 1999 with the Commission. According to the
Schedule 13G/A, BPI and UBS AG share voting and dispositive power with
respect to these shares but disclaim beneficial ownership of the shares.
The address of BPI is 209 South LaSalle Street, Chicago, Illinois 60604-
1295. The address of UBS AG is Bahnhofstrasse 45, 8021, Zurich,
Switzerland.
(13) Based on a Schedule 13G/A jointly filed by Franklin Resources, Inc.
("FRI"), Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin Mutual
Advisers, Inc. ("FMAI") on January 29, 1999 with the Commission.
According to the Schedule 13G/A, FMAI has sole voting and dispositive
power with respect to these shares and the other reporting persons
disclaim beneficial ownership of these shares. The address of FRI,
Charles B. Johnson and Rupert H. Johnson, Jr. is 777 Mariners Island
Boulevard, San Mateo, CA 94404. The address of FMAI is 51 John F. Kennedy
Parkway, Short Hills, NJ 07078.

EXECUTIVE COMPENSATION AND OTHER INFORMATION

In January 1998, the Board of Directors of Ventas, Inc. (formerly known as
Vencor, Inc.) authorized its management to proceed with a plan to separate
Ventas into two publicly held corporations, one to operate the hospital,
nursing center and ancillary services businesses and the other to own
substantially all of the real property of Ventas and to lease such real
property to a new operating company (the "Reorganization Transactions"). On
April 30, 1998, Ventas completed the spin-off of its healthcare operations
from its real estate holdings through the distribution of the Common Stock of
the Company (the "Distribution") to stockholders of record of Ventas as of
April 27, 1998. The Distribution was completed on May 1, 1998 (the
"Distribution Date"). For accounting purposes, the consolidated historical
financial statements of Ventas became the historical financial statements of
the Company after the Distribution Date. Accordingly, the executive
compensation and other information presented in this Proxy Statement for
periods prior to the Distribution Date include amounts received from Ventas by
the Named Executive Officers. Any discussion concerning events prior to the
Distribution Date refers to the Company's business as it was conducted by
Ventas prior to the Reorganization Transactions.

6
<PAGE>

The following Summary Compensation Table sets forth compensation earned
during the three fiscal years ended December 31, 1998 by (i) the Chief
Executive Officer of the Company, (ii) the other most highly compensated
executive officers of the Company and (iii) the Company's former chief
operating officer and former chief financial officer (collectively, the "Named
Executive Officers").

SUMMARY COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
Annual Compensation
----------------------------------
Long-Term
Bonus Compensation
-------------------- --------------------
Restricted Options
Performance Stock (No. of All Other
Name and Principal Position Year Salary Cash(2) Shares(3) Awards(4) Shares) Compensation(5)
--------------------------- ---- -------- -------- ----------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Bruce Lunsford(6).......... 1998 $569,469 $137,500 -- -- 2,965,100(10) $ 24,084
Former Chairman of 1997 700,000 233,345 $523,298 -- 160,000 26,735
the Board and Chief 1996 650,000 195,000 766,655 -- 280,000(11) 4,500
Executive Officer

Frank W. Anastasio (7)........ 1998 $185,923 $ 45,000 -- $30,000 263,526(10) $ 5,227
President, Ancillary Services
Division

Frank J. Battafarano (7)...... 1998 $184,539 $ 45,000 -- $30,000 221,240(10) $ 5,852
President, Hospital Division

Richard E. Chapman (7)........ 1998 $270,000 $ 65,000 -- $30,000 274,879(10) $ 24,036(12)
Senior Vice President 1997 45,000 21,668 -- -- 50,000 44,022(12)
and Chief Information Officer

Jill L. Force................. 1998 $172,885 $ 41,750 -- $30,000 408,981(10) $ 7,213(13)
Senior Vice President,
General 1997 160,000 53,336 $ 81,758 -- 25,000 6,036
Counsel and Secretary 1996 145,000 43,500 119,780 -- 35,000(11) 5,828

Michael R. Barr (8)........... 1998 $252,923 -- -- -- 504,944(10) $1,152,340(8)
Former Chief Operating
Officer and 1997 320,000 $106,672 $130,818 -- 40,000 12,254
Executive Vice President 1996 300,000 90,000 191,655 -- 80,000(11) 12,648

W. Earl Reed, III (9)......... 1998 $236,000 -- -- -- 454,456(10) $1,052,613(9)
Former Chief Financial
Officer and 1997 320,000 $106,672 $130,818 -- 40,000 4,800
Executive Vice President 1996 300,000 90,000 191,655 -- 80,000(11) 4,500

</TABLE>
- --------
(1) The amounts for 1998 represent the total compensation paid by the Company
from May 1, 1998 to December 31, 1998 and by the Company's predecessor
from January 1, 1998 to April 30, 1998. The amounts for 1997 and 1996
represent the total compensation paid by the Company's predecessor.
(2) The amounts shown represent cash bonuses awarded under incentive
compensation plans.
(3) Amounts in this column represent the fair market value, on the date of
allocation, of performance shares awarded to the Named Executive Officers
upon satisfaction of certain performance goals for the periods presented.
Mr. Chapman is not eligible to receive performance share awards. The table
below provides the number of performance shares allocated to each
recipient for the corresponding periods. See "Long-Term Incentive Awards."

<TABLE>
<CAPTION>
Mr. Mr. Mr. Mr. Ms. Mr. Mr.
Lunsford Anastasio Battafarano Chapman Force Barr Reed
-------- --------- ----------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1998 0 0 0 -- 0 0 0
1997 21,333 -- -- -- 3,333 5,333 5,333
1996 21,333 -- -- -- 3,333 5,333 5,333
</TABLE>
(4) The amounts represent the fair market value on the date of grant of 10,000
shares of restricted stock granted on September 18, 1998. These shares
will vest on March 18, 2000. Based on the closing price of $4.50 of the
Common Stock on December 31, 1998, each award is valued at $45,000 as of
year end. The Company does not pay dividends on its Common Stock, but the
holder of restricted stock is entitled to dividends if paid.

7
<PAGE>

(5) In addition to certain amounts noted below, the amounts in this column
include contributions for the benefit of the Named Executive Officers to
the Company's Retirement Savings Plan ("RSP") and Deferred Compensation
Plan ("DCP") as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- -------------------
RSP DCP Total RSP DCP Total RSP DCP Total
------ ------- ------- ------ ------- ------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mr. Lunsford............ $4,800 $19,284 $24,084 $4,800 $21,935 $26,735 $4,500 $ 0 $4,500
Mr. Anastasio........... 4,800 427 5,227 -- -- -- -- -- --
Mr. Battafarano......... 4,800 1,052 5,852 -- -- -- -- -- --
Mr. Chapman............. 1,500 0 1,500 0 0 0 -- -- --
Ms. Force............... 4,800 679 5,479 4,800 1,236 6,036 4,500 1,328 5,828
Mr. Barr................ 4,800 1,924 6,724 4,800 7,454 12,254 4,500 8,148 12,648
Mr. Reed................ 4,800 0 4,800 4,800 0 4,800 4,500 0 4,500
</TABLE>

(6) Mr. Lunsford resigned from the Company and the Board of Directors
effective January 22, 1999. See "Severance Agreements." Mr. Edward L.
Kuntz was elected Chairman of the Board, Chief Executive Officer and
President by the Board of Directors on January 22, 1999.
(7) Messrs. Anastasio and Battafarano first became executive officers of the
Company in November 1998. Mr. Chapman became an executive officer upon his
employment with the Company in October 1997.
(8) Mr. Barr resigned from the Company effective October 31, 1998. All other
compensation includes $888,000 in cash and Common Stock valued at $242,830
received by Mr. Barr in connection with his severance agreement with the
Company. Mr. Barr also received other benefits as part of his severance.
See "Severance Agreements." This amount also includes $14,786 of interest
forgiveness on Mr. Barr's Tax Loan (as defined). See "Certain
Relationships and Related Transactions."
(9) Mr. Reed resigned from the Company effective September 30, 1998. All other
compensation includes $861,250 in cash and Common Stock valued at $177,569
received by Mr. Reed in connection with his severance agreement with the
Company. Mr. Reed also received other benefits as part of his severance.
See "Severance Agreements." This amount also includes $8,994 of interest
forgiveness on Mr. Reed's Tax Loan. See "Certain Relationships and Related
Transactions."
(10) The amounts shown for options awarded in 1998 include options issued in
connection with the assumption of outstanding options in the
Reorganization Transactions. At the time of the Distribution, all
outstanding options of the Company's predecessor ("Existing Options")
were split into options to purchase the same number of both the Company's
Common Stock and Ventas common stock. The Existing Options remained
options to purchase Ventas common stock and new options were granted by
the Company to evidence the options to purchase the Company's Common
Stock (the "Company Options.") The Company assumed the obligation to
issue the Company Options in the Reorganization Transactions. The
exercise price of each Existing Option was modified, and the exercise
price of each Company Option was set, so that the combined exercise price
of these options equaled the original exercise price of the Existing
Option prior to the Reorganization Transactions. The exercise prices were
split based on the relative fair market value of the Company's Common
Stock and Ventas common stock on the Distribution Date. All other terms
of the Company Options were the same as the Existing Options. With
respect to Messrs. Lunsford, Anastasio, Battafarano, Chapman and Ms.
Force, the numbers shown also include options that were repriced in 1998.
In connection with the repricing of options, the Company issued a reduced
number of new options with an exercise price of $5.50 in exchange for the
cancellation of outstanding options. See "Option Grants in Last Fiscal
Year," "Executive Compensation Committee Report on Stock Option
Repricing" and "Stock Option Repricing" for more information.
(11) Includes options issued in exchange for options to purchase shares of a
wholly-owned subsidiary of the Company, Ventech Systems, Inc., previously
awarded to the following Named Executive Officers in 1994 in the
following amounts: Mr. Lunsford--120,000 shares; Ms. Force--10,000
shares; Mr. Barr--40,000 shares; and Mr. Reed--40,000 shares.
(12) These amounts include relocation benefits paid to Mr. Chapman of $22,080
and $44,022 for 1998 and 1997, respectively. The amount for 1998 also
includes $456 of interest forgiveness on Mr. Chapman's Tax Loan. See
"Certain Relationships and Related Transactions."
(13) This amount includes $1,734 of interest forgiveness on Ms. Force's Tax
Loan. See "Certain Relationships and Related Transactions."

REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE

Executive Compensation Philosophy. The Executive Compensation Committee of
the Board (the "Committee") is composed entirely of outside directors. The
Committee is responsible for setting and administering the policies and
programs that govern both annual compensation and stock-based incentive
compensation plans for the executive officers of the Company. The Company's
executive compensation policy is based on principles designed to ensure that
an appropriate relationship exists between executive pay and short-term and
long-term performance, while at the same time motivating and retaining
executive officers. The key components of the Company's compensation program
are base salary, an annual incentive award, equity participation and
retirement benefits. These components are administered with the goal of
providing total compensation that is competitive in the marketplace, rewards
successful short-term and long-term financial and non-financial performance
and aligns executive officers' interests with those of stockholders.

8
<PAGE>

The Committee reviews each component of executive compensation on an annual
basis. In 1998, due to uncertainties and adverse conditions within the long-
term care industry, as well as other negative factors regarding the Company's
business, the market value of the Company's stock declined materially
throughout the year. Recognizing the importance of maintaining stability and
motivation within the Company's management, the Committee took actions in 1998
which emphasized the goal of management retention and motivation.

Base Salary. Base salaries for executive officers are set by the Committee
and are believed to be at a level sufficient to attract and retain qualified
executive officers. While the Committee does not establish a specific formula
or target to determine base salaries, the Committee considers the financial
performance of the Company as compared to companies in the long-term
healthcare industry, and the performance of the individual executive and his
or her level of responsibility. The Committee also considers the success of
the executive officer in developing and executing the Company's strategic
plans, addressing the significant changes affecting the industry, developing
management employees and exercising leadership.

In 1998, the Committee approved entering into employment agreements with the
Company's officers including the Named Executive Officers. The employment
agreements establish the executive officers' base salaries and entitle them to
participate in the Company's benefit plans. These agreements also provide for
certain benefits to the officer upon termination of employment. See
"Employment and Other Agreements." The Committee took note that the Company's
stock price was impacted negatively by, among other things, the changes caused
by the Balanced Budget Act of 1997 (the "Budget Act") and that key employees
were being solicited by the Company's competitors. The Committee approved the
employment agreements to encourage retention of key employees. The Committee
believes that it is critical for the Company to retain its key personnel as it
addresses the changes affecting the long-term healthcare industry.

Annual Incentive. The Committee believes that a significant proportion of
total cash compensation for executive officers should be subject to the
attainment of specific Company earnings criteria and other short-term and
long-term goals. This approach creates a direct incentive for executive
officers to achieve desired performance goals and places a significant
percentage of each executive officer's compensation at risk. The Committee
established the annual bonus targets for 1998 of up to 50% of base salaries.
Historically, the Committee established potential bonuses for executive
officers based on the Company's achievement of certain earnings per share
goals within the ranges established by the Committee. The Committee did not
establish earnings per share goals for 1998 due to the uncertainty surrounding
the composition of the Company following the Reorganization Transactions and
the potential impact of the Budget Act. For 1998, the Committee awarded
discretionary bonuses equal to 25% of base salaries for the Named Executive
Officers employed by the Company at year end. The Committee believes such
awards were appropriate given the efforts by the Named Executive Officers to
complete the Reorganization Transactions and their continuing efforts to
restructure the Company to address the changes in the long-term healthcare
industry. The Committee also believes that these payments were necessary to
help ensure the retention of executives whose performance is critical to the
Company's ability to respond successfully to its current challenges.

Equity Participation and Long-Term Incentives. The Committee believes that
equity participation is a key component of its executive compensation program.
The use of such awards provides a long-term link between the results achieved
for the Company's stockholders and the reward provided to executive officers.
Stock options and other stock-based compensation are granted to executive
officers primarily based on the executive officer's actual and potential
contribution to the Company's growth, long-term performance and the practices
of companies in the long-term care industry. Stock-based compensation is
designed to retain executive officers and motivate them to enhance stockholder
value by aligning the financial interests of executive officers with those of
the Company's stockholders. Stock-based compensation also provides an
effective incentive for management to create stockholder value over the long
term since the full benefit of the compensation package cannot be realized
unless an appreciation in the price of the Common Stock occurs over a number
of years.

In connection with the Reorganization Transactions, the Company assumed
obligations under certain outstanding awards of stock options and performance
shares. At the time of the Distribution, all outstanding options of the
Company's predecessor ("Existing Options") were split into options to purchase
the same number

9
<PAGE>

of both the Common Stock and Ventas common stock. The Existing Options
remained options to purchase Ventas common stock and new options were granted
by the Company to evidence the options to purchase the Common Stock (the
"Company Options"). The exercise price of each Existing Option was modified,
and the exercise price of each Company Option was set, so that the combined
exercise price of these options equaled the original exercise price of the
Existing Option prior to the Reorganization Transactions. To accomplish this
adjustment, new options to purchase the Company's Common Stock were granted in
1998. See "Option Grants in Last Fiscal Year." All other terms of the Company
Options were the same as the Existing Options.

Outstanding performance share awards were assumed and converted into awards
of shares of Company Common Stock, with adjustments to reflect the relative
value of Ventas common stock and the Company's Common Stock as of the
Distribution Date. In addition, the performance share award for Mr. Lunsford
was reduced to reflect that he dedicated less than 100% of his time to the
Company in 1998. As a result, the annual potential awards for the Named
Executive Officers were adjusted to the following amounts: Mr. Lunsford--
19,200 shares, Mr. Anastasio--7,805 shares, Mr. Battafarano--5,203 shares, Ms.
Force--13,009 shares, Mr. Barr--20,814 shares, and Mr. Reed--20,814 shares.

In January 1998, the Company's predecessor granted options to purchase
323,000 shares of its common stock to the Named Executive Officers, including
Mr. Lunsford, with an exercise price equal to $22.3125. These options vest
cumulatively in four annual installments of 25% and expire ten years from the
date of grant. These options were split into Company Options in the
Reorganization Transactions.

In May 1998, the Committee granted options to purchase 759,463 shares of
Common Stock to the Named Executive Officers, including Mr. Lunsford, with an
exercise price of $10.5937. These options were immediately vested but could
not be exercised until January 1, 1999. These options expire ten years from
their date of grant. These awards were made in recognition of the substantial
efforts expended by the Named Executive Officers to complete the
Reorganization Transactions.

In July 1998, the Committee granted options to purchase 646,000 shares of
Common Stock to the Named Executive Officers, including Mr. Lunsford, with an
exercise price of $3.8125. These options vest cumulatively in four annual
installments of 25% and expire ten years from the date of grant.

On September 18, 1998, the Committee granted a special, one-time grant of
10,000 shares of restricted stock to each of the Named Executive Officers,
other than Messrs. Lunsford, Barr and Reed. These shares of restricted stock
will vest on March 18, 2000.

The Committee granted the stock options and restricted stock described above
based upon its judgment that the number and terms were appropriate and
desirable considering these executive officers' actual and potential
contribution to the Company, including contributions to the completion of the
Reorganization Transactions. The assessment of actual and potential
contribution was based on the Committee's subjective evaluation of each
executive officer's ability, skills, efforts and leadership. Actions were
taken by the Committee throughout 1998 to address the continuing decline in
market value of the Company's stock. As the challenges facing the Company
continued to increase, the Committee focused on the need to utilize
compensation measures, such as options and restricted stock, to maintain
morale and provide meaningful management incentives. The Committee believes
that these awards were instrumental in retaining certain key executives.

In November 1995, the Company's predecessor authorized performance share
agreements with certain executive officers providing for the potential
issuance of shares of its common stock, over a period of five years in annual
installments. As noted above, the performance share awards were assumed by the
Company in the Reorganization Transactions and adjusted to reflect the change
in capitalization. The fourth performance period expired on December 31, 1998.
The Committee determined on March 29, 1999 not to award any performance shares
to the Named Executive Officers available under their performance share awards
for 1998. Any future entitlement to performance shares is contingent upon the
satisfaction of performance goals established by the Committee.

10
<PAGE>

Effective January 1, 1998, the Committee adopted a Supplemental Executive
Retirement Plan (the "SERP") which provides certain Named Executive Officers
with supplemental deferred benefits based on annual salary in the form of
retirement payments for life. The Committee met with an independent benefits
consultant to discuss the terms, costs and effect of implementing an executive
retirement plan. The Committee noted that a substantial majority of Fortune
1,000 companies provide similar retirement benefits to their executives. The
Committee approved the SERP based upon its view that it provides the Committee
with an additional tool to attract, motivate and retain talented executives.
In February 1998, the Board of Directors met with the same consultant to
review certain amendments to the SERP. The full Board of Directors approved an
amendment to include the bonuses of executives in the computation of the
annual benefit payments. The Committee believes that the amendment provides
additional leverage to the Committee to retain and attract executives.

Compensation of the Chief Executive Officer. Consistent with the executive
compensation policy and components described above, the Committee determined
the compensation received by W. Bruce Lunsford, former Chairman of the Board
and Chief Executive Officer of the Company, for services rendered in 1998. Mr.
Lunsford's base salary varied during 1998. Prior to the Distribution Date, Mr.
Lunsford's base salary was $728,000. Since Mr. Lunsford dedicated less than
100% of his time to the Company following the Distribution, his base salary
was reduced to $550,000 following the Reorganization Transactions. In
addition, Mr. Lunsford voluntarily reduced his salary to $300,000 between June
28, 1998 and October 4, 1998. The Committee believes that this base salary was
below average base salaries paid to chief executive officers of companies in
the long-term care industry. Mr. Lunsford earned a $137,500 bonus in 1998.
Like the other Named Executive Officers, Mr. Lunsford received a discretionary
bonus equal to 25% of his standard base salary established after the
Reorganization Transactions. In addition to the converted options received as
a result of the Reorganization Transactions and the repriced options, Mr.
Lunsford also received options to purchase 908,837 shares of Common Stock in
1998. The Committee determined the number of options granted to Mr. Lunsford
based on its judgment that this amount was appropriate and desirable in light
of his actual and potential contribution to the Company, his leadership in
connection with the completion of the Reorganization Transactions and his
efforts in restructuring the Company in response to the changes caused by the
Budget Act. The assessment of actual and potential contribution was based on
the Committee's subjective evaluation of Mr. Lunsford's abilities, skills,
efforts and leadership.

In 1995, the Company's predecessor authorized an agreement with Mr. Lunsford
providing for the issuance of a maximum of 160,000 performance shares over a
period of five years in five annual installments of 32,000 shares. These
awards were contingent upon the satisfaction of annual performance standards.
The Committee believed it was in the best interests of the Company to tie a
significant additional amount of Mr. Lunsford's potential compensation to the
Company's performance. In connection with the Reorganization Transactions, Mr.
Lunsford's outstanding performance share award was assumed by the Company and
converted into an award of the Company's Common Stock. The award also was
adjusted to reflect the relative value of the Common Stock following the
Distribution and to reflect that he dedicated less than 100% of his time to
the Company. On March 29, 1999, the Committee determined not to award
performance shares for 1998.

Omnibus Budget Reconciliation Act of 1993. The Omnibus Budget Reconciliation
Act of 1993 amended the Internal Revenue Code (the "Code") to provide
generally that the compensation paid by publicly held corporations to the
chief executive officer and the four most highly paid senior executive
officers in excess of $1,000,000 per share per executive will be deductible by
the Company only if paid pursuant to qualifying performance-based compensation
plans approved by stockholders of the Company. Compensation as defined by the
Code includes, among other things, base salary, incentive compensation and
gains on stock options and restricted stock. It is the Committee's policy to
maximize the effectiveness of the Company's executive compensation plans. In
that regard, the Committee intends to maintain flexibility to take actions
which are deemed to be in the best interests of the Company and its
stockholders. Such actions may not always qualify for tax deductibility under
the Code. The Company believes that it has taken the necessary steps to
qualify the Company's performance-based compensation plans for tax
deductibility. The Company also believes that substantially all of the
compensation paid in 1998 is deductible for Federal income tax purposes.

11
<PAGE>

Members of the Executive Compensation Committee. During 1998, the members of
the Executive Compensation Committee were Mr. R. Gene Smith (Chairman), Mr.
Ulysses L. Bridgeman, Jr. and Ms. Elaine L. Chao. Mr. Smith resigned from the
Company's Board of Directors effective March 8, 1999.

The foregoing report of the Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference the Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, and shall not otherwise be deemed filed under such Acts
except to the extent that the Company specifically incorporates this
information by reference.

EXECUTIVE COMPENSATION COMMITTEE
Ulysses L. Bridgeman, Jr.
Elaine L. Chao

12
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning options to purchase
shares of Common Stock granted in 1998 to the Named Executive Officers.

<TABLE>
<CAPTION>
Potential Realizable Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Option Term(3)
Options Employees Exercise Price Expiration ------------------------------
Name Granted(1) In 1998 Per Share(2) Date 0% 5% 10%
---- ---------- ---------- -------------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Bruce Lunsford....... 57,000(4) 0.4% $ 8.4914 11/18/02 $153,678 $ 312,560 $ 501,292
60,000(4) 0.5% $ 8.1993 6/27/04 $179,292 $ 364,752 $ 589,086
70,000(4) 0.5% $10.9554 7/11/05 $ 39,067 $ 345,562 $ 786,940
160,000(4) 1.3% $10.3308 11/15/05 $137,072 $ 931,520 $2,008,992
160,000(4) 1.3% $ 9.8022 7/22/06 $221,048 $1,105,296 $2,348,896
120,000(4) 0.9% $ 9.8022 7/22/06 $166,236 $ 828,972 $1,761,672
160,000(4) 1.3% $11.6281 2/3/07 -- $ 885,600 $2,270,816
160,000(4) 1.3% $ 8.5769 1/12/08 $417,696 $1,502,736 $3,146,704
160,000(5) 1.3% $22.3125 1/12/08 -- $2,246,752 $5,694,176
428,837(6) 3.4% $10.5937 5/1/08 -- $2,860,128 $7,249,018
320,000 2.5% $ 3.8125 7/21/08 -- $ 768,096 $1,946,656
42,272(7) 0.3% $ 5.50 11/18/02 -- $ 50,498 $ 108,833
49,231(7) 0.4% $ 5.50 6/27/04 -- $ 85,800 $ 193,020
51,458(7) 0.4% $ 5.50 7/11/05 -- $ 109,045 $ 252,154
123,153(7) 1.0% $ 5.50 11/15/05 -- $ 276,762 $ 645,223
129,441(7) 1.0% $ 5.50 7/22/06 -- $ 325,117 $ 773,073
97,081(7) 0.8% $ 5.50 7/22/06 -- $ 243,838 $ 579,807
122,400(7) 1.0% $ 5.50 2/3/07 -- $ 333,442 $ 804,633
140,736(7) 1.1% $ 5.50 1/12/08 -- $ 437,633 $1,084,089
353,491(7) 2.8% $ 5.50 5/1/08 -- $1,144,675 $2,861,085
---------
2,965,100 23.2%
=========

Frank W. Anastasio...... 1,406(4) * $ .3421 5/1/99 $ 15,249 $ 16,035 $ 16,822
2,813(4) * $ 1.9105 12/3/00 $ 26,096 $ 30,354 $ 34,969
7,500(4) 0.1% $ 8.1993 6/27/04 $ 22,412 $ 45,594 $ 73,636
8,000(4) 0.1% $10.9554 7/11/05 $ 4,075 $ 39,493 $ 89,936
15,000(4) 0.1% $10.3308 11/15/05 $ 12,851 $ 87,330 $ 188,343
15,000(4) 0.1% $ 9.8022 7/22/06 $ 20,780 $ 103,622 $ 220,209
4,000(4) * $ 9.8022 7/22/06 $ 5,541 $ 27,632 $ 58,722
18,000(4) 0.1% $11.6281 2/3/07 -- $ 99,630 $ 255,467
18,000(4) 0.1% $ 8.5769 1/12/08 $ 46,991 $ 169,058 $ 354,004
18,000(5) 0.1% $22.3125 1/12/08 -- $ 252,760 $ 640,595
37,758(6) 0.3% $10.5937 5/1/08 -- $ 251,827 $ 638,257
36,000 0.3% $ 3.8125 7/21/08 -- $ 86,411 $ 218,999
1,539(7) * $ 5.50 6/27/04 -- $ 2,682 $ 6,034
4,411(7) * $ 5.50 7/11/05 -- $ 9,347 $ 21,615
12,135(7) 0.1% $ 5.50 7/22/06 -- $ 30,479 $ 72,475
3,237(7) * $ 5.50 7/22/06 -- $ 8,130 $ 19,333
13,770(7) 0.1% $ 5.50 2/3/07 -- $ 37,512 $ 90,521
15,833(7) 0.1% $ 5.50 1/12/08 -- $ 49,234 $ 121,962
31,124(7) 0.2% $ 5.50 5/1/08 -- $ 100,786 $ 251,911
---------
263,526 2.1%
=========
</TABLE>

13
<PAGE>

<TABLE>
<CAPTION>
Potential Realizable Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Option Term(3)
Options Employees Exercise Price Expiration -------------------------------
Name Granted(1) In 1998 Per Share(2) Date 0% 5% 10%
---- ---------- ---------- -------------- ---------- -------------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank J. Battafarano.... 1,500(4) * $ 8.4914 11/18/02 $ 4,044 $ 8,225 $ 13,192
3,000(4) * $ 8.1993 6/27/04 $ 8,965 $ 18,238 $ 29,454
3,000(4) * $10.9554 7/11/05 $ 1,764 $ 14,810 $ 33,726
3,000(4) * $10.3308 11/15/05 $ 2,570 $ 17,466 $ 37,669
2,000(4) * $13.0216 5/1/06 -- $ 7,024 $ 21,943
8,000(4) 0.1% $ 9.8022 7/22/06 $ 11,082 $ 55,265 $ 117,445
15,000(4) 0.1% $11.6281 2/3/07 -- $ 83,025 $ 212,889
15,000(4) 0.1% $ 8.5769 1/12/08 $ 39,159 $ 140,882 $ 295,004
10,000(4) 0.1% $10.2827 2/2/08 $ 9,048 $ 77,362 $ 181,129
15,000(5) 0.1% $22.3125 1/12/08 -- $ 210,633 $ 533,829
10,000(5) 0.1% $ 26.75 2/2/08 -- $ 168,349 $ 426,668
31,150(6) 0.2% $10.5937 5/1/08 -- $ 207,755 $ 526,556
30,000 0.2% $ 3.8125 7/21/08 -- $ 72,009 $ 182,499
1,113(7) * $ 5.50 11/18/02 -- $ 1,330 $ 2,866
2,462(7) * $ 5.50 6/27/04 -- $ 4,291 $ 9,653
2,206(7) * $ 5.50 7/11/05 -- $ 4,675 $ 10,810
2,310(7) * $ 5.50 11/15/05 -- $ 5,191 $ 12,103
1,404(7) * $ 5.50 5/1/06 -- $ 3,404 $ 8,047
6,472(7) 0.1% $ 5.50 7/22/06 -- $ 16,256 $ 38,653
11,475(7) 0.1% $ 5.50 2/3/07 -- $ 31,260 $ 75,434
8,277(7) 0.1% $ 5.50 2/2/08 -- $ 25,942 $ 64,375
13,194(7) 0.1% $ 5.50 1/12/08 -- $ 41,028 $ 101,633
25,677(7) 0.2% $ 5.50 5/1/08 -- $ 83,147 $ 207,825
-------
221,240 1.7%
=======

Richard E. Chapman...... 50,000(4) 0.4% $10.3788 10/31/07 $ 40,435 $ 369,785 $ 860,795
25,000(4) 0.2% $ 8.5769 1/12/08 $ 65,265 $ 234,803 $ 491,673
25,000(5) 0.2% $22.3125 1/12/08 -- $ 351,055 $ 889,715
33,982(6) 0.3% $10.5937 5/1/08 -- $ 226,643 $ 574,428
50,000 0.4% $ 3.8125 7/21/08 -- $ 120,015 $ 304,165
40,895(7) 0.3% $ 5.50 10/31/07 -- $ 123,695 $ 304,500
21,990(7) 0.2% $ 5.50 1/12/08 -- $ 68,380 $ 169,389
28,012(7) 0.2% $ 5.50 5/1/08 -- $ 90,708 $ 226,724
-------
274,879 2.1%
=======
</TABLE>

14
<PAGE>

<TABLE>
<CAPTION>
Potential Realizable Value
at
Assumed Annual Rates of
Number of % of Total Stock
Securities Options Price Appreciation for
Underlying Granted to Option Term(3)
Options Employees Exercise Price Expiration ----------------------------
Name Granted(1) In 1998 Per Share(2) Date 0% 5% 10%
---- ---------- ---------- -------------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Jill L. Force........... 4,500(4) * $ 8.4914 11/18/02 $ 12,132 $ 24,676 $ 39,576
7,500(4) 0.1% $ 8.1993 6/27/04 $ 22,412 $ 45,594 $ 73,636
12,000(4) 0.1% $10.9554 7/11/05 $ 7,057 $ 59,239 $ 134,904
25,000(4) 0.2% $10.3308 11/15/05 $ 21,418 $145,550 $ 313,905
25,000(4) 0.2% $ 9.8022 7/22/06 $ 34,633 $172,703 $ 367,015
10,000(4) 0.1% $ 9.8022 7/22/06 $ 13,853 $ 69,081 $ 146,806
25,000(4) 0.2% $11.6281 2/3/07 -- $138,375 $ 354,815
25,000(4) 0.2% $ 8.5769 1/12/08 $ 65,265 $234,803 $ 491,673
25,000(5) 0.2% $22.3125 11/12/08 -- $351,055 $ 889,715
50,973(6) 0.4% $10.5937 5/1/08 -- $339,964 $ 861,642
50,000 0.4% $ 3.8125 7/21/08 -- $120,015 $ 304,165
3,338(7) * $ 5.50 11/18/02 -- $ 3,988 $ 8,594
6,154(7) * $ 5.50 6/27/04 -- $ 10,725 $ 24,128
8,822(7) 0.1% $ 5.50 7/11/05 -- $ 18,695 $ 43,230
19,244(7) 0.2% $ 5.50 11/15/05 -- $ 43,247 $ 100,823
20,226(7) 0.2% $ 5.50 7/22/06 -- $ 50,802 $ 120,798
8,091(7) 0.1% $ 5.50 7/22/06 -- $ 20,322 $ 48,323
19,125(7) 0.1% $ 5.50 2/3/07 -- $ 52,100 $ 125,724
21,990(7) 0.2% $ 5.50 1/12/08 -- $ 68,380 $ 169,389
42,018(7) 0.3% $ 5.50 5/1/08 -- $136,063 $ 340,085
-------
408,981 3.2%
=======
Michael R. Barr......... 18,393(4) 0.1% $ 8.4914 11/18/02 $ 49,589 $100,858 $ 161,759
5,622(4) * $ 8.1993 6/27/04 $ 16,800 $ 34,177 $ 55,197
25,000(4) 0.2% $10.9554 7/11/05 $ 14,703 $123,415 $ 281,050
40,000(4) 0.3% $10.3308 11/15/05 $ 34,268 $232,880 $ 502,248
40,000(4) 0.3% $ 9.8022 7/22/06 $ 55,412 $276,324 $ 587,224
40,000(4) 0.3% $ 9.8022 7/22/06 $ 55,412 $276,324 $ 587,224
40,000(4) 0.3% $11.6281 2/3/07 -- $221,400 $ 567,704
40,000(4) 0.3% $ 8.5769 1/12/08 $104,424 $375,684 $ 786,676
40,000(5) 0.3% $22.3125 1/12/08 -- $561,688 $1,423,544
135,929(6) 1.1% $10.5937 5/1/08 -- $906,578 $2,297,730
80,000 0.6% $ 3.8125 7/12/08 -- $192,024 $ 486,664
-------
504,944 3.9%
=======
</TABLE>

15
<PAGE>

(1) Except as otherwise noted, all options shown in the above table become
exercisable in four equal annual installments, beginning on the first
anniversary of the date of grant, were granted at fair market value and
have a ten-year term. All options become fully exercisable upon a Change
in Control of the Company (as defined in the Company's 1998 Incentive
Compensation Plan) ("Change in Control").

(2) The exercise price and any tax withholding obligations related to exercise
may be paid, at the discretion of the Committee, in cash, in shares of
Common Stock or in any other reasonable consideration deemed appropriate.

(3) The dollar amounts in this table represent the potential realizable value
of the stock options granted, assuming that the market price of the Common
Stock appreciates in value from the date of grant to the end of the option
term at annualized rates of 0%, 5% and 10%. Therefore, these amounts are
not the actual value of the options granted and are not intended to
forecast possible future appreciation, if any, of the Common Stock prices.
No assurance can be given that the stock price will appreciate at these
rates or experience any appreciation at all.

(4) These options represent Company Options issued in connection with the
split of outstanding options in the Reorganization Transactions. In
connection with the Reorganization Transactions, all outstanding options
of the Company's predecessor ("Existing Options") were split into options
to purchase the same number of both the Company's Common Stock and Ventas
common stock. The Existing Options remained options to purchase Ventas
common stock and new options were granted by the Company to evidence the
options to purchase the Company's Common Stock (the "Company Options").
The Company assumed the obligation to issue the Company Options in
connection with the Reorganization Transactions. The exercise price of
each Existing Option was modified, and the exercise price of each Company
Option was set, so that the combined exercise price of these options
equaled the original exercise price of the Existing Option prior to the
Reorganization Transactions. The exercise prices were based on the
relative fair market value of the Company's Common Stock and Ventas common
stock on the Distribution Date. As a result, the exercise prices of the
Company Options were not based on the fair market value of the Common
Stock on the May 1, 1998 grant date. All other terms of the Company
Options were the same as the Existing Options.

(5) Represents an option granted by the Company's predecessor prior to the
Distribution Date.

(6) These options vested immediately upon granting but were not exercisable
until January 1, 1999.

(7) These options represent options issued in connection with the repricing of
stock options. The Company issued a reduced number of new options with an
exercise price of $5.50 in exchange for the cancellation of outstanding
options. These newly issued options retained their original vesting
schedules and terms but are not exercisable until November 9, 1999. See
"Executive Compensation Committee Report on Stock Option Repricing" and
"Stock Option Repricing."

16
<PAGE>

OPTION EXERCISES AND HOLDINGS

The following table sets forth information concerning the exercise of
options during 1998 and unexercised options held as of December 31, 1998 by
the Named Executive Officers:

AGGREGATE OPTION EXERCISES IN 1998
AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Options at 12/31/98(1) at 12/31/98(2)
On Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Bruce Lunsford....... -- -- -- 1,429,263 -- $ 220,000
Frank W. Anastasio...... -- -- 4,219 126,709 $ 13,130 $ 24,750
Frank J. Battafarano.... -- -- -- 104,590 -- $ 20,625
Richard E. Chapman...... -- -- -- 140,897 -- $ 34,750
Jill L. Force........... -- -- -- 199,008 -- $ 34,750
Michael R. Barr (3)..... -- -- 364,944 -- $ 13,750 --
W. Earl Reed, III (3)... -- -- 314,456 -- $ 13,750 --
</TABLE>
- --------
(1) Under the terms of the stock option repricing, the Company has prohibited
options that were repriced from being exercised until November 9, 1999.
See "Executive Compensation Committee Report on Stock Option Repricing."
(2) These amounts were calculated by subtracting the exercise price from the
market value of the underlying Common Stock as of December 31, 1998. The
market value of the Common Stock was $4.50 per share as of December 31,
1998, based on the closing price per share on the New York Stock Exchange.
(3) In connection with their severance agreements, certain options held by Mr.
Barr and Mr. Reed were accelerated and the remaining portions of such
options were cancelled. See "Severance Agreements."

17
<PAGE>

EXECUTIVE COMPENSATION COMMITTEE REPORT ON STOCK OPTION REPRICING

On October 30, 1998, the Executive Compensation Committee approved the
repricing of certain employee stock options with an exercise price in excess
of the fair market value of the Company's Common Stock on November 9, 1998.
The Committee noted that many employees, including certain of the Named
Executive Officers, held options below market value due to the devaluation of
the Company's stock price caused, in part, by recent regulatory and other
changes affecting the long-term healthcare industry. Accordingly, in the
Committee's view, the effectiveness of these options to motivate and retain
key employees had been substantially reduced.

The Committee's philosophy has been to grant stock options as an incentive
to the Company's key employees. The Committee believes that equity incentives
are a significant factor in the Company's ability to attract, retain and
motivate employees who are critical to the Company's long-term success,
particularly through periods of significant change in the industry. The
disparity between the original exercise prices of the Company's outstanding
stock options and the market price for the Common Stock did not provide, in
the judgment of the Committee, a meaningful incentive or retention device to
the employees holding those stock options.

The Committee met with an independent benefits consultant to consider
various alternatives. After its consultation, the Committee approved an offer
to certain option holders to exchange options with an exercise price above the
current market price on November 9, 1998 for a lesser number of non-qualified
stock options with an exercise price equal to the closing price on November 9,
1998. The number of options received in exchange for the outstanding options
was reduced based on the Black-Scholes pricing method using the November 9
closing price of $5.50. The Committee determined that making the exchange
offer to employees, including certain of the Named Executive Officers, was in
the best interests of the Company and its stockholders. Over 300 of the
Company's employees participated in the exchange which resulted in the
cancellation of options to purchase approximately 5.7 million shares and the
granting of options to purchase approximately 4.6 million shares with a new
exercise price of $5.50. All newly issued options retained their original
vesting schedules and terms but are not exercisable until November 9, 1999. In
addition, the newly issued options were converted to non-qualified status for
tax purposes. Stock options held by non-employee directors were not eligible
for the repricing.

During 1998, the members of the Executive Compensation Committee were Mr. R.
Gene Smith (Chairman), Mr. Ulysses L. Bridgeman, Jr. and Ms. Elaine L. Chao.
Mr. Smith resigned from the Company's Board of Directors effective March 8,
1999.

EXECUTIVE COMPENSATION COMMITTEE
Ulysses L. Bridgeman, Jr.
Elaine L. Chao

18
<PAGE>

STOCK OPTION REPRICING

The Company has not repriced stock options in the past ten years except as
described above. The following table sets forth certain information for each
executive officer of the Company who participated in the exchange offer.

TEN-YEAR OPTION REPRICINGS

<TABLE>
<CAPTION>
Market
Number of Price of Length of
Securities Stock at Exercise Original
Underlying Time Price at New Option Term
Options of Time of Exercise Remaining at
Name and Position Date Repriced Repricing Repricing Price Date of Repricing
----------------- ------- ---------- --------- --------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
W. Bruce Lunsford....... 11/9/98 57,000 $5.50 $ 8.4914 $5.50 4 years
Former Chairman of the 11/9/98 60,000 $5.50 $ 8.1993 $5.50 5 years, 7 months
Board and Chief
Executive 11/9/98 70,000 $5.50 $10.9554 $5.50 6 years, 8 months
Officer 11/9/98 160,000 $5.50 $10.3308 $5.50 7 years
11/9/98 160,000 $5.50 $ 9.8022 $5.50 7 years, 8 months
11/9/98 120,000 $5.50 $ 9.8022 $5.50 7 years, 8 months
11/9/98 160,000 $5.50 $11.6281 $5.50 8 years, 2 months
11/9/98 160,000 $5.50 $ 8.5769 $5.50 9 years, 2 months
11/9/98 428,837 $5.50 $10.5937 $5.50 9 years, 5 months
Frank W. Anastasio...... 11/9/98 1,875 $5.50 $ 8.1993 $5.50 5 years, 7 months
President, Ancillary 11/9/98 6,000 $5.50 $10.9554 $5.50 6 years, 8 months
Services Division 11/9/98 11,250 $5.50 $10.3308 $5.50 7 years
11/9/98 15,000 $5.50 $ 9.8022 $5.50 7 years, 8 months
11/9/98 4,000 $5.50 $ 9.8022 $5.50 7 years, 8 months
11/9/98 18,000 $5.50 $11.6281 $5.50 8 years, 2 months
11/9/98 18,000 $5.50 $ 8.5769 $5.50 9 years, 2 months
11/9/98 37,758 $5.50 $10.5937 $5.50 9 years, 5 months
Frank J. Battafarano.... 11/9/98 1,500 $5.50 $ 8.4914 $5.50 4 years
President, Hospital 11/9/98 3,000 $5.50 $ 8.1993 $5.50 5 years, 7 months
Division 11/9/98 3,000 $5.50 $10.9554 $5.50 6 years, 8 months
11/9/98 3,000 $5.50 $10.3308 $5.50 7 years
11/9/98 2,000 $5.50 $13.0216 $5.50 7 years, 5 months
11/9/98 8,000 $5.50 $ 9.8022 $5.50 7 years, 8 months
11/9/98 15,000 $5.50 $11.6281 $5.50 8 years, 2 months
11/9/98 15,000 $5.50 $ 8.5769 $5.50 9 years, 2 months
11/9/98 10,000 $5.50 $10.2827 $5.50 9 years, 2 months
11/9/98 31,150 $5.50 $10.5937 $5.50 9 years, 5 months
Richard E. Chapman...... 11/9/98 50,000 $5.50 $10.3788 $5.50 8 years, 11 months
Senior Vice President
and 11/9/98 25,000 $5.50 $ 8.5769 $5.50 9 years, 2 months
Chief Information
Officer 11/9/98 33,892 $5.50 $10.5937 $5.50 9 years, 5 months
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
Market
Number of Price of Length of
Securities Stock at Exercise Original
Underlying Time Price at New Option Term
Options of Time of Exercise Remaining at
Name and Position Date Repriced Repricing Repricing Price Date of Repricing
----------------- ------- ---------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Jill L. Force........... 11/9/98 4,500 $5.50 $ 8.4914 $5.50 4 years
Senior Vice President, 11/9/98 7,500 $5.50 $ 8.1993 $5.50 5 years, 7 months
General Counsel and 11/9/98 12,000 $5.50 $10.9554 $5.50 6 years, 8 months
Secretary 11/9/98 25,000 $5.50 $10.3308 $5.50 7 years
11/9/98 25,000 $5.50 $ 9.8022 $5.50 7 years, 8 months
11/9/98 10,000 $5.50 $ 9.8022 $5.50 7 years, 8 months
11/9/98 25,000 $5.50 $11.6281 $5.50 8 years, 2 months
11/9/98 25,000 $5.50 $ 8.5769 $5.50 9 years, 2 months
11/9/98 50,973 $5.50 $10.5937 $5.50 9 years, 5 months
James H. Gillenwater,
Jr..................... 11/9/98 4,688 $5.50 $ 6.4579 $5.50 3 years
Senior Vice President, 11/9/98 4,500 $5.50 $ 8.4914 $5.50 4 years
Planning and
Development 11/9/98 7,500 $5.50 $ 8.1993 $5.50 5 years, 7 months
11/9/98 12,000 $5.50 $10.9554 $5.50 6 years, 8 months
11/9/98 25,000 $5.50 $10.3308 $5.50 7 years
11/9/98 25,000 $5.50 $ 9.8022 $5.50 7 years, 8 months
11/9/98 10,000 $5.50 $ 9.8022 $5.50 7 years, 8 months
11/9/98 25,000 $5.50 $11.6281 $5.50 8 years, 2 months
11/9/98 25,000 $5.50 $ 8.5769 $5.50 9 years, 2 months
11/9/98 48,141 $5.50 $10.5937 $5.50 9 years, 5 months
Richard A. Lechleiter... 11/9/98 5,000 $5.50 $11.9645 $5.50 6 years, 6 months
Vice President,
Finance, 11/9/98 10,000 $5.50 $10.3308 $5.50 7 years
Corporate Controller
and 11/9/98 10,000 $5.50 $ 9.8022 $5.50 7 years, 8 months
Treasurer 11/9/98 10,000 $5.50 $11.6281 $5.50 8 years, 2 months
11/9/98 10,000 $5.50 $ 8.5769 $5.50 9 years, 2 months
11/9/98 33,038 $5.50 $10.5937 $5.50 9 years, 5 months
</TABLE>

LONG-TERM INCENTIVE AWARDS

In 1995, the Company's predecessor entered into performance share agreements
whereby it could issue shares to certain officers for each year of a five-year
period beginning in 1995. In the Reorganization Transactions, outstanding
performance share awards were assumed by the Company and converted into awards
to receive shares of Common Stock adjusted to reflect the relative value of
the Company's Common Stock and Ventas common stock on the Distribution Date.
The receipt of shares is contingent upon the satisfaction of performance goals
established by the Executive Compensation Committee. Upon a Change in Control
of the Company, however, the performance periods will lapse and all unearned
performance shares will become fully vested and issuable. For 1998, no
performance shares were awarded by the Committee to the Named Executive
Officers as a result of the Company's performance.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Effective January 1, 1998, the Executive Compensation Committee adopted the
Supplemental Executive Retirement Plan which provides the Named Executive
Officers and certain other officers with supplemental deferred benefits in the
form of retirement payments for life.

20
<PAGE>

At retirement, a monthly benefit will be paid to participants that is a
product of three factors: (i) the participant's Compensation, (ii) the
participant's Vesting Percentage and (iii) a Maximum Normal Retirement Benefit
percentage. For purposes of the SERP, "Compensation" is defined as the sum of
(i) the highest base salary of the participant regardless of whether such
salary is the participant's final salary upon termination and (ii) the greater
of (y) the participant's target cash bonus in the year of termination or (x)
the average cash bonus earned by the participant in the three years
immediately preceding the year of termination. The participant's "Vesting
Percentage" is equal to 5% multiplied by the number of completed years of
service. If the participant has less than five completed years of service,
however, the participant's Vesting Percentage will be zero. Under the SERP,
participants were given credit for their actual years of service with the
Company prior to the adoption of the SERP. The "Maximum Normal Retirement
Benefit" percentage for the chief executive officer is 100%, for an executive
officer is 70% and for a vice president is 50%. If a participant is eligible
for more than one category, the larger Maximum Normal Retirement Benefit
percentage is used. The benefits payable under the SERP are not subject to any
reduction for social security payments or other offset amounts. The monthly
benefit is adjusted in the event of retirement before age 62. In addition, a
participant may elect to receive in lieu of a single life annuity an
actuarially equivalent benefit payable as a 50% joint and survivor benefit, a
ten-year certain benefit, or an amount equal to the lump sum present value of
the single life annuity.

In the event of a change in control of the Company (as defined under the
SERP), participants will be deemed to have a Vesting Percentage equal to 100%
without regard to actual years of service and are deemed to have reached
normal retirement age notwithstanding that the participant has not attained
age 62 at the time of the change in control. The Company will pay each
participant an amount equal to the lump sum value of such participant's
benefit within 20 days of a change in control.

With respect to participants with Vesting Percentages of 25% or greater, the
Company partially funded individual annuity contracts in January 1999 to
settle approximately one-third of the obligations under the SERP relating to
such individuals. The Company distributed these annuity contracts to
participants in February 1999.

The following table illustrates the estimated maximum annual benefit which
would be payable on a straight-life annuity basis at age 62 to a participant,
at various compensation levels for specified years of credited service, under
the SERP. The table assumes a Maximum Normal Retirement Benefit of 70%.

ESTIMATED MAXIMUM ANNUAL BENEFIT FOR
YEARS OF SERVICE INDICATED (1)(2)

<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------------------------------------
Compensation 10 Years 15 Years 20 Years 25 Years
- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
$150,000 $ 52,500 $ 78,750 $105,000 $105,000
$200,000 70,000 105,000 140,000 140,000
$250,000 87,500 131,250 175,000 175,000
$300,000 105,000 157,500 210,000 210,000
$400,000 140,000 210,000 280,000 280,000
$500,000 175,000 262,500 350,000 350,000
$600,000 210,000 315,000 420,000 420,000
$700,000 245,000 367,500 490,000 490,000
$800,000 280,000 420,000 560,000 560,000
$900,000 315,000 472,500 630,000 630,000
$1,000,000 350,000 525,000 700,000 700,000
$1,100,000 385,000 577,500 770,000 770,000
$1,200,000 420,000 630,000 840,000 840,000
</TABLE>
- --------
(1) These estimates are based on the assumption that (a) the SERP will
continue under its present terms; (b) the participant will continue with
the Company until, and retire at, age 62; and (c) the participant elected
to receive an annual distribution instead of a lump sum payment.
(2) The amounts shown reflect the Maximum Normal Retirement Benefit of 70%.
The Maximum Normal Retirement Benefit of the Company's chief executive
office is 100% and would result in higher amounts than those shown in the
table.

21
<PAGE>

The maximum number of years to reach a 100% Vesting Percentage under the
SERP is 20 years. The completed years of service for each of the Named
Executive Officers at December 31, 1998 were as follows: Mr. Lunsford--13
years; Mr. Anastasio--10 years; Mr. Battafarano--6 years; Mr. Chapman--1 year;
Ms. Force--9 years; Mr. Barr--13 years; and Mr. Reed--11 years.

Employment and Other Agreements

In July 1998, the Company entered into employment agreements with its
officers, including the Named Executive Officers. These agreements have a one
year term but are extended automatically unless the Company notifies the Named
Executive Officer. Upon such notification, the employment agreements will
terminate in one year. The employment agreements provide a base salary and the
ability of the Named Executive Officer to be eligible for bonuses and to
participate in the Company's incentive and other employee benefit plans. The
base salaries for 1998 for the Named Executive Officers under the employment
agreements were as follows: Mr. Lunsford--$550,000; Mr. Anastasio--$180,000;
Mr. Battafarano--$180,000; Mr. Chapman--$260,000; Ms. Force--$167,000; Mr.
Barr--$330,000; and Mr. Reed--$330,000. The Named Executive Officers may
receive increases in their base salaries as approved by the Board of
Directors. Under certain circumstances, the employment agreements also provide
for severance payments if the executive is terminated.

If employment is terminated by reason of death or disability, the Named
Executive Officer is entitled to a prorated portion of his or her target
bonus. If the Named Executive Officer is terminated for cause, no additional
payments are made under the employment agreements.

If the executive's employment is terminated for good reason (as defined in
the employment agreements) or for other than cause (collectively, an
"Involuntary Termination"), certain levels of severance payments are provided
under the employment agreements. Upon an Involuntary Termination, Mr.
Lunsford's agreement provides for a cash payment equal to the prorated portion
of his target bonus and performance share award in the year of termination and
three times his base salary, target bonus and target performance share award
in the year of termination. In addition, Mr. Lunsford would be entitled to
coverage under the Company's employee benefit plans for three years and three
years of additional vesting of restricted stock awards and stock options and
an additional three years in which to exercise the options. Mr. Lunsford's
agreement also requires the Company to provide substantially similar office
space and an administrative assistant for three years.

Upon the Involuntary Termination of Mr. Chapman, Ms. Force, Mr. Barr or Mr.
Reed (collectively, the "Executive Group"), their agreements provide for a
cash payment equal to the prorated portion of their target bonus and
performance share award in the year of termination and one and one-half times
their base salary, target bonus and target performance share award in the year
of termination. In addition, they would be entitled to coverage under the
Company's employee benefit plans for 18 months and 18 months of additional
vesting of restricted stock awards and stock options and an additional 18
months in which to exercise such options.

The employment agreements for Mr. Lunsford and the Executive Group also
provide for a restructuring of their Tax Loans (as defined) and Preferred
Stock Loans (as defined) if such executive is subject to an Involuntary
Termination. See "Certain Relationships and Related Transactions" for a
description of the Tax Loans and Preferred Stock Loans. Payment of the
principal and interest on the Tax Loans would be deferred until the fifth
anniversary of the date of termination. The Preferred Stock Loans would be
amended to provide that (i) payments on the loans would be deferred until the
fifth anniversary of the date of termination, (ii) interest payments would be
forgiven if the average closing price of the Common Stock for the 90 days
prior to any interest payment date is less than $8.00 and (iii) during the
five-day period following the expiration of the fifth anniversary of the date
of termination, the executive would have the right to put the Preferred Stock
underlying the loan to the Company at par.

Upon an Involuntary Termination of Mr. Anastasio or Mr. Battafarano, their
employment agreements provide for a cash payment equal to the prorated portion
of their target bonus and performance share award in the year of termination
and one times their base salary, target bonus and target performance share
award in the

22
<PAGE>

year of termination. In addition, they would be entitled to coverage under the
Company's employee benefit plans for one year and one year of additional
vesting of restricted stock awards and stock options and an additional one
year in which to exercise such options. Their agreements also provide for a
restructuring of their Preferred Stock Loans to provide that (i) payments on
the loans would be deferred until the fifth anniversary of the date of
termination, (ii) interest payments would be forgiven if the average closing
price of the Common Stock for the 90 days prior to any interest payment date
is less than $8.00 and (iii) during the five-day period following the
expiration of the fifth anniversary of the date of termination, they would
have the right to put the Preferred Stock underlying the loan to the Company
at par.

On May 1, 1998, the Company entered into Change in Control Severance
Agreements with certain of its key employees, including the Named Executive
Officers. These agreements provide for the payment of severance benefits under
certain circumstances. These benefits become payable at any time within two
years of a Change in Control of the Company if: (i) the Company terminates the
employee without cause; (ii) the employee terminates employment, with the
Company for good reason (as defined in the agreement), or within either of two
30-day periods commencing 30 days after the Change in Control and one year
after the Change in Control, respectively. The benefits to be afforded the
Company's Named Executive Officers include: (i) a cash payment equal to three
times base salary, target bonus and performance share award target as of the
termination of employment; (ii) continuation of health, life and disability
insurance coverage for three years; (iii) full vesting under the Company's
retirement savings plan; and (iv) an additional payment for any excise taxes
the Named Executive Officer may incur as a result of the Change in Control.
These agreements are substantially similar to the Change in Control agreements
held by the Named Executive Officers as employees of the Company's predecessor
prior to the Reorganization Transactions.

Severance Agreements

The Company entered into a Severance Agreement and Release of Claims with W.
Earl Reed, III, former Chief Financial Officer and Executive Vice President of
the Company, effective September 30, 1998. Pursuant to the severance
agreement, the Company paid Mr. Reed a one-time lump sum payment of $861,250
and issued to him 45,097 shares of Common Stock. In addition, the Company
agreed to continue his coverage under the Company's employee benefit plans for
18 months and agreed to 18 months of additional vesting of stock options and
an additional 18 months in which to exercise such options. Mr. Reed's Tax Loan
was restructured to provide that the payment of the principal and interest on
the Tax Loan will be deferred until the fifth anniversary of his date of
termination. The severance agreement also amended his Preferred Stock Loan to
provide that (i) the Preferred Stock Loan will not be due and payable until
April 30, 2008, (ii) payments on the Preferred Stock Loan will be deferred
until the fifth anniversary of his date of termination, (iii) interest
payments will be forgiven if the average closing price of the Common Stock for
the 90 days prior to any interest payment date is less than $8.00 and (iv)
during the five-day period following the expiration of the fifth anniversary
of his date of termination, Mr. Reed will have the right to put the Preferred
Stock underlying the Preferred Stock Loan to the Company at par. Under his
severance agreement, Mr. Reed provided the Company with a full release of any
claims against the Company. In addition, Mr. Reed agreed not to solicit
employees of the Company for a period of 12 months.

The Company entered into a Severance Agreement and Release of Claims with
Michael R. Barr, former Chief Operating Officer and Executive Vice President
of the Company, effective October 31, 1998. Pursuant to the severance
agreement, the Company paid Mr. Barr a one-time lump sum payment of $888,000
and issued him 48,566 shares of Common Stock. In addition, the Company agreed
to continue his coverage under the Company's employee benefit plans for 18
months and agreed to 18 months of additional vesting of stock options and an
additional 18 months in which to exercise such options. Mr. Barr's Tax Loan
was restructured to provide that the payment of the principal and interest on
the Tax Loan will be deferred until the fifth anniversary of his date of
termination. The severance agreement also amended his Preferred Stock Loan to
provide that (i) the Preferred Stock Loan will not be due and payable until
April 30, 2008, (ii) payments on the Preferred Stock Loan will be deferred
until the fifth anniversary of his date of termination, (iii) interest
payments will be forgiven if the

23
<PAGE>

average closing price of the Common Stock for the 90 days prior to any
interest payment date is less than $8.00 and (iv) during the five-day period
following the expiration of the fifth anniversary of his date of termination,
Mr. Barr will have the right to put the Preferred Stock underlying the
Preferred Stock Loan to the Company at par. In addition, Mr. Barr agreed to
provide consulting services to the Company for a period of one year at the
Company's request. Mr. Barr will be paid $150 per hour for any services
requested by the Company. No consulting fees were paid to Mr. Barr in 1998. In
the event of a Change in Control of the Company before October 31, 1999, Mr.
Barr also would be entitled to an additional payment of $300,000. Mr. Barr
agreed to a limited non-compete and non-solicitation restriction in favor of
the Company for a period of one year. In addition, Mr. Barr provided the
Company with a full release of claims against the Company.

The Company entered into a Severance Agreement and Release of Claims with W.
Bruce Lunsford, former Chairman of the Board and Chief Executive Officer of
the Company effective January 22, 1999. Pursuant to the severance agreement,
the Company paid Mr. Lunsford a lump sum payment of $825,000. In addition, the
Company agreed to continue his coverage under the Company's employee benefit
plans for 36 months and agreed to 36 months of additional vesting of stock
options and an additional 36 months, beginning on November 9, 1999, in which
to exercise such options. Mr. Lunsford's Preferred Stock Loan was amended to
provide that (i) the Preferred Stock Loan will not be due and payable until
April 30, 2008, (ii) payments on the Preferred Stock Loan will be deferred
until the fifth anniversary of his date of termination, (iii) interest
payments will be forgiven if the average closing price of the Common Stock for
the 90 days prior to any interest payment date is less than $8.00 and (iv)
during the five-day period following the expiration of the fifth anniversary
of his date of termination, Mr. Lunsford will have the right to put the
Preferred Stock underlying the Preferred Stock Loan to the Company at par. In
addition, the Company agreed to provided Mr. Lunsford with comparable office
space and an administrative assistant for a three year period. The Company
also agreed to provide Mr. Lunsford with certain legal and tax advice. In the
event of a Change in Control of the Company before February 1, 2001, Mr.
Lunsford also would be entitled to an additional payment of $500,000. Under
his severance agreement, Mr. Lunsford provided the Company with a full release
of claims against the Company.

24
<PAGE>

PERFORMANCE GRAPH

The following graph summarizes the cumulative total return to holders of the
Company's Common Stock from May 1, 1998 to December 31, 1998, compared to the
cumulative total return on the Standard & Poor's 500 Stock Index and the
Standard & Poor's Health Care Index (Long-Term). The Company's Common Stock
began trading on the New York Stock Exchange on May 1, 1998.

[PERFORMANCE GRAPH APPEARS HERE]

<TABLE>
<CAPTION>
May 1, 1998 December 31, 1998
----------- -----------------
<S> <C> <C>
Vencor, Inc....................................... $100 $ 40
S&P 500 Index..................................... $100 $112
S&P Health Care (Long-Term)....................... $100 $ 47
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

From May 1, 1998 to December 31, 1998, the following persons served on the
Executive Compensation Committee of the Board: R. Gene Smith, Chairman,
Ulysses L. Bridgeman, Jr. and Elaine L. Chao. None of the persons who served
on the Executive Compensation Committee were employees of the Company. Mr.
Smith resigned from the Company's Board of Directors effective March 8, 1999.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the Reorganization Transactions, the Company agreed to
loan certain officers an amount sufficient to cover estimated personal income
taxes payable by them as a result of the Distribution (the "Tax Loans"). Each
Tax Loan is evidenced by a promissory note which has a term of ten years and
bears interest at 5.77% per annum. Principal on the tax loans is scheduled to
be repaid in ten equal annual installments beginning on June 15, 1999.
Interest is payable quarterly, however, any interest payment on the Tax Loan
is forgiven if the officer remains employed in his or her position with the
Company on the date on which such interest payment is due. Moreover, in the
event of a Change in Control of the Company, the entire balance of the Tax
Loan will be forgiven. The Tax Loans were based on estimated tax payments
required to be made by the officer as a result of the Distribution.

25
<PAGE>

The following executive officers received Tax Loans in the amounts
indicated: Mr. Chapman, Senior Vice President and Chief Information Officer,
- -- $15,800; Ms. Force, Senior Vice President, General Counsel and Secretary,
- -- $60,100; Mr. Gillenwater, Senior Vice President, Planning and Development,
- -- $9,500; Mr. Barr, former Chief Operating Officer and Executive Vice
President, -- $1,025,000; and Mr. Reed, former Chief Financial Officer and
Executive Vice President, -- $623,500. As of March 1, 1999, these loans were
outstanding except for the loan to Mr. Chapman which has been repaid in full.
The terms of the Tax Loans with Mr. Barr and Mr. Reed were amended in
connection with their severance. See "Severance Agreements."

In connection with the Reorganization Transactions, the Company issued
17,700 shares of its 6% Series A Non-Voting Convertible Preferred Stock to
Ventas as part of the consideration for the assets transferred from Ventas to
the Company. On April 30, 1998, Ventas offered and sold the Preferred Stock at
$1,000 per share to certain officers of the Company for an aggregate
consideration of $17.7 million. The following executive officers purchased the
number of shares of Preferred Stock indicated: Mr. Lunsford--4,543 shares; Mr.
Anastasio--400 shares; Mr. Battafarano--330 shares; Mr. Chapman--360 shares;
Ms. Force--540 shares; Mr. Gillenwater--510 shares; Mr. Lechleiter--350
shares; Mr. Barr--1,440 shares; and Mr. Reed--1,100 shares. On or after April
30, 2002, each share of the Preferred Stock will be convertible, at the option
of the holder, in whole or in part, into such number of shares of the Common
Stock as is equal to the aggregate principal amount of the shares of Preferred
Stock being converted divided by the conversion price. The conversion price is
$12.50 which is equal to 118% of the average of the high and low sales price
of the Common Stock on the Distribution Date.

In connection with the purchases of the Preferred Stock, the Company loaned
certain officers, including the Named Executive Officers, 90% of the purchase
price of the Preferred Stock (the "Preferred Stock Loans"). Each Preferred
Stock Loan is evidenced by a promissory note which has a ten year term and
bears interest at 5.74%, payable annually. No principal payments are due under
the promissory notes until their maturity. The promissory notes are secured by
a first priority security interest in the Preferred Stock purchased by each
such officer. The following executive officers were loaned the indicated
amounts: Mr. Lunsford, former Chairman of the Board and Chief Executive
Officer,--$4,088,700; Mr. Anastasio, President, Ancillary Services Division,--
$360,000; Mr. Battafarano, President, Hospital Division,--$297,000; Mr.
Chapman, Senior Vice President and Chief Information Officer,--$324,000; Ms.
Force, Senior Vice President, General Counsel and Secretary,--$486,000; Mr.
Gillenwater, Senior Vice President, Planning and Development,--$459,000; Mr.
Lechleiter, Vice President, Finance, Corporate Controller and Treasurer,--
$315,000; Mr. Barr, former Chief Operating Officer and Executive Vice
President,--$1,296,000; and Mr. Reed, former Chief Financial Officer and
Executive Vice President,--$990,000. As of March 1, 1999, these loans remain
outstanding. The terms of the Preferred Stock Loans with Mr. Lunsford, Mr.
Barr and Mr. Reed were amended in connection with their severance. See
"Severance Agreements."

During 1998, the Company paid approximately $291,000 for legal services
rendered by the law firm of Wyatt, Tarrant & Combs. The spouse of Jill L.
Force, Senior Vice President, General Counsel and Secretary of the Company, is
a partner of that firm. These fees represented less than three percent of the
legal fees paid by the Company in 1998. It is expected that Wyatt, Tarrant &
Combs will provide legal services to the Company in 1999.

COMPENSATION OF DIRECTORS

During 1998, non-employee directors of the Company received $2,000 for each
board meeting attended and $1,000 for each committee meeting attended. In
addition, non-employee directors received a $2,500 retainer for each calendar
quarter that they served as a director.

Pursuant to the Company's Non-Employee Directors Deferred Compensation Plan
(the "Deferred Compensation Plan"), a non-employee director could defer in
stock or cash the receipt of fees which would otherwise be paid to the
director for services on the Board and its committees. Directors who choose to
defer fees could elect to have the deferred amounts invested 100% in shares of
the Company's Common Stock (a

26
<PAGE>

"Share Election") or to accumulate and earn interest (a "Cash Election"). If
the Share Election was made, the director's deferral account was credited with
110% of the compensation otherwise payable to the director. As of the end of
each calendar quarter, such deferred amounts were converted into share
equivalents of Common Stock based on the fair market value of Common Stock on
that date. If a Cash Election was made, the deferred amounts earn interest at
a floating rate of interest, compounded annually. The Company has discontinued
contributions to the Deferred Compensation Plan but directors are permitted to
continue to defer amounts that previously have been invested in the Deferred
Compensation Plan.

Prior to the Distribution, the Company adopted its Stock Option Plan for
Non-Employee Directors (the "Directors Plan"). In connection with the
Distribution on May 1, 1998, each non-employee member of the Board received a
one-time grant of 2,000 restricted shares of Common Stock and an option to
purchase 5,000 shares of Common Stock. The restrictions on all shares of
restricted stock lapse in four equal annual installments, beginning on the
first anniversary of their grant date. Each option has an exercise price equal
to the closing price of the Common Stock on the Distribution Date. These
options are exercisable in four annual installments beginning on the first
anniversary of their grant date. Under the Directors Plan, the Company also
will issue, on January 1 of each year during the term of the Directors Plan,
an option to purchase 3,000 shares of Common Stock to each non-employee
director. These options will have an exercise price equal to the fair market
value of the Common Stock on the date the option is granted.

On January 1, 1998, the Company's predecessor issued options with respect to
an aggregate of 15,000 shares to the five non-employee directors who were non-
employee directors of the Company's predecessor on January 1, 1998. These
options were issued from the stock option plan for non-employee directors
maintained by the Company's predecessor. In connection with the Reorganization
Transactions, Existing Options held by non-employee directors were treated in
the same manner as options held by employees of the Company. Accordingly, the
Company assumed the obligation to issue new Company Options to non-employee
directors in connection with the Reorganization Transactions. See footnote 4
of the "Options Grants in Last Fiscal Year" table.

In connection with his appointment to the Board of Directors in July 1998,
the Company issued to Mr. Gault an option to purchase 50,000 shares of Common
Stock with an exercise price equal to the fair market value of the Common
Stock on the date the option was granted. This option becomes exercisable in
two equal installments, beginning on the first anniversary of the date of
grant. In addition, the Company issued on August 25, 1998 to each non-employee
director, other than Mr. Gault, an option to purchase 10,000 shares of Common
Stock with an exercise price equal to the fair market value of the Common
Stock on the date the options were granted. These options become exercisable
in four annual installments, beginning on the first anniversary of the date of
grant.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than 10% of the
Common Stock to file initial stock ownership reports and reports of changes in
ownership with the Securities and Exchange Commission and the New York Stock
Exchange. Based on a review of these reports and on written representations
from the reporting persons that no other reports were required, the Company
believes that applicable Section 16(a) reporting requirements were complied
with for all transactions which occurred in 1998.

27
<PAGE>

INDEPENDENT AUDITORS

The firm of Ernst & Young LLP, Louisville, Kentucky, has been retained by
the Company as independent auditors to audit the financial statements of the
Company. Representatives of Ernst & Young LLP will be present at the Annual
Meeting and will be afforded the opportunity to make a statement if they
desire to do so and to respond to appropriate questions.

STOCKHOLDER PROPOSALS

Any stockholder proposal intended to be presented at the next Annual Meeting
of Stockholders must be received by the Company by December 22, 1999 in order
to be considered for inclusion in the Company's proxy materials for such
meeting.

In connection with the 2000 annual meeting of stockholders of the Company,
if the proponent of a stockholder proposal fails to notify the Company of such
proposal, in conformity with the requirements of the Company's bylaws, before
60, but no earlier than 90 days before such meeting, then management proxies
will be allowed to use their discretionary voting authority on the proposal if
raised at the annual meeting even if there is no discussion of the proposal in
the proxy statement.

OTHER MATTERS

The only matters to be considered at the Annual Meeting or any adjournment
thereof, so far as known to the Board of Directors, are those set forth in the
Notice of Meeting and routine matters incident to the conduct of the Annual
Meeting. However, if any other matters should properly come before the Annual
Meeting or any adjournment thereof, it is the intention of the persons named
in the accompanying form of proxy, or their substitutes, to vote the proxy in
accordance with their judgment in such matters.

By Order of the Board of Directors,

/s/ Edward L. Kuntz

Edward L. Kuntz
Chairman of the Board, Chief
Executive Officer and President

Louisville, Kentucky
April 15, 1999

28
<PAGE>

VENCOR, INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MAY 12, 1999

The undersigned hereby appoints Richard A. Schweinhart and Jill L. Force,
and each of them, his or her attorneys and agents, with full power of
substitution to vote as Proxy for the undersigned, as herein stated, at the
Annual Meeting of Stockholders of Vencor, Inc. to be held at the Seelbach
Hotel, 500 South Fourth Avenue, Louisville, Kentucky, on Wednesday, May 12,
1999, at 9:00 a.m. (EDT), and at any adjournments thereof, according to the
number of votes the undersigned would be entitled to vote if personally
present on the proposals set forth below and in accordance with their
discretion on any other matters that may properly come before the meeting or
any adjournments thereof.

The Board of Directors recommends a vote FOR the following proposal:

ELECTION OF DIRECTORS

FOR [_] the election of Ulysses L. Bridgeman, Jr. and William H. Lomicka
to serve as Class I Directors for a term of three years, or WITHHOLD AUTHORITY
[_] to vote for all nominees in such election.

INSTRUCTION: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name above.
<PAGE>

THE SHARES COVERED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE PROXY WILL BE VOTED IN FAVOR OF THE FOREGOING
PROPOSAL.

PLEASE FILL IN, DATE, SIGN AND
RETURN THIS PROXY IN THE
ACCOMPANYING ENVELOPE.

Dated: ________________, 1999

-------------------------------------
Signature

-------------------------------------
Signature (if held jointly)

Signatures of stockholders should
correspond exactly with the names
shown on the proxy card. Attorneys,
trustees, executors, administrators,
guardians and others signing in a
representative capacity should
designate their full titles.